Calif. Draft Would Impose Flexible Capacity Requirement on Retail Suppliers, But Not for 2014

A proposed decision from a California ALJ would impose a flexible capacity requirement on load serving entities, including retail suppliers, as part of the current bilateral resource adequacy (RA) framework, but would not institute the requirement for the 2014 RA year.

The draft order addresses local capacity requirements for the 2014 RA year.

In doing so, the draft would adopt an interim flexible capacity framework as an additional component of local capacity requirements. "Flexible need" would be defined as the greatest 3-hour continuous amount of ramping power needed in each month by the California ISO to manage grid reliability. Resources would be considered as flexible capacity if they can sustain or increase output during the hours of the ramping period of flexible need.

Notably, the draft would determine, "that there is no compelling need to adopt a flexible capacity requirement for the 2014 Resource Adequacy (RA) year, as the likely increased ratepayer costs of such a requirement are not justified given that the ISO has not shown a likelihood of a shortage of flexible capacity for next year."

"The ISO, however, has shown a reasonable likelihood that there will be a need for additional flexible capacity for 2015 through 2017, due to a combination of plant closures and additional less-flexible capacity, and we set those requirements in proceedings over the next year," the draft would provide, also stating that the flexible capacity requirement would be revisited for 2018 and beyond.

A non-binding flexible capacity procurement target would be established for LSEs for 2014. The aggregate amount would vary by month, but in some months the flexible capacity target would approach 10,000 MW. The amount of flexible capacity needed for 2015 (and beyond) would be determined in future proceedings.

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See Appendix A to draft order for an outline of proposed flexible capacity program

The Appendix largely deals with qualification of flexible capacity, rather than LSE issues, such as compliance and penalties.

An LSE's flexible procurement obligation would be calculated as follows, consistent with how system and local RA requirements are allocated.

LSE monthly flexible capacity procurement obligation =
   [(LSE monthly coincident peak load)/ (ISO monthly 
     coincident peak load)] * Cumulative Flexible      
     Capacity Requirements

In the upcoming year, there will be workshops and further proceedings to refine the flexible capacity requirement to go into effect in 2015. A subsequent decision on the final flexible capacity design is anticipated in June 2014.

Among other things, tasks to be completed prior to the June 2014 RA Decision include, but are not limited to, developing methods to allocate the requirements that will be applicable to each LSE, and developing compliance rules that are applicable in the event of inadequate flexible capacity available in the market and how LSE obligations will be adjusted to reflect this.

To help determine flexible capacity needs in 2015 through 2017, the draft would impose reporting requirements over the next year in advance of the 2015 implementation of a flexible capacity requirement.

Among other things, LSEs would be required to submit updated 2014 RA filings that provide information on the available flexible capacity in each LSE's portfolio as a basis for determining 2015 flexible capacity requirements.

LSEs would be required, starting with the 2014 RA compliance year, to make a year ahead and month-ahead showing of flexible capacity for each month of the compliance year (non-binding for 2014 as noted above). Each LSE shall also report all its qualified flexible resources in the annual and monthly RA filings.

While certain retail suppliers had suggested a centralized capacity market to address flexible capacity, rather than an additional obligation under the current bilateral framework, the draft would not adopt such a mechanism. "As more work goes into consideration of centralized capacity markets and other market mechanisms, it may be appropriate to consider how to integrate a flexible capacity framework into such approaches, or whether to replace the adopted framework with other approaches," the draft states.

In other matters, the draft would return to the previously used rounding convention, under which RA obligations were met by rounding to the closest megawatt. Specifically, the draft would adopt a convention rounding to the next highest MW when at or over 0.5 MW, and down to the prior MW when 0.49 MW or below

This counting convention includes the exemption from local RA procurement and showing for LSEs with local RA obligation less than 1 MW. The rounding convention applies only to System and Local RA obligations.

For the 2012 compliance year, the PUC had abandoned this 1 MW rounding convention in favor of a 0.1 MW rounding convention, but the draft reports that the 0.1 MW rounding convention caused unanticipated problems, whereby small LSEs had difficulty procuring fractional MW amounts towards their RA obligations.

R. 11-10-023