by Stephen Lacey
March 06, 2017

Stephen Lacey: This is The Interchange from Greentech Media. I'm Stephen Lacey, Greentech Media's editor-in-chief, alongside our Senior Vice President, Shayle Kann. Hey Shayle.

Shayle Kann: Hey, Stephen.

Stephen Lacey: We have a pretty newsy interview this week. I'd like to think that we're always creating news around here, but this one is particularly noteworthy. You got on the line with Michael Picker, who is the president of the California Public Utilities Commission. What did you guys talk about?

Shayle Kann: Commissioner Picker is about to open up a conversation that could be really important for the future of electricity in California. Potentially, if it goes really well, it could be important for the future of electricity in the entire country.

Basically in short, he's planning to introduce a series of meetings that could lead to a proposal to open up some version of competitive retail choice for electricity in California.

Brief history lesson here. We used to have fully regulated, fully vertically integrated utilities in the U.S. We went through a wave of deregulation that was proceeding though the '90s into 2000, 2001 that involved both deregulation of generation, meaning generation assets didn't have to be owned just by utilities. But also a deregulation of retail. In other words, allowing some customers to select retail electricity suppliers who were not their incumbent utility.

That basically came to a screeching halt in 2001 with the Enron scandal. Since then we haven't really seen retail electricity choice introduced in pretty much any new state. We have 14 states now, depending on how you define it, that have some version of retail choice. California is not among them.

Commissioner Picker is looking at what's happening in California anyway. All these ways that we've talked about many times on this podcast, in which customers of various stripes, be they residential, commercial, or communities are selecting how to manage or how to procure their own electricity anyway. He's saying, "These things are happening regardless. Maybe we should take a more deliberate approach to it."

Stephen Lacey: This was a super-interesting conversation -- but I have to tell listeners that it was pretty theoretical, right? This is basically him testing the waters in saying that he's going to start a process to hear from stakeholders, to then create a proposal. But it's a pretty big deal.

Shayle Kann: Yes. The way I would frame it is that I think he's raising a question, not answering a question.

Stephen Lacey: And raising the question publicly for the first time.

Shayle Kann: Right. Yes. Especially with California's history with Enron and the way the retail choice was frozen in 2001, even raising the question, I think, is going to be viewed as a pretty big deal. I do think that he's going about it in a smart, deliberate manner. He's not pre-ordaining the solution. His intent is to hold what's called an "en banc," which is basically a workshop that [includes] the California Public Utilities Commission, the California Energy Commission, the California ISO. Basically all the stakeholders in the market getting together to start to say, what's happening already? Then does it make sense for us to put this all under one strategic umbrella, and what would that even look like?

Stephen Lacey: Let's get into the conversation. I was there as well, and I got a few questions in. Before we do get to that, I want to remind people that next week, Shayle and Commissioner Picker are going to be taking the stage in San Francisco at the California Distributed Energy Future Summit. We're going to be talking about everything from this legislation getting 100 percent renewables in California, to the many regulatory tracks underway at the CPUC, to Commissioner Picker's thoughts on the future of retail choice. There is a hell of a lot going on in California, and we're going to get to as much of it as possible.

Shayle Kann: Yes. It's a somewhat terrifying pace of forward-thinking regulation going on in the state of California right now. I'm excited to start to break some of it down.

Stephen Lacey: We begin the interview with Commissioner Picker describing what he sees as the current state of affairs in California, which is increasingly complicated.

Michael Picker: As part of all these changes, the electric system is becoming increasingly variable both on power and demand -- they're no longer static. The whole system is becoming very dynamic, enabling customers to become much more active and take charge of their energy use and the ways in which they meet their energy needs. They're acting. We saw an effort to institute retail choice from the top down in the period between 1995 and 2001.

Here, we're starting to see retail choice come into being simply because of technology and the commodity on renewable electricity allowing it to take place. It's being hollowed out by innovation and technology rather than by policy regulation.

