California is poised for a swift transformation of its electricity landscape -- and that could bring tumult if preparations aren't made soon to maintain quality and avoid reliability problems like rolling blackouts, the state's leading energy regulator is warning.

After decades of dominance by investor-owned utilities, electricity markets in the state are becoming more competitive. Ratepayers today have a growing number of choices for powering their lights, laptops and electric cars -- from installing rooftop solar panels and consumer-scale batteries to joining increasingly popular government-run electricity programs known as community choice aggregation, or CCA.

Currently, investor-owned utilities such as San Diego Gas & Electric, Southern California Edison and Pacific Gas & Electric together buy and sell more than 75 percent of the state's electricity. Their collective share could plunge to 10 percent within the next five years, with CCA programs causing most of the change, according to the state's most aggressive forecast. More conservative estimates still show major shifts away from the utilities.

"Innovation is actually starting this process of hollowing out the investor-owned utilities," Michael Picker, president of the California Public Utilities Commission, said during a public meeting last month. "The confluence of these disruptive business models ... (is) to some extent dramatic."

SDG&E, SCE and PG&E agree that the state's electricity markets are undergoing adjustments, but declined to weigh in on specific forecasts.

"As California's energy landscape continues to rapidly change, all market participants must take immediate steps to help keep energy affordable and (environmentally) clean for all customers," said Ari Vanrenen, spokeswoman for Pacific Gas & Electric.

In recent years, traditional utilities, CCA backers and others advocating an end to electricity generated from coal or natural gas have been locked in an expanding struggle for customers. Generally speaking, the state's push for ever-greater use of solar, wind, geothermal and other renewable energy sources is upending the electricity market.

Traditional utility companies have met -- or exceeded, in the case of SDG&E -- the Legislature's minimum thresholds for boosting green energy in their portfolios.

Environmentalists and other backers of CCA programs want a quicker and more emphatic pursuit of what they see as the end goal: Using 100 percent renewable power and eventually producing much, if not all, of that zero-emissions energy within each geographic market's territory. That would mean, for instance, having a community install solar arrays on virtually every rooftop and harness wave energy from the nearby coastline.

For decade after decade, the typical system has involved a utility purchasing electricity generated farther away and then transmitting it across long, large power lines into customers' homes and businesses.

Under the CCA model, a utility continues to operate and maintain the poles and wires needed to deliver energy, but elected officials for a city, county or consortium of municipal governments control the buying and selling of that power for their jurisdiction. With no shareholders and an emphasis on fighting climate change, community choice programs in California have been investing their revenues in renewable-energy projects in or around their service territory.

Since the state's first CCA was launched in Marin County in 2010, community choice has grown to account for 5 percent of the electricity bought and sold in California. By 2020, the utilities commission said the state should be prepared for CCA to control 67 percent of the total electric load if the agency's forecasting proves correct.

There are eight community choice programs in the state, such as Redwood Coast Energy Authority, CleanPowerSF and Lancaster Choice Energy. That number is expected to roughly double by the end of next year, with San Jose and Los Angeles County gearing up to create what would be the state's two largest CCAs.

In San Diego County, 15 of the region's 18 cities are in various stages of looking at community choice, with Solana Beach being the furthest along. The city of San Diego could decide by early next year on whether to proceed toward a CCA, while the county of San Diego has put off the idea for now.

Under the utilities commission's most dramatic predictions, investor-owned utilities would make up just 10 percent of the market by 2020. Rooftop solar would comprise 10 percent, up from 6 percent today. The remaining 13 percent would be direct-access sales, an arrangement where nonresidential customers buy directly from a specific power generator instead of from a traditional utility.

Commission officials said the shift away from utility companies could play out more slowly. Still, they urged lawmakers and regulators to prepare for a transformation, especially to ensure that CCAs and other new entities are properly regulated so they don't fall short when demand for electricity spikes.

"The transition could be messy," said Edward Randolph, energy division director for the commission. "The point is to make sure that we have enough electricity under contract during a peak day in the summertime, so you don't have rolling blackouts or the wholesale price of electricity goes higher and gets passed on to ratepayers."

Regulators said they have begun such measures, but stressed that revising the oversight process could take years and might require legislative action to expand the commission's authority over CCAs.

When the idea of community choice emerged in California, the state's three largest utilities used their dollars to oppose it. After bitter battle between Marin County and Pacific Gas & Electric over creation of the state's inaugural CCA, the Legislature decided in 2011 to bar investor-owned utilities from using ratepayer money to speak out on community choice.

Those companies must apply with the utilities commission to create a separate lobbying division that's funded entirely by shareholders. In the case of SDG&E, the commission last year permitted establishment of a lobbying arm -- Sempra Services Corporation -- that's housed under the utility's parent company.

Last week, Frank Urtasun of Sempra Services Corp. said consideration of CCA programs should be postponed until regulators give more clarity on some key issues.

"Two of the most critical elements of a feasibility analysis are the costs and benefits. Unfortunately, there is tremendous uncertainty about both of these components right now," he said.

California's major utilities largely make profits from building infrastructure like transmission lines, while energy procurement and sales are largely pass-through costs. When a CCA is formed, a utility company continues to issue bills to that program's customers -- but breaks out transmission expenses collected by the utility versus generation charges paid to the CCA.

SDG&E, SCE and PG&E have said CCAs wouldn't dramatically impact their bottom line as long as they're made whole for long-term energy contracts they have signed on behalf of customers who later chose a community choice program.

The state charges CCA customers a fee to address this concern.

Both the utility companies and CCA leaders have criticized the formula for determining this fee, which is called the Power Charge Indifference Adjustment, or PICA.

Community choice groups said the process of determining the PICA amount isn't transparent because free-market rules restrict them from understanding the pricing data that utilities submit to state regulators.

Utilities said they're not receiving full compensation for expensive, long-term purchases of green power that they've made to fulfill the state's renewable-energy requirements. The cost of solar power has come down significantly in recent years, benefiting community choice programs that have sprung up during this pricing drop.

"Revamping (the commission's) policies to deal with this emerging situation is going to be a huge job," said Dan Farber, co-director of the Center for Law, Energy and the Environment at UC Berkeley. "Because some customers will still need or desire the utilities for power, and everyone will be using their distribution systems, it has to be managed in a way that's fair to them. ..."

A revision of the PICA formula is expected within the next 18 months. Over time, regulators said, the issue could become much less of a concern as the utilities' long-term contracts expire.

Twitter: @jemersmith

Phone: (619) 293-2234

Email: joshua.smith@sduniontribune.com

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