Preparing for a New Energy Reality in California with CPUC's Cliff Rechtschaffen

In early May, for the first time, California was able to meet 103% of its energy demand with renewable resources. However, with summer approaching and the vulnerabilities exposed by wildfire risk and extreme heat, VX News recently spoke with California Public Utilities Commission Commissioner Cliff Rechtschaffen about what challenges lay ahead with climate change and other pressures impacting California’s ability to meet demand for clean energy despite this recent success. The Commissioner elaborates on the CPUC’s recently issued decision to enact a renewable gas procurement mandate and the CPUC’s continued commitment to ratepayers and ensuring a clean, reliable power supply.

Commissioner, when we last interviewed you in 2019, you made clear reference to the fact that the new normal was much different than the traditional challenges that we faced in the economic regulation of the investor-owned utilities. You also mentioned that vulnerability and climate were your priorities. What progress has the PUC made since then and those disastrous fires that required shut offs?

Cliff Rechtschaffen: We're seeing more than ever that climate change is real and that impacts that we thought would happen in years or decades are happening right now. As of March, 87% of state was in severe drought; 2021 was CA’s hottest year on record, and 9 of the State’s 20 largest wildfires ever occurred in 2020 and 2021. The State has experienced back-to-back years of energy reliability challenges, including extreme heat events throughout the western US that resulted in rotating outages in August 2020 and heat waves and a fire on a key transmission line that led to grid warnings and emergency conditions in 2021.

We've learned that we are in a different world of supply and demand. We now know that we need to manage for what we call the “net peak.” It’s not the absolute peak, when our demand is the highest. Net peak is when the grid experiences its highest electric demand after the sun goes down, solar production drops off, and demand remains very high, especially when it's very hot.

We’ve learned that we need to rethink how we're procuring, planning, managing our energy grid and communicating with the people and businesses that depend on it. We can't just rely on past conditions. They are no longer a reliable indicator of what's to come. We need to plan for more uncertainty and extreme events, which are hard to predict. Most recently, we’ve also had to deal with uncertainties and project disruptions from COVID and worldwide supply shortages. Even more recently, we’ve seen disruptions in solar and solar storage projects because of the Department of Commerce’s solar tariffs investigation.

As we plan for these challenges, we also are transitioning off our traditional resources. We're planning to retire an additional 6000 megawatts of aging gas plants and the Diablo Canyon nuclear power plant over the next 3 years. To meet the needs caused by these retirements, In 2019, in our Integrated Resource Plan Proceeding we ordered the procurement of 3300 megawatts of new resources. Last year, we ordered an additional 11,500 megawatts, which is probably the largest procurement in state history, maybe the largest procurement in US history. These are all measured in “net qualifying capacity” of clean energy procurements, so the actual installed megawatts will be significantly higher. Each of the past two years, we've had a record breaking amount of new clean energy resources coming online, including batteries. We've seen a more than a 20 fold increase in the amount of grid-connected energy storage batteries coming online over the past two years

In response to the specific summer outage and grid emergencies that I mentioned, over the past two years the PUC initiated Summer Emergency Reliability programs, authorizing the utilities to procure an additional 2000-3000 megawatts of resources. As part of this we established anew demand response programs. One is called the Emergency Load Reduction Program, which provides additional compensation for customers that reduce their energy use or increase electricity supply during periods of grid emergencies. We started an innovative program that automatically enrolls low-income customers in a demand response program under which they get paid for reducing their energy use during Flex Alerts, when the California Independent System Operator calls on people to conserve. We also expanded our smart thermostat programs.

The Governor’s May revised budget addresses head-on this new climate reality and the need to plan differently. The proposal includes some permitting reforms to accelerate clean energy and transmission projects, including a new streamlined permitting process at the CEC, It. also proposes to establish a Strategic Electricity Reliability Reserve to help ensure reliability given these challenging conditions, including in the event that we have a confluence of extreme events all at once, such as aheat wave, wildfires, drought that affects our hydro supply, and reduced imports from our neighbors. The governor has proposed this new  reserve to help us proactively prepare for extreme events, project delays and other disruptions in our energy supply.

