Calif. Draft States Intent to Impose Flexible Capacity Obligation on LSEs for 2014; Grants Retail Suppliers' Requested Coincident Peak Adjustment

The California PUC intends to adopt a framework for requiring load serving entities, including electric service providers, to fill flexible capacity needs by the end of 2012, for implementation in 2014, a proposed decision in the 2013 local resource adequacy (RA) proceeding states (R. 11-10-023).

In the 2013 local RA proceeding, separate proposals for requiring a carve-out obligation for flexible capacity resources were put forth by the California ISO and PUC Energy Division Staff.

The proposed decision notes a number of stakeholder concerns with each proposal, and that parties agree that there is no immediate need to impose flexible capacity requirements in 2013.

Therefore, the draft order would decline to adopt either proposal, and instead would, "immediately begin the effort to finalize a framework for filling flexible capacity needs in this proceeding."

"Our intent is to adopt a framework by or near the end of 2012, for implementation in the 2014 RA compliance year," the draft states.

The proposed decision would also coordinate efforts in the instant proceeding with those in the Long Term Procurement Plan (LTPP) proceeding. The Scoping Memo in the LTPP proceeding foresees a Commission decision by or near the end of 2012 allowing or requiring utilities and/or other LSEs to procure for local reliability needs under multi-year contracts. "The flexible needs framework we expect to adopt in this proceeding could potentially be used for subsequent Request for Offers to fulfill procurement determined in the LTPP proceeding," the draft states.

The draft also provides guidance on how to move forward with creating the flexible capacity obligation.

"With the goal of ensuring reliability without undue complexity in mind, parties should work towards clearly defining flexibility in terms of specific operational characteristics of generators that the Commission should consider when authorizing new generation. Specifically, parties should consider:

• whether flexibility should be defined variably in intervals or if a consistent definition is more appropriate;

• whether flexibility should be based on essential key characteristics or if a broad definition better serves the purpose; and

• whether flexibility should be defined as a choice between operational characteristics such as magnitude of need, speed of response and contractual availability."

"After such a decision, the next step would be the implementation details of incorporating flexible capacity in the RA program. This could include vetting a clear methodology on how flexibility needs would be calculated annually; which generation would be considered flexible under the adopted definitions; how flexibility would be accounted for; how costs would be allocated for flexible resources; and how all of this would affect procurement and contracting. Parties could examine how these requirements would affect market prices for flexible and inflexible capacity. We agree with Shell's comment that parties should address the current and future need for these flexible procurement obligations, the specific resource characteristics that are sought, the classification of generation facilities in each resource category, and implementation details for the adopted approach," the draft states.

The 2013 local RA draft order would also adopt a coincident adjustment factor methodology for Annual RA and Monthly RA as proposed by the Alliance for Retail Energy Markets.

The revised coincident adjustment factor methodology is meant to reflect the unique load shapes of electric service providers, whose load almost exclusively consists of non-residential customers, while the system peak is driven by residential loads. Retail suppliers had argued that basing their RA obligations on the system peak compels them to subsidize other LSEs, given that retail suppliers' customers are not driving the system peak.

Specifically, under the draft order, the resource adequacy program would be modified so that the coincidence adjustment factor uses a load serving entity-specific coincidence adjustment factor for annual resource adequacy requirements, and an electric service provider-composite coincidence factor for monthly resource adequacy requirements, as follows:

• Annual Resource Adequacy Requirements – The California Energy Commission would calculate a Load Serving Entity-specific coincidence adjustment factor using Load Serving Entity hourly loads; and

• Monthly Resource Adequacy Requirements – The California Energy Commission will calculate an Electric Service Provider-composite coincidence factor, which would be applied to each Electric Service Provider's migrating load for the month; migrating load for community choice aggregators would be treated separately.

The draft would adopt the 2013 local RA requirements as proposed by the ISO without modification, which can be found in the draft order. The draft would also adopt a new convention of rounding to 0.1 megawatts for purposes of the RA compliance.