CPUC finds DERs save on transmission investments, but implementation remains 'the big question'

Dive Brief:

The California Public Utilities Commission (CPUC) recently acknowledged that distributed energy resources (DER) can help avoid certain transmission investments, which stakeholders say could have major implications for the sector.
The CPUC's decision approving updates to its avoided cost calculator, issued in late April, concluded that DERs provide "unspecified transmission cost savings." Regulators did not adopt new proposals to estimate that value, instead asking its staff to refine a pre-existing marginal cost method currently used by Pacific Gas & Electric (PG&E).
"The big question here is what would the implementation look like on this issue," Rick Umoff, senior director and counsel for Solar Energy Industries Association's (SEIA) California division, told Utility Dive. While the decision could provide meaningful benefit to DERs, if the utilities were to just adopt PG&E's current method, "it'll likely undervalue DERs."

Dive Insight:

California's avoided cost calculator is a mechanism that estimates the benefits that DERs can provide by cutting costs related to natural gas and electric service. It was first adopted in 2005, and includes six types of avoided costs, including transmission and distribution investments. The current form is a spreadsheet model with hourly values for the marginal cost a utility would avoid with DERs over a 30-year time frame.

Transmission costs can be either specified or unspecified, Umoff said. The former is a cost tied to specific projects, where utilities can avoid a transmission investment due to a behind-the-meter resource, while the latter is less straightforward — for instance, shifts or drops in customer load that reduce the need for capacity upgrades across the system.

The CPUC's avoided cost calculator deals with unspecified transmission costs, and the California Independent System Operator factors specified costs into its transmission planning process.

Currently, PG&E is the only California utility that includes avoided transmission costs in the calculator. The utility came up with the methodology for factoring in these costs as part of a proceeding that did not include the other IOUs, Craig Lewis, founder and executive director of Clean Coalition, said. On average, the method results in an avoided cost that's around $0.025/kWh.

Last November, the CPUC's staff released a proposal that recommended calculating avoided transmission costs based on CAISO's congestion prices in the short-term. However, multiple parties were skeptical of the approach and the commission eventually decided against adopting it.

The agency also raised concerns in its April decision about alternate proposals from SEIA and Vote Solar, which it said may not account for transmission investments that will be needed despite DER growth.

Instead, the CPUC directed its staff to continue using the method used by PG&E, applying it to the other utilities as well — but with possible refinements. The agency's energy division will hold a workshop to provide more details of these revisions soon.

"Now that this is going to be incumbent on all three utilities, and it's going to be for everything they procure going forward, we are going to see a lot of impacts in terms of market outcomes, and we're going to see a lot more local generation … because of this decision," Lewis said.

How those refinements play out could change the impact of this decision on the DER sector, according to Umoff. SEIA believes that PG&E's methodology limits the amount of projects that would be considered as "avoided" by DERs. The CPUC workshops will kick off soon — "and then the math begins, and the energy division will start working on the implementation process," with opportunities for parties to comment, he said.

There are a number of other unresolved issues in the implementation of the avoided cost calculator, Umoff said — like capturing methane leakage rate, and avoided distribution costs.

"There are a number of good things in the final decision, but there's just going to be a lot of work that's going to be done in the implementation" to ensure DERs are fully valued, he said.