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Proposed Calif. PUC Decision Would Reject Expansion Of Direct Access, Citing "Unacceptable Risk" To Reliability Goals
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A California PUC ALJ has issued a proposed decision concerning a review of expanding electricity direct access which would find that, "the
Commission concludes that at this time, expansion of Direct Access to all
non-residential customers would present an unacceptable risk to the state’s long-term
reliability goals."
"Further, based on the current procurement practices of
Direct Access providers, we are unable to ensure that expansion of Direct Access
would not result in increased greenhouse gas emissions, criteria air pollutants,
and toxic contaminants when compared to maintaining the current cap on Direct
Access. Therefore, we cannot recommend expanding Direct Access at this time," the proposed decision states
The PUC was reviewing potential direct access expansion per SB 237
An earlier PUC Staff Report, from September 2020, had recommended expanding Direct
Access at a rate of ten percent each year.
However, the proposed order cites two recent grid reliability events, including the Texas winter weather event, for not adopting the Staff recommendation, and rejecting an increase in direct access
"On August 14 and 15, 2020, the California Independent System Operator
was forced to institute unplanned rotating electricity outages in California
during an extreme heat wave in the western United States. The August 2020
rotating outages confirmed that the state’s reliability issues are acute and
immediate; however, these challenges are also long-term and structural," the draft order states
"It is essential that the state’s grid be fully prepared and able to avoid
outages resulting from insufficient resources. The February 2021 outages in
Texas, where direct access providers serve all retail customers, further
underscore the dangers of insufficient available generation resources. Texas and
other states experienced a weather-related power crisis that led to extended
power outages and skyrocketing energy prices. Although the root cause of the
Texas outages is still under review, the damage to the health and safety of Texas
residents, as well as the Texas economy, is evident. It is especially concerning
because advocates of direct access in California have cited Texas as an example
of a successful, fully-competitive retail market," the draft order states
"The Commission’s Integrated Resource Planning (IRP) proceeding is
charged with forecasting California’s future generation needs so that the state
can continue to reduce greenhouse gas emissions from the electricity sector while
preventing reliability events. Currently, IRP forecasts that retirement of
once-through-cooling plants as well as increased electric load from building
electrification and transportation electrification will lead to capacity deficits.
These capacity deficits could be significant and will require new generation
resources to be built. This means that in the coming years load serving entities
will need to invest in these new generation resources through long-term
contracts to ensure grid reliability. Reopening Direct Access would significantly
complicate the state’s near-term and long-term efforts to ensure grid reliability for all ratepayers if individual load serving entities lose load due to load
migration and are unable to enter into long-term commitments for new
generation," the draft order states
"The Commission views grid reliability as one of its top priorities. The Staff
Report issued for comment in September 2020 recommended expanding Direct
Access at a rate of ten percent each year. However, after considering the
reliability events and the IRP forecasts for additional generation, the Commission
is recommending against expansion at this time. Expanded direct access would
result in further fragmentation of the market and raises serious electric system
reliability concerns. These reliability concerns, coupled with Direct Access
providers’ primary reliance on unspecified power sources, form the basis for the
Commission’s recommendation against expansion of Direct Access," the draft order states
The draft order cites findings from a PUC Staff report as follows:
• Large-scale generation resources are needed because the
state has a major capacity shortfall over the next decade.
The CPUC has ordered 3300 MW of new generation to be
built by 2023 and estimated that an additional 7500 MW is
needed by 2026.
• The load migration that would be enabled by reopening
Direct Access leaves all LSEs uncertain about future load,
making it challenging for any LSE, including the CCAs and
IOUs, to build the large-scale generation resources the state
needs to ensure reliability in the future.
• While ESPs have recently begun to secure contracts for
generation resources; ESPs’ lack of track record in building
new generation resources, system reliability would be at
increased risk if ESPs were to serve a significant portion of
the states’ load.
• Except for a few notable exceptions, most ESPs’
procurement practice is to primarily rely on CAISO system
power to meet all energy needs beyond their RPS
requirements. The GHG emissions factor for CAISO
system power is slightly higher than gas generation.
• If past procurement indicates future outcomes, then load
migration from IOUs or CCAs to ESPs may lead a net
decline in RPS procurement, relative to maintaining the
current cap on Direct Access, which may increase GHG
emissions and increase criteria air pollutants and toxic air
contaminants.
• Shortfall in generation capacity drives up the cost of
energy for all customers adversely impacting all
ratepayers.
"We underscore here that the Commission has an obligation to protect
customers and ensure Californians’ access to safe and reliable utility
infrastructure and services at fair and reasonable rates. To meet this statutory
obligation, the Commission must ensure system reliability before considering
enhancements to customer choice. In the past two decades since deregulation
began, meeting the state’s resource needs has become increasingly complicated
with market fragmentation and high penetration of renewables. Although the
state has an RA program with local, system and flex capacity compliance
requirements, California is still facing a major reliability challenge with the
current level of market fragmentation, which includes nearly 40 LSEs serving
load in the CAISO territory. The RA proceeding is currently exploring
significant structural changes and refinements to the RA program to ensure ratepayer value and to secure a generation fleet to meet California’s needs, in
part due to this fragmentation," the draft order states
"[W]e have determined that ESPs do not
have a track record of relying on long-term contracts to meet a significant
proportion of their energy needs. The Final Staff Report illustrates the ESPs’
current procurement practices, showing that contracted energy comprises a small
fraction of their current procurement.
The Commission does not believe expanding customer choice at this time
justifies enabling a significant portion of the state’s load to be served by the type
of LSE that has the least amount of experience procuring new generation
resources, particularly in the current situation when a high level of new capacity
investment is critical to meeting system needs," the proposed decision states
"Furthermore, TURN and CalCCA have also raised concerns regarding the
ability of CCAs to remain financially viable and maintain their own long-term
contracts if there is a significant risk that load will migrate to Direct Access
following expansion," the draft order states
"If Direct Access is reopened, CCAs could lose a
significant percentage of load, which could undermine the long-term contracts
that CCAs have already entered into and make it difficult for CCAs to secure
financing for future long-term contracts to meet reliability needs.
Given that the reliability of California’s energy future depends on LSEs
contracting to build over significant volumes of new resources, and given that
CCAs are currently responsible for at least half of this capacity, the risk
presented by expanded Direct Access is unacceptable at this time," the draft order states
The draft order states, "The Direct Access Parties state that they intend to comply with the new
RPS obligation to secure at least 65 percent of their RPS resources through
long-term contracts by 2024. This is the deadline pursuant to statute. However,
the IOUs and CCAs have consistently procured RPS resources in excess of state
requirements. Thus, allowing additional load to migrate to Direct Access would
likely result in increased GHG emissions compared to the status quo."
R. 19-03-009
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May 17, 2021
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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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