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How Greater Choice Could Lower Californians’ Energy Bills

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From dining out to buying a car, consumers have the power to choose options that best fit their budget, lifestyle and goals. In California, businesses and homeowners have the power of choice over their natural gas supplier. Making a choice about your electricity supply, by contrast, is more limited because of additional regulatory hurdles. How do California’s energy policies affect your electricity options, and how could greater choice improve your bottom line? Here’s a quick overview. 

California’s Limited Electricity Choices 

Following the California energy crisis of 2000-2001, the state imposed additional regulations on the energy market. One component of this policy is the Direct Access program. Under Direct Access, a limited number of nonresidential customers can purchase electricity from a competitive supplier rather than from a regulated utility. While California consumers are free to choose a their natural gas supplier, only some consumers can choose their electricity supplier. Such limitations on energy choice often lead to higher energy bills and more red tape.

Demand for Choice

Many Californians want the power to purchase electricity from a competitive supplier, but few can. Beginning in 2013, California utilities transitioned from a first-come, first-served system for the Direct Access program to a lottery-style system. Customers who want to participate submit six-month notices to their utility during a certain period during the year, and they are placed on a lottery list. 

But winning the lottery isn’t easy: In 2017, 1,694 customers submitted valid, six-month notices to their utility during the submission period. Just 69 customers - or about four percent of those who submitted notices - were allowed to switch their electricity suppliers via the lottery that year. Sixty-four gigawatt hours were made available under the Direct Access load cap for the lottery, while more than 600 associated annual gigawatt hours of customer loads remained on the previous year’s lottery waiting list. The demand for more competitive energy options far exceeded supply in 2016 as well, with only 44 out of 1,473 (less than three percent) of customer requests for Direct Access being granted. 

Despite the demand for greater electricity choice, no new load capacity for the Direct Access program has been granted since 2013. 

Why Energy Choice Matters

When consumers have a range of purchasing options, the marketplace becomes more competitive in terms of cost, quality and convenience. In states where the electricity market has long been deregulated - including New York and Texas - research suggests that deregulation can yield cost savings for businesses. By switching from default electricity rates offered by utilities - which are often higher than actual market rates because of legislative or regulatory requirements - to a competitive retail energy supplier, you may be able to significantly lower your energy costs.

Greater choice over energy options can yield an economic windfall for states. Researchers at the University of Pennsylvania, for example, estimate that competition in the electricity marketplace translates into nearly $820 million in annual economic benefits to the Pennsylvania economy. 

Currently, California business owners pay a premium for electricity. The average commercial price of electricity was about 16 cents per kilowatt-hour, according to the U.S. Energy Information Administration’s latest research brief in the fall of 2018. That’s far above the average commercial price of 10.6 cents per kwh, and it’s the seventh-highest commercial price among all states. 

In addition to potential cost savings and more flexible pricing options, a more competitive energy marketplace can provide a cascade of benefits to consumers. These include more engaged and responsive customer service, greater access to innovative technology that helps you monitor and reduce energy usage, and more renewable energy options. 

The Power of Energy Choice—and Your Voice

If you wish to express your recommendations on California’s energy market, you can contact the California Energy Commission. You can also stay informed about legislation that could impact the state’s energy market - including SB 100, SB 700, SB 237 - and contact your local representatives to make your voice heard. 

Posted: March 20, 2019