Retail Suppliers, Calif. Utility File Settlement To Establish Central Buyer For "Residual" Capacity

LSEs Would No Longer Be Obligated To Individually Procure Capacity, But Could Elect To Do So

September 3 , 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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A group of retail suppliers, generators, community choice aggregators and San Diego Gas & Electric Company have filed a settlement with the California PUC that would adopt a "residual" central buyer structure to resolve issues respecting central procurement of Resource Adequacy (RA) under the multi-year forward procurement structure adopted in D.19-02-022 (February 21, 2019).

As proposed under the settlement, a Resource Adequacy-Central Procurement Entity (RA-CPE) would assume a "default" role in procuring local, system and flexible RA capacity to meet the residual of a three-year forward procurement obligation that is not met by individual LSEs.

The settlement agreement adopts a residual RA-CPE structure to enable load-serving entities (LSE), at their option, to continue to procure RA resources to meet their share of a collective RA procurement obligation.

The RA-CPE would be responsible for the residual RA procurement obligation after RA resources are shown by LSEs to the RA-CPE.

In establishing the RA-CPE’s responsibilities for procuring the collective residual RA requirement in lieu of individual LSEs’ procurement requirements, the Settlement Agreement provides that LSEs will no longer have individual procurement compliance requirements for RA Capacity. LSEs may voluntarily procure RA Capacity for any portion of their share of the Collective RA Requirement prior to the RA-CPE conducting an RFO to meet the Residual RA Requirement. There will no longer be a need for monthly showings. An LSE may annually show RA Capacity to the RA-CPE for each month of a delivery year according to an agreed upon timeline. LSE showings will be credited against their RA-CPE Cost Responsibility, on a MW-for-MW basis.

Under the settlement, an LSE may cumulatively show in any year for each delivery year RA Capacity up to 100 percent of its share of the most recent forecast of the Collective RA Requirement for delivery Year "n" less its share of RA-CPE-Procured Capacity for Year "n." LSEs may offer for sale any portion of their MIC [maximum import capability] allocation not used for Shown RA to the RA-CPE in its annual RFO process. In addition, an LSE may adjust its cumulative amount of Shown RA consistent with principles set forth in the Settlement Agreement.

Concerning cost allocation, the Settlement Agreement, in general provides that an LSE’s "Billing Share" of RA-CPE-Procured Capacity for System and Flexible RA (the MW share of RA-CPE Procured RA attributed to an LSE for billing purposes) will be calculated monthly. An LSE’s Billing Share of RA-CPE-Procured Capacity for Local RA (for each Local RA area) will be calculated monthly for January through October. An LSE’s share of costs for the procurement of a type of RA-CPE-Procured Capacity will equal its Billing Share of RA-CPE-Procured Capacity MW multiplied by the total cost paid by the RA-CPE to suppliers for RA Capacity delivered for that month of procuring that type of RA Capacity for a particular delivery period and, if applicable, in a particular geographic area.

The RA-CPE would bill the allocated costs to each LSE monthly in arrears. "Payments will be assured using agreed upon creditworthiness requirements," the settlement provides

"The LSE will allocate its total RA-CPE cost to its customers as a part of the generation rate," the settlement provides

The Settlement Agreement provides that RA-CPE formation costs, if any, will be debt financed and recovered over a ten-year period from all LSEs on an annual basis with each year’s charge based on the LSE’s actual System RA load share for the prior year. Ongoing administrative costs will be allocated to LSEs through a two-part allocation factor as described in detail in the Settlement Agreement

The California Energy Commission would continue to develop load forecasts that will be used by the Commission to establish the Collective RA Requirement and determine individual LSE shares of the Collective RA Requirement for purposes of annual showings. The PUC would provide to each LSE an estimate of its individual share of the Collective RA Requirement consistent with a timeline set forth in the settlement

"Although the Settlement Agreement does not identify or designate the RA-CPE, the Settlement Agreement provides that the RA-CPE will be a competitively neutral, independent, and creditworthy entity. The RA-CPE will coordinate with the Commission, the Energy Commission and the CAISO as provided in the Settlement Agreement," the settling parties said

The Settlement Agreement provides that the RA-CPE will assume a default role in planning and ensuring reliability, in coordination with the CAISO and this Commission, on a multi-year basis in the service territories of the IOUs. This means that the RA-CPE will undertake procurement of collective residual RA needs in lieu of LSEs’ RA procurement requirements, but individual LSEs may voluntarily procure RA capacity for any portion of their share of the overall RA requirement. The RA-CPE will be responsible for residual RA procurement to meet the "Collective RA Requirement."

The RA-CPE will assume responsibility in 2021 for the 2022 RA year. In implementing the centralized procurement mechanism, the RA-CPE will assume a "Collective RA Requirement," defined as all RA Capacity required for a period to ensure that aggregate System, Local and Flexible RA requirements, net of RA Capacity allocated through the Cost Allocation Mechanism (CAM) or other direct allocation mechanisms administered by the Commission.

The RA-CPE will be solely responsible to ensure the procurement of the Collective RA Requirement after LSEs have shown their procured RA capacity to the RA-CPE. On this basis, the RA-CPE serves as the procurer of "residual" Local, System and Flexible RA for the three-year forward period. The RA-CPE will exercise its authority, to the greatest extent possible, to mitigate the need for CAISO backstop procurement.

