California is installing large quantities of wind and solar as it sprints towards an ambitious goal of having 50% of electricity sales come from renewable energy by 2026. But there are many risks along the way. Late-summer outages in California in 2020 and prolonged blackouts in Texas in winter of 2021 illustrate the dangers for ratepayers if electricity regulation doesn’t keep pace with the rapid shift towards renewables.

The Public Advocates Office (also known as “Cal Advocates”) at the California Public Utilities Commission (CPUC) is responsible for making sure ratepayers always receive reliable, affordable electricity — no matter how aggressively the state moves to green its grid. In January, Frank Wolak and Mark Thurber of PESD spent two days at the CPUC in San Francisco with leadership and staff of Cal Advocates exploring ways to protect ratepayers in a high-renewables future.

Frank and Mark conducted a series of game-based simulations in which the Cal Advocates participants put on the hats of generating companies to learn how electricity markets would play out under different regulatory mechanisms for ensuring reliability and affordability with high renewables. Through their own strategic actions as generators, Cal Advocates staff saw how one popular mechanism — capacity payments — left ratepayers vulnerable, while an alternative mechanism based on forward contracting was far better at aligning generator incentives with ratepayer interests.

PESD thanks the Freeman Spogli Institute for International Studies for the policy engagement funding that helped deliver this valuable interactive exercise to California regulators.