Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. Existing law requires the commission, in consultation with the Independent System Operator, to establish resource adequacy requirements for all load-serving entities, as defined, in accordance with specified objectives, including that the resource adequacy requirements facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed.

This bill would revise this objective to require that the resource adequacy requirements also facilitate development of new nongenerating and hybrid capacity and retention of existing nongenerating and hybrid capacity that is economic and needed.

Existing law regarding resource adequacy requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.

This bill would require the commission, in establishing resource adequacy requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the states goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases.

Existing law requires the commission to determine and authorize the most efficient and equitable means for load-serving entities to achieve specified purposes when meeting their resource adequacy requirements.

This bill would add as a specified purpose minimizing the need for backstop procurement by the Independent System Operator.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. Existing law requires the commission, in consultation with the Independent System Operator, to establish resource adequacy requirements for all load-serving entities, as defined, in accordance with specified objectives, including that the resource adequacy requirements facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed.

This bill would revise this objective to require that the resource adequacy requirements also facilitate development of new nongenerating and hybrid capacity and retention of existing nongenerating and hybrid capacity that is economic and needed.

Existing law regarding resource adequacy requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.

This bill would require the commission, in establishing resource adequacy requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the states goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases.

Existing law requires the commission to determine and authorize the most efficient and equitable means for load-serving entities to achieve specified purposes when meeting their resource adequacy requirements.

This bill would add as a specified purpose minimizing the need for backstop procurement by the Independent System Operator.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. Existing law requires the commission, in consultation with the Independent System Operator, to establish resource adequacy requirements for all load-serving entities, as defined, in accordance with specified objectives. That objectives, including that the resource adequacy requirements facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed.

Existing law further requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.

This bill would require the commission, in establishing resource adequacy requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the states goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases.

Existing law requires the commission to determine and authorize the most efficient and equitable means for load-serving entities to achieve specified purposes when meeting their resource adequacy requirements.

This bill would add as a specified purpose minimizing the need for backstop procurement by the Independent System Operator.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. Existing law requires the commission, in consultation with the Independent System Operator, to establish resource adequacy requirements for all load-serving entities, as defined, in accordance with specified objectives. That law further requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.

This bill would make a nonsubstantive revision to the resource adequacy requirements applicable to a load-serving entity. require the commission, in establishing resource adequacy requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the states goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. Existing law requires the commission, in consultation with the Independent System Operator, to establish resource adequacy requirements for all load-serving entities, as defined, in accordance with specified objectives. That law further requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.

This bill would make a nonsubstantive revision to the resource adequacy requirements applicable to a load-serving entity.

 UNFINISHED BUSINESS  

Bill No: SB 1136

Author:

:

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 10-0, 4/25/18

AYES: Hueso, Bradford, Cannella, Hertzberg, Hill, McGuire, Skinner, Stern, Vidak, Wiener

NO VOTE RECORDED: Morrell

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 38-0, 5/17/18

AYES: Allen, Anderson, Atkins, Bates, Beall, Bradford, Cannella, De León, Dodd, Fuller, Gaines, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

NO VOTE RECORDED: Berryhill

ASSEMBLY FLOOR: 76-0, 8/16/18 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill revises existing statute that requires the California Public Utilities Commission (CPUC), in consultation with the California Independent System Operator (CAISO), to establish resource adequacy (RA) requirements for the state’s electric “load-serving entities” (LSEs).

Assembly Amendments

1. revise the current objectives of the RA program to facilitate the development and retention of nongenerating and hybrid capacity, in addition to facilitating the development of generating capacity.

ANALYSIS:

Existing law:

1. Authorizes the CPUC to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities, including electrical corporations, subject to its jurisdiction. (Article 12 of the California Constitution)
2. Requires that all charges demanded or received by any public utility for any product, commodity or service be just and reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code §451)
3. Requires the CPUC, in consultation with the CAISO, to establish RA requirements for all LSEs, as defined, in accordance with specified objectives. Further requires each LSE to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service. Requires the CPUC to determine and authorize the most efficient and equitable means for LSEs to achieve specified purposes when meeting their RA requirements. (Public Utilities Code §380)

This bill:

1. Requires the CPUC, in establishing RA requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the state’s goals for clean energy, reducing air pollution, and reducing emissions of GHG.
2. Requires the resource adequacy program to achieve the objective to facilitate the development of new generating, nongenerating, and hybrid capacity that is economic and needed.
3. Requires each LSE as part of their existing requirements to maintain physical generating capacity or demand response to ensure those resources are deliverable to locations and at times as may be necessary to maintain electrical service system flexibility, in addition to currently required reliability and local area reliability. Provides that costs associated with meeting the flexibility RA requirements are recoverable in rates, as they are with meeting reliability and local area reliability.
4. Requires the CPUC to determine and authorize the most efficient and equitable means for achieving the goal to minimize the need for backstop procurement by the CAISO, in addition to the existing goals.

