At its March 14, 2019 voting meeting, the California Public Utilities Commission (“CPUC”) voted out an Order Instituting Rulemaking (“OIR”) to Implement Senate Bill 237 (“SB 237”) Regarding Direct Access and to Consider Changes to Existing Direct Access Procedures.  The Rulemaking will address the expansion of Direct Access, as required by SB 237.

Direct Access permits customers of a California investor-owned utility (“IOU”) (e.g., Pacific Gas and Electric, San Diego Gas and Electric, Southern California Edison) to obtain their electricity from an electric service provider registered with the CPUC.  The IOU continues to provide transmission and distribution service to the customer.  Direct access was instituted in 1998 as part of California’s efforts to deregulate the electric sector.

As part of California’s efforts to recover from the energy crisis in 2000-2001, the California legislature passed Assembly Bill 1X (“AB1X”), which authorized the Department of Water Resources (“DWR”) to begin procuring electricity on behalf of IOU customers, and required the CPUC to allow DWR to recover the costs of such procurement from IOU ratepayers.  AB1X also authorized the CPUC to suspend Direct Access, motivated by a concern that IOU ratepayers would flee to Direct Access to avoid paying the cost of DWR procurement.

The CPUC suspended direct access as of September 20, 2001, barring any new contracts for Direct Access service, while permitting current Direct Access customers to remain on Direct Access.  Over the years, the CPUC refined the rules governing when customers could select Direct Access service, but the number of customers that are permitted to select Direct Access service has remained capped.  Senate Bill 695, passed in 2009, authorized the CPUC to allow additional Direct Access service, up to a total kilowatt hour annual limit.

Last year, the California Legislature passed Senate Bill 237, which requires the CPUC, on or before June 1, 2019, to issue an order which increases the annual Direct Access limit by a total of 4,000 gigawatt hours, apportioned among IOU service territories.  SB 237 also requires the Commission, on or before June 1, 2020, to provide recommendations to the legislature about a schedule for reopening Direct Access for all remaining nonresidential customer accounts.

The rapid increase in community choice aggregators (“CCA”), and the growth of distributed energy resources, has already led to a huge increase in the percentage of California load that receives electricity from sources or entities other than the IOUs.  Projections are that 40% of PG&E’s load will obtain electricity from other sources by the end of this year.  Given that trend, a cap on Direct Access will not prevent the continued migration of load to suppliers other than the IOUs, and the original justification for suspending direct access, in order to prevent customers from leaving IOU service to avoid paying DWR costs, no longer exists.

The load migration trends may lead to IOUs becoming “wires only” utilities, providing only transmission and distribution service, and getting out of the electricity procurement business entirely.  That option has been raised with increasing frequency recently, including by IOUs, as well as in connection with the potential restructuring of PG&E as a result of its recent bankruptcy filing.

The increasing number of load serving entities in California, however, has also raised concerns about reliability.  Each load serving entity is required to procure a certain amount of capacity to meet resource adequacy requirements.   Ensuring that load serving entities procure the required amount of resource adequacy capacity becomes more complicated as procurement becomes more fragmented as a result of the rapid increase in the number of load serving entities.  The CPUC is also currently struggling with that issue in its resource adequacy proceeding.

The Direct Access OIR proposes a preliminary schedule that would include an opportunity to comment on the OIR due fifteen days from the issuance of the OIR, reply comments due five days from the comment due date, and a prehearing conference on April 4, 201,9, with a workshop to follow on April 9.  The OIR projects that a decision will be voted out at the CPUC’s May 30, 2019 voting meeting.