California Looks at Distributed Power & Monopoly Franchises
California, the trend-setter in electric restructuring, is
expected to take it to the next level with a "decision-making"
investigation starting this fall on distributed generation and the
monster issue lurking behind it --- the sacrosanct local
A national trend for more retail competition at the distribution
level and a redefinition of power utilities ultimately could come
out of the state's two-phase study of electricity distribution. All
the major parties will be camping out for this one. In particular,
the organization of established utilities, the Edison Electric
Institute, is continuing to actively participate in the California
Public Utilities Commission proceedings.
The prospective agenda for the six- to 12-month study could
include such items as whether utilities should be banned from
participating in distributed generation or whether to breach
franchise areas and allow duplicate distribution facilities on a
local level. The CPUC is expected to ratify the agenda on Oct. 21.
Natural gas interests are expected to be figuring out the pros
and cons because distributed power versus central generating units
could essentially mean the difference between gas sold wholesale or
retail. Most new power plants are being fired up with natural gas
and most of the stationary microturbine or fuel cell distributed
power generating units operate on natural gas.
Two parallel proceedings will be undertaken. The first,
considered the "easier" one, according to observers, will
concentrate on workshops and regulatory filings to develop
proposals on how to handle the growth of distributed power
Concurrently, another part of the CPUC staff will be researching
and writing a paper on electric distribution competition, which is
expected to serve as the basis for a second phase that will try to
determine if, and how, to inject more competition in electricity.
For distributed power such issues as interconnection to the
utility grid --- who, what, when and how --- and where small power
units are placed (on the customer's or the utility's side of the
meter) are expected to be very strongly debated. The rate design to
accommodate distributed power is an even more difficult topic,
according to utility and nonutility observers alike.
Presently, in Southern California Edison's service territory
covering much of the southern half of the state, commercial
microturbines cannot be hooked to the grid (unless they are part of
Edison-inspired research). This is because with Edison's rates
still frozen at 1996 levels as part of the now three-year-old
transition period, the utility cannot recover the costs of hooking
up and maintaining service to distributed generation units.
Capstone Turbine of Woodland Hills, CA, one of several
California-based manufacturers of small turbines, publicly supports
the "legitimate need" of the utilities to own and operate
distributed generation as part of maintaining or supplementing the
grid, said Kevin Duggan, a Capstone regulatory manager. "They may
need to operate distributed power to support a substation, for
example, and in that context, it is another supplemental part of
the grid, just like transformers and poles."
The broader issue of distribution competition for the
traditional monopolies will be a much tougher nut for California
energy policymakers to crack, according to Bill Monsen, a principal
in MRW Consulting, Oakland, citing issues such as stranded costs,
confiscation of assets and many more.
"I'm not confident they are going to get there," Monsen said.
"It will depend a lot on the [CPUC] staff's ultimate report (due in
April 2000). If the staff indicates that distribution competition
can be done, and how to do it, then the CPUC will have a wrench to
beat the utilities over the head with, if they choose to do so."
Richard Nemec, Los Angeles