Background

RA. Following the California energy crisis of 2000-01, the California Legislature enacted legislation to prevent future incidents of widespread black outs and rolling brown outs due to lack of electric generating capacity. Among the reforms was the adoption of Public Utilities Code §380 which directs the CPUC, in consultation with the CAISO, to establish RA requirements for all LSEs, including investor-owned utilities (IOUs), electric service providers (ESPs), and now includes community choice aggregators (CCAs) which did not exist at the time of the crisis.

The current RA program consists of system, local, and flexible requirements for each month of a compliance year. In October, LSEs under the jurisdiction of the CPUC must demonstrate that they have procured 90 percent of their system RA obligations for the five summer months (May-September) of the following year, as well as 100 percent of their local requirements, and 90 percent of their flexible requirements for each month of the coming compliance year.

System RA. Following the year-ahead showing, the LSEs are required to demonstrate procurement of 100 percent of their system and flexible RA requirements on a month-ahead basis. The monthly and annual system RA requirements are derived from load forecasts that LSEs submit to the CPUC and California Energy Commission (CEC) annually. The adopted forecast methodology requires jurisdictional and non-jurisdictional LSEs (publicly owned utilities) to submit historical hourly peak load data for the preceding year. Additionally, LSEs must provide monthly energy peak demand forecasts for the coming compliance year which are based on reasonable assumptions for load growth and customer retention. The CEC then makes a series of adjustments to the load forecasts, which are then aggregated to form the total load forecast used for the year-ahead RA compliance. Throughout the year, LSEs must also submit monthly load forecasts to the CEC that account for load migration which are used to calculate monthly RA requirements.

Local RA. The current RA framework includes 45 local sub-areas that form 10 local capacity areas across California. Each local capacity area’s overall requirement is determined by achieving each sub-area requirement. Of the 45 local capacity areas, nine local sub-areas have local RA requirements that exceed the available capacity, these are locally constrained areas of the electric system. Additionally, some local sub-areas have only one or two generators available to serve the local load. Local RA requirements are developed through the CAISO’s annual Local Capacity Requirement stakeholder process. The CAISO conducts a Local Capacity Technical Analysis to identify the minimum local resource capacity required in each local area to meet energy needs used a 1-in-10 weather year and N-1-1(emergency) contingency. The study results are provided to the CPUC for consideration in its RA proceeding for the annual RA program. The CPUC votes on a decision adopting the local capacity requirements in June each year. The CPUC then allocates the adopted local RA requirements to each jurisdictional LSE in each Transmission Access Charge (TAC) area using the ratio of the LSE’s peak load in the TAC area in August. The CAISO also uses the final results of this study for assisting in the allocation of costs of any backstop capacity procurement needed for reliability.

Flexible RA. An interim flexible capacity requirement was implemented in 2015 to address ramping needs associated with integration of variable energy resources. The interim product is the largest three-hour net load ramp of the month plus 3.5 percent of peak load. Resources are counted as flexible RA capacity if they can be economically dispatched to ramp up or sustain output for three hours. Each year, the CAISO conducts a Flexible Capacity Needs Assessment to determine the quantity of economically dispatched capacity needed by CAISO to manage grid reliability during the largest three-hour continuous ramp in each month. The study is submitted to the CPUC. Flexible requirements are allocated once annually and then revised in April, alongside the local RA requirements. While intended to be in place for only three years, according to the CPUC, the efforts to develop a durable flexible product have proven challenging with parties failing to reach consensus on the key elements of what should constitute the flexible product.

