California update

California update

August 19, 2020 | By James M. Berger in Los Angeles

A California Public Utilities Commission decision in late June should lead to wider adoption of micro-grids in the state, at least in the service territories of the three large investor-owned utilities.

The three utilities must take various actions promptly to accelerate micro-grid and resiliency projects to minimize the effects of future wildfires. The affected utilities are Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric.

State law defines a micro-grid as an interconnected system of electricity customers with energy resources, including distributed resources like rooftop solar, energy storage, demand-response tools, or other analytical tools, appropriately sized to meet customer needs, within a clearly defined electrical boundary.

The micro-grid must be able to act as a single, controllable entity and to connect to, disconnect from or run in parallel with, larger sections of the electrical grid, or else be managed and isolated to withstand disturbances.

Due to the increasing destructiveness and frequency of wildfires in California, the CPUC has authorized the three large utilities to turn off electricity to protect public safety. Public safety shut-offs were used extensively in 2019, especially by Pacific Gas and Electric. The power was shut off for as long as several days at a time, affecting several million people in California.

Micro-grids allow customers to have electricity when the grid is not operating.

The latest CPUC action should accelerate installation of micro-grids by reducing cost and speeding the approval process. It is CPUC rulemaking 19-09-009.

The decision is a response to Senate Bill 1339, which became law in 2018. The bill requires the CPUC to facilitate installation of micro-grids to serve customers of utilities with more than 100,000 customers.

The bill set a deadline of December 1, 2020 for the CPUC to publish micro-grid service standards to help developers meet permitting requirements, reduce other barriers for micro-grid deployment and set utility rates and tariffs that will support micro-grids.

The three investor-owned utilities must now do three things to accelerate interconnection resiliency projects.

First, they must adopt standardized, pre-approved approaches for interconnecting micro-grids that deliver energy services during grid outages. They must do this by informally consulting with industry to develop a basic set of designs to use as quickly as possible, and then they must formally engage at technical meetings to seek feedback and finalize templates. The CPUC gave the utilities only 10 days for the informal consulting.

The projects contemplated for these standardized systems are relatively small, generally less than 10 kilowatts for storage and less than 30 kilowatts for solar.

Second, they must simplify their processes for inspecting and approving proposed new micro-grids and make the processes more transparent. The goal is to reduce delays caused by utility inspections. The utilities must provide technical criteria that will determine whether a field inspection is necessary and, when necessary, in what circumstances videos, photos or a virtual inspection will suffice.

Finally, the utilities must prioritize interconnection of resiliency projects for key locations, facilities and customers. To do this, the utilities must add more staff and improve websites so that applications will be processed more quickly.

Cap and Trade

A federal district court in California in July dismissed a lawsuit by the Trump administration aimed at shutting down California's cap-and-trade program.

The lawsuit initially targeted the link between California's cap-and-trade program with Quebec's cap-and-trade program. California and Quebec carbon allowances have been tradeable in either market since 2014.

Late in the litigation, the federal government tried to broaden the scope of its challenge to target the California "Global Warming Solutions Act," a 2006 law that requires reductions in greenhouse gas emissions in the state.

The court did not allow the government to do so, leaving the lawsuit focused solely on the link between the California and Quebec programs.

The Trump administration argues that by linking its program with Quebec, California violated three clauses in the US constitution — the treaty clause, compact clause and foreign commerce clause — and a foreign affairs doctrine that leaves the conduct of foreign affairs to the federal government.

The court had previously granted summary judgment in favor of California on the claims related to the treaty clause and compact clause. The federal government had previously dropped its claim under the foreign commerce clause. The court said the foreign affairs doctrine does not bar a US state and Canadian province from linking their carbon allowance trading programs.

The case is called United States v. California.

There are at least two main effects from the decision.

First, participants in the California cap-and-trade program will continue to benefit from the linkage with the Quebec program. The benefits include a wider market for carbon allowances, reduced administrative and operating costs, and lower overall emissions reduction costs for covered entities that are subject to the emissions limits.

Second, and perhaps more importantly from a macro perspective, is that the decision is a victory for California in the multi-front war between the federal government and California. The Trump administration has attacked multiple California environmental and climate-related initiatives in the courts and by regulation.

