Amid a flurry of energy, environmental, wildfire and Pacific Gas & Electric bankruptcy-related bills emerging for this year’s legislative session, California lawmakers are also grappling with a complicated yet critical issue — how to secure the energy resources needed to meet the state’s renewable and carbon-free energy goals while also keeping the power grid running.
The issue has been growing in magnitude and significance for years in the country's largest state economy.
The closure of California's last nuclear power plants, and the cancellation or delay of new natural-gas-fired power plants, has put the onus on solar, energy efficiency, energy storage, demand response and other clean energy resources to keep the grid stable in their absence.
And the rise of community-choice aggregators (CCAs) has fractured the role of the state’s three big investor-owned utilities as the primary providers of the state’s grid reliability needs.
But it’s the wildfire damages and liabilities that have driven PG&E into bankruptcy reorganization, and could threaten fellow investor-owned utilities Southern California Edison and San Diego Gas & Electric next, which have pushed this effort into overdrive.
Just this week, Gov. Gavin Newsom’s wildfire and utility policy strike force listed the need for a “new state procurement entity that could enter into long-term contracts, provide credit support or otherwise facilitate purchases of electric energy” as a key legislative priority for 2019.
Concerns from a range of stakeholders
Last week, AB 56 passed the state’s Assembly Utilities and Energy Committee, the first step toward potentially becoming this year’s legislative vehicle for taking on this complex mix of challenges. The bill would give the California Public Utilities Commission (CPUC) the ability to task an existing state agency to serve as a backstop for “procurement of electricity to meet the state’s climate, clean energy, and reliability goals.”
But last week’s vote was accompanied by several statements of opposition, including from key players such as the California Community Choice Association (CalCCA) and utility Southern California Edison, both of which called the bill the wrong solution for the problems it would seek to solve.
And representatives of PG&E and SDG&E owner Sempra Energy, as well as the American Wind Energy Association and the Solar Energy Industries Association, all stated either that they could not yet support the bill as written, or that they would only support it with key amendments.
Even backers of the bill noted in last week’s hearing that it’s in the midst of being amended to meet the concerns of utilities, CCAs and other stakeholders, and should be seen as a starting point for discussions. “Yes, this is a very complex issue, and yes, it has taken a lot of time to get here,” Assemblymember Autumn Burke, D-Inglewood, said. “I wish we had 10 years to deal with this. But we don’t.”
Matthew Freedman, staff attorney for ratepayers advocacy groups and AB 56 backer The Utility Reform Network, added, “It is absolutely critical as we move forward this year to have a proposal like this on the table for discussion. There is wide consensus out there that there is need for some kind of new backstop tool in the state, and if we don’t have one, we’ll be forced to create one in a hurry under duress.”
A lack of consensus on solutions to short-term and long-term grid needs
The main problem that AB 56 opponents have with the bill is that it would manage backstop procurement across too broad a range of grid needs. As written, the bill would allow the CPUC to direct the California Alternative Energy and Advanced Transportation Financing Authority to “undertake procurement of electricity to meet the state’s climate, clean energy, and reliability goals that are not satisfied by load-serving entities.”
AB 56 sponsor Assemblymember Eduardo Garcia, D-Coachella, has said the bill will provide a tool for the state to ensure it can get the resources it needs to meet its renewable energy and carbon reduction goals. This could range from filling short-term resource adequacy (RA) needs or managing contracts with renewable energy project that might be abrogated through bankruptcy, to filling gaps in long-term renewable portfolio standard or integrated resource plan procurements.
But as Geof Syphers, CEO of the CCA Sonoma Clean Power, said in last week’s hearing, this scope of authority goes far beyond where the CPUC and its stakeholders now stand, in terms of reaching consensus on how to approach centralization for these very different types of grid needs. “This bill is seeking to solve a real problem, but as written, would make matters worse,” he said.
This lack of consensus can be illustrated by the CPUC’s February decision on reforms to the state’s RA program, which sets the rules for procuring year-ahead grid reliability resources for load-serving entities. That term includes investor-owned utilities, CCAs, municipal utilities, and electric service providers selling directly to commercial and industrial customers under the state’s Direct Access program, all of which have to secure enough generation capacity to serve the peak needs of their customers for the year ahead.
As we noted in our coverage at GTM Squared, almost all of the parties involved in the CPUC's proceeding, from utilities and generator owners to environmental and clean energy groups, support some kind of central backstop procurement for RA, beyond the limited and federally mandated backstop role now played by state grid operator CAISO.
But in terms of which party should take on the role, most parties agreed that the investor-owned utilities themselves, rather than a newly created or enabled state agency, are best positioned to do so. At the same time, there's little to no support for utilities actually taking on this role, at least not beyond the short term — including from the utilities themselves, which are worried about "potential financial costs and risks associated with the central procurement function,” the CPUC noted.
This lack of consensus on an acceptable solution forced the CPUC to put the question of centralized RA procurement to another round of stakeholder workshops and comments. Syphers pointed out that CalCCA supports a proposal for a Central Reliability Authority as the default buyer of RA products primarily, but without as expansive a mandate as that envisioned by AB 56.
The role of CCAs in meeting grid reliability needs
In the meantime, CCAs are defending themselves against accusations that they’re to blame for the challenges facing the RA program, Syphers said.
For example, CPUC President Michael Picker has pointed to a spike in the number of load-serving entities that failed to meet their RA requirements last year as a reason for reforming the program, often in the context of the challenge that CCAs present to the state’s grid reliability regimes. But CalCCA has pointed out that the 11 load-serving entities that required waivers for their 2018 RA obligations includes 10 electric service providers and one investor-owned utility, but no CCAs.
Likewise, AB 56 backers have said the bill could help backstop procurement for California’s renewable portfolio standard starting in 2021, under the presumption that CCAs, which lack the creditworthiness of investor-owned utilities, might struggle to meet the RPS requirement that 65 percent of all contracts come in 10-year increments or longer.
But as Syphers said last week, CCAs are increasing their current 2 gigawatts of renewables under contract by another gigawatt this year, and to a projected 10 gigawatts by 2030, with an increasing amount coming in the form of long-term contracts.
Other aspects of backstop procurement that could be covered by AB 56 are even further away from consensus. For example, the CPUC is reworking how it approaches the integrated resource plan process for long-range planning, after a CPUC administrative law judge found the current mix of investor-owned utility, CCA, electricity service provider and municipal utility plans could not be relied on to meet the state’s zero-carbon energy goals.
In last week’s hearing, Assemblymember Bill Quirk, D-Hayward, agreed that these and other issues with AB 56 indicate that the bill does have problems to be solved through future amendments.
“I have problems with it too,” he said. “But I think it’s important to have...a discussion going” before voting to move the bill to the Assembly Natural Resources Committee, where it will be heard again later this month.
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