California energy regulators have asked Pacific Gas & Electric and San Diego Gas & Electric to seek out more megawatts of distributed energy capacity under the state’s Demand Response Auction Mechanism (DRAM) -- a win for companies that have complained that they still have plenty of projects for sale.
In a set of decisions issued Thursday, the California Public Utilities Commission said that both utilities fell short of their goals under the DRAM program, by cutting short the DRAM auction held earlier this year. It was the second so far for the innovative program, and was aimed at securing distributed energy resources that could be aggregated to meet grid needs.
PG&E awarded 14 projects under that auction, while SDG&E awarded six. All told, last month’s awards, along with those from Southern California Edison, brought the program to about 120 megawatts of distributed energy capacity, including behind-the-meter batteries, smart thermostats, and commercial and industrial demand response.
But according to protests filed last month by companies including Comverge, CPower, EnerNOC, Stem, OhmConnect and EnergyHub, both utilities ended up procuring far less than their budgets allowed them to -- even though additional capacity, in the form of DRAM offers priced at roughly the same levels as projects that did win contracts, were left on the table.
Thursday’s decisions found that these complaints were valid, and that the utilities “improperly limited” their procurements. While utilities have given various reasons for accepting less than their fully budgeted amounts, the CPUC wrote that “the commission’s expectation was that each [investor-owned utility] would procure up to either its approved Rule 24/32 registrations or its budget cap, whichever came first.”
To make up for the error, the CPUC has asked each utility to “turn to the remaining bids on its shortlist, reach out to bidders and offer to sign contracts at the same price as originally submitted.” The decisions give each utility 30 days to come up with a plan for revisiting those bids. (Southern California Edison, the third utility in the state doing the DRAM program, had its second-round auction results approved last month.)
SDG&E and PG&E will then be required to procure up to as close to its budget cap as possible -- $6 million for PG&E and $1.5 million for SDG&E -- or “to a point at which there is a clear price outlier in bids,” or in other words, when the projects being bid are clearly more expensive than what’s already been procured.
It’s still unclear how much each utility is paying for each kilowatt-month of DRAM capacity it’s procured so far, since the CPUC has allowed them to keep that information confidential -- and DRAM participants aren’t talking about their prices. But Erika Diamond, vice president of energy markets for EnergyHub, told us last month that the company, which had won bids in the first round of DRAM auctions, saw similarly priced bids fail to clear in the second.
Keeping bid prices secret, at least for now, is a critical part of the DRAM program’s twofold set of goals. First, it’s meant to test the proposition that distributed energy resources can serve as a reliable and cost-effective alternative to power plants, grid batteries, utility-controlled demand response programs and other traditional sources of capacity.
Second, it’s striving to enable a truly competitive, market-based structure to bring those DERs to bear, instead of the utility-controlled, programmatic way that demand response is now managed in the state. That means that for now, DRAM bidders like Advanced Microgrid Solutions, Stem, OhmConnect, EnerNOC and EnergyHub are competing against each other on how much they’re asking for their DER capacity.
That doesn’t mean that nobody’s looking at the data, however. The CPUC ordered PG&E and SDG&E to turn over more data that could help inform the cost-effectiveness of DRAM bids awarded so far, including short-run costs for resource adequacy -- California’s term for the multi-hour, highly reliable energy generation or load reduction each utility has to procure to make sure it can handle the grid’s peak power demands.
The DRAM program is also an important part of the CPUC’s broader plan to remake demand response in California, whether by providing data to inform how that happens, or possibly to serve as a model for how it’s done in years to come. California is one of a handful of states -- New York and Hawaii are two others -- experimenting with market-based models for distributed energy like these.