JUICE: Metamorphosis

By Published On: September 19, 2013

The California Energy Commission has as many avatars as a video game. It’s supposed to be a think tank for the Legislature, siting agency, and methodological forecaster. This summer, the think tank part has been exploring a whole new energy paradigm through its Integrated Energy Policy Report. Replacing the infrastructure and generating portfolio to cover for San Onofre Nuclear Generating Station and old once-through water-cooled fossil plants sets up a sort of tabula rasa to anchor a future of renewables, distributed energy, microgrids for local reliability, water conservation, and more. Southern California is set to lead the way, as between the lack of San Onofre and threatened once-through water cooled plants, it is the most vulnerable. The California Public Utilities Commission is also beginning to study a different way of using utilities and their regulation after a hundred years. Between them, it’s like solving an old-fashioned Rubik’s cube with so many options to line it up correctly. Southern California is the empty game board for reform, it’s Risk, Monopoly, Scrabble(ing), and Charades. Beginning next month, over at the California Public Utilities Commission, regulators are set to tackle what the new form of utility business model should be. The California Independent System Operator is contemplating its own changes—instead of one big state grid, drilling down to regional grids, or microgrids, for reliability. The agencies are attempting to be involved in each other’s new visions. Here are some of the major changes that regulators are considering: Covering for San Onofre—With the loss of 2,100 MW, the wholesale market has protected demand so far, but at a price. Replacement power as of July tallied $444 million. Merchant generators in the area are telling the financial community that the shutdown is good for business. The shutdown is also good for reconsidering the configuration of the transmission system. “The entire transmission system was built around the presumption that San Onofre was operating,” said Bob Weisenmiller, Energy Commission chair. “It’s not an easy situation to replace it.” The transmission system built to support San Onofre is specific and immense. In 2000, the grid operator studied what would happen if San Onofre shuts down (Current, April 30, 2004). It noted that as long as replacement power is located near where the transmission system is built around San Onofre, major upgrades wouldn’t be required. Diablo Canyon is not quite as much of a threat to the grid if shut down, because the transmission system in the Bakersfield area can tie into the same 500 kV circuits as Diablo—although Diablo’s shutdown would affect transfer capacities on Path 15. According to the grid operator, it also provides an opportunity to consider what to do about new generation facilities. Though the region has enough power for the next couple of years, those projections degrade in the coming decade, said Phil Pettingill, the grid operator’s director for regulatory strategy. He added, the grid operator plans to have a long-term solution in place by mid-2014. Utilities’ future—Over the summer, there have been many public instances where regulators say they must tackle a new model for investor-owned utilities. “We have to come up with something creative to allow utilities to exist,” said CEC member McAllister. In the context of microgrids and distributed generation, utilities’ future role is cloudy. CEC chair Weisenmiller noted that the sea change is akin to when the state decoupled utility revenues from sales—leading to conservation rather than a push to sell more energy. Now, many states have that decoupling, but it was a breakthrough for California in 1981. Even utility representatives agree that the future of regulated utilities is set to look different. “A very different future from the last 100-plus years,” is how Dhaval Dagli, Southern California Edison principal manager, regulatory policy strategy, summed it up. While there’s little chance of immediate change, during the season, Pacific Gas & Electric’s added fuel to regulators’ slow-burning fire by repeatedly threatening bankruptcy unless the CPUC backs off potential fines from safety violations related to the 2010 San Bruno natural gas blast (Current, Aug. 23, 2013). The utility is asking for a rate of return on equity higher than 10.4 percent to ensure it can continue to raise capital for infrastructure projects. On Oct. 8, the CPUC is set to hold an educational discussion regarding the nature of the impact of new technologies and services on the traditional electric utility model. A discussion is set for how the traditional utility business model is impacted by grid modernization and technological and service innovations, as well as what they believe some of the potential options are for addressing such challenges. The meeting is promised to include utility chief executive officers. Grid operator—Over the next couple decades the statewide grid operator, which controls most of the electrons being passed to consumers, predicts it will become a different transmission organization, according to Lorenzo Kristov, grid operator principal, market and infrastructure policy. He said that a proliferation of microgrids is expected. That should lead to erosion of the CAISO role, with a decreased use of the transmission system it manages. Instead, he said that distribution operator roles would increase. They could be small regional or neighborhood authorities on a microgrid. He added that the new vision could be a more “functional” one than an institutional one. So far, the grid operator hasn’t proposed what agency, new or otherwise, would oversee microgrids. Kristov only noted that the role of the statewide agency may change in time to accommodate more regional transmission/distribution systems. This could help distributed generation. For instance, if a storm or fire knocks out the main grid, like Hurricane Sandy last year, solar rooftops, cogen and wind could still function and provide some electricity in emergencies. As it is now, even those producing plenty of power cannot use it in crises, because distributed generation is all tied to the macro grid. To manage an influx of renewable generation the grid operator is developing a demand-response market for dropping regional loads when generation, voltage, or other glitches threaten reliability. That too is on a slow burn. Demand-response in California under utility-based programs has remained fairly static, according to CPUC data. It continues to play an emergency role, but price-responsive demand-response has shown no real growth, given limited variable rate pricing, according to the Federal Energy Regulatory Commission (Current, June 20, 2013). Those are a lot of pieces to line up correctly in the Rubik’s cube of regulation. The history of regulation for the last 102 years has envisioned monopoly utilities somewhat the way they've been. That’s why there are regulators in the first place. A change is unlikely to be a leap, like the attempt at deregulation in the 1990s. The transmission system has been there since it’s been built, changing it is also a completely different paradigm. Covering for San Onofre and once-through water-cooled plants won’t be painless but easier than the others—and provide valuable lessons for the rest of the state as it moves to confront the other daunting issues. If agencies can line up the cube, take the Risk, manage the Monopoly money and real estate, and un-Scrabble the barriers, California will have a progressive future for the next generation.

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