New Ruling Proposes Groundbreaking Energy Storage Targets for California

by Wilson Sonsini Goodrich & Rosati
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On June 10, 2013, Commissioner Carla Peterman of the California Public Utilities Commission (CPUC or Commission) issued a ruling (Ruling) proposing energy storage procurement targets for California's investor-owned utilities (IOUs) totaling 1,325 MW by 2020. If the full Commission approves this proposal, California would be the first state to establish energy storage procurement targets, creating a significant opportunity for the energy storage sector. The Ruling provides interested parties with an opportunity to comment on the new procurement targets and other details of the proposal, as further discussed below.

Background

In 2010, then-Governor Arnold Schwarzenegger signed into law AB 2514, which requires the Commission to initiate a regulatory proceeding in order to determine if procurement targets for energy storage systems are appropriate for the utilities subject to CPUC jurisdiction. The bill requires the Commission, if it determines that targets are appropriate, to adopt specific targets for December 31, 2015, and December 31, 2020, and to announce these targets by October 1, 2013. The bill imposes similar obligations on the boards of publicly owned electric utilities. Please see our earlier WSGR Alert describing AB 2514.

In response, the Commission opened a proceeding in 2010 to investigate the adoption of procurement targets for viable and cost-effective energy storage systems. Thus far in the proceeding, the Commission has examined market barriers to the adoption of energy storage technologies as well as the various potential end uses of energy storage within the electricity grid. The Ruling is the product of this investigation.

Storage Procurement Proposal

The Ruling is guided by the concept that energy storage has the potential to transform California's electric system by maximizing generation and transmission resources, optimizing the grid to avoid the need for new fossil fuel-based energy generation, integrate renewable energy resources, and reduce greenhouse gas emissions.

To achieve these goals, Commissioner Peterman recommends megawatt (MW) procurement amounts for each IOU, divided into three categories: storage resources that are connected to the transmission system, storage resources that are connected to the distribution system, and customer-sited storage systems. The proposal would require IOUs to solicit set amounts of storage capacity from each of these three categories through auctions every two years, from 2014-2020. The target amounts ramp up every two years by approximately 33 percent.

The proposed targets are as follows:

Initial Proposed Energy Storage Procurement Targets (in MW)1

Use case category, by utility 2014 2016 2018 2020 Total
Southern California Edison
Transmission
Distribution
Customer
 
50
30
10
 
65
40
15
 
85
50
25
 
110
65
35
 
310
85
55
Subtotal SCE 90 120 160 210 580
Pacific Gas & Electric
Transmission
Distribution
Customer
 
50
30
10
 
65
40
15
 
85
50
25
 
110
65
35
 
310
85
55
Subtotal PG&E 90 120 160 210 580
San Diego Gas & Electric
Transmission
Distribution
Customer
 
10
7
3
 
15
10
5
 
22
15
8
 
33
23
14
 
80
55
30
Subtotal SDG&E 20 30 45 70 165
Total - all 3 utilities 200 270 365 490 1,325

The Ruling proposes that third-party-owned energy storage resources be procured biannually using a reverse auction mechanism, similar to the "RAM" used for renewable energy projects between 3 and 20 MW under California's Renewables Portfolio Standard. The reverse auction is intended to encourage projects to bid as close as possible to their costs.2 All third-party-owned energy storage resources except pumped hydrological storage systems would qualify for the auction. If the proposal is approved, the first such auction would take place in 2014.

Under the proposal, previously approved energy storage projects in each of the IOUs' territories would be permitted to count towards the megawatt targets listed above. For example, the 50 MW of energy storage and the storage component of the 150 MW minimum of capacity from "preferred energy resources" that the Commission recently required Southern California Edison (SCE) to procure by 2021 in the West Los Angeles basin would qualify. Please see our recent WSGR Alert on the SCE storage capacity requirement. Up to 35 MW statewide of advanced energy storage projects approved by the Commission under the Self-Generation Incentive Program (SGIP), and projects installed under the IOUs' permanent load shifting programs can count towards the targets. In addition, up to 50 percent of each IOU's distribution-level energy storage procurement target may be satisfied with utility-owned energy storage systems.

Each megawatt target listed above represents the amount of storage capacity each IOU must solicit or satisfy using utility-owned storage resources or previously approved projects, but the targets are not considered "mandates." The targets will be subject to significant "off-ramps" if the utility shows that offers bid into the storage auction are not cost-effective or that insufficient projects were bid into the auction or other showings related to cost. The Ruling suggests that IOUs may be relieved of up to as much as 40 percent of their 2014 targets, 30 percent of their 2016 targets, and 20 percent of their 2018 and 2020 targets if they make such a showing.

Finally, the Ruling expressly rejects requests energy storage developers have made to formally revise California's "Loading Order," placing energy storage as the first priority. Instead, the Ruling states that storage "fits within the spirit of the Loading Order" and because the proposal outlined in the Ruling would make storage a priority for California by setting procurement targets, the Loading Order need not be formally revised.

Opportunity for Public Comment and Next Steps

Interested parties can submit comments on the new energy storage targets proposal by July 3, 2013. Reply comments are due July 19, 2013. A meeting for all parties interested in the storage procurement targets proposal will be held at the CPUC on June 25, 2013. A proposed decision on the energy storage targets is scheduled to be issued in September 2013, and, if approved, a decision would be issued in October. If the proceeding stays on schedule, the first energy storage auction would be held in June 2014.

1 Assigned Commissioner's Ruling Proposing Storage Procurement Targets and Mechanisms and Noticing All-Party Meeting (June 10, 2013) at 8.

2 An obvious risk of RAM-like mechanisms is that they may encourage bidders to bid below their costs and thus result in winning bidders who cannot ultimately finance and build their projects. The California RAM has not been in effect long enough to know whether underbidding will materially interfere with the attainment of installed capacity goals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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