Connected to this is the possibility that other jurisdictions could also link their programs. States have shown a growing interest in such linkage in the face of inaction on climate change at the federal level. They may see the California-Quebec linkage as a feasible path for reducing their own emissions, especially smaller states that may not be viable markets on their own. In fact, the Trump administration argued that other states may try to enter into similar arrangements if the linkage is allowed to stand.

The California cap-and-trade program sets a statewide limit on 85% of California's greenhouse gas emissions. The program uses auctions to put a price on greenhouse gas pollution, thereby incentivizing investment in cleaner technology.

Each year, the California Air Resources Board, or CARB, sets a "budget" for how many tons of greenhouse gases can be emitted by covered entities. Covered entities include major greenhouse gas emitters, such as power plants, refineries and other oil and gas facilities and certain factories, that emit more than 25,000 metric tons of CO2-equivalent per year and fuel distributors.

CARB then issues allowances equal to the budget. Some of the allowances are given to the covered entities while others can be purchased at auction or in a secondary market. Entities can also buy offset credits.

At the end of each compliance period, each covered entity must have enough allowances to cover all of its greenhouse gas emissions. Each entity determines whether it is more economical to buy allowances or to invest in equipment to reduce its greenhouse gas emissions.

The program is supposed to lead to lower and lower greenhouse gas emissions as the budget set by CARB decreases each year by approximately 3%. However, in the most recent auction, only about one third of the credits were sold as a result of dampened economic activity due to the coronavirus pandemic. The regulators may need to re-think the budgets going forward.

The program has also produced more than $13 billion of revenue to the state of California, which has been used to reduce greenhouse gas emissions by investing in more than 428,000 projects. The investments include affordable housing, renewable energy, public transportation, zero-emissions vehicles, environmental restoration, sustainable agriculture and recycling.

Electric Trucks

CARB moved in June to require all diesel trucks and vans sold in California to be zero-emission vehicles by 2045. The new rule is called the "advanced clean trucks regulation."

It will have three main effects (in addition to the large expected environmental and health benefits).

First, it will dramatically change the transportation market in California. It will force manufacturers to innovate and transition to new products. While it is costly for manufacturers to produce a special product for one market, they will undoubtedly do so due to the size of the California market, which is the largest truck market in the United States. The new rule should also lead to construction of a large number of electric vehicle charging stations and hydrogen fueling stations.

Second, the transition to zero-emissions vehicles could create a new source of electricity demand. The final environmental assessment reviewed in connection with the rule forecasts a temporary increase in energy demand from construction and modification of equipment. It also foresees an incremental permanent increase in energy demand as zero-emissions vehicles make up a larger share of the transportation sector. Some new vehicles will be battery powered and others will be hydrogen powered.

Finally, what California does could have a multiplier effect as other jurisdictions adopt similar rules. A group of 15 states and the District of Columbia recently announced that they agreed to develop an action plan to require all medium- and heavy-duty vehicles to be zero emissions by 2050, with a target of 30% by 2030. The coalition states account for 40% of all US truck sales.

The CARB rule has two main pieces. First, it requires manufacturers of medium- and heavy-duty vehicles to show an increasing percentage of California sales of zero emission vehicles over time.

Second, large employers (including retailers and manufacturers) and fleet owners will be required to report information about their existing fleet operations. The information will be used by CARB to develop future strategies to cause more fleets to switch to zero-emission trucks.

The zero-emissions vehicle sales requirement applies to manufacturers that certify incomplete chassis or complete vehicles of greater than 8,500 pounds in gross vehicle weight and sell at least 500 vehicles in California annually. The smallest trucks to which the rule applies are trucks like the Ford F-250 and Ram 2500. It covers everything larger up to highway tractor-trailers.

The number of zero-emissions trucks that a manufacturer must reach as a percentage of total sales each year varies by vehicle class. It starts between 5% and 9% for model year 2024 and increases over time.

Manufacturers can also earn credits beginning with the 2021 model year. The credits allow manufacturers flexibility by selling more of one weight category and less of another. The credits can be banked and traded.

CARB is considering issuing two complementary regulations.

One would set tight new limits on nitrogen oxide emissions, which are a major component of smog. The other would require larger fleets in the state to transition to electric trucks year over year.

Trucks represent only two million of the 30 million registered vehicles in California, but they are responsible for 70% of smog-causing pollution and 80% of soot. The new rule is expected to lower related premature deaths by 1,000 a year.