As CCA transforms California's energy system, the state's top regulator mistakes the solution for the problem

San Francisco Chronicle, May 27, 2018

Bureaucrats cannot distinguish between their own power and the public's: yet they are totally different in fact and law. In the case of Community Choice Aggregation (CCA), public power over energy has been shifted, by the law of the  legislature and ordinances of California's local governments, from one creature of the state - the CPUC - to another: municipalities.

The CPUC's recently published "Green Book," while threatening that CCA could cause another energy crisis like the one in 2000-1, appears to forget that the CPUC itself caused the last one. Moreover, the CPUC's dysfunctional, co-dependent relationship with the utilities continues to cause many of the problems its President now blames on California communities that are now getting out from under the CPUC's control.

Instead, President Michael Picker repeats the fictional mantra that "shortages" were primarily to blame for California's energy crisis, when it was conclusively proven that these shortages were illusory. 

But Picker says CCAs will cause more shortages.  The CPUC forgets that what caused the last energy crisis was CPUC-tolerated market manipulation, starting with the state's investor-owned utilities,  PG&E, Edison and SDG&E, using their market power to block competitors from accessing the retail market in spite of legally mandated competition, and keeping all their customers captive under utility "default service," which forced competitors to sell power through manipulation-prone centralized spot markets. It was a failure to create retail competition that forced all selling through centralized utility channels and created the conditions for fake "shortages" and blackouts that were later blamed on the likes of Enron.

CCA has now created real retail competition.  President Picker was not professionally involved in energy during the energy crisis, so maybe he just doesn't remember that utility obstruction of competitive supply was primarily to blame. His new CPUC Green book is thus full of revisionism about the energy crisis, and appears oblivious to the continuing role of his own agency acting as handmaiden to the utilities, and causing the very crises he blames on CCAs.

For example, the CPUC report asserts over and over again that the utilities are the "Providers of Last Resort" in law, implying that they need to be guaranteed revenues in order to act as traditional monopolies, when the energy crisis proved this designation a myth in fact: that when the proverbial shit hit the fan during the crisis, the utilities unloaded this role on the state of California, under duress of blackouts. It was, and remains a fact of life that the State of California is the Provider of Last Resort, not the utilities, which are but wires companies. In 2000, California's investor-owned utilities abrogated their legal obligation to serve customers - breaking the legal foundation of the "Regulatory Compact" underlying their monopolies - reflected in the fact that the State (CA Dept. of Water Resources) lost $57B when it took over that responsibility to buy power, and ratepayers were ultimately forced to underwrite this loss.

CPUC's "Green Book" is boldly revisionist, also falsely claiming that the state "re-regulated" after the energy crisis and made the utilities into monopolies again in 2001. This is directly contradicted by the fact that the legislature and governor approved the CCA law (AB117) in 2002 as an answer to the crisis. In fact, the utilities have fielded several bills to re-establish monopoly regulation since 2002, all of which failed to pass the legislature. The CPUC's revisionism under Picker is a blatant and dangerous falsehood, and a betrayal of California ratepayers, who were after all required by the legislature and CPUC to pay PG&E, Edison and SDG&E $28.5B in utility bill surcharge ("Competition Transition Charge") payments in addition to the DWR contract surcharges, in return for giving up their monopolies, and with which these former monopolies formed unregulated holding companies and purchased unregulated utility assets all around the U.S., China and South America. Again, this is in addition to not only the $57B lost by California taxpayers in DWR contracts and the subsequent CPUC-approved bankruptcy bailouts (about $12B for PG&E) that were also born by ratepayers.

As the "Competition Transition Surcharge" bailout funds collected from ratepayers according to California's deregulation law AB1890 were after all received by the utilities, and obviously were never returned to ratepayers, the utilities cannot claim to be legal monopolies, cannot claim the right to be treated as such by the CPUC: ratepayers paid for the right to choice, specifically Community Choice, and are guaranteed this right specifically by the CCA law, AB117. The CPUC has neither the right to steal this back for the utilities through a bogus history lesson, nor the power to do so.

Moreover, while the CPUC "Green Book" admits that virtually the entire state is departing CPUC-regulated utility service to CCAs, it neglects to mention that they do so in part because of the discredit and disgrace under which the CPUC now operates, following multiple ethics violations and widespread evidence of continuing corruption, from illegal backchannel communications to cost-shifting, affiliate transactions, self-dealing, and gold-plated renewable energy contracts that the utilities signed and now wave before CCAs as if it were their problem. Since the CCA law was passed, the utilities have in fact used over-procurement of power to deliberately create new stranded costs that effectively erect new economic barriers to CCAs - a fact that we anticipated and attempted to head off at the CPUC's CCA rules proceeding over a decade ago.

The CPUC paper indicates that the state needs CCAs to fulfill their self-declared mission of building local renewables, behind-meter customer-owned solar, and expanding energy efficiency, and I agree with these statements - but they must be achieved by eliminating CPUC and utility barriers, not by backtracking or erecting novel protection rackets for would-be energy monopolies.

The CPUC paper fails to mention that CCAs have achieved record high renewable energy levels at rates below the utilities, and have revolutionary energy localization goals in their mission statements and charters. That being said, in their launch phases, CCAs have indeed depended too much on Renewable Energy Credits (RECs) for their renewable content, and need to focus on rebuilding their programs to use renewable energy and energy efficiency finance in the private sector to change the utility business model, create local power and eliminate the need for the mega-facilities and associated transmission lines that the utilities have always preferred.   

But again, the CPUC has a significant role in delaying the ability of CCAs to implement energy efficiency and finance renewables. It took eight years for the state's first CCA to receive an investment-grade credit rating from Moody's in large part because of perceived risk created by fierce and well-funded utility subversion of CCAs that has been largely tolerated by CPUC. Moreover, while the state's CCA law AB117 allows CCAs to administer substantial funds that their ratepayers pay every month for energy efficiency programs, the CPUC's obsolete program evaluation criteria have effectively blocked CCAs from innovating by forcing them to imitate utility programs, driving most of state's CCAs away for over a decade.

The CPUC should examine its own role in discouraging innovations by CCAs rather than flirt with an illegal and dangerous dream of re-establishing its discredited empire. It should abandon command and control and adapt its practices to allow local municipal innovation: the core mission of virtually all of California's CCAs.

It is critical that regulators and legislators recognize that CCA legitimately includes not merely a transfer of customers from monopoly service to competitive supply, but also a transfer from CPUC planning to regional planning. Picker complains that there is "No Plan," as if his own inability to plan CCA meant that no plans exist. This remark reflects a fundamental bureaucratic blind spot; there is central planning and regional planning - the former by one subdivision of the state of California (CPUC) and the latter by another (municipalities). AB117 enshrined a legislative decision and created a state-local process to make this transition, in which municipalities must comply with state requirements, but are as California subdivisions not regulated by the CPUC.  The CPUC doesn't because the legislature and people of California opted out of that system and into another. It is the CPUC's responsibility to use the limited powers it has under law to provide municipalities with appropriate guidance and support as they usher in a regional, more democratic, and greener energy system for the Golden State.