Shayle Kann: You have all these different groups or individual customers who are in some ways doing retail choice without it having been enabled in the first place, but then you're making this jump from all these things that are happening anyway to, now we should consider a broader retail choice initiative. To frame why that's a big deal in the context of electricity regulation history, I think retail choice, especially for residential customers, has been viewed as having very mixed results, historically. It's not like it's an unabashed success where it has been implemented. So how is this different in your mind?

Michael Picker: I think that what it does is it gives people enormous flexibility across a range of choices. I think that since we see this happening, the question is, are there advantages to people to open it up to even further choice in more third parties selling different kinds of convergent products? The example that I can see sometime soon is somebody who gives you a lease to an electric vehicle, somebody who has control of 10,000 to 15,000 electric vehicles. Access to a charging infrastructure that includes some place that may be adjacent to or close by your worksite so that you can charge when we have excess renewables. And a tariff, they provide a bulk tariff to all of their customers that gives them really cheap rates when we have those excess renewables at the belly of the duck curve.

But then when the prices really go up during the neck of the duck curve, or actually can implement true vehicle-to-grid. That takes some of the risk out of it for the homeowners or the vehicle users, because they don't have to invest in a technology that's going to advance fairly quickly over the course of their tenure with the vehicle. The auto manufacturers don't have to worry about voiding the warranty because the battery is going to be going through more cycles on a daily basis. That's a risk the leasor picks up. The leasor has a large market for second-life for a lot of batteries as they start to age out, because they're being used for charge and discharge into the grid. And the utilities get a fairly coherent and manageable and dependable demand response vehicle.

So I think that there're opportunities out there that are going to emerge one way or another, and the question is, how do we get out of the way to make it easier for them to come into being?

Shayle Kann: And that example that you gave -- I just want clarification. A lot of that stuff, the electric vehicle example, could be done today. The component of that, and correct me if I'm wrong, the component of that that you couldn't do today, you can't do without retail choice, is offering that tariff to customers, right?

Michael Picker: Or offering a package that takes the risk out of it for a variety of different people. I think it's the convergence, in some cases, that will make sense to people.

So another example of things that we are seeing, opportunities we are struggling to actually be able to expand, is the hybrid building that Advanced Microgrid Services is offering, where they actually have a large retail mall developer who has bought 200 megawatt-hours of batteries and they use that to arbitrage rates for themselves. This is all behind the meter; they own the batteries. Again, we have time-of-use for commercial and industrial in California already. So they buy lots of electricity and store it when it's cheap in the mornings, and then in the hot afternoons, when their customers are looking to be cool in the malls, they'll actually use it to power up their chillers. Then on 12 days, the critical peak days in the utility service area, they're actually selling the use of their battery storage as a grid service back to the utilities.

What is that? Is it generation? Is it storage? Is it a behind-the-meter application that benefits the consumer? Or is it something that's a grid asset? They're stacking the values, and they're serving everybody's needs, and they're actually helping to solve some of our integration and reliability problems.

So these are the kinds of things that are happening, that would expand -- they're already possible. I think it's the struggle to think about the role of the electric utilities differently. If they don't own generation, we can easily make them indifferent to these things, and they can serve as the platforms that people have envisioned in New York to allow a lot of these different technologies to start to expand and to be used in new and innovative ways.

Stephen Lacey: So why can't they do that already with the system that's already in place in California? Why do you fundamentally need to open up choice further if this stuff is already happening?

Michael Picker: I think that it's just the pace and the range of opportunities the people will test that's inhibited by the fact that much of it has to go through our regulatory processes to allow the utilities to actually enable, or to procure, or to participate. I'll give you the example. When San Onofre dropped out of the grid, we scrambled to figure out how to provide reliability and to avoid voltage collapse in the soft part of the transmission system that could occur once we lost that big source of generation.

We dealt with the immediate issues, but the mid-term question came -- what do you replace it with? And Commissioner Florio, my former colleague here, had a brilliant insight, and he said, "Go get what you need, but 50% of it has to come from no-carbon resources." So as a result, the utility became very quickly indifferent to the many, many ways in which we constrain their ability to procure, and just took all of these offers that people started to turn up. It was the moment that we became post-renewables.

