The California Public Utilities Commission issues an unprecedented Resolution that will test the nascent energy storage industry.

On May 26, the California Public Utilities Commission (CPUC) issued Resolution E-4791 (the Resolution), which directs Southern California Edison (SCE) to procure energy storage projects on an emergency basis. Notably, energy storage projects are only eligible if they can be operational by December 31, 2016. Such a short timeframe is nearly without precedent for major utility procurements and is an important test for the nascent energy storage industry.

Background

To address potential power outages, California Governor Jerry Brown ordered the CPUC and the California Energy Commission, in coordination with the California Independent System Operator (CAISO), “to take all actions necessary to ensure the continued reliability of natural gas and electricity supplies in the coming months . . . ”  The CPUC subsequently identified energy storage as one mechanism to address potential disruptions in electricity service and issued the Resolution.

Resolution

The Resolution orders SCE to procure roughly 100 MW of new storage resources. Those resources are subject to challenging procurement and location requirements. The requirements include the following:

• Operational deadline: Such energy storage resources must be online no later than December 31, 2016, only seven months after the resolution’s issuance.

• Location: Such energy storage resources must be within SCE’s service area. In addition, SCE will be eligible for local capacity requirement credits pursuant to CPUC Decision (D) 13-02-015 and D. 14-03-004 to the extent that such resources otherwise qualify for such credits.

• Type of storage: The procurement shall only be for “in-front-of-the-meter” energy storage.

• Interconnection: Eligible energy storage projects must be interconnected in a location “to alleviate electric reliability concerns . . . ”

• Pricing: Although such energy storage resources must be price-competitive with previous solicitations in which SCE has awarded contracts, the pricing may take into account the “different contract terms such as contract length and expedited delivery date impacts.”

• Term: Contracts to be entered into may be for “terms of 10 years or less.”

One of the controversial aspects of this procurement authorization is the requirement that the energy storage resources be operational by December 31, 2016. This is extraordinarily fast for any new energy resources, let alone technologies around which the regulatory rules are still under development. (By way of comparison, San Diego Gas and Electric’s current solicitation for preferred resources, including energy storage resources, that was authorized by the CPUC pursuant to D. 14-03-004 commenced months before a draft of the Resolution was circulated, and the solicitation is not scheduled to conclude until after December 31, 2016.) Here, the CPUC is not only requiring SCE to conclude the solicitation process but also requiring the developer to engineer, procure, construct, and interconnect the new resources within a matter of months, as compared to a process that SCE noted in its comments on the Resolution that normally takes three years.

The CPUC circulated a draft of the Resolution on May 12, 2016, and received a number of comments, some of which were incorporated in the final Resolution. Many argued that energy storage resources online in 2017 should be eligible for this solicitation, but the CPUC rejected this comment, suggesting how urgent the needs are and how seriously the CPUC is taking the issue.

The CPUC did address several other comments in revisions to key parameters:

• Utility-owned projects: The final resolution was modified to allow SCE to submit applications for utility-owned storage projects, which provides opportunities to developers for build, own, and transfer arrangements.

• Geographical area: Although the initial draft of the resolution limited procurement to the Los Angeles Basin, given the potentially broad effect of electricity outages, the geographical area was expanded to include energy storage projects connected to the CAISO system south of Path 26.

• Interconnection: Because of the expedited timeframe, SCE must take all reasonable steps to expedite the interconnection process.

• Behind-the-meter projects: Despite comments arguing that behind-the-meter energy storage projects should be included, the CPUC declined to include such resources because they are not subject to CAISO operational dispatch.

Solicitation Structure and Timing

In its comments to the draft Resolution, SCE proposed the following schedule:

Although the CPUC did not expressly endorse this schedule, it included SCE’s proposed schedule in the Resolution and agreed to SCE’s request to waive the “Final CPUC Approval” provision in SCE’s standard procurement contracts. Given the delays that many projects have encountered as a result of appeals by party opponents in the CPUC approval process, the CPUC agreed that such a waiver was required to allow such projects to be online by the end of 2016. In addition, the CPUC recommended that SCE include a bidders’ conference in its solicitation schedule in advance of the offer submittal deadline.