California, the trend-setter in electric restructuring, isexpected to take it to the next level with a “decision-making”investigation starting this fall on distributed generation and themonster issue lurking behind it — the sacrosanct localdistribution franchises.

A national trend for more retail competition at the distributionlevel and a redefinition of power utilities ultimately could comeout of the state’s two-phase study of electricity distribution. Allthe major parties will be camping out for this one. In particular,the organization of established utilities, the Edison ElectricInstitute, is continuing to actively participate in the CaliforniaPublic Utilities Commission proceedings.

The prospective agenda for the six- to 12-month study couldinclude such items as whether utilities should be banned fromparticipating in distributed generation or whether to breachfranchise areas and allow duplicate distribution facilities on alocal level. The CPUC is expected to ratify the agenda on Oct. 21.

Natural gas interests are expected to be figuring out the prosand cons because distributed power versus central generating unitscould essentially mean the difference between gas sold wholesale orretail. Most new power plants are being fired up with natural gasand most of the stationary microturbine or fuel cell distributedpower generating units operate on natural gas.

Two parallel proceedings will be undertaken. The first,considered the “easier” one, according to observers, willconcentrate on workshops and regulatory filings to developproposals on how to handle the growth of distributed powergeneration.

Concurrently, another part of the CPUC staff will be researchingand writing a paper on electric distribution competition, which isexpected to serve as the basis for a second phase that will try todetermine if, and how, to inject more competition in electricity.

For distributed power such issues as interconnection to theutility grid — who, what, when and how — and where small powerunits are placed (on the customer’s or the utility’s side of themeter) are expected to be very strongly debated. The rate design toaccommodate distributed power is an even more difficult topic,according to utility and nonutility observers alike.

Presently, in Southern California Edison’s service territorycovering much of the southern half of the state, commercialmicroturbines cannot be hooked to the grid (unless they are part ofEdison-inspired research). This is because with Edison’s ratesstill frozen at 1996 levels as part of the now three-year-oldtransition period, the utility cannot recover the costs of hookingup and maintaining service to distributed generation units.

Capstone Turbine of Woodland Hills, CA, one of severalCalifornia-based manufacturers of small turbines, publicly supportsthe “legitimate need” of the utilities to own and operatedistributed generation as part of maintaining or supplementing thegrid, said Kevin Duggan, a Capstone regulatory manager. “They mayneed to operate distributed power to support a substation, forexample, and in that context, it is another supplemental part ofthe grid, just like transformers and poles.”

The broader issue of distribution competition for thetraditional monopolies will be a much tougher nut for Californiaenergy policymakers to crack, according to Bill Monsen, a principalin 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 inApril 2000). If the staff indicates that distribution competitioncan be done, and how to do it, then the CPUC will have a wrench tobeat the utilities over the head with, if they choose to do so.”

Richard Nemec, Los Angeles

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