In late August 2014, the California Public Utilities Commission (CPUC) issued a Staff Report to make recommendations for improvements to the process of interconnecting new generating facilities in California, such as new solar energy projects. In response, the California investor-owned utilities (PG&E, Southern California Edison, and SDG&E) submitted comments which largely opposed the proposed reforms. This blog post summarizes their arguments and some interesting points raised by other parties in the proceeding.
The Utilities Dispute Responsibility for the Uncertainty in the Interconnection Process
The Staff Proposal notes a number of causes of uncertainty in the interconnection process. These include: (1) the “ripple effect” of other, earlier project applications, on later projects. If an earlier project withdraws its proposal, a later project might be required to incur additional costs that would have been incurred by the earlier project; (2) the need to stop at multiple steps in the process to make payments to the utilities, which leads to breakdowns and “haggling”; (3) modifications made by a project applicant mid-way through the process; (4) utilities sometimes require a project to be studied by different people or groups within the utility, resulting in inconsistent estimates and methodologies; (5) utilities sometimes require additional costs mid-construction, even after the project applicant and utility have signed an Interconnection Agreement.
The utilities state that most of these causes are outside of their control, and those that are within their control do not have a major impact on interconnection uncertainty. Of course, it would be unfair to assign responsibility for causes that are beyond the utilities’ control. However, it appears that at least some of these issues are internal to a utility, or at least are capable of being improved only through changes to utility processes.
The Utilities Argue that Changes Should Be Delayed 24 Months to Await the Results of Recent Changes to Interconnection Process
The utilities point out that a major overhaul of the interconnection process recently occurred. The utilities argue that it will take time to see how these changes improve the process and claim that 24 months of data on new interconnection applications is needed before new changes should be considered.
However, it is notable that the early results of this reform suggest that not all problems have been corrected. Comments submitted by another party, the Clean Coalition, show that of the more than 200 applications made since the new process began in September 2012, the completion rate is 11% for SoCal Edison, 15% for PG&E, and 56% for SDG&E. (The Clean Coalition states the 56% completion rate for SDG&E may be incorrect due to inconsistencies in their data reports.) This is notable because these applications are for the simpler category of projects (called “Fast Track”) projects, rather than the more complex projects where significant grid upgrades are usually required.
The Utilities Reject the Use of a Fixed Cost Policy Used in Massachusetts
The Staff Proposal recommended following a cost-containment mechanism used in Massachusetts. Under this proposal, the utilities would be responsible for providing a fixed estimate of the costs of interconnection. If the cost estimate is exceeded by more than 10%, the utilities would bear responsibility for the amount over 10%. This proposal would only apply to the category of projects that are more complex and require detailed studies of interconnection (non-Fast Track projects).
The utilities argue that this would violate the basic utility compact. This compact, enshrined in state law and long-standing regulatory principles, says that utilities are allowed to recover the costs they reasonably incur in providing safe and reliable electric service to customers (the so-called “rate base”), plus a reasonable rate of return on these costs. The utilities argue that the Staff Proposal would violate this principle by shifting costs for interconnection upgrades to the utilities when they exceed cost estimates.
Of course, the utilities will still be able to recover all the costs they incur in making interconnection upgrades, as long as they are included in the upfront cost estimate. The Staff Proposal reasons that this is fair because the utilities themselves are making the cost estimate. If they believe they will need to incur upgrade costs and wish to recover them, they need to include those costs in the cost estimate. The Staff Proposal reasons that the utilities are in the best position to bear this risk because they know their systems the best and are most capable of making accurate predictions of upgrade costs. The utilities will be given a 10% buffer to ensure they are given some grace for inaccurate cost estimates.
The utilities point to differences between the California and Massachusetts process to suggest it should not apply in California. Of note, the utilities argue that the Massachusetts model requires more detailed study before a binding cost proposal is made. If true, this would undermine the use of the Massachusetts model in California.
The utilities also point out that this proposal would reverse some of the benefits of the recent interconnection reforms. Those reforms were intended, in part, to push the timing of the detailed study process until later in the interconnection process, to allow more projects to proceed further before detailed studies must occur. The utilities suggest that the Staff Proposal would have the effect of requiring a more detailed study earlier in the process since the utilities would want to conduct these studies before committing to the binding cost estimate.
Why Not Use Competitive Bidding?
One interesting rejoinder to all of this comes from the Clean Coalition, which advocates for competitive bidding of third parties for the construction of interconnection upgrades.
The Clean Coalition points out that many private construction contractors are capable of preparing binding upfront cost estimates and sticking to them. The Clean Coalition questions why these private contractors should not be allowed to participate in a competitive bidding process to bid on and construct interconnection upgrades for the utilities’ systems. It points out that other utilities in California – including the Sacramento Municipal Utility District and the Imperial Irrigation District – have used competitive bidding with success. But the PG&E, SoCal Edison, and SDG&E have so far rejected the call for such a process in their projects.
The parties will be submitting additional comments and participating in workshops to discuss these issues further. For information on how to be involved, please contact Lawyers for Clean Energy here.