In light of what you shared, how vulnerable today is the system?

We continue to face some risks this summer and likely in the next few years, particularly on very hot summer evenings when people turn on their air conditioners and solar has stopped producing. We have a suite of contingency measures that we rely on when conditions get extremely tight, but given what we’ve learned in recent years, we can’t say with complete confidence that we can withstand any climate-related or extreme event..  If we have a confluence of extreme events all at once, we will draw on all our contingency measures and available strategic reserves to meet anyreliability challenge. We've learned that the past is not a prologue to the future and given the unpredictability of those risks, we need to plan and  secure more resources.

Let’s turn to some alternatives that are being relied on by the state: renewable natural gas, green hydrogen, and dispatchable energy. What are the PUC’s plans to decarbonize the system and the fuel mix, and what are your priorities on encouraging these?

On renewable natural gas, the State has been providing incentives for a number of years for dairies to develop anaerobic digesters that produce biomethane. Right now, those digesters are primarily used to produce clean transportation fuels to help meet the State’s low carbon fuel standard goals. Our sister agencies, including the Department of Food and Agriculture, also have been providing incentives for digesters at dairies. Reducing waste from dairies is very important because methane emissions from dairies are one of the largest sources of short-lived climate pollutants in California. The State has very aggressive goals to reduce methane emissions by 40 percent by 2030.

Earlier this year, our commission issued a decision implementing SB 1440, which directed the PUC to decide whether to enact a renewable gas procurement mandate. We directed the gas utilities to procure biomethane for their core customers, residential and small commercial customers, equating to about 12 percent of their current gas usage. That's an important bridge for us to getting to electrified buildings down the road. Electrification in the residential sector is where we want to go, but it's going to take quite a bit of time to accomplish that. In the meantime, using renewable gas to help heat homes and provide water heating is an important interim solution.

The decision is largely going to result in the utilities procuring biomass obtained from organic waste diverted from landfills. We expect that much of it will occur through “co-digestion” at wastewater treatment plants that are already using anaerobic digesters and have the capacity to process more organic waste. This solution will help us achieve the State’s goal of diverting very high levels of organic waste from landfills; we currently have a shortfall in the capacity of other infrastructure to handle this waste, such as composting facilities. Methane emissions from landfills are another very significant source of short-lived climate pollutants in the State. Putting in place this renewable procurement mandate will result in that waste being converted to productive use.

Down the road, renewable natural gas will play a much more important role in replacing traditional fossil gas in hard to electrify industries rather than serving residential and small commercial customers. Some industries require heating at such high levels that it's not feasible to electrify or their processes require some kind of chemical interaction that electricity can’t provide.

Hydrogen policy is more of a work in progress. I believe clean hydrogen can play numerous roles in a decarbonized economy-- clean hydrogen meaning hydrogen produced with zero or very low carbon emissions, based on life cycle emissions. It can be a clean fuel for these hard to electrify industrial sectors. It can be a useful fuel in the transportation sector for heavy duty vehicles, aviation, shipping. It can help with wildfire prevention and waste management through mechanical forest thinning and wood waste gasification, something we haven't seen yet developed.

It can also play a role providing long term and seasonal storage, which is really important as we integrate intermittent renewable electricity. As we move off our traditional gas plants, we need a source of storage to provide clean, firm resources when the sun's not shining, the winds not blowing, and we no longer have traditional gas plants to rely on.

I’m confident that California will develop a more integrated vision for the future role of clean hydrogen going forward. Governor Newsom’s May budget proposed investment in green hydrogen production that can be leveraged to accelerate hydrogen market development, and hopefully the legislature will approve that.

A number of panels at the June VerdeXchange conference will focus on the efforts to create hydrogen hubs in California, especially by the Port of LA. Does the PUC have a point of view on that?

Well, we love getting money from the federal government. California, to me, is extremely well-positioned to be the location of a hydrogen hub. The Governor's Office of Business and Economic Development has been working with the UC system, LADWP, labor, utilities, energy producers , and others on this.