CAISO backstop procurement. If California RA rules fail to provide sufficient resources, the CAISO is compelled to utilize centralized backstop procurement mechanisms in order to maintain electric system reliability. Backstop procurement is whereby the CAISO contracts with a generator to address the shortfall. Under Federal Energy Regulatory Commission (FERC) rules, the CAISO, like all other balancing authorities, must ensure system reliability or face penalties by FERC. The CAISO has two mechanisms for centralized backstop procurement: Reliability Must Run (RMR) and Capacity Procurement Mechanism (CPM). The use of RMR contracts declined after implementation of the local RA program, except RMR for the Oakland peaker powerplants (~150 MW). A resource receiving RMR designation must continue to operate and is compensated by a rate set by the CAISO, per FERC approved tariffs. RMR contracts are expensive relative to procurement through the CPUC process, especially considering their limited operating parameters. CPM can be used for resources that may be needed in the following year and where the resource is at risk of retirement. Like RMR contracts, CPM contracts are also at a higher price relative to generation procured through the CPUC process. These costs are generally shouldered by rateapayers in the insufficient Local Capacity Area or by all ratepayers of the LSE(s) lacking the adequate RA.

CAISO recent use of backstop. Backstop procurement had been on the decline, except for the above noted contract for the Oakland peaker powerplants. However, recently the CAISO has contracted for resources, mostly to address local reliability shortfalls. Per the CPUC, these include:

CPM – had not been used for monthly or annual backstop until this year

• Encina for 545 MWs ~ $41.3 million
• Moss Landing for 510 MWs ~ $37.9 million

RMR – No new capacity designations since start of RA until this year

• Feather River for 47 MWs ~$4.5 million (proposed)
• Yuba City for 47 MWs ~ $5.5 million (proposed)
• Metcalf for 570 MWs ~ $83.4 million (proposed)

Additionally, this January, the CAISO filed a tariff proposal with FERC to change the compensation for CPM risk-of-retirement (CPM-ROR). The CAISO is proposing changes because generators are requesting a “longer runway” to make retirement decisions. The proposed changes would allow resources an earlier window to request an assessment of CPM-ROR designation and to adjust the compensation to what is provided to RMRs. However, FERC has recently rejected the proposal.

Recent challenges meeting Local RA. Of important note, the Local RA requirements provide measures to mitigate market power and to address resource availability. For example, LSEs can request a waiver for the deficiency in cases where the LSE is unable to secure enough capacity to meet its local RA requirements, subject to specified conditions. The conditions include a demonstration that the LSE made a good faith effort to solicit bids and that no bids were received or bids with unreasonable terms were received. These provisions had rarely been exercised. However, last fall, 11 LSEs filed waiver requests to cover local deficiencies totaling roughly 270 MW. It’s currently unclear whether the increase in waiver requests is a short-term issue due to the transitions in the energy landscape or whether these are signals of more to come.

Comments

Need for bill. According to the author, this bill is intended as a conversation and discussion regarding whether changes to RA statute are needed. The author is accurate to note the changed landscape from the time RA was first developed, including: the increasing use of renewable energy (in particular intermittent resources, such as wind and solar), passage of landmark climate change legislation that requires GHG reductions from the electric system, the growth of LSEs, the loss of generation from the unexpected retirement of San Onofre Nuclear Generating Station, implementation of the once-through-cooling water regulations that have resulted in retirement of several powerplants, and the load migration from IOUs to CCAs. According to the CPUC, when the RA program began in 2004, there was a total of 15 LSEs (the three large IOUs and 12 ESPs) serving load in California. The total number of LSEs has grown to potentially 39 in total that will serve load in 2018. The growth in LSEs is driven by the increasing number of CCAs, including potentially 13 CCAs which have proposed to begin serving load for the first time this year.

At a time of such transformation and change in the electricity landscape, the author is justified in questioning whether the RA rules need to be revisited. Currently, the CPUC is in the midst of a proceeding which is delving into this very question. As written, this bill proposes to have the statute more accurately reflect the current rules regarding RA, including the flexible requirements, desire to minimize CAISO backstop procurement (a sentiment shared by most parties, likely including the CAISO), and better reflect the state’s energy policies in the RA statute.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Assembly Appropriations Committee, negligible costs to CPUC as the CPUC already must conduct RA proceedings. The changes made by this bill align statute with current thinking around RA but do not require significant new work of the CPUC.

SUPPORT: (Verified 8/16/18)

State Building and Construction Trades Council, AFL-CIO

Union of Concerned Scientists

Wellhead Electric Company, Inc.

