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California Looks at Distributed Power & Monopoly Franchises

October 11, 1999
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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 distribution franchises.

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 generation.

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

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