California is conducting what may be the most ambitious
electricity customer empowerment experiment ever done anywhere; whether it will
work remains very much in doubt.
The state is the national leader in both utility-scale solar and distributed solar capacities
and fourth in the nation in wind capacity. Yet
California’s dominant investor-owned utilities (IOUs) procured zero new MW of
renewable energy capacity in 2017. And a preliminary plan released in January
by state regulators proposes almost no 2018 procurement.
But the failure of procurement is just the symptom. The
problem is widespread power sector uncertainty causing what one key observer
called an “upheaval.” The disruption does not support California’s goals to
cut its greenhouse gas emissions 40% below 1990 levels by 2030 and achieve its
50% renewable energy by 2030 mandate. And it threatens the stability of
utility-scale renewable energy builders.
Efforts to resolve the problem have, however, been stymied
because the state's regulators and factions representing utility-scale
renewable energy developers are sharply at odds over its urgency.
Causes of upheaval
California’s successful transition to renewables is one
cause of the current upheaval. It has left the state with midday solar overgeneration and
a sharp, difficult to manage demand spike in the late afternoon and evening.
Another source of upheaval is the Pacific Gas and Electric
(PG&E) decision to shutter the state’s last nuclear power plant, Diablo
Canyon, by 2025. It raises the contentious question of how the state should
fill the 2,200 MW deficit of emissions-free baseload
generation. Because of its peak demand spike, the state needs flexible
generation, but natural gas peakers will make the climate goals harder to
reach.
The California Public Utilities Commission (CPUC)
recently closed its Diablo Canyon proceeding without guidance
on a solution. Renewable energy advocates say failing to act before 2019 could
mean wind and solar developers will miss out on valuable federal tax credits,
resulting in hundreds of millions of dollars in higher project costs being
passed to electricity customers.
The third and biggest cause of upheaval is the rise of community choice aggregation (CCA). A 2002
law allows CCAs to act as load serving entities (LSEs) and take on IOU
customers. Active CCAs now serve 660,000 California electricity customers. And
cities and counties with populations totaling more than 15 million people are
considering the move, according to the CPUC.
San Diego’s mayor must decide whether the city’s 100%
renewable energy by 2035 goal will be met by San Diego Gas and Electric
(SDG&E) or the city’s new CCA. Yet the mayor is delaying his decision until
technical questions that will determine CCAs' cost of power, unresolved
by the CCA law, are settled by the CPUC later this year.
Minimal renewable energy procurement from any IOUs or CCAs is expected until
these financial questions are resolved.
Renewable energy advocates say the CPUC has failed to lead.
Some want a new form of regulation for CCAs. CCA advocates say they will be
regulated only by their own boards. CPUC President Michael Picker told Utility
Dive his agency is doing what regulators must do to protect ratepayers during
times of upheaval.
Accelerated procurement
In January, leaders of eight renewable energy trade
organizations wrote to California Governor Jerry Brown (D), asking for
guidance.
“The market is currently rife with uncertainty due to
customer load migration, potential cost-shifting, and regulatory/jurisdictional
ambiguity," their letter, not made public but shared with Utility Dive,
argued.
Matthew Freedman, staff attorney for consumer advocacy
group The Utility Reform
Network (TURN), emailed that his tracking of state energy agency data
showed California "IOUs aren’t buying anything anymore and CCAs have
bought very little to fill the gap." The CPUC’s November 2017 Renewables Portfolio Standard Annual Report confirmed
TURN's findings.
CCAs Marin
Clean Energy, Lancaster Choice Energy, Sonoma Clean Power and Peninsula Clean
Energy have a total of nine wind and solar contracts. Between 2018 and 2021,
they expect to add 768 MW of new wind and solar capacity to the 2.4 GW built by
the state’s IOUs.
But the CPUC is not using its authority to drive new procurement,
Nancy Rader, executive director of the California Wind
Energy Association, emailed Utility Dive. It needs to act to
prevent utility customers from "missing out" on savings of as much as
"$444 million annually" that would come from procuring for
post-2020 electricity needs before the federal tax credits for wind and solar
expire. Rader was one of the signatories of the letter to Brown.
