Dive Brief:

• California regulators on Friday released a second proposal aimed at preventing a repeat of the rolling blackouts that affected the state last August, focusing this time on a suite of demand-side strategies for the next two years.
• If approved later this month, the proposed decision would roll out a new emergency load reduction program, tweak rate plans to encourage customers to save energy, and modify current demand response programs to increase participation, among other measures.
• The proposal is part of the California Public Utilities Commission's (CPUC) broader effort to ensure the reliability of the electric grid during the summer months, launched in the wake of last year's rolling blackouts. The agency issued another decision last month focused on procuring adequate energy supply, which was met with criticism from environmental groups.

Dive Insight:

August's rolling blackouts left hundreds of thousands of California customers without power in the middle of a record-breaking heatwave, prompting the CPUC to open a rulemaking to quickly implement fixes for summer 2021. 

Last month, the CPUC unanimously passed a decision that directed the state's investor-owned utilities to procure additional capacity for the summer either by deploying storage resources, contracting power at risk of retirement, firm forward imported energy, or revising power purchase agreements and implementing upgrades that could draw additional capacity from existing power plants. Although regulators voiced a preference for storage resources, the decision drew criticism from environmental groups who worried it would result in contracts for gas capacity, jeopardizing the state's broader climate goals. 

Several stakeholders have commented since the February decision that demand response measures provide the best opportunity for the commission to get additional capacity in place by summer 2021, Seth Hilton, partner at Stoel Rives, said. Moreover, analysis conducted by California's energy agencies after last year's blackouts show real opportunities to use demand response measures to address extreme weather events, and learnings from the next couple of years could help the state develop even more efficient demand-side programs. 

"We're obviously dealing with a very, very short timeline, and so I think it makes sense for the commission to not only [look to the] supply side, but also on the demand side where programs could be put in place much more quickly," Hilton added. 

If the most recent proposal is approved, it would require Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) to deploy an emergency load reduction program, which would pay customers for conserving energy when the grid is especially stressed. The program is essentially "a layer of insurance on top of existing resource adequacy plans," the CPUC said in a statement. Utilities would also need to modify rate programs that charge a higher price for energy use during peak periods by shifting the peak window to 4 p.m. to 9 p.m., and increase incentives to enroll in demand response programs. 

The proposal would also direct PG&E, SCE and SDG&E to procure 450 MW, 450 MW and 100 MW of additional demand-side and supply-side resources respectively, effectively increasing the planning reserve margin from the current 15% to 17.5%. And since a portion of this margin is solar resources, which begin declining during the evening hours, the filing encourages utilities to exceed those targets by up to another 50% — meaning the decision would result in approximately 1,500 MW of new procurement. Utilities would be able to do so via energy storage contracts or efficiency upgrades to existing generating resources — an element of the decision that has raised concerns that it will lead to more gas generation. 

"[T]he commission has recognized that climate change is driving extreme weather, and that's the reason we need to procure more resources… but at the same time, they're allowing more procurement of fossil fuels which exacerbates the existing problem," said Adenike Adeyeye, senior analyst and Western states energy manager at the Union of Concerned Scientists' (UCS) climate and energy program. 

There are elements of the decision's demand-side changes that trouble UCS as well, Adeyeye said — for instance, the emergency load reduction pilot as proposed would allow participants to use "prohibited resources" when they remove themselves from a grid during emergencies, meaning a customer could reduce their load by burning diesel back-up generation. 

"Diesel back-up generation emits a lot of pollutants. It's particularly dangerous because it often is sited in places near residential areas, near schools," she added. 

Although the proposal provides utilities with different procurement options, the focus has largely been on energy storage as being a potential opportunity to fill the need for net peak capacity, Hilton said.

[W]e may need some natural gas as well and considering the alternatives, having some natural gas available to ensure we don't have outages, that operates for a limited period of time, might be the wisest course," he said.