On February 26, 2019, Administrative Law Judge Stevens of the California Public Utilities Commission (CPUC) issued a proposed decision (Proposed Decision) ruling on the applications for programs and investments in energy storage systems submitted by the state's three investor-owned utilities (IOUs) pursuant to Assembly Bill (AB) 2868. The Proposed Decision rejected a number of energy storage programs proposed by San Diego Gas & Electric Company, Pacific Gas and Electric Company, and Southern California Edison Company, including each IOU's proposed front-of-the-meter energy storage program. To address the applications' deficiencies, the Proposed Decision issued guidelines on how the IOUs must seek future approvals for front-of-the-meter energy storage projects. If adopted, these guidelines should lower competitive barriers and present new opportunities for storage developers to bid into competitive solicitations on a more neutral playing field.

AB 2868, passed in 2016, directed the CPUC to encourage the IOUs to "accelerate widespread deployment of distributed energy storage systems" by adding up to 500 megawatts (MW) of new storage capacity. Accordingly, the CPUC directed each IOU to incorporate proposals for programs and investments for up to 166.66 MW of distributed energy storage systems into their 2018 energy storage procurement plants. In early 2018, each IOU filed its application for up to 166.66 MW of new storage projects, which included behind the meter as well as front-of-the-meter projects.

The Proposed Decision accepts certain aspects of each IOU's application, but rejects a number of proposed programs including each IOU's front-of-the-meter investment proposal. To help the IOUs gain approval for future front-of-the-meter investment proposals, the Proposed Decision includes a set of guidelines to better ensure that the IOUs' future AB 2686 applications for energy storage projects comply with CPUC requirements.

These new guidelines require the IOUs to procure energy storage through a competitive solicitation process involving requests for offers (RFO). The guidelines state that IOUs may only procure energy storage resources that are cost effective and meet a least-cost, best-fit criteria.

The guidelines go on to address a number of areas in which the Proposed Decision considered the IOUs' applications deficient. In particular, the guidelines require the IOUs to consider all forms of resource ownership rather than providing preference to utility-owned projects. The guidelines require the IOUs to evaluate RFOs without bias towards any ownership model. They also mandate that each IOU employ an independent evaluator to assess the competitiveness and integrity of its solicitation. The independent evaluator must prepare a detailed post-solicitation report that the IOU must submit to the CPUC as part of its application for approval. The guidelines also provide a detailed list of information each IOU must include in each application to the CPUC.

The Proposed Decision's guidelines represent an opportunity for front-of-the-meter energy storage projects to compete on a more even playing field. Storage developers will benefit from the mandated competitive solicitation process as well as the increased flexibility in ownership structures. Developers had argued that the IOUs' prohibition of independent ownership structures excluded otherwise competitive storage projects proposed by experienced developers. One developer even went so far as to identify an existing third-party owned project that had the ability to provide the same benefits as a project owned by San Diego Gas & Electric Company but was rejected because it was not utility-owned.

Parties are permitted to file comments on the Proposed Decision, and it will then be reviewed by the CPUC at the earliest at its March 28, 2019 Business Meeting.

Any questions regarding the Proposed Decision or the potential commercial storage opportunities it may present can be directed to DWT energy attorneys Patrick Ferguson (patrickferguson@dwt.com) and Will Friedman (williamfriedman@dwt.com).