Hilton and Lund Look at the Regulatory Challenge in Avoiding Power Outages in California

Energy development attorneys Seth Hilton and Morten Lund contributed an article to Reuters Legal News titled “Heading off power outages in California — a regulatory challenge,” published June 24, 2021. The authors discuss actions being taken by several California agencies to address the need for greater reliability in the state’s power supply to meet the demands placed on it by climate change-driven increases in the severity and frequency of extreme weather.

Periods of extreme high temperatures in California in 2020 led to rotating electricity outages or required significant conservation on the part of consumers, leading the North American Electric Reliability Corporation in its 2021 Summer Reliability Assessment to find California to be at “high risk” for further outages.

As requested by the California Governor, the California Independent System Operator Corporation, the California Public Utilities Commission (CPUC) and the California Energy Commission in late 2020 issued a Preliminary Root Cause Analysis report and in early 2021 a Final Root Cause Analysis report. A significant conclusion in the reports is that as California increases its reliance on clean energy, it has failed to procure sufficient generation resources for times of the day when the grid cannot rely on solar generation. The CPUC has focused on procuring that additional capacity.

The authors note that though this effort will help to the risk reduce of outages in the summer of 2021, it may not be sufficient, partly due to the adoption in California in 2010 of regulations that require the elimination of once-through cooling (OTC) — where fossil fuel generation facilities use coastal and estuarine water for cooling — and will result in the eventual retirement of 3,758 MW of generating capacity.

A further loss of 2,256 MW of generation capacity will occur with the retirement of the two units of the Diablo Canyon nuclear facility in 2024 and 2025.

To meet capacity needs after 2022, CPUC recently issued a proposed decision in its Integrated Resource Plan proceeding (R.20-05-003) that would require the procurement of over 11,500 MWs of net qualifying capacity — to be procured by all electric load-serving entities subject to the agency’s jurisdiction. The proposed decision also requires at least 1,000 MW of longer duration (> 4 hours) energy storage to assist with replacement of Diablo Canyon and OTC resources.

The authors conclude: “California has a number of very serious hurdles to overcome in the near and mid-term in order to maintain electric reliability. Climate change is exacerbating extreme heat events, driving up electric load. At the same time, California is continuing to transition to a more clean generation resource mix. That shift is critical to address the threat of climate change, but it also creates additional challenges by relying on a resource mix that is very different from traditional fossil fuel fired generation.”