A Radical, Enron-Era Measure Revived as Fires Burn Power Giants

(Bloomberg) -- Two decades ago, in the midst of an energy crisis and rampant power market manipulation, California took the radical step of buying electricity for millions of residents.

Now, with the state's biggest utility in bankruptcy, it's considering doing that again.

Lawmakers are weighing a bill that would allow a government agency to sign contracts with power generators, a role traditionally played by utilities. The idea, backed by Governor Gavin Newsom, is to ensure the state can meet its clean energy goals and avoid blackouts as utilities struggle to adjust to a changing landscape.

The push underscores the challenges facing California's grid as liabilities from wildfires suspected of being sparked by power lines have pushed utility giant PG&E Corp. into Chapter 11 and hobbled the credit ratings of others. It could also become a model for other states to establish safety nets as customers turn away from big utilities and get power from rooftop panels, smaller cooperatives or directly from wind and solar farms.

"If we wait until there's a crisis to set something like this up, it's too late,” said Matthew Freedman, an attorney for the Utility Reform Network, a consumer group backing the bill.

It won't be easy. Buying and selling electricity is risky. California could expose itself to losses if the market turns. While other states have entities that buy power -- including New York and Illinois -- California has a litany of regulations and mandates that could make it far more difficult.

Still, two of California's largest utilities are open to the idea. Sempra Energy's San Diego Gas & Electric said it would support the bill with a few changes. PG&E said it's open to the concept. They don't profit off buying power for customers, because they aren't allowed to mark up the price.

But Edison International's Southern California Edison opposes the measure, saying it will raise costs. Meanwhile, the state's association of small municipal power providers, called community choice aggregators, see it as an overreach.

The groups, whose membership has swelled in recent years, are better positioned to develop clean energy than a state agency, said Geof Syphers, vice president of the California Community Choice Association. As drafted, he said, the bill would give the state power "to buy an unlimited amount of energy, even energy we can't use." The groups would, however, support a more limited role for the state if power was purchased only if needed to keep the lights on.

California's Newsom Bolsters PG&E With Call for Quick Fire Fix

The initial push for the bill came in response to large utilities hemorrhaging customers to community choice aggregators. By some estimates, traditional power companies could lose more than half of their sales over the next few years.

That has state officials worried there won't be players large enough to ensure there's enough power statewide. Those concerns have only worsened after the wildfires and as California pushes to derive all its electricity from carbon-free sources by 2045.

“My fear is that unless we put some protections in place, or come up with a consistent model, then we could drift back into the same problems we saw in 2000 and 2001," California Public Utilities Commission President Michael Picker recently told state lawmakers, referring to rolling blackouts.

What BloombergNEF Says

“By 2020 many CCAs will likely fail to meet their own renewable energy goals and California's legal requirements. They must act quickly or pay penalties to the state. This is an opportunity for project developers, as CCAs are quickly becoming one of the most important sources of renewables demand in California.”
--Helen Kou, energy analyst
Click here to read the research.

For its part, the California Community Choice Association said aggregators have already met their 2020 targets, citing California Energy Commission data, and are on track to meet state renewable energy requirements beyond 2020. They've collectively signed long-term contracts for more than 2,000 megawatts from new renewable energy resources in the state as of November 2018 and more will be announced this year, the group said.

The California power crisis of 2000-2001 that Picker alluded to began when the state partially deregulated its market and required utilities to buy from wholesale providers. When supplies were tight and bad actors such as Enron Corp. took advantage, prices soared. Utilities at the time were limited to how much of the costs they could pass onto consumers and lost hundreds of millions of dollars. Blackouts ensued. PG&E went bankrupt. The state stepped in to buy power to keep the lights on.

Once the crisis passed, California went back to relying on utilities to buy power. Now officials are rethinking that strategy.

The pending bill, introduced by Democratic assemblyman Eduardo Garcia, would allow regulators to empower a state agency to buy electricity to meet clean energy and reliability goals. The state wouldn't take over the entire job of buying power but rather fill in gaps. State regulators would review and approve contracts.

"It's somewhat of a backstop,” Garcia said.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Joe Ryan

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