OPPOSITION: (Verified 8/16/18)

None received

ARGUMENTS IN SUPPORT: According to the author, “Renewables now make up a major fraction of our energy supply in California, which has created the need for substantial flexible capacity [see, the famous Duck Curve]. The loss of the San Onofre Nuclear Generation Station and the once-through cooling plants, in addition to load migration from investor-owned utilities to CCA providers also creates complications for administering RA and for financing operational upgrades at power plants throughout California. As a result, there is some instability in the RA market. Given these new goals for our electricity system, the need for flexibility to integrate renewables, our climate goals, and some market instability, it is time to reexamine the RA statute.”

ASSEMBLY FLOOR: 76-0, 8/16/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Maienschein, Mathis, Mayes, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rivas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Bloom, Cristina Garcia, Low, McCarty

Prepared by:

8/18/18 12:29:02

**** END ****

Date of Hearing: August 8, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 1136

Author:(Hertzberg) – As Amended Ver:June 11, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill modifies existing statute that requires the California Public Utilities Commission (CPUC), in consultation with the California Independent System Operator (CAISO), to establish resource adequacy (RA) requirements for the state’s “load-serving entities” (LSEs), such as investor-owned utilities (IOUs) and community choice aggregators (CCAs). Specifically, this bill modifies the RA requirements, as follows:

1. Generally requires the CPUC, in establishing RA requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the state’s goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases.
2. More specifically, requires the RA program to facilitate the development and retention of nongenerating and hybrid capacity, in addition to facilitating the development of generating capacity. (Current law requires the program to ensure the development and retention of generating capacity only.)
3. Adds “flexibility” to the characteristics that must be ensured by delivery of the generating capacity and demand response IOUs must maintain. (Currently, deliverability of LSE generating capacity and demand response must maintain electric service system reliability and local area reliability.)
4. Adds costs to achieve “flexibility” to the categories of costs the IOUs may recover from ratepayers, if the CPUC determines such costs to be reasonable.
5. Adds “minimizing the need for backstop procurement by CAISO” to the list of items to be achieved by RA.

FISCAL EFFECT:

Negligible costs to CPUC as the CPUC already must conduct RA proceedings. The changes made by this bill align statute with current thinking around RA but do not require significant new work of the CPUC.

COMMENTS:

Background and Purpose. RA began in the early 2000s, following the energy crisis, to ensure California has sufficient generating resources to meet demand for electricity. Initially, RA focused on system needs. More recently, RA was modified to consider local area needs. More recently still, RA was modified to consider flexibility needs, largely to accommodate an increase in electricity coming from renewable resources that produce power intermittently.

As noted elsewhere, RA has generally ensured California has the electricity it needs, where and when it needs it, to meet demand. However, the generation characteristics of the system have changed considerably. In addition, the IOUs are responsible for procuring electricity for fewer and fewer customers as CCA growth has increased. More recently, procurement has stalled, more or less. The CAISO has had to procure backstop power, a sign that RA is not working.

As noted above, this bill aligns statute governing CPUC’s RA activities and the RA plans prepared by LSEs. It is not clear this bill will change the behavior or CPUC, CAISO, or the LSEs. However, the bill provides clear direction mandating how those parties are to act in fulfilling their RA-related duties.

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: June 20, 2018

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Chris Holden, Chair

SBPCA Bill Id:SB 1136

Author:(Hertzberg) – As Amended Ver:June 11, 2018

SENATE VOTE: 38-0

SUBJECT: Electricity: load-serving entities: resource adequacy requirements

SUMMARY: Requires the California Public Utilities Commission (CPUC), in establishing resource adequacy (RA) requirements, to additionally advance, to the extent possible, the state’s goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases. This bill would additionally require the CPUC to minimize the need for backstop procurement by the California Independent System Operator (CAISO).

EXISTING LAW:

1. Requires the CPUC, in consultation with the CAISO, to establish RA requirements for all load-serving entities (LSE which includes electric, community choice aggregators, and energy service providers) to achieve specified objectives.
   
2. Requires each LSE to maintain physical generating capacity and electrical demand response adequate to meet its load requirements, including, but not limited to, peak demand and planning and operating reserves. The generating capacity or electrical demand response shall be deliverable to locations and at times as may be necessary to maintain electric service system reliability and local area reliability.
3. Requires each LSE to meet the most recent minimum planning reserve and reliability criteria approved by the Board of Directors of the Western Systems Coordinating Council or the Western Electricity Coordinating Council.

