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How California’s Camp Fire Will Impact Energy Buyers

Media coverage of the devastating Camp Fire near Paradise, Calif. has been constant over the last three weeks, and rightly focused on the loss of life and property.

However, as the timeline extends and big-picture details emerge, experts and officials are starting to look at possible causes of the blaze. Downed power lines, the domain of Pacific Gas and Electric Co. (PG&E), are on a short list of potential flash points,  which has led to dire predictions of the utility’s future if the genesis of the wildfire is traced back to its equipment.

A recent San Francisco Chronicle headline addressed the speculation: “Can PG&E Survive the Camp Fire?” And it's a question that has raised many others for companies with operations and energy needs in Northern California. Here are answers to the queries we've received from clients.

Q. “I’ve read that PG&E could go bankrupt. What would that mean for my company’s facilities in California that rely on the utility for power?”

A. If that happens, there's speculation PG&E would restructure into multiple entities to reconsolidate finances while also keeping the lights on. However, recent legislation and statements from the California Public Utilities Commission (CPUC) indicate that the state is unlikely to let that scenario play out. Regulators would prefer to alter rules to allow PG&E to recover the liability costs. In this scenario, PG&E customers could see rate increases on their monthly bills, as PG&E would likely charge customers more for service to pay off their liabilities.

Q. “If PG&E is left financially strapped, will critical upgrades to the grid be postponed or cancelled altogether?”

A. It is not likely that critical upgrades to the grid would be postponed for various reasons. PG&E will likely be allowed to charge ratepayers more per month to cover any liability costs incurred while continuing to deliver power. PG&E has ambitious plans to upgrade the grid to accommodate more renewables, energy storage and residential solar photovoltaic (PV) systems. With the state's newly-adopted 100-percent-clean-energy mandate signed in September 2018, it is very unlikely any needed upgrades will be delayed.

Q. “Structurally speaking, is the integrity of California’s grid system in any danger? Could areas unaffected by the fires ultimately lose power?”

A. California’s grid is robust and not in critical danger, especially since the state legislature passed new measures to prevent trees and shrubbery from taking power lines down.

However, additional rules have been adopted that allow PG&E to shut electricity off in areas depending on the risk of power lines starting a wildfire. While controversial, these measures are intended to prevent fires entirely and PG&E could decide to temporarily cut power to areas outside of the fires.

Q. “Are there ways to transition to other utilities or suppliers? Is it cost-feasible?”

A. There is limited ability to avoid utility rates in the state. Some customers served by PG&E, San Diego Gas & Electric and Southern California Edison are eligible for Direct Access (DA) rights through the original DA program established in the early 2000s. Those customers can get their electricity supply from various market-based suppliers and products, but still receive their power from the utilities.

There is no way to eliminate the utility “wire” charges. Customers not currently in the DA program have a chance to enter it during the annual lottery in June. The lottery system allows load that has moved out of the DA program (usually through site closure, etc.) to be allocated to waiting customers enrolled in the lottery queue through a random number drawing process.

There is also a new law that should allow roughly 4 gigawatt-hours of load to participate in DA next year, but the rules and methodology haven’t been established. Stakeholders are meeting to develop that process, which could be rolled out as early as January 2019.

Q. “With extreme weather and natural disasters more common, are there onsite options we should consider that give us more control over our own electricity?”

A. PV systems are growing throughout California, and that growth is expected to continue as cost of operation and payback periods decrease. Plus, CPUC rules and utility rates strongly incentivize the deployment of PV. If these systems are large enough, they can greatly — if not entirely — offset power taken from the utility.

Additionally, some customers maintain alternative types of onsite generation and use energy storage to accommodate PV systems for a more complete and independent site. These options carry significant capital cost implications, but can greatly reduce a site’s reliance on the power grid. And in the event of a widespread outage, these systems can disconnect from the grid and generate electricity for critical operations. 

Insights from:  Jeremy Warner, Regional Market Manager, and Alex Pierce, Energy Market Analyst, for Schneider Electric Energy & Sustainability Services