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Calif. PUC "Delays" Central Buyer Resource Adequacy Mechanism, Intends To Adopt Central Buyer Framework During Q4 This Year

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PUC Adopts LSE-Based Multi-Year Local Resource Adequacy Program

February 20, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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The California PUC today voted to adopt without modification a proposed decision setting forth requirements for the implementation of multi-year local resource adequacy (RA) procurement program to begin for the 2020 compliance year.

Notably, the PUC at this time declined to implement a central buyer under the multi-year local resource adequacy program, instead maintaining the current LSE-based approach for the near term

"[T]he Commission moves forward with a three-year multi-year local RA requirement without a central buyer. LSEs shall procure local resources based on individual local allocations, as is currently done in the RA program, for a three-year forward duration," the PUC said in the adopted proposed decision

Regarding a central buyer mechanism, the PUC said that a viable central buyer has not yet been identified.

"The Commission is not convinced that either an SPE [special purpose entity] or the CAISO could readily take on the central procurement role in the near term, given the noted obstacles. Designating a special governmental entity would require administrative and legislative processes that would cause substantial delay. Likewise, designating the CAISO involves its own administrative challenges, as well as potential federal jurisdictional conflicts. Moreover, the CAISO’s statement that it is unwilling to accept the central procurement role voluntarily underscores our finding that the CAISO is not an appropriate entity to take on this role," the PUC said in the adopted proposed decision

"The Commission is persuaded by parties who recognize that the distribution utilities are the candidates with 'the resources, knowledge and experience' to procure local reliability resources on behalf of all LSEs without excessive delay. We find that designating the distribution utilities as the central buyers for their respective TAC areas is the most practical, feasible solution in the near term," the PUC said in the adopted proposed decision

"That said, the Commission recognizes that a broad range of parties oppose the distribution utilities serving as central buyers. Indeed, the distribution utilities themselves are either unwilling to take on this role or agree to do so on an interim-only basis. SDG&E opposes the utilities serving as the central buyer, citing the significant administrative costs and negative financial risk and impact of debt equivalence on the utilities’ credit ratings. PG&E, while not opposed to being the central buyer, agrees to do so on an interim basis and also emphasizes the substantial financial risks associated with inverse condemnation that may negatively impact credit standing. SCE does not object to serving as the central buyer for an interim period, but believes the distribution utilities may not be the appropriate entities on a long-term basis," the PUC said in the adopted proposed decision

"The Commission does not find a viable central buyer at this time and thus delays the designation of a central buyer in this decision. The Commission continues to find that a central buyer structure, as outlined in the Track 1 decision, is the appropriate structure to implement multi-year local RA requirements. In the interim, the Commission directs parties to undertake a series of workshops to develop workable central buyer proposals, as further discussed in Section 3.1.2. The Commission intends to issue a decision in the fourth quarter of 2019 that addresses the central buyer designation," the PUC said in the adopted proposed decision

"In consideration of parties’ extensive comments and the lack of a consensus as to a central procurement mechanism that satisfies the objectives outlined in the Track 1 decision, the Commission elects to delay implementation of a central procurement structure to allow additional time for a series of workshops," the PUC said in the adopted proposed decision

To move forward with a central buyer mechanism, the PUC directed parties to develop workable implementation solutions for central procurement of multi-year local RA through workshops. The implementation details shall include, but are not limited to, the identity of a viable central buyer, the scope of procurement (e.g., full, residual), implementable cost allocation mechanism (e.g., how costs will be tracked and recovered), oversight mechanisms, other procurement details (e.g., resources to be included, selection criteria), market power mitigation tools, and necessary modifications to the RA timeline.

"The Commission deems workable implementation solutions as those that specifically address the following known challenges to the local RA program: (1) costly out-of-market RA procurement due to local procurement deficiencies, (2) load migration and equitable allocation of costs to all customers, (3) cost effective and efficient coordinated procurement, (4) treatment of existing local RA contracts, (5) opportunity for and investment in procurement of local preferred resources, and (6) retention of California’s jurisdiction over procurement of preferred resources. We also encourage parties to consider how central buyer solutions may include options for procuring dispatch rights, or requiring capacity owners to economically bid into energy markets, if doing so is in the financial interest of ratepayers," the PUC said in the adopted proposed decision

The PUC directed parties to undertake a minimum of three workshops over the next six months, with the first workshop to take place in April 2019. Each workshop will be facilitated by a different market representative(s) (CCA, distribution utility, ESP/retail supplier), or a facilitator chosen by the representative. Within 30 days of this decision, parties shall reach agreement and inform the Commission of the following:

(1) The date for an April workshop and placeholder dates for at least two subsequent workshops;

(2) The facilitator(s) who will lead each workshop;

(3) The scope of issues for each workshop; and

(4) Identified part(ies) who shall prepare a post-workshop report following each workshop for submission to the Commission.

