A Glimpse into the Future: What California’s Utility Regulations Portends for Other States

A Glimpse into the Future: What California’s Utility Regulations Portends for Other States

California is a national leader in progressively addressing the energy and environmental issues of our time. The state is home to nearly half of the country’s solar photovoltaic capacity, half of the nation’s plug-in electric vehicles, and has more energy storage capacity than any other state. A quarter of the state’s retail electricity sales are from renewable energy resources, and this figure is expected to increase into the next decade. While much of the U.S. electric utility industry’s “Utility of the Future” (UoF) attention over the past couple years has been focused on the New York Reforming the Energy Vision (REV) proceeding, California has led several efforts to push its utilities head-long into the future others are merely envisioning. These efforts are worth examining as an indication of what utilities in other states may soon face.

California has numerous open proceedings geared toward encouraging utilities to change their approach to conducting business. The driver for many of the initiatives is its ambitious greenhouse gas (GHG) reduction goals.

In 2006, California enacted Assembly Bill (AB) 32, the Global Warming Solutions Act, which sought to reduce carbon emissions to 1990 levels by 2020. As a result, California pushed forward several programs, including its landmark economy-wide GHG cap-and-trade program. On September 8, 2016, California Governor Jerry Brown signed legislation to further reduce California’s GHG emissions to 40% below 1990 levels by 2030. In order to meet this aggressive target, California codified or opened proceedings for considering a suite of regulations, some of which are summarized below.

  • Renewable Portfolio Standards: Under California Senate Bill (SB) 350, which was signed into law late last year, California increased its renewable electricity procurement goal from 33% by 2020 to 50% by 2030. This is one of the most aggressive renewable energy targets in the country. California’s approach to ensuring grid reliability and resilience with its high penetration of renewable energy will provide an important example for states throughout the country as customer demand for clean energy builds.
  • Energy Storage: California passed AB 2514 in 2010, which led to the establishment of a statewide energy storage procurement target of 1,325 MW by 2020. In late September 2016, Governor Brown signed into law bills to support expanded energy storage deployment. These new bills included a requirement for the state’s investor-owned utilities (IOUs) to develop and own 500 MW of behind-the-meter storage in addition to the 1,325 MW required under AB 2514, setting aside $249 million to fund energy storage through the Self Generation Incentive Program, and authorizing the California Public Utilities Commission (CPUC) to establish an expedited process for behind-the-meter energy resources including energy storage seeking interconnection. Other states are following California’s lead: Oregon passed a similar energy storage mandate last year and, in August, Massachusetts enacted legislation that will pave the way for energy storage procurement in that state.
  • Distributed Energy Resources (DERs) Planning and Siting: Mandated through AB 327, the California IOUs were required to file Distributed Resource Plans (DRPs) that “identify optimal locations for the deployment of distributed resources” last summer. The CPUC’s stated DRP objectives are to: (1) modernize the distribution system to accommodate customer choice, (2) enable new technologies and services that reduce emissions and improve reliability, and (3) animate opportunities for DERs to realize benefits by providing grid services. The IOUs are now exploring hosting capacity on the distribution system, evaluating locational benefit and costs for DER siting, and developing pilot projects to examine the locational benefits of DER. Additionally, under SB 350, the California utilities are required to file Integrated Resource Plans, which will lead to comprehensive electricity planning to determine the least-cost mix of resources, including DERs, to meet energy demand while addressing renewable integration challenges.
  • Net Energy Metering (NEM): Under AB 327, utilities filed comments last year proposing to gradually reduce the rates paid back to NEM customers, but ultimately the CPUC decided to preserve NEM at the retail rate until 2019 and prohibit “demand charges, grid access charges, installed capacity fees, standby fees, or similar fixed.” This is an important indicator that while the economics of solar have improved, NEM is a difficult rate construct to move away from once it is offered.
  • Energy Efficiency Standards: In late 2015, California doubled its already aggressive energy efficiency goals. SB 350 set targets for businesses, factories, and homes throughout the state. In addition, the state passed AB 802, which promotes benchmarking and efficiency improvements for buildings. With much of the low-hanging fruit already picked, it will be more difficult to find cost-effective energy efficiency projects.
  • Other Relevant Policies: Electric Vehicles—California is accelerating the adoption of electric vehicles through its Zero Emission Vehicle program, Low Carbon Fuels Standard, funding of IOU investment in charging stations and infrastructure under SB 350, and various rebate and incentive programs. Zero Net Energy—California has an established goal that by 2020 every newly built home will produce as much power as it uses and established the same goal for new commercial construction by 2030. Shared Renewables: SB 43 resulted in the Green Tariff Shared Renewables Program, which allows the IOUs’ customers to receive 50-100% of their electricity demand from solar generation; enrollment is capped at 600 MW, and the program sunsets on January 1, 2019.

California has been advancing utility policies to push the current bounds of distributed energy resource integration.  And while the regulatory context in California is unique—with its generally temperate climate, environmentally progressive private and corporate citizens, and history of top-down policymaking—as the state continues to boldly explore untrodden paths, utilities in other states should monitor the learnings and functionality of California’s experiments. California’s policies may soon find their way, in some form, to other states as well.

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