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Proposed Decision Would Mandate That California Utilities Purchase Local RA For All LSEs, Including Retail Suppliers

November 26, 2018

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Copyright 2010-17
Reporting by Paul Ring •

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A proposed decision from two California ALJs would adopt a multi-year local resource adequacy (RA) requirement with the investor-owned utilities acting as a central buyer for all LSEs, including retail suppliers

"[W]e conclude that designating the distribution utilities as the central buyers for their respective TAC [Transmission Access Charge] areas is the most practical, feasible solution in the near term. Weighing the benefits and concerns raised by parties, we agree with parties who recognize that, at this time, the utilities are the only candidates with 'the resources, knowledge and experience' to procure local reliability resources on behalf of all LSEs without excessive delay," the ALJs said in the proposed decision

The ALJs were unpersuaded that either a special purpose entity or the CAISO could readily take on the central procurement role in the near term, and thus would rule that the investor-owned utilities shall act as central buyer for local RA

Costs of local RA would be assigned to LSEs using the Cost Allocation Mechanism (CAM).

"In light of the Commission’s previous decisions authorizing the CAM for procurement required to meet local reliability needs, we find the CAM recovery mechanism to be appropriate for the multi-year procurement process. Accordingly, we apply the CAM methodology as the cost recovery mechanism to cover the procurement costs incurred by the central buyers. Additionally, the administrative costs incurred by the central buyers in serving the central procurement function shall be recoverable under the cost allocation mechanism. The central buyers are directed to establish a balancing account in order to facilitate the cost recovery process," the ALJs said

The ALJs would adopt a "full procurement" model in which the utilities would procure for all local RA needs. The ALJs would reject a residual model where individual LSEs would first procure local RA, with the utilities in their central buyer role acting as a backstop for residual needs

"A residual framework creates administrative complexities in that the central buyers must track an increasing number of LSE portfolios and costs over a multi-year period, allocate capacity requirements to LSEs, and determine what deficiencies remain. The Commission agrees that when LSEs procure on an individual basis, they are likely to procure the resource that best meets their individual objectives (e.g., lower cost, or local benefits such as providing jobs) rather than the most effective resource for overall grid reliability, which can lead to collective deficiencies," the ALJs said

"On the other hand, full procurement permits the central buyers to secure a portfolio of the most effective local resources, mitigating the need for costly backstop procurement in certain local areas," the ALJs said

The ALJs would adopt a minimum three-year forward multi-year RA requirement, with a 100% requirement for Years 1 and 2 and an 80% requirement for Year 3

The utilities would be required to use a competitive solicitation process (RFO) for local RA, as the ALJs rejected a centralized capacity market

Concerning the procurement of dispatch rights under the local RA procurement, the ALJs said, "The Commission finds insufficient record support at this time to require the central buyers to acquire dispatch rights alongside RA capacity. However, we do require the central buyers to include dispatch rights in their solicitations, as an optional term that bidders are encouraged to include. We also strongly encourage the central buyers to procure dispatch rights along with the RA capacity, whenever doing so is in the financial interest of all ratepayers (e.g., when the benefits of least-cost dispatch requirements outweigh increased contract costs)."

The ALJs said that the utilities' procurement shall be subject to the competitive neutrality rules set forth in D.13-02-029 to protect market-sensitive information of bidders. Competitive market advocates had objected that such exiting rules are inadequate for the utilities' new local RA procurement role.

However, the ALJs said, "we find that the rules are reasonable and appropriate for use in mitigating anti-competitive and conflict of interest concerns related to the distribution utilities’ solicitation process and central procurement of local resources."

"Accordingly, the Commission directs each distribution utility to establish a rule or procedure that will govern how confidential, market-sensitive information received by the distribution utility from generators, LSEs, or third-party marketers as part of the central solicitation and procurement process will be protected, as well as what firewall safeguards will be implemented to prevent the sharing of information beyond those employees involved in the central solicitation and procurement process," the ALJs said

The ALJs would decline to adopt multi-year requirements for system and flexible RA at this time

Rulemaking 17-09-020

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