The California Public Utilities Commission on Thursday approved a controversial plan to give the state's two biggest utilities a central role in its grid reliability procurement regime, a plan the regulator says is necessary to prevent the system from being fragmented by the rise of community-choice aggregators.
CCAs such as East Bay Community Energy counter that the decision undermines their local clean energy and energy storage projects and could raise prices for their customers.
The “central buyer” framework adopted by the CPUC on Thursday is the result of a years-long debate over the state’s resource adequacy (RA) program for ensuring there's enough available capacity on the grid at all times. Specifically, it puts Pacific Gas & Electric and Southern California Edison in charge of managing “local RA,” the resources needed for grid reliability in the Los Angeles and San Francisco Bay Area regions.
Local RA is costlier for these regions, which have higher loads and constrained transmission systems served by fewer local natural-gas plants of the type that provide most of California’s capacity needs. That can allow those generators to demand higher prices.
The CPUC says this “market power” problem could worsen as local RA procurement responsibilities shift from a few big investor-owned utilities to a more fragmented set of CCAs. Over the past decade, CCAs have grown from procuring energy for a handful of communities to serving almost half of PG&E’s 5.5 million customers, and they are a growing force in Southern California Edison's territory.
California’s push to close more gas-fired power plants and replace them with solar, wind, energy storage, demand response and other carbon-free resources is also putting pressure on state grid operator CAISO to understand how these changes will affect system reliability. Last year the CPUC called for 3.3 gigawatts of resources by 2023 to meet short-term reliability needs, which has driven multi-gigawatt-hour storage contracts from SCE and PG&E and large-scale renewable and battery projects from CCAs.
“Having numerous entities buying small strips of local resource adequacy is not cost-effective and creates market power concerns,” CPUC Commissioner Liane M. Randolph said in a Thursday statement. Centralizing it with PG&E and SCE will “create the necessary single-entity purchasing power” to avoid that — a view supported by both utilities.
Why CCAs are wary of utilities being the central buyers of local resource adequacy
CCAs have argued for the past year that giving utilities control over local RA could undermine the economics of their own clean energy plans, and burden their customers with higher bills. The California Community Choice Association (CalCCA) argued that “the playing field will not be level under such a framework, nor will it be transparent and neutral.”
The CPUC first ordered CCAs to take up their own RA procurement in 2018. Since then, CCAs have been securing it from other generators, but also developing clean energy projects to meet their own local RA requirements.
East Bay Community Energy (EBCE), for instance, has contracts for just under 100 megawatts of local RA, CEO Nick Chaset told Greentech Media in April. Those projects include the 36-megawatt Oakland Clean Energy battery project being built to replace an oil-fired power plant in west Oakland, as well as its joint procurement with other Bay Area CCAs of 30 megawatts of behind-the-meter storage and solar to back up communities facing the wildfire-prevention blackouts being imposed by PG&E.
Under the CPUC’s new framework, those projects may no longer pencil out economically, said Melissa Brandt, EBCE’s senior director of public policy. In fact, EBCE’s board, which was “moving to approve a couple of deals for that solicitation” for behind-the-meter storage, is now “having to reevaluate” things.
That’s because CCAs can’t predict the projects’ local RA value under the new framework. CCAs can bid their local RA to the utilities doing central procurement, she said. But then they run the risk of utilities rejecting them and choosing competing natural gas or larger-scale renewables and energy storage instead.
CCAs can also “show” their local RA values to reduce the utility’s overall procurement requirements, she said. But that method won’t provide the same value as applying the RA value directly to their individual local RA needs, she said.
Seth Hilton, an energy development attorney with law firm Stoel Rives, noted that “because of concern about not being able to monetize RA, CCAs might not be willing to invest in local projects” and instead could turn to cheaper options such as utility-scale solar and battery projects in rural regions.
Other options on the table?
To resolve some of these uncertainties, the CPUC has ordered utilities and CCAs to form a working group to propose a “local capacity requirement reduction compensation mechanism” for existing contracts. The CPUC will include the resulting proposals in an upcoming decision before the central procurement mechanism goes into effect in 2021.
CCAs do have ideas on this front, Brandt said. One could be allowing CCAs to procure their own carbon-free resources first, and only then asking utilities to acquire the remaining natural-gas-fired capacity needed. Another would be providing financial credits to each CCA for the local RA they’ve already contracted.
“Having said that, the devil’s in the details," she said. “We don’t know how that working group is going to function and whether it can come up with the optimal solution.”
CalCCA had asked the CPUC to consider a settlement agreement that would rely on a “competitively neutral, independent and creditworthy entity” to procure RA for the state as a whole. The CPUC rejected that plan, which would have used a “residual model” that allows CCAs to procure their own local RA and then turn to a central buyer for the remainder, on the grounds that it could lead to shortfalls in capacity.
A state bill that would have given the CPUC the authority to task a state agency with that role, AB 56, failed to move forward last year.
A revised version that would create a public benefit corporation to serve as central procurement authority is highly unlikely to pass in this year’s legislative session, which is dominated by responses to the COVID-19 pandemic, Brandt said.