The Settlement Agreement provides that the RA-CPE will annually procure the "Residual RA Requirement," which is the RA-CPE’s Collective RA Requirement multiplied by the applicable percentage (e.g. 100% in prompt year, lower percentages for out years) for the year and the type of RA capacity. The RA-CPE must ensure annually, on a rolling three-year basis, that the aggregate of "Shown RA" (the RA Capacity shown by an LSE to the RA-CPE) and "RA-CPE-Procured Capacity" (RA Capacity for a particular delivery period that is deemed to have been procured by the RA-CPE) meets, but does not materially exceed, the following percentage of the Collective RA Requirement:

The RA-CPE will procure all the RA Capacity (System, Local and Flexible Capacity) needed to meet the Residual RA Requirement, except and only to the extent it determines that insufficient resources meeting the RA-CPE’s procurement criteria were available at prices at (or not unreasonably in excess of) the "Soft Offer Cap," which is the offer cap applicable to CAISO backstop procurement under the Capacity Procurement Mechanism ("CPM") or its successor mechanism, as set forth in the CAISO tariff. The RA-CPE will procure RA-only capacity products and any maximum import capability ("MIC") rights needed to meet the Residual RA Requirement through an annual "pay as bid" request for offer ("RFO") process consistent with an agreed "Timeline" that is attached to and incorporated in the Settlement Agreement.

The Settlement Agreement provides that new and existing resources may participate in the RFO, subject to the terms and conditions of the Settlement Agreement. Among other issues, the RA-CPE will work with the CAISO and the Commission to identify, and will procure, a portfolio of eligible effective resources from the resources bid into the RFO that will minimize the need for CAISO backstop, meet the reliability requirements set by the North American Electric Reliability Corporation ("NERC"), the Western Electricity Coordinating Council ("WECC"), and the CAISO, and meet the Residual RA Requirement at the least cost, taking into account factors set forth in the Settlement Agreement.

Resources eligible to participate in the RA-CPE’s annual RFO will be those that appear on the CAISO’s Net Qualifying Capacity ("NQC") list or Effective Flexible Capacity ("EFC") list, as well as any additional "New Eligible RA Resources" that have been included on a separate list of Eligible RA Resources provided by the CAISO at the time the NQC list is published. Sellers may offer and the RA-CPE may procure RA Capacity from a resource at different monthly prices for different terms. The RA Capacity procured by the RA-CPE will be subject to all CAISO tariff provisions for RA Capacity as well as applicable Commission-approved criteria

The RA-CPE may contract for RA products for a term of not more than three years. The RA-CPE will conduct least-cost procurement of eligible resources and thus will accept all offers at or below the Soft Offer Cap until the Residual RA Requirement has been met for each month of the delivery period. The Soft Offer Cap shall be applied on an annual basis (i.e., prices may be higher or lower than the Soft Offer Cap for individual months). The RA-CPE may procure RA Capacity at a price above the Soft Offer Cap when it deems the price to be reasonable and consistent with Commission-approved criteria, as described in the Settlement Agreement.

The Settlement Agreement provides that once the RA-CPE has completed its annual procurement, all LSE "Shown RA" and RA-CPE-Procured Capacity will be shown to the Commission, the CAISO and the Energy Commission through a process to be defined through implementation. The RA-CPE’s annual showing will reflect each of the twelve months of each delivery year to meet the Collective RA Requirement. Neither the RA-CPE nor LSEs will make month-ahead showings because the RA-CPE will ensure all monthly Residual RA Requirements are fulfilled in the year-ahead showing.

Following the RA-CPE showing, the CAISO will identify any collective RA Capacity deficiency for the upcoming year. Upon the CAISO’s identification of a collective RA deficiency, the RA-CPE will use commercially reasonable efforts to procure additional RA capacity to eliminate the deficiency prior to the CAISO conducting backstop procurement, in accordance with the Timeline. Any deficiency not procured by the RA-CPE will be referred to the CAISO for potential backstop procurement.

Following its annual showing to the Commission and the CAISO, and following the RA-CPE’s cure of any deficiency identified by the CAISO, the RA-CPE will provide the following information to each LSE:

• The weighted average price at which the RA-CPE procured each type of RA Capacity by delivery year and, if applicable, by location;

• The LSE’s estimated Cost Responsibility for each delivery year; and

• The LSE’s "Share of RA-CPE-Procured Capacity," which will be calculated as the cumulative MW of RA Capacity actually procured by the RA-CPE for delivery Year "n" multiplied by the "LSE’s Residual," which is: (a) the LSE’s forecast share of the Current Collective RA Requirement less its cumulative Shown RA; divided by (b) the Collective RA Requirement less all Shown RA.

The RA-CPE would ensure annually, on a rolling three-year basis, that the aggregate of Shown RA and RA-CPE-Procured Capacity meets but does not materially exceed the following Target Percentages:

Product Type        Showing Year 
          Year n-1  Year n-2  Year n-3 
System RA   100%      75%       50% 
Local RA    100%     100%       75% 
Flex RA     100%      75%       50% 

If the RA-CPE fails to procure the Residual Requirement, any costs incurred by the CAISO to cure the deficiency and charged to the RA-CPE will be allocated to LSEs, the settlement provides. If the RA-CPE has procured the full Residual RA Requirement and the CAISO thereafter finds a collective deficiency, the costs of RA-CPE procurement, if any, in response to the CAISO’s finding will be allocated to all LSEs in proportion to their shares of the Collective RA Requirement for the type of RA Capacity that was deficient, the settlement provides

The settlement remains subject to PUC approval

Settling parties are: California Community Choice Association, Calpine Corporation, Independent Energy Producers Association, Middle River Power, NRG Energy, Inc., San Diego Gas & Electric Company, Shell Energy North America (US) L.P., and the Western Power Trading Forum

See the settlement here for more details

Docket R.17-09-020

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