Dive Brief:

• A recent proposal from the California Public Utilities Commission (CPUC) to bolster the state's grid during the summer months was criticized by a range of stakeholders, who argued at a meeting on Friday that the decision does not do enough to support demand response efforts, while doubling down on potential fossil fuel investments. 
• The proposal, released in early March, is part of the agency's effort to avoid more rolling blackouts in the state. If approved, it would implement a suite of demand-side fixes and also direct utilities to collectively procure up to 1,500 MW of demand and supply-side resources, which some worry would come from fossil fuel resources.
• The proposal demonstrates a lack of balance in terms of prioritizing gas resources rather than investing in demand response opportunities, V. John White, executive director of the Center For Energy Efficiency And Renewable Technologies (CEERT), said at the meeting. "The consequences of this are significant rate impacts resulting from the automatic pass through of gas costs, and … continued pollution in the disadvantaged communities of California," White said.

Dive Insight:

The proposal discussed at Friday's meeting is the second decision from the CPUC this year tackling reliability challenges, a key priority for regulators following the rolling blackouts that occurred in California last August. Energy officials determined that the blackouts, which occurred during a record-breaking heatwave, were caused by a combination of insufficient supply-demand planning as well as market issues.

On the demand side, it would implement a new emergency load reduction program as well as measures to increase demand response program participation. In addition, the proposal instructs Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) to procure approximately 450 MW, 450 MW and 100 MW of new resources, respectively — effectively increasing the planning reserve margin from 15% to 17.5% beginning this summer — and encourages the utilities to exceed those targets by up to 50%.

But demand response advocates argue that it doesn't go far enough to promote these resources in the state. In comments filed with the commission last week, CEERT questioned the proposal's utility-centric approach, noting that it only addresses demand response programs implemented by utilities and excludes third-party aggregators. Demand response played a critical role in preventing additional blackouts last August; in SCE's footprint, for instance, customers moved 4,000 MW of demand off the grid last summer, White noted on Friday.

But "the proposed decision presents a crippling response to demand response and distributed energy resources by failing to even consider proposals by industry leaders and even the utilities," he added.

Another area of concern is the emergency load reduction program's proposed compensation rate of $1,000 per MWh. The DR Coalition, a group that includes Google, Tesla, Oracle and the California Efficiency + Demand Management Council, said in comments and at the meeting that the rate is too low to draw customers to the program, recommending a $2,000 per MWh energy payment instead. 

The proposal is part of an expedited proceeding that the commission launched last November, to address both demand and supply-side remedies to support the grid during the summer. Once it's voted out, however, the agency has recommended closing the rulemaking — a choice that has concerned some stakeholders. Keeping it open would allow the commission to focus on more demand response opportunities for 2022, Mike Florio, representing consumer group The Utility Reform Network, said.

"The commission has moved with remarkable speed in this proceeding but in the process, a mountain of very good testimony has been left on the cutting room floor," he said. 

Utilities, meanwhile, worry that the complexity of the emergency load reduction program could make it difficult to implement. The proposed program would include more participants and options than anticipated, SCE noted in its comments. The utility is urging regulators to instead approve a simpler pilot it pitched back in January. 

"The simple design and dispatch flexibility was intentional," Katie Sloan, director of Advanced Energy Solutions at SCE, told regulators. "As written, [the current proposal] is not an implementable design for this summer or potentially for the future," she added. 

Concerns around natural gas generation persist

Environmental groups, meanwhile, have raised concerns that the rulemaking could lead to additional fossil fuel investments, running contrary to California's climate goals. Regulators approved another decision in February instructing utilities to procure additional capacity for the summer. Last week, the CPUC gave PG&E and SCE the green light to move forward with a series of contracts with gas, biomass and cogeneration facilities.

The commission can address reliability without changing the planning reserve margin and should limit procurement to clean energy resources, Adenike Adeyeye, senior analyst and Western states energy manager at the Union of Concerned Scientists, said at the meeting.

"Specifically, long-term contracts for incremental gas generation should be prohibited and outside the scope of this proceeding," she said. 

The California Independent System Operator, however, did support the effective 17.5% planning reserve margin for summer 2021. CAISO's analysis indicates that available resources are significantly below the current 15% margin during the net peak demand period, senior counsel Jordan Pinjuv said.

The CPUC's reliability proposal was also supported by the Independent Energy Producers Association. Incremental gas capacity should only be selected if it is found to be the best option, and even then would not contribute to emissions unless those resources run, which would only happen if they are needed for reliability, Brian Cragg, an attorney for the association, said. 

"The small quantity of additional resources needed for emergency reliability for '21 and '22 will not delay or hinder California's steady progress towards [clean energy] goals," he said.