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California Regulators Delay Action on SoCalGas Distributed Gen Proposal

California regulators on Thursday delayed action on a proposal by Sempra Energy's Southern California Gas Co. (SoCalGas) utility to effectively enter the distributed generation arena.

All of the five members of the California Public Utilities Commission (CPUC) expressed some level of support for the concept, but none was comfortable with greenlighting the utility proposal that would establish a utility tariff under which SoCalGas could build and operate combined heat/power (CHP) facilities on commercial and industrial customer premises. The CPUC plans to reconsider the issue again at its Aug. 27 meeting.

SoCalGas supports the program as proposed, a Los Angeles-based spokesperson told NGI, adding that it would help the utility expand the adoption of "advanced energy systems," such as CHP, fuel cells, waste peak power and mechanical drive technologies. "We're seeing common barriers for customers, such as high equipment costs and lack of expertise," she said. "We're requesting the service be approved as we have proposed."

In the meantime, the CPUC decided to gather more data and feedback from the commercial/industrial sector. There are large amounts of industrial waste heat going uncaptured and adding to greenhouse gas (GHG) emissions, and this could be addressed with CHP.

Last year, the CPUC agreed to allow SoCalGas to file a proposal in this area and it did so a year ago (Aug. 8, 2014), but the assigned commissioner, Carla Peterman, said the application and the administrative law judge's "soft" proposed recommendation supporting it raised important policy questions, one dealing with the controversial utility-affiliate transaction rules.

"What's appropriate [to do] under the affiliate transaction rules versus the regulated utility on its own?" Peterman said was a pertinent question. "Specifically where do you draw the line, and what is a logical extension of utility activities?" She pointed out that in the past third-party consultants have concluded that there were some major ambiguities in the CPUC's affiliate transaction guidelines.

Regulators are always concerned when there is proposed utility ownership of energy equipment on the customer's side of the meter. Further, in California it is unclear how CHP fits in the governor's approach for curbing GHG emissions (see Daily GPIApril 30) and the push for more distributed generation.

The proposal before the CPUC, which Peterman said SoCalGas has grown uncomfortable with because of the regulatory law judge's proposed limitations, would have regulated charges under which the utility could design, install and operate CHP systems on customer premises. SoCalGas wanted a broader program that allowed other forms of distributed generation than just CHP and for systems larger than 20 MW, a limit in the proposed decision.

"SoCalGas has deemed the tariff as proposed [by the regulatory judge] unworkable," Peterman said, adding that the regulatory judge could have recommended rejection of the proposal, which has drawn little or no reaction from environmental and industrial representatives.

Commissioner Mike Florio said the SoCalGas proposal was "creative and there is a lot to like about it, but anything that expands the utility footprint is controversial." He doesn't see the plan ultimately being limited to distributed generation, noting it also could include energy efficiency and many other technologies being explored to cope with climate change.

"For customers [considering CHP], financing becomes a critical issue," Florio said. "Typically, we find that customers want relatively short paybacks on investment, the most being five to seven years, and the utilities traditionally are good at providing long-term financing." He thinks the utilities can help overcome the barrier of long-term paybacks for distributed generation.

"CHP, or what we used to call 'cogeneration,' has been around for 30-plus years," he said.  Dating back to the 1980s, California has as much CHP as any state in the nation, Florio said, but the active market under 20 MW "has never been penetrated as much as could be." For example, up to 88% of the more-than-20 MW market already has CHP in place; the percentage for under-20 MW is much smaller, he said.

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