We started to see both ways that technology was expanding the effectiveness of the commodity renewables that utilities were purchasing. We saw ways that people were integrating that we would not have ever allowed at the PUC if Commissioner Florio hadn't just opened the doors and said to the utilities, "Go out and get what you can that's out there. Let's see what there is."

Shayle Kann: So you're looking at considering going down the road that introduces more retail choice in California beyond what's already happening organically. I'm sure one of the things that you're cautious about as you look down that road is trying to avoid some of the pitfalls that we've seen in other states that have implemented retail choice with mixed results. I think, generally speaking, it's been viewed as pretty positive for larger customers, for commercial customers in other states, about half of whom have actually switched their load over to competitive suppliers, often at a lower cost. But for residential, you see this small adoption -- less than 10% of load has switched.

More importantly, I think there's a perception that there's a fairly rampant, questionable consumer practices in some of the retail choice states. I live in Massachusetts, for example. There will be people knocking on our door, sending out fliers claiming to be from National Grid who are not really from National Grid, and they'll be offering a three-month cheap fixed-price electricity contract followed by a variable rate that goes really high. I think that's a common story in some of these retail choice markets.

So how are you thinking about doing some version of retail choice in a way that avoids the pitfalls that you see in other states?

Michael Picker: Well again, one is that we see something like 40% of residential and small commercial load already departing from the utilities and, in some respects, setting their own rates. What I think we're just recognizing is that much of this is going to happen regardless. So the real question then becomes how do we actually deal with consumer protection? What are the ways in which we have to deal with reliability in a very high renewable penetration environment? What do we do for those many, many people who just don't really want to think about how they meet their energy needs and just want to have one dominant player that they feel is solid and will just meet their needs?

I think those are all valid questions. I think the subset of that is what did we learn in 2000, 2001 that we've seen embedded in the independent system operator out here that has successfully protected us against market gaming and their wholesale markets? What would be relevant there as well as what we need to see in terms of protecting consumers against predatory activities by some providers?

So all those things, I think, are going to get a lot of discussion here in California before any final decisions are made. It really is just an admission that things are moving in this direction, and we can either shape it or we can get caught short after the fact.

Stephen Lacey: For those who may not follow the regulatory process closely, what exactly needs to happen to start this conversation in California?

Michael Picker: Well, we'll do a workshop later this spring where we actually just bring together some of the parties and get an assessment from the community choice aggregator movement. How quickly do they think they're likely to grow? We'll hear from other providers who will talk a little bit about what they think are the opportunities. We'll hear from consumer advocates about what their concerns are. We'll bring in people from other states to learn what's worked and hasn't worked for them. We'll probably spend a lot of time trying to think about how we continue to make sure that we advance on our greenhouse gas goals if there are many different providers and there's some need for them to also provide for reliability in terms of service.

So those are all tough questions. I don't expect the answers to come to mind immediately, nor do I expect it to be easy to find that point of consensus that'll allow us to move forward. All I know is that as technology continues to open up new opportunities, people are embracing it. As they do that, we've seen some increasing success in terms of actually dealing with the variability in integrating renewable resources. We see the opportunity to expand these new technologies in ways that help us to shift the clean electricity into market shares currently held by the natural gas and petroleum industries.

Shayle Kann: Do you expect that the investor-owned utilities in California will go along happily on this path? I know you can make them indifferent to this, but they are already undergoing a whole bunch of changes with the various distributed energy resource proceedings in California, plus the RPS. Do you have a sense from them that they're eager to have this conversation, or do you think that they'll be dragged kicking and screaming along the road?

Michael Picker: I think that they are eager to have somebody share with them their thoughts about what their business model will look like in this increasing consumer-load departing universe that they find themselves in. I think that they may have very specific thoughts about how this worked out, and I'm not sure that everybody else will agree with that, but I think that they see the same things that I'm seeing, and I think they know something has to happen.

