By Jason Fordney

SACRAMENTO, Calif. — California regulators voted Thursday to extend the life of a state demand response pilot project, saying they hope it could lead to a permanent program to help meet the state’s clean energy goals.

The California Public Utilities Commission heard from the public about several matters at the meeting, held across the street from the state capitol. The five commissioners were also predictably unified in their opposition to any possible FERC-proposed grid resiliency pricing rule as a result of the U.S. Department of Energy’s Notice of Proposed Rulemaking calling for financial support for nuclear and coal-fired power plants.

DRAM Extended

The PUC unanimously approved extending the Demand Response Auction Mechanism (DRAM) pilot program into 2018, against the recommendation of its administrative law judges.

“There were a lot of things that really led me to this decision to see the merit of continuing with this an additional year,” Commissioner Martha Guzman-Aceves said. The program has grown in terms of new participants, including low-income residents, “to levels that are really quite outstanding and different from the [investor-owned utility] programs.”

In the DRAM program, third-party sellers bid aggregated DR directly into the CAISO day-ahead energy market. Utilities acquire the capacity but do not receive revenues winning bidders might gain from the market. In the 2017 DRAM, third-party providers could bid in as both local and flexible resource adequacy, not just system resource adequacy.

Thursday’s decision requires Pacific Gas and Electric and Southern California Edison to procure $6 million of DR in their territories in a 2018 auction for 2019 delivery, while San Diego Gas & Electric must acquire $1.5 million. DR companies bid for the contracts on a pay-as-bid basis.

The program also created two new working groups: one to define new DR programs, and one to study barriers to DR.

Commissioner Liane Randolph said, “It is helpful for us to continue these pilot projects until the evaluation is complete, and we decide whether we are ready to adopt the DRAM as a permanent program.” By keeping the auctions going and modifying the guidelines, “we encourage market participants to continue to invest in this new type of DR,” she said.

Commissioner Carla Peterman said there are limited opportunities for DR.

“I do think it is important to continue our momentum in this area,” Peterman said. She noted the auction will use the same procurement guidelines as a permanent auction. “I think it will be a good opportunity to see how those guidelines work in practice,” she said.

Commission Encourages CCA, Direct Access DR

The commission’s decision also moves forward the process of enabling community choice aggregators (CCAs) and direct access (DA) providers to create DR programs to compete with those of IOUs.

California’s CCA program allows local governments to aggregate retail electric customers and secure electricity supply contracts to serve them, while the DA program allows some nonresidential customers — such as agricultural, commercial and industrial, and small business — to choose alternative electricity suppliers.

The decision allows CCAs and DA suppliers to file with the PUC to determine whether their DR programs are similar to those of utilities. The measure takes steps to implement the “Competitive Neutrality Cost Causation Principle,” which defines what constitutes a similar program and adopts a four-part process make a final determination. If a CCA or DA provider proves its case, competing utilities must cease cost recovery for DR from customers that sign up with the third-party programs.

Chairman Michael Picker said he supports the proposal, but he is concerned that by moving existing DR customers out of the rate base of regulated utilities into the rate base of the CCAs, “we are frustrating the second promise of the CCAs, which is that they will create competition. Here we are actually hindering competition.”

Picker added that it will be important to carefully analyze the applications for DR programs. “The practice has not always met the theory in CCA world; they have been uneven in actually expediting our drive for clean energy sources,” he said.

But he said he strongly support the continuation of the DRAM because it has created unique products, not just opportunities to arbitrage.

Strong Opposition to DOE NOPR

The commission also endorsed comments developed by staff in opposition to the DOE NOPR. Comments on the proposal were due to FERC on Oct. 23.

The approved comments state that “this rushed effort erodes trust in U.S. wholesale electric markets and undermines the role of the FERC as an independent body. If the energy crisis has taught us anything, it is that diversification of resources is critical for resiliency and reliability planning.”

Instead of narrowing the choice of resources that qualify as “resilient,” the PUC said there should be “a wide range” of tools to meet reliability needs, including energy storage, flexible demand and distributed energy technologies.

Picker said that while any such rule would have little immediate impact in California, it could in the long term, and it has aroused concern in neighboring states. He said it was a signal that the Trump administration does not “care to observe a series of long-held conventions on wholesale markets.” The parties creating the rule “don’t have their act together to actually come up with a reasonable argument” and “they have a prescription that is looking for a problem,” Picker said.

Commissioner Clifford Rechtschaffen said “this rule did what was otherwise unimaginable,” noting that it united petroleum, natural gas and renewable energy interests in opposition. “It is so beyond the pale,” he added, saying that PUC staff had devised a strong mix of legal and policy arguments against the rule.