PUC President Michael Picker reluctantly voted to adopt the proposed order, and he was upset with the tenor taken by LSEs in the proceeding

Picker noted that the PUC has granted 11 waivers to electric service providers (ESPs, retail suppliers) and CCAs who could not meet the "legislative requirement" to keep the grid reliable via the RA program

"So I'm kind of cranky," Picker said

Picker noted that when LSEs fail to meet their obligations, the CAISO must engage in expensive backstop procurements, which open the state up to the potential that FERC will exert further jurisdiction of RA in California, and opens the potential for a FERC-imposed capacity market

Picker chastised the LSEs for arguing for a variety of their "self-interests" in the proceeding, rather than arguing for reliability, which Picker said is a "core" requirement of being a provider

"I don't want to give satisfaction to all these parties who are speaking from their self-interest, and not meeting their core requirement to provide reliability, to feel like they have skated once more, and that they can just wait us out this fall," Picker said

Picker therefore made a "firm" request that the PUC not issue waivers to LSEs who cannot meet RA requirements this summer, so that LSEs know that there is a consequence

"We need hard time for RA crime," Picker said

"While the Commission adopts LSE-based multi-year local requirements at this time, the Commission intends to revisit the LSE-based component of multi-year local procurement in a decision to be issued in the fourth quarter of 2019," the PUC said in the adopted proposed decision

In the adopted proposed decision, the PUC again stated, "The Commission intends to issue a decision in the fourth quarter of 2019 that addresses and adopts implementation details for a central procurement structure."

The PUC also declined to adopt a centralized capacity market (CCM)

"A CCM, by design, procures only based on grid reliability and cost criteria and thus cannot engage in such targeted procurement ... [E]stablishing a new centralized capacity market would be a complex undertaking with significant risks and unclear benefits for California’s procurement goals and policies. As noted in the Track 1 decision, we reiterate that we are not convinced that a centralized capacity market is the appropriate central procurement structure, given the objectives outlined," the PUC said in the adopted proposed decision

In the adopted proposed decision, the PUC said that, "The Commission agrees that an enforcement mechanism is necessary for individual LSE procurement, as is currently enforced in the local RA program. Accordingly, we apply the local penalty and waiver process instituted on a one-year basis, pursuant to D.06-06-064 and D.07-06-029, to apply to the three-year forward requirement for LSEs."

Turning to other aspects of the revised LSE-based RA program, the adopted proposed decision stated, "the Commission adopts a minimum three-year forward multi-year RA requirement. We adopt this three-year multi-year requirement without a central buyer structure and LSEs shall procure to meet their individual three-year allocations beginning in the 2020 RA compliance year."

Furthermore, in the adopted proposed decision, "the Commission finds an appropriate balance with a 100% requirement for Years 1 and 2 and a 50% requirement for Year 3."

"Because we are not adopting a central procurement structure at this time, and load migration and cost allocation issues are not addressed under an LSE-based procurement framework, setting a lower 50% requirement in Year 3 minimizes stranded cost issues that may arise. Additionally, a lower requirement in Year 3 provides necessary flexibility for market variabilities that may relieve local constraints in future years, such as development of new generation and transmission upgrades (that have not been incorporated into the engineer-managed adjustments)," the PUC said in the adopted proposed decision

"Under the current RA program, LSEs are required to submit load forecasts on a one-year forward basis. Additionally, new LSEs are required to register and participate in the RA year-ahead process one year before beginning service, as adopted in the Track 1 decision. As the Commission is unable to anticipate when new LSEs will form or how load will migrate among LSEs beyond the one-year timeframe, at this point, all LSEs will be allocated local requirements for each of the three forward years based on their load share in the first year resulting from the adopted California Energy Commission (CEC) load forecasting process. Requirements for Years 2 and 3 will be updated during the following year’s year-ahead allocation process," the PUC said in the adopted proposed decision

Under the adopted proposed decision, the Commission does not modify the RA compliance timeline for the implementation of multi-year local procurement. Flexible and system capacity showings will be due at the same time as the three-year ahead local showings on October 31.

Under the adopted proposed decision, "Because we adopt LSE-based requirements, we believe that the disaggregation of the 'PG&E Other' local area is a necessary first step towards addressing inefficient procurement that may lead to backstop procurement. This level of disaggregation will also provide useful feedback to the Commission in assessing further disaggregation to the sub-local area level. The Commission also encourages LSEs to consider sub-local needs when making procurement decisions so as to avoid inefficient procurement."

In the proceeding PG&E proposed that the Cost Allocation Mechanism (CAM) be applied to all of its existing non-Renewable Portfolio Standard (RPS) utility-owned generation and non-RPS resource contracts in the "PG&E Other" area. PG&E had asserted that in many local areas, PG&E resources constitute most, if not all, of the local resources. "These resources have been approved by the Commission and therefore, should be fully taken into account in each local area, so that other LSEs are not obligated to obtain other resources where PG&E resources are already in place," PG&E has said. AReM opposed expansion of CAM for this purpose based on a lack of statutory authority.

In the adopted proposed decision, the PUC said, "The Commission sees value in PG&E’s proposal to allocate its non-RPS local resources in the 'PG&E Other' area through the CAM mechanism. However, we decline to do so at this time, absent adoption of a central procurement mechanism for this area."

In the adopted proposed decision, the PUC said, "The Commission agrees that the RA procurement issues observed thus far pertain to local RA and therefore, expansion to flexible and system RA is premature and needs to be fully explored."

In the adopted proposed decision, the PUC said, "The Commission declines to adopt multi-year requirements for system and flexible RA at this time. However, the Commission agrees that there may be potential benefits to expanding multi-year requirements to system and flexible RA, and will continue to monitor and evaluate the multi-year local RA program to consider expansion to flexible and/or system RA in the future."

To improve RA transparency, the PUC directed Energy Division to post a summary list of the resources listed on each LSE’s monthly RA plans for the previous year. As proposed by Energy Division, the information to be shared shall include scheduling resource ID, scheduling coordinator ID or counterparty, zonal location, and local area (if applicable).

Rulemaking 17-09-020

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