Stephen Lacey: Are there any particular markets that you think have implemented retail choice that you think is worth, perhaps, applying to California?

Michael Picker: To be honest with you, I look at the way the technology shifts have actually reshaped portions of the energy-use patterns in other parts of the country, rather than thinking that specific business models are necessarily going to work here. [...] So, for example, the widespread shift away from diesel, oil and coal in the Northeast as a source of energy for heating water and shift to electricity, particularly hydro. [...] That also becomes a demand tool, a dispatchable demand tool, both a demand and a demand reduction tool.

I think that those kinds of things tell us that there are pieces out there, and that utilities will probably survive it. Frankly, they may choose that they will want to compete in some of these new opportunities. We already have the example of Southern California Edison, for example, which owns a rooftop solar company that competes in Northern California. That means that aside from the efforts to protect people against market-gaming and the bulk markets, and protecting consumers against predatory sales tactics, we will also then have to figure out how we move into the role of protecting against the utilities using their market power to have advantage of other competitors.

Those are all things that are out there that probably will get on the table as we talk about these things.

Stephen Lacey: I had all these questions set up about licensing requirements and what happens to community choice aggregators, and what kind of consumer protection pieces you're going to put in place. Whether this is an opt-in system or a mandate. We could maybe go through some of those, but what you've basically said in this interview is that all of that stuff is going to be put on the table; nothing has been decided yet. This is a proposal, and now it's up to every stakeholder to come together to try to figure out how this actually looks.

Michael Picker: I wouldn't even say it's a proposal at this point. I would say it's just a recognition that it's time to start thinking about what we're going to do if trends continue.

Stephen Lacey: How does it then become a proposal? If it does.

Michael Picker: Well, the first thing we'll do is workshops. Then we'll see from this where there's consensus about what makes sense. We'll try to test to see where people think that there's consumer interest. It's very hard for the PUC to understand some of the opportunities and to understand how that fits different types of consumers' needs. We tend to deal with technologies that are fairly advanced. We tend to deal with very large institutions. Sometimes our processes make it very hard for new technologies and innovators to actually participate with us.

That's one of the things we learned from the More Than Smart process, is that a lot of people don't want to participate full-on as parties in our proceedings, but they are willing to share what they know and what they've learned through working groups and can then frame things that we can bring into our proceedings to build a record to make a decision. So we may go through some iterations of this to figure out, where are the consumers? Where are the products? What are the things that we should enable or avoid getting in the way of? What are the things we need to do to make this a viable proposition both for consumers and for business, and for utilities that are still going to provide those core monopoly services of running the wires and distribution systems.

Shayle Kann: You have a lot going on in California as it stands. The California Distributed Energy Resource working plan document that you put out a few months ago is a good indicator of how much is happening there just as it pertains to DERs, let alone all the other renewable stuff. If it goes further, would it exist in parallel? Would it get incorporated into all these other DER proceedings? Do you feel like they're complementary to each other?

Michael Picker: Good question. I think if I could say I had anything that I would like to see out of it right at this point, [it would be] a similar kind of a road map to examine trends and stresses on the existing business models and the existing regulatory models. To figure out how we begin to make a wise and thoughtful choice towards whatever that future is going to be. What we need to look at to really be able to solve the different issues that people identify. So maybe what we'll end up with towards the end of this year is just a roadmap to actually help guide consideration and discussion.

Stephen Lacey: That was our conversation with Commissioner Michael Picker who is the president of the California Public Utilities Commission. Remember that Shayle is going to be sitting down with Commissioner Picker on stage at California's Distributed Energy Future event next week. That is going to be a stacked event with a bunch of [venture capitalists] and policymakers, regulators and all the third-party solar and distributed energy providers that we've been talking about on this interview. So make sure to go check that out on Greentechmedia.com/events. Thanks for listening to The Interchange. With Shayle Kann, I'm Stephen Lacey and we'll catch you next week.