FISCAL EFFECT: According to the Senate Appropriations Committee, under Senate Rule 28.8 the bill was found to cause no significant reduction in revenues or additional state costs are not significant and do not require the appropriation of additional state funds.

BACKGROUND:

Resource Adequacy – The RA program has its origins in the energy crisis of 2001 and has two goals. First, it provides sufficient resources to the CAISO to ensure the safe and reliable operation of the grid in real time. Second, it is designed to provide appropriate incentives for the siting and construction of new resources needed for reliability in the future.

The CPUC adopted a RA policy framework in 2004 in order to ensure the reliability of electric service in California and the obligations are applicable to all LSEs within the CPUC’s jurisdiction. The RA program guides resource procurement and promotes infrastructure investment by requiring that LSEs procure capacity so that capacity is available to the CAISO when and where needed. The RA program now has three distinct requirements: System RA requirements (effective June 1, 2006), Local RA requirements (effective January 1, 2007), and Flexible RA requirements (effective January 1, 2015). System requirements are determined based on the each LSE’s CEC electricity forecast plus a 15% planning reserve margin. Local requirements are determined based on an annual CAISO study using a 1-10 weather year and an N-1-1 contingency. Flexible Requirements are based on an annual CAISO study that currently looks at the largest three hour ramp for each month needed to run the system reliably. There are two types of filings by the LSEs: annual filings (filed on or around October 31st) and monthly filings (filed 45 calendar days prior to the compliance month).

For the annual filings, LSEs are required to make an annual System, Local, and Flexible compliance showing for the coming year. For the System showing, LSEs are required to demonstrate that they have procured 90% of their System RA obligation for the five summer months the coming compliance year. Additionally each LSE must demonstrate that they meet 90% of its Flexible requirements and 100% of its Local requirements for each month of the coming compliance year. For the monthly filings LSEs must demonstrate they have procured 100% of their monthly System and Flexible RA obligation. Additionally, on a monthly basis from May through December, LSEs must demonstrate they have met their revised (due to load migration) local obligation.

CPUC staff evaluates LSE filings annually and monthly to ensure accuracy and completeness. Commission staff also lead annual RA proceedings (R.14-10-010 is the most recent proceeding) to refine the RA program.

Over the last ten years, California has maintained adequate reserves under the CPUC’s RA program to ensure reliable grid operation. However, California’s electric system is undergoing – and planning for – significant structural changes that include integrating greater numbers of intermittent renewable resources, repowering or retiring over 16 gigawatts of gas-fired power plants that rely on once-thorough cooling (OTC) technology, and an increasing number of resources that will surpass their design life in the coming years. In addition to these changes, the California electric system is also witnessing rapid expansion of CCAs.

Within the past year in particular, several new challenges have arisen within the RA program. They include: (1) an apparent decrease in forward procurement; (2) LSE requests for local requirement waivers; (3) growth in CAISO back-stop procurement, including three RMR contracts and two CPM designations; (4) acceleration in load migration from the IOUs to new and existing CCAs; and (5) divergent trends in local procurement activity, notwithstanding recent waiver requests.

COMMENTS:

1. Author’s Statement. Renewables now make up a major fraction of our energy supply in California, which has created the need for substantial flexible capacity [see, the famous Duck Curve]. The loss of the San Onofre Nuclear Generation Station and the once-through cooling plants, in addition to load migration from investor-owned utilities to CCA providers also creates complications for administering RA and for financing operational upgrades at power plants throughout California. As a result, there is some instability in the RA market.

Given these new goals for our electricity system, the need for flexibility to integrate renewables, our climate goals, and some market instability, it is time to reexamine the RA statute.

1. Modernize RA Statute. The original resource adequacy mandate predates the development of the Renewables Portfolio Standard (RPS). The state’s procurement entities have achieved their RPS goals and electricity procurement continues to evolve requiring changes in our regulatory structures and reliability requirements. This bill updates the RA regime to specifically coordinate with the state’s goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases. The bill codifies a flexible RA requirement to meet load serving requirements. Finally, the bill requires the CPUC to design RA requirements that minimize the need for backstop capacity procurement by the CAISO.
   