Other signers of the letter see the threat to the renewable
energy industries they represent as so disruptive that they would speak to
Utility Dive only on background.
Attorney Marc D. Joseph, who represents
employees of both solar projects and utilities, said the commission's
inaction on procurement is bringing utility-scale solar development “to a
grinding halt,” putting between 5,000 and 10,000 jobs at risk.
Ed Smelof, regulatory issues managing director for the Vote Solar advocacy
group, said that just filling the gap left by the Diablo Canyon closure is
another important reason renewable energy procurement should be accelerated.
Union of Concerned Scientists Senior Energy Advisor Laura
Wisland said the commission’s Diablo Canyon decision leaves important questions
unanswered about the choice and cost of replacement resources. “The
commission decided they can be better addressed in" PG&E's Integrated
Resource Plan (IRP), she told Utility Dive.
The commission's preliminary IRP ruling leaves a gap in
procurement, but it “is a non-binding blueprint” and will lead to a more
complete assessment of the state’s needs, she added.
Consequences of success
CPUC President Michael Picker said the state is “dealing
with the consequences of success.” Though the procurement slowdown is hard on
some developers, the commission’s job is not “economic development,” he said.
“It is to meet state electricity needs, and the closure of Diablo Canyon in
seven years does not create a present need.”
The present challenge is to affordably integrate renewables,
despite lowered overall demand and higher peak demand, he said. “More
renewables does not address that.”
Arguments for new development are “naked self-aggrandizing
and self-pleading,” he insisted. “We concluded the projections of hundreds of
millions of dollars of savings from accelerated procurement are no longer
accurate.”
The commission is “not persuaded of the need to order
near-term procurement,” according to its preliminary ruling (rulemaking 16-02-007). Modeling showed that without the
federal tax credits, only 250 MW less renewable energy capacity would be
procured. And the newly-imposed
solar tariffs could act as a counterbalance to price.
In addition, “renewable costs have been declining for many
years, and likely will continue to do so,” the ruling reported. Buying now
could “lock in higher-than-necessary prices.”
Requiring near-term purchases by utilities would also
complicate the transition from IOUs to CCAs, the commission decided. IOUs may
not need more, if predictions of the "departing load” are fulfilled.
The power charge indifference adjustment
That “departing load” potential was a major factor in the
CPUC’s decisions in the IRP and Diablo Canyon proceedings, stakeholders agreed.
Procurement imposed on IOUs that is ultimately transferred
to CCAs would require “a likely-unpopular cost allocation methodology to ensure
that the costs are shared by the benefiting customers,” the ruling concluded.
That concern cannot be resolved until the commission reaches
its decision on the Power Charge Indifference Adjustment (PCIA). The PCIA
is used to allocate to CCAs the costs incurred by IOUs for generation to serve
customers who depart to CCAs. It is based on the generation’s estimated future
market value and fluctuates with changing market prices.
Southern California Edison (SCE), PG&E and SDG&E
submitted a Joint Utilities filing to the CPUC proposing a new mechanism based on actual, rather than
estimated, costs.
The San Diego Mayor's office told Utility Dive the mayor
will not choose between San Diego Clean Choice Energy, the CCA, and the
SDG&E proposal until the ongoing CPUC proceeding is completed later this year. Until the
value of that charge is decided, it will not be clear whether the San Diego
Clean Choice Energy or SDG&E offering is the best deal
Other CCA-imposed challenges
Cost allocation is only one of the CCA-related uncertainties
slowing renewable energy procurement by IOUs and CCAs.
“The CCAs also argue the commission has no authority over
them and their planning is only subject to the approval of their local Boards,”
Smeloff said. “It could wind up in the courts because it is a question of the
legal difference between CPUC 'certification' and
CPUC 'approval' of CCA planning.”