We absolutely think that California is a perfect testbed for developing a hydrogen hub. We have abundant sources of renewable electricity; we have a lot of interest in decarbonizing; we have ports with medium and heavy duty vehicles; we have shipping; and we have industrial sectors that are hard to electrify – all of which can be off takers for clean hydrogen.

With respect to the challenges and opportunities in California for enhancing dispatchable generation capacity, what is the PUC’s position on how to replace those old generators?

We want as many clean sources as possible. We currently largely rely on gas plants to provide dispatchable generation. The modeling we've done assumes we'll need to continue to maintain a substantial number of these gas plants even as they run less and less frequently over the next decade or two, until we procure reliable and cost-effective substitute technologies. They’re certainly preferable to diesel due to black carbon and other pollutant emissions, but as new technologies emerge and mature, we can and should reduce our reliance on these plants. We should also have an early focus on closing gas plants in disadvantaged communities.

As I mentioned, we're currently bringing online very significant amounts of lithium ion batteries storage to provide dispatchable energy at times of peak need. To your point, in our IRP proceeding we recently ordered about 1000 megawatts procurement of dispatchable renewable energy, such as geothermal. We've also ordered utilities to procure 1000 megawatts of long-duration storage. There are a variety of promising new long duration storage technologies emerging.

We should consider other clean options, such as fuel cells or linear generators that run on renewable gas or renewable hydrogen. I think the industry is working hard to reduce their operating costs. Fuel cells, linear generators, and other non-combustion generation technology can be particularly valuable in areas of the state like the South Coast or Central Valley, where air quality conditions are severely compromised.  

An additional approach to decreasing reliance on peak generators is shifting electric demand from peak hours to off peak hours through technologies such as heat pump water heaters, smart thermostats, and electric vehicle-to-grid charging.  The CPUC has been encouraging all of these approaches.  

We're going to have a panel at VerdeXchange called “If EVs are the future, is the grid ready?” How would the PUC or yourself respond to that panel title?

There's a lot to do; we're getting ready; and I think we will be ready. We've been studying this collectively as state agencies. We're constantly upgrading our estimates of the resources we need to meet high electrification goals. That includes the most ambitious scenarios identified in CARB’s Scoping Plan. In our Integrated Resource Planning, we look at scenarios that include high electrification and then we send those scenarios to the ISO to inform their transmission planning process. We're including aggressive load growth assumptions for electric vehicles in these planning scenarios.

At the distribution end, we're requiring more granular analysis to understand where we need the investments to support load for increased electrification. Utilities are starting to work much more proactively with fleets and EV charging providers to tell them where grid upgrades may be necessary.

We're also working very hard on rate design. One of our goals is to make sure that utilities offer EV charging rates that incentivize charging during off peak times, when it puts the least burden on the grid, and also that makes charging cheaper than filling up your car with gas. Rate design implicates a whole suite of strategies known as vehicle grid integration. This can simply be the time of day that you charge to minimize impacts on the grid. It can also include so called bi-directional charging-- vehicle to the grid, vehicle to building, or vehicle to home.

Bi-directional charging has all kinds of benefits for the grid. It can provide backup power during emergencies, and it can help feed power back to the grid to deal with peak demand. By the way, it can avoid the need for a lot of upgrades on the grid, and reduce the costs of owning vehicles because vehicle owners can earn money on the services they provide to the grid. We just approved close to $12 million in pilots for PG&E Vehicle to Grid programs for homes, EV fleets, and a microgrid pilot.

We know that transportation electrification and building electrification will increase demand on the grid, and we have to be smart and strategic to take advantage of the most cost-effective upgrade opportunities.

With billions of dollars needed to modernize the grid, how does the CPUC envision financing these infrastructure improvements?

