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on Jun 16, 17 • posted by Iain Soutar •

Comparing NYS with CA: Blog 3 – Overview of CA Energy and Regulatory Policy

This is the third in a series of blogs comparing New York State (NYS) and Californian (CA) regulatory policy.

Catherine Mitchell, IGov Team, 16th June 2017

The first blog provided an overview of the blog series. The second blog provided an update on the NY Reforming the Energy Vision (NY REV). This blog provides a (very) brief overview of CA regulatory policy. The fourth blog undertakes a general comparison between CA and NYS regulatory policy. The fifth blog provides a more detailed comparison of the NYS versus CA regulatory policy with respect to distributed energy resources, and distributed resource plans. A sixth blog reviews potential distribution utility functions, and their differing names.

Introduction to Californian Energy History and Energy System

CA has been at the forefront of global energy policy since the 1970s. Their reaction to the oil crises and energy insecurity of the early 1970s was to put in place policies to support energy efficiency measures and renewables. The Public Utility Regulatory Policies Act (PURPA) of 1978 was one of the first countries / US States in the world to legislate to support renewable energy implementation.

CA has multiple agencies for analysing, and implementing, different aspects of energy policy. The four most important are: the CEC (the California Energy Commission); the CPUC (the California Public Utilities Commission); CAISO (the Californian Independent System Operator); and CARB (the Californian Air Resources Board).

CA is an example of a State / country which has had long-term, political commitment and leadership with respect to sustainable energy, via both Republican and Democrat Governors. A central difference from NYS (see Blog 2), is that its progressive energy policy is driven by Gubernatorial (i.e. the State Governor) and Legislative direction. CA still effectively delegates executive responsibility for its sustainable policies to its Investor Owned Utilities (IOU’s) via the State Agencies from the Governor’s lead (and having to take into account past decades of legislation). Regulation therefore is the central tool, so far, in the move to a sustainable energy system.

California is a leader for implementation across technologies for the US: ‘California represents 49 percent of all the distributed solar that’s been installed; it represents 49 percent of all the distributed storage that’s been built; and it represents 47 percent of all the plug-in electric vehicles in the U.S. (see here). GHG emissions in CA have been reasonably similar between 1990-2014, and Senate Bill (SB) 32 (2016, discussed below) is intended to bring them down significantly by 2030 (see here). Only the transportation and electricity sectors have managed to reduce emissions between 2000 and 2014, whilst industrial, commercial and residential, agriculture, recycling and waste have more or less stayed the same (see here). The provision of electricity generation capacity has increased significantly since 2001 (around 56,000 MWs) to around 80,000 MWs in 2014, with natural gas and renewables making up the majority of the new capacity. Renewable electricity now provides about 25% of electricity generation. Solar has increased from 6,800 MW in 2001 to 26,300 MW in 2016. The California GDP has managed to remain buoyant with an increasing population, whilst reducing GHG emissions.

The Pillars of Californian Energy Policy

Within this pro-environment context, CA energy policy had a major existential crisis in 2001 which has had a profound effect on subsequent energy policy, and their attitude to markets. CA implemented a privatisation of their electricity system – which failed [1]. Since then, CA has been extremely cautious about introducing more avowedly ‘market’ based policies or institutional reforms to the CA energy system.

Broadly, CA has 3 main investor owned utilities (IOUs), which are joint distribution and supply companies which supply about 70% of electricity. The other 30% is supplied by Muncipal-Owned Utilities or ‘munis’, with the biggest being Sacramento Municipal Utility District and the Los Angeles Department of Water and Power. The IOUs buy electricity from wholesale markets; and are the main executors of CA State energy policy by procuring renewables, providing contracts for energy efficiency measures, demand response, storage and so on, as they are mandated to do. They then sell to customers in what was their monopoly areas, via distribution grids they own.