This uncertainty only adds to inclinations by regulators and
utilities to avoid moving forward.
California Wind Energy Association’s Rader said another
uncertainty impacting procurement is that CCAs’ financial backing leaves their
creditworthiness in doubt.
But CCAs like the Clean Power Alliance of
Southern California say financing will not be an obstacle.
The alliance represents a potential 2.4 million customers in
unincorporated Los Angeles County municipalities. It began serving its first
2,000 accounts in February, spokesperson Gary Gero told Utility Dive.
It will offer customers the choice of 36% renewables, 50%
renewables or 100% renewables, Gero said. Though its rates now
include the PCIA, they are 2% below SCE rates. Its initial procurement is
through short-term contracts and it is completing a deal with SCE to obtain
its state mandated
Resource Adequacy obligation.
The Clean Power Alliance of Southern California will be
creditworthy, he added. Responses by major financial institutions to its
solicitation for banking and credit services show “the willingness of the
financial community to extend backing, based on our billion-dollar annual
revenues."
Gero believes most complaints about CCAs are the result of
misunderstanding. “We fully intend to build and pay for new renewable power
facilities, but we can’t do that on day one,” he said. “We will meet state
laws, including renewables mandates and resource adequacy requirements.”
But CCAs will not allow the state to direct or guide their
procurement because local engagement and choice is fundamental to the CCA
identity, Gero said. And statewide coordination of CCA procurement is not
necessary because sound business practices and rules now in place will produce
a diversified resource mix and a stable grid.
“Nobody wants to break the state power system and it is not
in our interest to let that happen,” he added. “If the state identifies a
system issue, we will be the first to step up and do what we are asked to do to
avoid it.”
The pause that refreshes
A solution to the upheaval has so far been prevented by the
basic differences between renewable energy advocates and California's
regulators.
“We may need a new oversight mechanism that the CCAs will
accept,” V. John White, executive director of the Center
for Energy Efficiency and Renewable Technologies (CEERT), told
Utility Dive.
“They are going to need to coordinate with each other
because they are state LSEs and local
considerations are not the only ones,” he added. He also signed the letter
to Gov. Brown.
The original CCA legislation may need reconsideration
because it has had unintended consequences, he said. It did not envision them
becoming a statewide avenue for climate activism at the local level. And state
level oversight that CCAs accept could allow the state to help with some of
their startup challenges.
State backing of their financing and coordination of their
procurement could help them build more balanced and cost-effective portfolios,
he suggested.
UCS’s Wisland said it is too soon to conclude commission
oversight has not worked because uncertainties could be resolved in ongoing
commission proceedings.
Former CPUC staffer Matthew Tisdale, now executive director
for California think tank Gridworks, said CCA obligations to compensate the
IOUs for departing load and to cooperate with state regulators will soon be
formally clarified. That will resolve this “transitional upheaval” and restart
procurement, he said. Until then, “it is prudent for the commission to be
cautious.”
If the commission had ordered accelerated renewable energy
procurement, it would have built more cost into utility portfolios, he said.
“That would make finding an equitable PCIA resolution more difficult.”
CPUC President Picker said CCAs vary widely, but
all will soon be required to meet a significant portion of their customer load
through long term contracts, which would demonstrate which are financially
viable and willing to recognize some CPUC authority.
“Some, but not all, will meet that obligation,” Picker said.
“We need to think about what that means to the state's overall procurement
goals.”
Not all CCAs oppose regulation, he added. Some, like the
Clean Power Alliance of Southern California, have begun to work with IOUs to
meet resource adequacy obligations. Some remember California’s energy crisis
and “don't want to be responsible for crashing the grid,” he said. “But the
naivete of others scares me.”
Given the uncertainty, “it's probably better not to
rush into more investment,” he said. “There is significant risk in acting and
no great risk in waiting.”
Gridworks’ Tisdale added that the “real story” is that “the
most progressive regulatory commission in the world decided the state has
enough renewables to take a minute and understand how the system is developing
before it turns any more cranks.”
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