Current state of the California energy market

by Dennis Quinn, President, JouleSmart


A few weeks ago, I wrote about the state of the energy industry, focusing on a couple trends of particular interest to small and medium businesses: the rise of renewable energy and the proliferation of smart meters. If you’re a California business owner or manager, these trends hopefully sounded familiar since California has been at the forefront of these and other utility industry changes.

The rapid changes impacting California’s energy industry are largely attributable, directly or indirectly, to climate change. Going back to the Schwarzenegger administration in 2006, California recognized climate change as a threat to its economy and environment and enacted aggressive policies to reduce the state’s greenhouse gas (GHG) emissions. Assembly Bill 32, the Global Warming Solutions Act, required California to reduce its GHG emissions to 1990 levels by 2020 (a goal the state appears on track to achieving) and set a goal of 80 percent reductions below 1990 levels by 2050. A number of other policies have been adopted since then to add specificity and raise the bar. Most recently, Senate Bill 100 committed California to obtaining 100 percent of its electricity from zero-carbon sources by 2045 and Executive Order B-55-18 set a state goal of a carbon-neutral economy by 2045. The Air Resources Board leads implementation of climate change policies and offers a number of resources for small businesses.

The rise of Community Choice Energy programs

Despite these aggressive state policies, local governments are pushing for even faster change. Most notably, local governments are forming Community Choice Energy (CCE) programs to accelerate the development of renewable electricity generation sources. CalCCA lists 20 CCE programs serving more than 3.8 million customers, with more programs in the works.

So how do CCEs affect your business? First, it’s important to understand what CCEs do and don’t do. CCEs enable local governments in communities served by investor-owned electric utilities (i.e, PG&E, SCE, or SDG&E) to purchase and/or develop power projects on behalf of their residents, businesses, and municipal accounts. But CCEs are not municipal utilities. They do not manage power transmission and distribution—that function remains with the utilities. If you’re business is located in a CCE community, you will be enrolled in the CCE program by default unless you opt out. You will continue to receive a bill from your utility but it will show power generation charges from the CCE rather than the utility. The CCEs have generally been able to offer power generation rates at or below the utility rates so you should see some modest savings on your bill.

So in the short term, CCEs should pose minimal impacts on your business, unless you’re a Direct Access customer (but that’s a whole separate blog topic). The longer-term implications are less clear. There is concern in some quarters that CCEs and utilities may be double procuring electricity to serve their customer loads. Double procurement, if it occurs on any kind of large scale, would almost certainly increase the cost of electricity supply. Then there’s the question of whether the utilities will even remain in the retail electricity sales business. SDG&E has already signaled its interest in getting out of retail sales if San Diego local governments step in with a CCE. Will the other utilities follow?

Wildfires and the PG&E bankruptcy

While CCEs pose a clear challenge to the utility monopoly business model, it is by no means the only threat. PG&E’s wildfire-related woes illustrate another: the vulnerability of their transmission and distribution infrastructure to ever-more extreme climate events. Legal exposure to damages stemming from the catastrophic Camp Fire have pushed PG&E into Chapter 11 bankruptcy. How this impacts you as a ratepayer remains to be seen. In the short term, PG&E still has an obligation to serve and its investments in energy efficiency and related public benefits programs will remain unaffected. Over the longer term, ratepayers may be asked to pick up all or part of the tab for damages and the company may undergo some radical restructuring. While PG&E’s safety record is drawing particular scrutiny at the moment, all of California’s utilities have infrastructure in harm’s way. And, as Vox points out, wildfire is just one of the climate-induced risks the utility industry faces.

The duck curve

If you’re an energy policy geek, you’ve probably heard chatter about the duck curve (aka, the “armadillo curve” in Texas or “Nessie curve” in Hawaii). Or not. Simply put, the duck curve refers to a situation in which plentiful renewable power supply generates a surplus during the day but remains unable to serve evening and night-time loads. It’s illustrated with graphs like this one, which plot the requirements for fossil-fuel generation over the course of the day.

During California’s over-generation periods, renewable power gets curtailed, sent to ground, or given away to Arizona. The evening ramp-up period is particularly stressful to the grid because so much generation must come on-line so quickly.

But it’s important to recognize that these events are still limited. They occur in spring and fall when renewable power becomes plentiful but cool weather limits air conditioning loads. During the summer peak, the curve is very different, with ample room to add more renewable generation:


As more renewable power comes on line and duck curve issues become more widespread, your business may encounter some new opportunities and challenges. You can expect to see revised utility tariffs that charge higher prices for peak power and offer deeper discounts for off-peak power. If you have flexibility to schedule loads, you may come out ahead. As battery prices drop, it may make financial sense to invest in energy storage to avoid peak demand charges. And you can expect to see more demand response programs.

Investments in Distributed Energy Resources (DERs)

One of the more positive outcomes from this brave new utility world is an increased focus on investments on the customer side of the meter as an alternative to expensive infrastructure upgrades on the utility side. Known in utility-speak as Distributed Energy Resources (DERs), investments in customer energy efficiency, load management, energy storage, and renewable generation are expected to play prominent roles in relieving substation capacity bottlenecks and replacing lost power generation.

PG&E’s Oakland Clean Energy Initiative offers an instructive case study. Much of West and Downtown Oakland has relied for years on a 40-year old jet-fuel power plant near Jack London Square to provide local grid reliability services. The plant is slated to go off-line by 2022, which will let West Oakland residents breathe a literal sigh of relief. Rather than replace the plant with new transmission lines through town, PG&E has opted for a portfolio of clean energy investments, including grid-scale renewable generation and storage and customer energy efficiency upgrades. Similar investments are under consideration for other capacity-constrained substations around the state.

Implications for your business

Once again, the bad news is that California’s energy markets are going to get more complex and more confusing. California’s energy prices are relatively high compared to the rest of the country and there are regulatory and economic pressures on the horizon that could push those prices higher.

The good news is that energy services companies like JouleSmart are stepping up to help you manage that complexity so you can focus on your core business and control your costs.

JouleSmart is investing heavily in California to help companies transform their underperforming buildings into intelligent, productive, efficient, and comfortable facilities. JouleSmart upgrades your building with intelligent and connected equipment, which can include some or all of the following: occupancy and temperature sensors, real-time power meters, smart thermostats, intelligent HVAC (heating, ventilation and air conditioning) controls and monitoring, intelligent lighting systems, cellular gateways, wireless networks, and a building management system with Integrated Intelligence Gateway. JouleSmart’s ActiveOversight ™ provides 24/7 monitoring to maintain a high-performance building.

The benefits of the intelligent building include improvements to the bottom line, employee productivity, customer comfort and a reduced carbon footprint. Along the way, JouleSmart squeezes your utility bills and positions you to fully participate in utility demand response programs. Best of all, JouleSmart covers the upfront costs and recovers those costs through the shared savings. There are no capital expenditures and no risk on your part. Now is a great time to explore how your business can benefit from transformations in the power market.