Upcoming Clean Energy Procurement by Southern California Edison, Including New Energy Storage Opportunities

by Wilson Sonsini Goodrich & Rosati

On February 13, 2013, the California Public Utilities Commission (the Commission) issued Decision 13-02-105 to authorize the procurement of electrical capacity by Southern California Edison Company (SCE) to meet long-term local capacity needs (the Decision). This Decision opens up new opportunities for sellers of electrical capacity from energy storage, energy efficiency, demand response, distributed generation, combined heat and power (CHP), and gas projects in Southern California.

To meet local capacity requirements for the West Los Angeles sub-area of the Los Angeles Basin local reliability area, the Decision requires SCE to procure a minimum of 1400 MW and authorizes the company to procure up to a maximum of 1800 MW of capacity by 2021. Of this amount, the Commission required SCE to procure at least 50 MW from energy-storage resources and an additional minimum of 150 MW and a maximum of 750 MW from "preferred resources" under California's "Loading Order"1 (energy efficiency, demand response, distributed generation, including CHP).2 Energy storage is specifically included as a preferred resource by the Decision. The Decision also requires SCE to procure a minimum of 1000 MW and a maximum of 1200 MW from conventional gas-fired electricity resources, including CHP resources.

For the Moorpark sub-area of the Big Creek/Ventura local reliability area, the Decision authorizes SCE to procure an additional minimum of 215 MW and a maximum of 290 MW of electrical capacity.

The primary driver of the need for additional local electrical capacity in Southern California over the next eight years is the retirement of approximately 7000 MW of once-through cooling generators in transmission-constrained areas due to regulations under the Clean Water Act promulgated by the State Water Resources Control Board. The Decision was an attempt to balance the Commission's statutory obligations to ensure grid reliability and reasonable rates and to protect the environment.

The minimum local capacity requirement adopted by the Commission was substantially lower than the 2400 MW recommended by the California Independent System Operator (CAISO) and a similar amount sought by SCE. On the other hand, the adopted local capacity requirement in this Decision was far higher than the 169 MW recommended by the Commission's Division of Ratepayer Advocates, and also was higher than the amount recommended by some clean energy and environmental groups. Much of the debate regarding the needed amount of local capacity in these local reliability areas centered on the extent to which the Commission should take into account additional capacity provided by "uncommitted" energy efficiency resources (i.e., energy-efficiency programs not yet approved by the Commission but likely to be implemented), uncommitted CHP resources, or demand response programs. In its Decision, the Commission assumed a reduction in CAISO's projected capacity need from 400 MW of uncommitted energy efficiency and CHP and 200 MW of demand response resources.

In the Decision, the Commission denied a motion by Megawatt Storage Farms to rank energy storage first in the state's Loading Order. The Decision explained that it was premature to consider where energy storage should fit within the Loading Order because this issue is being reviewed as part of a separate Commission proceeding (R.10-12-007) dedicated to energy storage policy and the possible implementation of energy storage procurement targets. As noted above, however, the Decision did carve out a required 50 MW of procurement of energy storage resources and up to an additional 750MW of preferred resources, including energy storage.

As the next step for implementation of this new procurement authorization, SCE is required to file an application with the Commission for approval of its procurement plan by July 15, 2013. In its application, SCE must show that it has done everything it can to obtain cost-effective demand-side resources to reduce its local capacity needs, as well as cost-effective preferred resources (including energy storage) to meet such local capacity requirements. After approval of its procurement plan, SCE is likely to conduct a Request for Offers (RFO) process in order to solicit bids for capacity procurement, and is also authorized to negotiate bilateral negotiations for cost-of-service contracts with power producers. The Commission expects that by late 2013 or early 2014, SCE will submit an application for approval of its Los Angeles Basin contracts and an application for approval of its Big Creek/Ventura contracts.

If your company is interested in more information about this or other utility procurement opportunities, the California Public Utilities Commission's energy storage proceeding, or other energy regulatory matters, please contact Peter Mostow or Sheridan Pauker with Wilson Sonsini Goodrich & Rosati's energy and clean technology practice.

1 Under California's Energy Action Plan, utilities must procure resources according to the following order of priorities: 1) energy efficiency and demand-side resources, 2) renewable resources, and 3) clean conventional electricity. 2008 Energy Action Plan Update (Feb. 2008) at 1, available at: http://www.energy.ca.gov/2008publications/CEC-100-2008-001/CEC-100-2008-001.PDF; see also California Public Utilities Code § 454.5(b)(9)(C).

2 These amounts are in addition to amounts required to be procured in other decisions, including decisions in the Commission's Renewables Portfolio Standard proceeding.

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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