Energy Law Alert: California Public Utilities Commission Proposed Decision Would Mandate 1.3 Gigawatt Energy Storage Procurement

On September 3, 2013, the California Public Utilities Commission issued a Proposed Decision that would require California's largest investor-owned utilities – Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) – to procure 1,325 MW of energy storage by 2020. The proposed Energy Storage Procurement Framework and Design Program culminates the Commission's work under Assembly Bill (AB) 2514 to determine the appropriate target, if any, for each load-serving entity in California to procure energy storage systems. Opening comments on the Proposed Decision must be filed with the Commission no later than September 23, 2013, and reply comments are due September 30, 2013. The Proposed Decision is scheduled for consideration by the Commission at its October 3, 2013 meeting.

Consistent with AB 2514, the Commission's energy storage mandate focuses on:

  • Optimizing the electrical grid, including reducing peak energy demand, contributing to reliability, and deferring expensive upgrades to the grid,
  • integrating energy renewable resources, and
  • reducing greenhouse gas emissions to 80% below 1990 levels by 2050, consistent with AB 32 and Executive Order S-3-05, issued by former Governor Schwarzenegger in 2005.

Procurement Targets for IOUs:

The Proposed Decision would require PG&E and SCE to each procure 580 MW of energy storage by 2020. SDG&E must procure 165 MW of energy storage by 2020. Interim targets, which increase over time, are provided for 2014, 2016, and 2018. In addition to procurement by the IOUs, electric service providers and community choice aggregators are required to procure 1% of their annual peak load from energy storage resources by 2016 and 2020, respectively.

The IOU procurement targets are broken down by point of interconnection to the grid, or "grid domain": storage resources connected to the transmission grid, resources connected to the distribution grid, and customer-side behind-the-meter resources. Roughly half of the overall procurement target of 1,325 MW must be met with storage resources connected to the transmission grid, and another third from resources interconnecting with the distribution grid. The remainder of the target must be procured from customer-side energy storage resources. Despite the delineated targets for each IOU within each grid domain, an IOU has wide discretion to shift up to 80% of its target for transmission-connected projects to distribution-connected resources, and vice versa. The target for customer-side storage resources is fixed. Storage resources in any of the grid domains may be utility-owned, but ownership is limited to 50% of each IOU's total procurement target.

Certain energy storage projects identified in the proposed decision, which are currently in the pipeline, will count towards the IOUs' procurement targets. Each project must first demonstrate that it furthers one or more of the purposes of AB 2514: grid optimization, integration of renewable energy, or reduction of greenhouse gas emissions. Each project must also be operational for one year. Likewise, any storage resource procured by the IOUs in the future, pursuant to another Commission proceeding, will count towards procurement targets, once the project has been operational for a year. For example, SCE will procure 50 MW of storage to meet local reliability needs in the Western Los Angeles basin pursuant to a Commission Decision in the Long-Term Procurement Planning proceeding.

The Proposed Decision builds in significant flexibility for meeting the procurement targets, allowing an IOU to request a deferment of up to 80% of its total procurement target, based on an affirmative showing by the IOU of unreasonable cost. Reasonableness of cost will be measured against the least-cost, best-fit bid evaluation methodology developed by the IOUs and approved by the Commission. Procurement targets may also be deferred where an IOU demonstrates that it has not received sufficient bids for projects that are operationally viable, or has received insufficient bids to meet its procurement target. Any deferred procurement shifts to the next solicitation, however.

Competitive Solicitation:

Storage resources will be procured in a biennial request for offer (RFO) competitive solicitation, commencing in 2014, followed by RFOs in 2016, 2018, and 2020. The first RFO will be scheduled for no later than December 2014, and the IOUs are required to file applications with the Commission setting forth their proposed solicitation framework no later than January 1, 2014. This solicitation application will include a proposed methodology for a least-cost, best-fit analysis of bids, developed by the IOUs in coordination with Commission staff. For future solicitations, updated RFO proposals must be submitted by the IOUs at least nine months prior to the solicitation.

All mechanical, chemical, or thermal energy storage resources, as defined in California Public Utilities Code section 2835(a), are eligible to bid into the RFOs, with the exception of pumped hydro storage projects of 50 MW or greater. Projects must be operational within four years of the solicitation date. Contracts must be negotiated within one year of a solicitation, and approved by the Commission.

Program Evaluation:

The Commission will evaluate the Energy Storage Program no later than 2016 and at least once every three years thereafter through 2022, to determine if the program meets the goals of AB 2514. The evaluation will also allow the PUC to learn from the collection, analysis, and reporting of energy storage operational data and the cost effectiveness of procured resources, and determine best practices for safe operation of storage technologies.