Regulators in the US and elsewhere are waking up to the reality that the underlying forces that long defined the power industry are rapidly and fundamentally changing. This means that the rules and precedents that guided them in the past are no longer applicable, or even appropriate, in how the industry is to be regulated in the future.
In fact, it is not clear if segments of the industry need to be regulated at all since most of the changes are taking place on the customer side of the meter, which has traditionally been outside their purview.
The second big state to embark on an exercise of regulatory self-examination is California, following a path not dissimilar to the one pursued by New York, extensively covered in the June 2014 issue of this newsletter.
Currently, however, DRPs have no mechanisms to specifically account for or integrate the growing amounts of rooftop solar PVs, energy storage, electric vehicles (EVs) or demand response (DR).
The regulators in California, like those in NY and Hawaii, to name a few, have lately awakened to realize that business as usual is not going to cut it in the future. By some estimates, California could amass some 15 GW of distributed energy resources (DERs) within a decade – that refers to self-generation, storage or devices on the customer side of the meter.
Forecasts of how much DERs may be added to the network and when vary but many expect some 12 GW of distributed, that is customer-side solar PVs, at least 1.3 GW of grid-scale storage – mandated by regulations – and who knows how much DR and distributed storage in the form of batteries and EVs.
Neither can the IOUs nor the CPUC ignore this much DERs while spending $6 billion per annum on distribution investments. That, in a nut shell, is the focus of investigation.
In mid-August 2014, the CPUC initiated a regulatory proceeding, known as order instituting rulemaking (OIR), to examine the future role of distribution system as forces beyond its control reshape the power sector that it still regulates.
At the heart of the OIR, which may be found in its entirety at the CPUC website – refer to URL at the end of the article – is how to encourage the IOUs to modernize California’s aging distribution grid by incorporating non-utility owned energy resources into the planning and operation of the distribution network. If the initiative sounds similar in parts to the one pursued by the New York Public Service Commission (NYPSC) that is because it is. Both are focused on defining the future role of distribution network, its core functions, how it should be expanded, maintained and funded, and by whom.
By way of background, California’s OIR is in response to Assembly Bill 327, also known as the Perea Bill, named after its main sponsor, passed in 2013, which aims to:
“… evaluate the utilities’ existing and future electric distribution infrastructure and planning procedures with respect to incorporating distributed energy resources (DERs) into the planning and operation of their electric distribution systems,” according to CPUC.
Recognizing the changing business environment, the CPUC order reads, in part,
“AB 327 is a multi-part bill that affects
multiple aspects of the provision of
regulated utility service and of the energy market, including Net Energy Metering, the Renewables Portfolio Standard, natural gas and electricity rates, and electricity resources.”
The CPUC is cognizant of the fact that the state’s Public Utilities Code, known as Section 769, which governs how utilities are regulated, needs to undergo a major overhaul. It says,
“This rulemaking focuses on Public Utilities Code Section 769, which addresses the investor- owned electric utilities (IOUs’) electric distribution planning and the Commission’s obligation to review, modify, and approve the IOUs’ Distribution Resources Plan Proposals (DRPs).”
In a section titled “a new framework for distribution planning,” the OIR reads,
“Since 2001, the Public Utilities Code has provided that ‘[e]ach electrical corporation, as part of its distribution planning process, shall consider nonutility owned distributed energy resources as a possible alternative to investments in its distribution system in order to ensure reliable electric service at the lowest possible cost.’ In addition, between 2001 and the present, the Commission has developed policies that engaged and promoted ever greater quantities of Distributed Energy Resources (DERs) located within the IOU distribution system. In recognition that traditional distribution system planning is limited in its ability to support State policies on DERs and emerging technologies, the Legislature passed AB 327. Section 769 requires IOUs to submit DRPs that recognize, among other things, the need for investment to integrate cost-effective DERs and for actively identifying barriers to the deployment of DERs such as safety standards related to technology or operation of the distribution circuit. Notably, the Commission is authorized to modify and approve an IOU’s DRP “as appropriate to minimize overall system costs and maximize ratepayer benefit from investments in distributed resources.”
In case the full scope and intent of the order escaped the reader, the OIR says,
“The goal of these plans is to begin the process of moving the IOUs towards a more full integration of DERs into their distribution system planning, operations and investment.”
The OIR requires California’s 3 large IOUs to file with the CPUC their Distribution Resources Plan Proposals or DRPs by July 1, 2015 (box on page 4). In describing the significance of the order, Commissioner Mike Florio, who is assigned to be in charge, said (highlighting added),
“This is one of the most important proceedings that the CPUC has launched in recent years, and the results will help to shape ‘the utility of the future’ in a manner that best serves the consumers of California.”
While the OIR mentions many reasons, make no mistake, this proceeding, like the one in NY, is focused on future opportunities that allow customers to seek interconnection of new devices and technologies to the distribution system – that includes solar PVs, EVs, storage, and an assortment of other energy management devices on the customer side of the meter. According to Commissioner Michael Picker,
“Traditional distribution system planning is limited in its ability to support State policies on distributed
technologies,” adding, “Through this
proceeding the CPUC will guide and
evaluate the distributed energy proposals of the utilities, including … changes to the utility practices of distribution resource planning.”
The CPUC has set an ambitious schedule to resolve the issues, certainly by the slow pace of regulatory proceedings in the US (table on right).
Reinventing the distribution utility of the future
The scope of CPUC’s seminal OIR is ambitious. The preliminary agenda for the proceedings includes the following, slightly edited with emphasis added. Note the focus on cost-effectiveness in text.
Especially noteworthy is the overlap between the current OIR and a number of important related hot topics, all on CPUC’s front burners – many of which are hot and overdue for regulatory guidance. The list of related proceedings noted at the end of the order includes:
While there is nothing wrong with the ideas presented in the appendix, titled More than smart: A framework to make the distribution grid more open, efficient and resilient, it is highly unusual – if not unprecedented – for a regulatory body such
document or ideas presented by a single person
on an issue as important as this.
Perhaps there is a perfectly good explanation for this. Without knowing any better, this editor’s guess is that the staff of the CPUC were either too lazy or too busy – your guess is as good as mine – to develop their own white paper hence decided to rely on the convenient existing document. In the case of the NYPSC, the staff appears to have done more homework in preparing the supporting material.
As noted by Doug Grandy, editor and
publisher of California On-site Generation,
California is among the first “… in the country to take explicit steps to merge the traditional world of distribution grid planning — centralized, one way and predicated on the past — and replace it with a two- way, customer-engaged, networked grid model.” New York, as previously noted, is the only other state, which has also embarked on a similar path.
The rapid rise of DERs, rooftop solar PVs in particular, means that now is the time to redefine the distribution utility of the future. CPUC’s OIR comes not a minute too soon.
Perry Sioshansi is president of Menlo Energy Economics, a consultancy based in San Francisco, CA and editor/publisher of EEnergy Informer, a monthly newsletter with international circulation. He can be reached at fpsioshansi@aol.com
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