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California Wrestles with Emerging Energy Business Models

Peter Asmus — June 18, 2014

When it comes to energy policy, California is schizophrenic (or perhaps dyslexic).

On the one hand, recent energy storage mandates in the form of last year’s AB 2514 have created opportunities to test out how advanced batteries can help mitigate the frequency and voltage issues associated with high penetrations of variable renewable energy.  Utilities such as San Diego Gas & Electric (SDG&E) have suggested that these mandates plant the seeds for new microgrids, building upon the utility’s success with the Borrego Springs project, which SDG&E recently announced will be expanded.

On the other hand, this year’s AB 2145, derided by critics as the “Monopoly Protection Act,” would introduce a major kink in efforts for the San Francisco Bay Area to give local governments the authority to purchase bulk renewable energy to reduce carbon emissions.  The target of the legislation is a policy vehicle – known as community choice aggregation (CCA) – that was pioneered in states such as Ohio and Massachusetts but has fanned the flames of the controversy in California.

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Fueled by the poor track record of early retail deregulation pilot programs, CCA allows local governments to aggregate their constituents into a community bulk power purchase program in order to achieve higher economies of scale.  Residents can opt out, but the experience in Marin County reveals that 80% of the customer base chose the CCA preferred green energy program (resulting in a net reduction of greenhouse gas emissions of 19%).  Adjacent Sonoma County began serving customers under its CCA program in May, and San Francisco has been considering a similar CCA program for several years.

Fast forward to the present.  AB 2145, sponsored by a former utility executive, has cleared the Assembly and is up for its first vote in the Senate on June 23.  Ironically, Republicans are generally opposed to the measure (even though the status quo implies greater government intervention to reduce carbon emissions), while key support to this measure is being provided by Democrats (who are aligning with utility union workers).  Although Pacific Gas & Electric’s efforts to derail Marin County’s CCA via a statewide ballot measure failed in 2010, the utility is a key force behind the latest measure.  The opponents include local governments as well as Silicon Valley.

Interestingly enough, another bill designed to more directly pave the way for microgrids in California by modifying the so-called “over the fence” rule was killed.  A recent California Public Utilities Commission white paper identified this regulatory policy as one of the key impediments frustrating California’s efforts to become the world’s leading market for microgrids.

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