Technically, there is retail competition although in a de facto sense competition mainly occurs in the non-domestic sectors. It is possible to have Community Choice Aggregation (CCA) which is when a community (and therefore domestic customers) is able, under certain rules, to procure energy for the community; and for Electric Service Providers (ESP, the equivalent of the European supplier concept) that offer electric services directly to retail (including domestic) customers within the main IOU service areas. Some CCAs can be large, although they are still reliant on their IOU or muni. for billings and so on. In practice, ESPs do not provide energy to domestic customers. As a result, a domestic customer in CA who does not live in a CCA area can only buy their electricity from the monopoly retail supplier. CA is therefore a State with limited domestic retail competition. There is competition in the IOU take-up of resources to the extent that a utility either buys via a wholesale market or procures resources (as a result of regulatory requirements) based on competitive bidding (for a rather old analysis of this see here). CA does not have the market / platform and transactive energy initiatives of NYS, which arguably is the main focus now of innovative energy system players, whatever their size or country base.

However, as of mid May 2017, the CPUC published a White Paper on customers and retail choice, asking if greater customer choice might be a useful option. Given CA’s history this is an important step.

California Energy and Regulatory Policies

The ‘California Crisis’ was an unsettling time for CA energy policy but over the last decade or so CA has been ramping up its sustainable energy policy, albeit still in a limited fashion with respect to the market. In 2003, the California Energy Commission (CEC) established the California Statutory Energy Loading Order via the CA Energy Action Plan, 2003, and then updated it in 2008. This Loading Order required IOUs to procure energy efficiency and demand response ahead of all other resources.

In parallel to the CEC’s Loading Order, ‘modern’ Californian energy policy was founded in State Assembly Bill ( AB) 32 – the Global Warming Solutions Act, 2006 – which formally brought air quality and climate change together along with security and affordability issues. This has been ratchetted up by Senate Bill (SB) 350 in 2013; SB 32 in 2016 (which has a target of 40% reduction of GHG from 1990 levels by 2030); and AB 197 which aims to ensure that the State’s implementation of these policies is transparent and equitable, and that their benefits also flow to the disadvantaged (for an overview of State papers please see here). On 31 May 2017, SB100 was passed with the goal of CA receiving all (100%) of its power from renewable energy by 2045; and increased the current target of 50% renewables by 2030 to 2026.

An Integrated Energy Policy Report (IEPR) is published every 2 years by the California Energy Commission and is updated on the off years (see 2015) and the most recent update (2016). The IEPR reports attempt to provide an overview, and explain the inter-relationships, of the CPUC, CAISO, CARB and CEC policy measures. But it has been the CPUC’s 7 page Distributed Energy Resources Action Plan, published in November 2016, which has set out a time plan for Actions to integrate, and take forward, all the various measures within California and its Agencies.

Arguably, as a result of this, CA energy policy has five key pillars:

Electricity system decarbonisation through renewables implementation and energy efficiency policies such as the renewable energy transmission initiative (RETI 1.0, RETI 2.0 and Long Term Procurement Planning ) via the CEC
Decarbonisation through strengthening regional markets and creating a Regional Independent System Operator (RSO) and Energy Imbalance Market (EIM) via CAISO
Decarbonisation by building distributed energy resources (DG, EE, DR, storage and EVs) via the CPUC
Optimising decarbonisation across sectors (electricity, building and transportation) via Integrated Resource Planning, coordinated by the CPUC
Valuing carbon, and air quality, policies, (including the cap and trade scheme) via CARB.

It is important to note the different agencies involved in these different pillars. Taking them in order (but excluding the last one from discussion):

Electricity Decarbonisation via RE and EE

For a detailed overview of these policies, please see the IEPR reports mentioned above. As mentioned above, the CA goal for renewables is now 50% by 2026 and 100% by 2045 ( ascompared to the 50% by 2030 in NYS). This goal is supported by the CEC Renewable Energy Transmission Initiative (RETI), which is trying to bring together the knowledge about where the high value renewables resource is with where that resource has the most high value to transmission. A renewable portfolio standard (the RPS – the main policy for encouraging renewables) calculator has been developed to help with this calculation, along with geo-mapping of resources to help with planning issues. The RPS calculator going live represents the end of Phase 1 of RETI. RETI has become RETI 2.0. RETI 2.0 is the next phase in the attempt to better coordinate RE development so that it moves beyond the more simple goal of additional RE capacity to a more sophisticated goal of delivering renewables capacity to where it has particular value to the energy system.