2. ISO Sounds Alarm. Under Federal Energy Regulatory Commission (FERC) rules, the CAISO, like all other balancing authorities, must ensure system reliability or face penalties by FERC. If California RA policies fail to provide sufficient resources, the CAISO may be forced to utilize centralized backstop procurement mechanisms whereby the CAISO enters into contract to address the shortfall in order to maintain electric system reliability. CAISO backstop procurement had been on the decline but in the fall of 2017, CAISO contracted for more than 1,500 megawatts of natural gas fired generation from five different plants. This is notice that RA is not working. The CPUC has initiated a thorough review of RA which is reflected in a staff white paper and an ongoing rulemaking (R.14-10-010).

REGISTERED SUPPORT / OPPOSITION:

Support

California Energy Storage Alliance
State Building and Construction Trades Council AFL-CIO
Union of Concerned Scientists
Wellhead Electric Company, Inc.

Opposition

None on file.

Analysis Prepared by: Kellie Smith / U. & E. /

 THIRD READING  

Bill No: SB 1136

Author:

:

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 10-0, 4/25/18

AYES: Hueso, Bradford, Cannella, Hertzberg, Hill, McGuire, Skinner, Stern, Vidak, Wiener

NO VOTE RECORDED: Morrell

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires the California Public Utilities Commission (CPUC), in establishing resource adequacy requirements, to ensure the reliability of electrical service in California, to also advance the state’s goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases (GHGs). This bill adds as a specified purpose minimizing the need for backstop procurement by the California Independent System Operator (CAISO).

ANALYSIS:

Existing law:

1. Authorizes the CPUC to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities, including electrical corporations, subject to its jurisdiction. (Article 12 of the California Constitution)
2. Requires that all charges demanded or received by any public utility for any product, commodity or service be just and reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code §451)
3. Requires the CPUC, in consultation with the CAISO, to establish resource adequacy (RA) requirements for all load-serving entities (LSEs), as defined, in accordance with specified objectives. Further requires each LSE to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.
4. Requires the CPUC to determine and authorize the most efficient and equitable means for LSEs to achieve specified purposes when meeting their RA requirements. (Public Utilities Code §380)

This bill:

1. Requires the CPUC, in establishing RA requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the state’s goals for clean energy, reducing air pollution, and reducing emissions of GHG.
2. Requires each LSE as part of their existing requirements to maintain physical generating capacity or demand response to ensure those resources are deliverable to locations and at times as may be necessary to maintain electrical service system flexibility, in addition to currently required reliability and local area reliability. Provides that costs associated with meeting the flexibility RA requirements are recoverable in rates, as they are with meeting reliability and local area reliability.
3. Requires the CPUC to determine and authorize the most efficient and equitable means for achieving the goal to minimize the need for backstop procurement by the CAISO, in addition to the existing goals.

Background

Resource adequacy (RA). Following the California energy crisis of 2000-01, the California Legislature enacted legislation to prevent future incidents of widespread black outs and rolling brown outs due to lack of electric generating capacity. Among the reforms was the adoption of Public Utilities Code §380 which directs the CPUC, in consultation with the CAISO, to establish RA requirements for all LSEs, including investor-owned utilities (IOUs), electric service providers (ESPs), and now includes community choice aggregators (CCAs) which did not exist at the time of the crisis.

The current RA program consists of system, local, and flexible requirements for each month of a compliance year. In October, LSEs under the jurisdiction of the CPUC must demonstrate that they have procured 90 percent of their system RA obligations for the five summer months (May-September) of the following year, as well as 100 percent of their local requirements, and 90 percent of their flexible requirements for each month of the coming compliance year.

System RA. Following the year-ahead showing, the LSEs are required to demonstrate procurement of 100 percent of their system and flexible RA requirements on a month-ahead basis. The monthly and annual system RA requirements are derived from load forecasts that LSEs submit to the CPUC and California Energy Commission (CEC) annually. The adopted forecast methodology requires jurisdictional and non-jurisdictional LSEs (publicly owned utilities) to submit historical hourly peak load data for the preceding year. Additionally, LSEs must provide monthly energy peak demand forecasts for the coming compliance year which are based on reasonable assumptions for load growth and customer retention. The CEC then makes a series of adjustments to the load forecasts, which are then aggregated to form the total load forecast used for the year-ahead RA compliance. Throughout the year, LSEs must also submit monthly load forecasts to the CEC that account for load migration which are used to calculate monthly RA requirements.

