California Comes Full Circle with Direct Access

California Direct Access is Back!

In an Order March 11, 2010, the California Public Utilities Commission came full circle permitting commercial and industrial customers representing between 10-12 percent of the state’s electricity market to again buy power for their own needs from a supplier other than their local utility.[1]

One of the consequences of the California Energy Crisis in 2001 was the suspension of direct access which permitted California utility customers to shop elsewhere to meet their energy needs.  But the Legislature restored direct access for non-residential customers on a staged basis last year.  The CPUC order is intended to comply with the provisions of Senate Bill (SB) 695 (Stats. 2009, ch. 337) requiring the Commission to allow staged increases in the maximum kilowatt-hour limit for direct access starting April 11, 2010 over the next four years.  This was designed to restore direct access for roughly the same volume of energy purchased before the suspension was imposed.  Residential customers are still required to get their electric energy from their local utility.  The CPUC order only affects the investor owned utilities subject to its jurisdiction and does not apply to public power.

Who benefits?

Large commercial and industrial customers benefit if they can line up contracts for electric power at prices that are less than the rates charged by the three investor owned utilities.  In the current weak economic climate there are plenty of independent power producers likely willing to do deals that put their unused capacity back to work.

Utilities may benefit if direct access customers relieve pressure on the utility to add additional capacity or energy. Utilities in California have seen rates de-coupled so that they no longer are dependent on growth in kWh sales to improve earnings.

The State benefits because California has been bleeding jobs as business moves to lower cost states.  This direct access measure may enable some industrial customers to lower their overall energy costs and it makes California a more attractive market for wholesale power producers.

Things to Watch

  1. California already imports about 20% of its energy from out of state and this direct access phase in over the next four years will make California customers more attractive to those out of state producers. If the economy recovers and demand goes up we could see pressure to lift the cap on the amount of direct access energy available.
  2. California investor owned utility rates are going up—maybe way up because of the compounding costs of meeting the renewable portfolio standards now targeted at 33% and to implement the AB32 Global Warming Solutions Act emissions reduction requirements.  The higher rates go the more pressure will build to expand the direct access cap for C&I customers.
  3. The C&I customers seeking direct access want lower costs and steady costs so it is likely that they will buy natural gas-fired generation from reliable producers willing or able to help them hedge their costs.  This does not mean C&I customers will turn their backs on renewable energy but it likely means that once their feel they have satisfied their “social responsibility” they will go for the cheapest energy they can get.  To some extent direct access from a safety value for C&I customers that enables them to mitigate and maybe escape some of the rising utility rates caused by California’s renewables and emissions reduction policies.
  4. Will direct access encourage a return of energy trading?  Probably not in the ‘get shorty’ sense that resulted in the Enron debacle, but the more direct access volume is permitted the more attractive those customers will be to the banks who picked up the trading book after Enron’s collapse.

The return of direct access even on this staged basis is good for the wholesale power markets across the WECC.  It will not solve any of the big problems the market face such as transmission access.  But it does complete the circle and close the sad chapter of the California energy crisis.


[1] http://docs.cpuc.ca.gov/PUBLISHED/AGENDA_DECISION/114734.htm#P69_1692

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