The California Public Utilities Commission launched a proceeding Thursday aimed at shoring up grid reliability and soaking up more electricity from renewable resources by using real-time rates to influence customer demand.

The new order instituting rulemaking (OIR) is intended to “enable widespread demand flexibility through electric rates,” the commission said in a news release. “The concept of demand flexibility allows consumers to play a key role in the operation of the state’s electric grid by reducing or shifting their electricity use during peak-use periods in response to a price signal or other incentive.”

A major goal is reducing solar curtailment by increasing electricity use during the day, when solar power is abundant and demand low, including by charging electric vehicles during those times.

“I want to highlight the importance this rulemaking is going to be and the critical role it’s going to play in designing our future grid,” Commissioner Darcie Houck said. “It’s probably one of if not the most, important rulemakings we’re going to do during my term here as a commissioner.

“Our electric grid was originally designed with the assumption that customer demand for electricity was inflexible, and during the majority of the last 140 years, that was the correct assumption,” Houck said. “Customer demand was indeed inflexible. We did not have the tools or the technologies to manage demand, nor did we necessarily need to do so because we relied on energy supply being flexible.”

“As we move toward a very different energy landscape … we need to make adjustments,” she said.

California has experienced reliability crises in recent years as it attempts to reach its 100% clean energy goal by 2045 as extreme weather, prolonged drought and massive wildfires plague the West. The retirement of fossil fuel plants and their replacement with weather-dependent variable resources has exacerbated the problem.

Energy emergencies occurred the past two summers in California during heat waves, when solar ramped down in the evening and demand from air conditioning remained high. In one instance last July, a wildfire shut down major transmission lines from the Pacific Northwest, exacerbating tight supply.

In August 2020, CAISO was forced to order rolling blackouts during a severe heat wave, when imported electricity from the Desert Southwest dwindled and triple-digit temperatures continued after dusk.

In response, the CPUC issued expedited decisions last year to try to bolster reliability in the next three summers.

One of those decisions expanded existing demand-reduction efforts, and another created new ones, including two pilot programs to test the effects of dynamic rates that change rapidly based on grid conditions, including energy emergencies. (See CPUC Proposes Summer Reliability Measures.)

The new demand flexibility proceeding is connected with a June 22 white paper by the CPUC’s Energy Division that examines using advanced technologies and real-time price signals to encourage consumers to cut back on energy use when supply is tight and prices high, and to charge EVs or run their dishwashers when prices are lower, such as during the day when solar power is plentiful and cheap.

The white paper addresses the challenges the state faces while transitioning to clean energy and electrifying transportation and buildings. Scaling up demand response programs to cut energy consumption at key times is among its priorities.

The state’s current patchwork of DR programs, which pay customers to reduce consumption, is insufficient, it says. The white paper identifies strategies for broadening demand-side efforts, including by introducing dynamic energy prices based on real-time wholesale energy costs and localized marginal costs and making sure consumers have easy access to those prices online.

A workshop on the white paper is scheduled for this Thursday.

The demand flexibility rulemaking will address issues, outlined in the order, such as how the CPUC should “update its rate design principles to enable widespread demand flexibility to improve system reliability and advance the state’s climate goals in an affordable and equitable way.”

Two or more working groups will develop proposals for the proceeding. The CPUC expects to issue a scoping memo this fall followed by a proposed decision, with a commission vote in the first half of next year.