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Distributed Generation: Last Big Battle for State Regulators?

Fortnightly Magazine - October 15 1999

these similarities are not 'precise,' as alleged by ORA," he says.

Furthermore, Montoya says, utilities are pursuing on-grid DG to provide a "cost-effective substitute" for investments in traditional distribution facilities. "The primary purpose is not to supply generation in competition with central station generating plants. Moreover, the supplies of energy attributable to on-grid DG will simply be too small to give the DG owner the ability to influence prices in whole sale energy," he says.

"However, even for the sake of argument that ORA is largely correct, it simply does not follow, as ORA asserts, that utilities should be precluded from owning on-grid DG. Neither the Commission nor the Legislature has ever concluded that utilities should be precluded from owning any generation in order to solve some perceived horizontal or vertical market power problem. Indeed, the Legislature in AB1890 specifically provides that utilities can continue to own generation if it is in 'the public interest and would not confer undue competitive advantage.'"

In reply comments, generator manufacturer Caterpillar handles the issue of whether UDCs should own DG diplomatically. "During the formal phase of the OIR, all possible roles should be carefully considered in the context of market power and the ability to contribute to a robust competitive market. In this regard, we would also suggest [that] focusing on ownership of distributed resources would lead to a briar patch of debate. Ownership is subordinate to the determination of a leadership role for the distribution company. ¼ It would be ill-advised to limit the range of choices at this stage of the OIR."

Local Distribution:

Does Competition Make Sense?

Distribution competition means different things to different parties, argues ORA's Morse.

Morse says Southern California Edison considers distribution competition to include "governmental acquisition and ownership of regulated public utility distribution systems."

Conversely, Morse notes that PG&E seems to use the term to mean "wires competition," which is competition between duplicative wires and other facilities. In contrast to Edison's definition, PG&E seems to exclude governmental monopoly suppliers, such as irrigation districts (IDs), from the category of distribution competition. For example, PG&E states, "that West Side cities choose Turlock Irrigation District as a new monopoly distribution provider instead of, not in competition with, PG&E."

Clarity in this proceeding requires that duplicative facilities competition be understood as only one of many forms of consumer choice in distribution, Morse says.

Irrigation districts represent at least two distinct forms of distribution competition, he notes. Furthermore, municipal utilities implicitly represent competition among different forms of monopoly, he says.

"The competition takes place at the government level; government, rather than individual customers, decides on the distribution providers," Morse adds. "IDs could be a useful check on UDC rates on their regulation. The CPUC needs more information on the factors underlying the ID's cost advantages before determining what measures incumbents should be allowed to take at ratepayer expense to compete with IDs."

ORA believes reforms are needed to levelize market entry of DGs, munis and IDs with UDCs, he says. However, adds Morse, the PUC cannot require IDs and munis to unbundle distribution