Calif. grapples with multidimensional energy debate

Source: Debra Kahn, E&E reporter • Posted: Sunday, March 20, 2016

SAN FRANCISCO — The rising demand for small-scale forms of distributed electricity generation like rooftop solar is proving a major challenge for California policymakers.

At a Greentech Media conference here, the president of the California Public Utilities Commission predicted that his agency would have less authority over the task of sorting out the various costs and benefits of distributed generation while trying to define the proper role for traditional regulated utilities.

“I don’t want to predict too much,” said CPUC President Michael Picker. “All I expect is my agency will have less control, so we need to make the right decisions now.”

A debate about how to value energy produced by rooftop solar panels has been heating up across the country. The discussion pits established electric utilities with paying customers against new solar companies elbowing into that market. Many view the tensions around rooftop solar as an opening salvo in a much more complex reshuffling of utility business models that for decades relied on households using more and more conventional electricity. Demand for energy off the grid has been flat or in decline since the U.S. economy collapsed in 2008.

CPUC has two different proceedings going on right now to figure out how to integrate distributed resources — a statewide rulemaking and ones for each of the large investor-owned utilities.

Separately, the state’s grid manager, the California Independent System Operator, is conducting a proceeding on how to assess the benefits of solar and wind power and how that electricity production can participate in the wholesale energy market.

And just last month, CPUC issued a ruling that opens the door to a deeper look at the financial disincentives for utilities to invest in cleaner distributed resources as they consider what infrastructure is needed to meet power demand.

Picker sounded a note of caution in rushing to transform the grid. “The utilities have had a pretty solid run for 100 years,” he said, noting that they used guaranteed rates as a way to attract cheap capital. “The question is, where do we need to maintain that monopoly?”

“That requires us to start to think about retail, and that’s not something we do well at the Public Utilities Commission,” he said.

Audience participants agreed, judging by a poll that asked conference attendees what they view as the biggest challenge posed by California’s shift to distributed energy. Regulatory issues topped the list, with 40 percent of respondents picking it over other issues like technical, economic, customer-side and business model concerns.

Picker said CPUC, with its voluminous, acronym-heavy rulemaking procedures, isn’t ideally suited to deal with an onslaught of new, consumer-facing solar companies and technologies. “Our process is really inhibiting,” he said. “We do have this arbitrary, arcane and archaic process.

“It’s heavily dependent on legal skills and advocates; it tends to be kind of lean on engineering skills,” he said. “That, I think, is always going to be a limiter for us. It was easier when all the decisions were centralized. They may come in waves, but they came consistently. Now it’s fairly chaotic.”

Utility executives also pointed to customer rates — both rooftop solar customers and regular ratepayers — as a crucial piece of the industry’s evolution. “As we start going into the retail side of the electric business, we do trip on the challenging problem of how do we charge for electricity,” said Steve Malnight, Pacific Gas and Electric Co.’s senior vice president of regulatory affairs. “I think we have to solve it pretty darn soon.”

Several policymakers also raised the issue of increasing numbers of cities and counties choosing to procure their own electricity and have it delivered by the incumbent utility, a California policy known as community choice aggregation (CCA).

While Malnight said he didn’t have “particular concern” about the growth of CCAs, Mark Ferron, a former CPUC commissioner and current member of the CAISO governing board, cited an estimate that half of the state’s population could be covered by CCAs within five years.

“That is a potential huge revolution on top of what’s happening from a technology standpoint,” he said. “It is going to be quite a challenge for the regulatory regime. It’s going to be a huge challenge for the utilities to put themselves in a position to accommodate that choice as it comes down the pike but still maintain the safety and reliability of the system.”

Another audience poll asked what the primary benefit of distributed energy would be in California. Rather than lower customer bills or increased reliability, 38 percent of respondents cited a decrease in greenhouse gas emissions as the biggest benefit.

“Everybody sees that future of a more integrated grid really helping to address the state’s challenges in going after carbon in particular,” said Caroline Choi, vice president of energy and environmental policy for Southern California Edison. “But it is that slower slog than I think a lot of people would like to get there.”

This story also appears in EnergyWire.