Over the course of the next 20 to 25 years, getting to the state's goal of carbon neutrality, will require billions of dollars in public and private investment. We're decarbonizing our power sector and electrifying the building sector and the transportation sector. That's going to mean very substantial growth in electricity load, and we're going to need the transmission to reach renewable-rich resource areas in remote parts of the state or neighboring states, including offshore wind resources

It is going to be costly, but the costs of inaction and not dealing with climate change are much greater. We have to spend what it takes to deal with climate change.

As we go forward, it's important that we identify other funding sources beyond ratepayers. We also need to hold down transmission costs. The PUC has been very involved in trying to limit transmission costs through litigating transmission rate cases at the Federal Energy Regulatory Commission and more recently, in my role participating in a FERC/NARUC Transmission Task Force. We need to inject more competition into transmission infrastructure development. We also need to find alternatives for building new infrastructure that goes into utility rate base. We may be able to save costs by having better demand response programs and better management of load. Those can all hold down costs.

Here's one thing to keep in mind. Ultimately, increased electrification actually reduces electricity rates because you're spreading the fixed costs of the system over more kilowatt hours of electricity sales. The amount you pay per electricity unit actually goes down. The losers in this equation are the oil and gas providers as their market share goes down.

PG&E is proposing to underground 10,000 miles of transmission lines for wildfire risk and mitigation. Can ratepayers afford such solutions?

This is another area where we need to be very thoughtful about what we do. Wildfire risk is critically important. Too many of our most recent devastating fires were caused by utilities. At the same time, we're very concerned about rising utility bills. Over the past three years, rates have gone up each year for three major utilities: by 11 percent for San Diego Gas Electric ,12 percent for PG&E, and 16 percent from Southern California Edison. We've got to get a handle on these rate increases

In terms of your specific question about PG&E’s undergrounding proposal. We've received its proposal and are in the early stages of evaluating it. Undergrounding makes sense in some places, and it can be a smart wildfire mitigation strategy. PG&E has to demonstrate that this investment is reasonable. They claim that they can offset a bulk of the costs with cost savings from other activities, such as operational efficiencies, reducing vegetation management. We will have to look very hard to see if they can actually hold down the costs of what is an expensive solution.

More generally, as a result of the reforms we've undertaken over the past several years, we evaluate the safety investments of utilities, including in the wildfire mitigation area, through a metric we call “risk spend efficiency.” We look at their overall budget on wildfire risk and mitigation safety to ensure that they focus on reducing risks in the most cost effective manner.

We are deeply concerned about affordability for ratepayers. We opened an affordability proceeding in 2018. One of the outcomes is that we've developed metrics by which we judge the affordability of utility services across the board: gas, electricity, water, and telecommunications, for various groups of ratepayers around the state. People pay their utility bills as a block. They are part of their overall household budget. When utility costs become unaffordable, people have their services disconnected, get evicted, and suffer all kinds of very serious harm. We're trying to track the impact of proposals like this and many others on the affordability and services.

What are some of the collaborative efforts between CARB, the CEC, the CPUC, and other agencies as California addresses climate change?

There's been close and, I might argue, unprecedented collaboration among the energy agencies. There are multiple venues in which is happening. We have an SB 100 Interagency Working Group, a zero emission vehicle brain trust, a housing and decarbonization working group, and a hydrogen working group. There’s an informal working group working on natural gas transition issues and an offshore wind Task Force.

We work very closely with our sister agencies in developing demand forecasts that we use and forward to the CAISO to inform their transmission planning. In the SB 1440 renewable gas procurement proceeding I mentioned, we worked hand in glove with the Air Resources Board and collaborated with nine other state agencies on methane reduction strategies. We’re working extremely closely with the Energy Commission, on infrastructure planning for electric vehicles. The CEC is the lead under AB 2127 in developing an infrastructure plan, but all of the investments that we authorize in transportation electrification are coordinated with them to make sure we're meeting the goals for EV infrastructure. This is unprecedented levels of cooperation, which we'll need because we have unprecedented challenges.

“[Improving the grid] is going to be costly, but the costs of inaction and not dealing with climate change are much greater. We have to spend what it takes to deal with climate change.”Cliff Rechtschaffen