Oregon regulators are grappling with how to modernize the state’s customer-choice electricity program to accommodate a rapidly changing energy landscape that’s being reshaped by decarbonization policies across the West.

The Oregon Public Utility Commission last year opened an investigation (UM 2024) into the state’s 20-year-old long-term direct-access programs, which give large energy consumers the ability to obtain electricity service outside the regulated cost-of-service regime. The commission is now seeking how to shape the inquiry.

The state legislature authorized the PUC to implement direct access as part of a raft of provisions in SB 978, a 1998 law intended to equip the commission with authority to implement programs that could address investor-owned utility greenhouse gas emissions, encourage the development of a regional electricity market and create retail choice options for nonresidential customers.

Oregon’s two main IOUs, Portland General Electric (PGE) and PacifiCorp, function as gatekeepers for the programs, providing larger consumers with a yearly process for applying to opt out of regulated service in order to enroll in either a utility-run, market-based program, or contract with a third-party direct-access electricity service supplier (ESS). Similar to the process in other Western states, opting in to direct access carries certain “transition” costs for customers that ensure utilities reduce their exposure to stranded costs for providing regulated service, including meeting resource adequacy requirements. Those costs ultimately fall to the larger pool of cost-of-service customers.

Evolutionary Need

UM 2024 comes in response to a June 2019 petition from the Alliance of Western Energy Consumers (AWEC), whose membership represents companies with 160 facilities (that employ 170,000 workers) comprising both direct-access and cost-of-service customers, according to the organization.

In seeking the investigation, AWEC’s petition cited “significant disputes” over the programs in recent years, including those related to whether the state should further expand or restrict the programs and whether the programs have benefited or harmed cost-of-service customers. AWEC also noted that PGE’s direct-access program — what it called the only one “that has successfully contributed to the development of a competitive market in Oregon” — is nearing its 300-MW cap, making it soon unavailable for customers.

“My goal, when I think about this docket, is to sort of see how and where this customer-choice option needs to adapt to the current and likely future of the system — the policy, the regulation, the markets and technology that are all evolving alongside a customer-choice program that we set and have tinkered around the edges with but not fundamentally grappled with for two decades,” Commissioner Letha Tawney said during a Thursday workshop on the issue.

The PUC is proposing that its line of investigation address four sets of questions:

• Does the direct-access law currently raise concerns about unwarranted cost-shifting “or other relevant harms to the public interest?” Would expansion of the programs in size and reach create additional “concerns related to unwarranted cost-shifting or other relevant harms to the public interest?”
• Can program design mitigate unwarranted cost-shifting or other relevant harms? “What mechanisms should be used; how should such mechanisms be structured; and what are the legal or practical barriers to implementing them?”
• “With such mechanisms in place, are unwarranted cost-shifting or other relevant harms to the public interest mitigated to the degree that the commission should expand access to direct-access programs?”
• What evidence has been presented or could be presented in the docket (or a future one) to show that existence of cost-shifting and whether it would occur under an expansion of the program, and whether mitigation would be effective at preventing cost-shifting?

“I think our task here is in no small measure updating direct access and this particular kind of customer choice to where the world is today and the realities that are unfolding before us. … We talk a lot about existing cost-shifting, but I worry about the future,” Tawney said.

From Cost-shifting to Risk-shifting

In comments filed ahead of the workshop, PGE asked the commission to consider the future potential for future “risk-shifting” in addition to historical concerns around cost-shifting.

Elaborating in the workshop, PGE Director of Strategy Nidhi Thakar offered an example of risk-shifting: the fact that IOUs must serve as “de facto” energy providers of last resort in cases when an ESS fails financially, foisting its customers back on the utilities.

“We just want to call out again that we really see a distinction between the terms ‘cost-shifting’ and ‘risk-shifting,’” Thakar said during the workshop. “There are … going to be risks that are quantifiable. We really do believe that there are risks that are going to be harder to quantify, which to the extent that they can be quantified, those numbers could continually be changing.

“The markets are constantly evolving and changing at a rapid pace in the West, and I think it’s important that there is some breathing room from the regulatory standpoint to readjust what some of these pricing mechanisms may look like that may potentially come out of this discussion.”

Etta Lockey, PacifiCorp vice president of regulation, seconded PGE’s take: “We don’t want to get hung up on not being able to take action now because a particular risk can’t be fully quantifiable or there’s not full evidence of an unintended consequence that is likely to happen in the future.”

Speaking for the Northwest & Intermountain Power Producers Coalition, which represents ESSes, attorney Carl Fink rebuffed the notion that the PUC’s proceeding should examine potential future risks for the IOUs.

“I don’t really believe that’s within the scope of what we can be doing here, nor do I think it’s appropriate to really be looking at some of the opportunity costs that may or may not occur to the extent that utilities lose market share,” Fink said.

PUC Chair Megan Decker clarified her own thoughts about how to address potential opportunity costs for IOUs that could lose market share while still needing to maintain resource adequacy in their service territories.

“When I’m talking about that opportunity cost around meeting a flexible load in the grid, I’m very open to how that load comes to the table and participates. I think there’s a need, and I have an interest in how the ESSes might participate in that flexible future,” Decker said.

Fink also advocated for further expansion of direct access.

“We do want to stress that, to the extent the commission is looking back at how we should be doing direct access, we always need to start with the statute, as we say in every one of our pleadings,” Fink said. “The statute puts requirements on the commission. It doesn’t ask the commission to decide whether direct access is supposed to be OK; it says you shall ensure direct access. And it says it needs to be direct access for all customers.”

Tawney expressed concerned that, under the current structure, “a sort of wall comes down” after an electricity customer converts to direct access, cutting it off from the mechanisms in the regulated sector, “even though these customers have some of the most flexible and most interesting — and most capable — on-site resources that might help us through our transition to a clean-energy, high-renewables-based grid.”

“There is a lot to be said for policy stability, but that means we need to set out boundaries or structures that will be resilient for how this future unfolds in the next decade, and that really requires thinking about the unexpected and setting up policies and structures that will manage those changes effectively,” Tawney said.

Tyler Pepple, the attorney who filed the petition on AWEC’s behalf, asked whether the PUC would proceed under the presumption that direct access is in fact in the public interest.

“Is that the intention there, that we’re sort of assuming that direct access is in the public interest because it’s required by statute, or do you think that it’s important for the parties to present evidence on the benefits of direct access and whether that would be helpful?” Pepple asked.

Commissioner Mark Thompson said he didn’t think the PUC is being asked to consider whether direct access is in the public interest because state law has already established the program.

“I guess where I think the public interest question enters into it for us is with respect to how do we implement the statute’s guidance that we’re supposed to protect against unwarranted cost-shifting; and I do think the statute clearly contemplates us having a role there to put potential limits or guidelines on how that program is implemented,” Thompson said.