Tag Archives: California

CPUC proposes radical restructuring of PG&E

104778251-gettyimages-861000956In PG&E’s safety order institution investigation (OII), outgoing CPUC President Michael Picker (along with senior administrative law judge Peter Allen) has put on the table four dramatic proposals to address governance and incentive issues at the utility. These proposals are:

  1. Separating PG&E into separate gas and electric utilities or selling the gas assets;
  2. Establishing periodic review of PG&E’s Certificate of Convenience and Necessity (CPCN);
  3. Modification or elimination of PG&E Corp.’s holding company structure; and
  4. Linking PG&E’s rate of return or return on equity to safety performance metrics.

The OII originally was opened to investigate PG&E’s management of its natural gas infrastructure, but the series of electricity-sparked wildfires reinfused the OII with a new direction. The proceeding has been a forum for various dramatic proposals on how to handle wildfire-related issues and PG&E’s subsequent bankruptcy filing.

 

Advertisements

Not grasping the concept: PG&E misses the peak load shift

Utility peak shifted by solar graph

PG&E in its 2020 ERRA Forecast Proceeding testimony wrote “however, BTM DG [behind the meter distributed generation] has a limited impact to the annual system peak as customer-owned solar photovoltaic (PV) generation is minimal during the peak hour of 7 p.m.” Uh, how does PG&E know that customer-owned solar doesn’t contribute to reducing the system peak if PG&E does not meter that generation?

PG&E actually has it wrong. Customer-owned solar has in fact reduced the former pre-solar peak that used to occur between 2 and 4 p.m. The metered load that PG&E can see, which is customer usage minus solar output (BTM DG), has shifted its apparent peak from 4 p.m. to 7 p.m.–3 hours. The graphic above illustrates how this shift has occurred. (PG&E produced a similar chart of its 2016 loads in its TOU rate rulemaking.) So BTM DG has had a profound impact on the annual system peak.

PG&E fails to provide safety support in Davis

This article on a local webnews site, the Davis Vanguard, describes how PG&E was slow to respond and has since failed to communicate with homeowners about subsequent measures to be taken. Note that in this case, the power lines run down an easement through the backyards of these houses. 

What should strict liability look like for wildfire costs?

104815131-gettyimages-861017202-california-fire-power-530x298

Governor Newsom, the Assembly Speaker and Senate Pro Tem have publicly opposed eliminating the strict liability doctrine applicable to utilities for allocating responsibility for wildfire costs.

Maintaining inverse condemnation better assures wildfire victims that they will receive at least some compensation for their damages. However, there needs to be a limit on the types of damages that can be collected if the utilities are allowed to pass through those costs to ratepayers will little review.

Punitive damages are intended to incent the bad actor to fix the problem. But if that bad actor–the electric utility in this case–is shielded from most or all of the punitive damages, then they will have no incentive to change their behavior. Why should they if what they are doing now is costless?

Only if utility shareholders must bear 100% of all punitive damages and the proportion of damages attributable to negligence should the remaining costs be passed through to ratepayers in this situation. Only in this way can California derive the benefits of privately-owned utilities. If these conditions are unacceptable to shareholders, then the only alternative is public ownership so that ratepayers can reap both the benefits and risks of asset ownership.

 

Upfront solar subsidy more cost effective than per kilowatt-hour

Solar_panels_on_house_roof_winter_view

This paper from the American Economic Review found that consumers use a discount rate in excess of 15% in valuing residential solar power credits, compared to a social-wide discount rate of 3%.  The implication is that a government can incent the same amount of solar investment through an upfront credit for as little as half the cost of a per kilowatt-hour ongoing subsidy.

The California Solar Initiative had two different incentive methods, the Performance Based Incentive (PBI) which was paid out over 5 years and the Expected Performance-Based Buydowns (EPBB) paid out upfront. The former was preferred by policy makers but the latter was more popular with homeowners. Now we know the degree of difference in the preference.

Moving beyond the easy stuff: Mandates or pricing carbon?

figure-1

Meredith Fowlie at the Energy Institute at Haas posted a thought provoking (for economists) blog on whether economists should continue promoting pricing carbon emissions.

I see, however, that this question should be answered in the context of an evolving regulatory and technological process.

Originally, I argued for a broader role for cap & trade in the 2008 CARB AB32 Scoping Plan on behalf of EDF. Since then, I’ve come to believe that a carbon tax is probably preferable over cap & trade when we turn to economy wide strategies for administrative reasons. (California’s CATP is burdensome and loophole ridden.) That said, one of my prime objections at the time to the Scoping Plan was the high expense of mandated measures, and that it left the most expensive tasks to be solved by “the market” without giving the market the opportunity to gain the more efficient reductions.

Fast forward to today, and we face an interesting situation because the cost of renewables and supporting technologies have plummeted. It is possible that within the next five years solar, wind and storage will be less expensive than new fossil generation. (The rest of the nation is benefiting from California initial, if mismanaged, investment.) That makes the effective carbon price negative in the electricity sector. In this situation, I view RPS mandates as correcting a market failure where short term and long term prices do not and cannot converge due to a combination of capital investment requirements and regulatory interventions. The mandates will accelerate the retirement of fossil generation that is not being retired currently due to mispricing in the market. As it is, many areas of the country are on their way to nearly 100% renewable (or GHG-free) by 2040 or earlier.

But this and other mandates to date have not been consumer-facing. Renewables are filtered through the electric utility. Building and vehicle efficiency standards are imposed only on new products and the price changes get lost in all of the other features. Other measures are focused on industry-specific technologies and practices. The direct costs are all well hidden and consumers generally haven’t yet been asked to change their behavior or substantially change what they buy.

But that all would seem to change if we are to take the next step of gaining the much deeper GHG reductions that are required to achieve the more ambitious goals. Consumers will be asked to get out of their gas-fueled cars and choose either EVs or other transportation alternatives. And even more importantly, the heating, cooling, water heating and cooking in the existing building stock will have to be changed out and electrified. (Even the most optimistic forecasts for biogas supplies are only 40% of current fossil gas use.) Consumers will be presented more directly with the costs for those measures. Will they prefer to be told to take specific actions, to receive subsidies in return for higher taxes, or to be given more choice in return for higher direct energy use prices?

The Business Roundtable takes the wrong lesson from California’s energy costs

solar-panel-price-drop-global-solar-installations-bnef

The California Business Roundtable authored an article in the San Francisco Chronicle claiming that the we only need to look to California’s energy prices to see what would happen with the “Green New Deal” proposed by the Congressional Democrats.

That article has several errors and is misleading in others aspects. First, California’s electricity rates are high because of the renewable contracts signed nearly a decade ago when renewables were just evolving and much higher cost. California’s investment was part of the reason that solar and wind costs are now lower than existing coals plants (new study shows 75% of coal plants are uneconomic) and competitive with natural gas. Batteries that increase renewable operations have almost become cost effective. It also claims that reliability has “gone down” when in fact we still have a large reserve margin. The California Independent System Operator in fact found a 23% reserve margin when the target is only 17%. We also have the ability to install batteries quickly to solve that issue. PG&E is installing over 500 MW of batteries right now to replace a large natural gas plant.

For the rest of the U.S., consumers will benefit from these lower costs today. Californians have paid too much for their power to date, due to mismanagement by PG&E and the other utilities, but elsewhere will be able to avoid these foibles.

(Graphic: BNEF)