Decarbonisation via Strengthening Regional Markets

In parallel to the RETI work, it was hypothesised that there might be value in strengthening regional markets – meaning linking California with various Western States – by opening up high value transmission possibilities to more regional energy imbalance markets. An overview analysis was undertaken via the California Independent System Operator (CAISO) known as the SB 350 study (see ppt here and report here), which showed that there would be a value of around $900 million by 2030 of greater market interconnection between California and the Western States. There is already a successful regional Energy Imbalance Markets (EIM: see here, here and here) operated by CAISO but these are primarily bilateral agreements with various transmission utilities (for example, with PacifiCorp (which crosses 5 States), or between California and Oregon). But the EIM has limits and a greater market interconnection across a wider area would increase energy system flexibility with both in- and out- of State options. There are ‘politics’ to this but the Natural Resources Defence Fund is spearheading the next stage towards greater market integration (for a discussion, please see here).

Decarbonisation by Developing DER

At the same time, as the supply side effort, there has also been attempts to animate the demand side. The CPUC Scoping Note of 2014 set up Distribution Resource Plan (DRP) proceedings (the equivalent of the 2015 NYS Distribution System Implementation Plans) whereby CA IOU utilities are required to produce a DRP (see here). The Scoping Note argued that the underlying rationale for promoting increased deployment of DERs is that they have a critical role in meeting CA’s GHG reduction policy. The goals of the DRP Plans were to:

modernise the electric distribution system to accommodate two-way flows of energy and energy services throughout the IOU networks;
enable customer choice of new technologies and services that reduce emissions and improve reliability in a cost efficient manner
to animate opportunities for DER to realise benefits through the provision of grid services, and to enable a plug and play distribution grid for DER (p.3-5)

This area of developing distributed energy resource plans (DRPs), along with the parallel NYS policy of developing distribution system implementation plans (DSIPs), is the topic of the fifth blog of this series.

Optimising Decarbonisation across Sectors

A fourth plank of CA policy is optimizing decarbonisation across all sectors (electricity, heat and transport) via Integrated Resource Planning (an overarching version of the Integrated Distributed Energy Resources (IDER)). The CPUC is mandated from SB350 to implement an Integrated Resource Planning (IRP) process across electricity, buildings and transportation (see here). For more detail, please see the scoping ruling; and an assumptions document for implementing the 2017 IRP plan. As mentioned above, the CEC also produces a detailed, “integrated” report called the Integrated Energy Policy Report (IEPR) of California, (see 2015) and the most recent update (2016). This not only provides a good overview of CA energy policy, but it also does provide an integrative narrative for the CPUC, CAISO, CARB and CEC processes and actions. And then finally, as again talked about above, the CPUC’s DER Action Plan is also endeavoring to move this narrative on to practice change: integrating these agency activities as outcomes.

Conclusion

CA is the US’s most forward US State in terms of RE capacity, storage capacity etc. It’s policy characteristics have been shaped by the failure of the electricity privatization in the early 2000’s. Its fundamental driver comes from the Governor (and his legislative base) via agencies and traditional utilities with, so far, de facto domestic customer monopoly. It is clearly a very successful model.

The central question is whether this top-down driver will be able to continue successfully going in to the future, or whether the underlying needs of D4 (decentralization, decarbonisation, digitalization and democratization) will be constrained by the absence of domestic retail completion, independent suppliers and easy customer choice. This is discussed further in Blog 4 of this series.

[1] See James L Sweeney, The California Electricity Crisis, 2002, Hoover Press, or for a condensed version: http://web.stanford.edu/~jsweeney/paper/Lessons%20for%20the%20Future.pdf; or for a very quick overview http://projects.exeter.ac.uk/igov/lessons-from-america-worrying-analogies-between-the-emr-process-and-the-california-electricity-crisis-2001/