Local RA. The current RA framework includes 45 local sub-areas that form 10 local capacity areas across California. Each local capacity area’s overall requirement is determined by achieving each sub-area requirement. Of the 45 local capacity areas, nine local sub-areas have local RA requirements that exceed the available capacity, these are locally constrained areas of the electric system. Additionally, some local sub-areas have only one or two generators available to serve the local load. Local RA requirements are developed through the CAISO’s annual Local Capacity Requirement stakeholder process. The CAISO conducts a Local Capacity Technical Analysis to identify the minimum local resource capacity required in each local area to meet energy needs used a 1-in-10 weather year and N-1-1(emergency) contingency. The study results are provided to the CPUC for consideration in its RA proceeding for the annual RA program. The CPUC votes on a decision adopting the local capacity requirements in June each year. The CPUC then allocates the adopted local RA requirements to each jurisdictional LSE in each Transmission Access Charge (TAC) area using the ratio of the LSE’s peak load in the TAC area in August. The CAISO also uses the final results of this study for assisting in the allocation of costs of any backstop capacity procurement needed for reliability.

Flexible RA. An interim flexible capacity requirement was implemented in 2015 to address ramping needs associated with integration of variable energy resources. The interim product is the largest three-hour net load ramp of the month plus 3.5 percent of peak load. Resources are counted as flexible RA capacity if they can be economically dispatched to ramp up or sustain output for three hours. Each year, the CAISO conducts a Flexible Capacity Needs Assessment to determine the quantity of economically dispatched capacity needed by CAISO to manage grid reliability during the largest three-hour continuous ramp in each month. The study is submitted to the CPUC. Flexible requirements are allocated once annually and then revised in April, alongside the local RA requirements. While intended to be in place for only three years, according to the CPUC, the efforts to develop a durable flexible product have proven challenging with parties failing to reach consensus on the key elements of what should constitute the flexible product.

CAISO backstop procurement. If California RA rules fail to provide sufficient resources, the CAISO is compelled to utilize centralized backstop procurement mechanisms in order to maintain electric system reliability. Backstop procurement is whereby the CAISO contracts with a generator to address the shortfall. Under Federal Energy Regulatory Commission (FERC) rules, the CAISO, like all other balancing authorities, must ensure system reliability or face penalties by FERC. The CAISO has two mechanisms for centralized backstop procurement: Reliability Must Run (RMR) and Capacity Procurement Mechanism (CPM). The use of RMR contracts declined after implementation of the local RA program, except RMR for the Oakland peaker powerplants (~150 MW). A resource receiving RMR designation must continue to operate and is compensated by a rate set by the CAISO, per FERC approved tariffs. RMR contracts are expensive relative to procurement through the CPUC process, especially considering their limited operating parameters. CPM can be used for resources that may be needed in the following year and where the resource is at risk of retirement. Like RMR contracts, CPM contracts are also at a higher price relative to generation procured through the CPUC process. These costs are generally shouldered by rateapayers in the insufficient Local Capacity Area or by all ratepayers of the LSE(s) lacking the adequate RA.

CAISO recent use of backstop. Backstop procurement had been on the decline, except for the above noted contract for the Oakland peaker powerplants. However, recently the CAISO has contracted for resources, mostly to address local reliability shortfalls. Per the CPUC, these include:

CPM – had not been used for monthly or annual backstop until this year

• Encina for 545 MWs ~ $41.3 million
• Moss Landing for 510 MWs ~ $37.9 million

RMR – No new capacity designations since start of RA until this year

• Feather River for 47 MWs ~$4.5 million (proposed)
• Yuba City for 47 MWs ~ $5.5 million (proposed)
• Metcalf for 570 MWs ~ $83.4 million (proposed)

Additionally, this January, the CAISO filed a tariff proposal with FERC to change the compensation for CPM risk-of-retirement (CPM-ROR). The CAISO is proposing changes because generators are requesting a “longer runway” to make retirement decisions. The proposed changes would allow resources an earlier window to request an assessment of CPM-ROR designation and to adjust the compensation to what is provided to RMRs. However, FERC has recently rejected the proposal.

Recent challenges meeting Local RA. Of important note, the Local RA requirements provide measures to mitigate market power and to address resource availability. For example, LSEs can request a waiver for the deficiency in cases where the LSE is unable to secure enough capacity to meet its local RA requirements, subject to specified conditions. The conditions include a demonstration that the LSE made a good faith effort to solicit bids and that no bids were received or bids with unreasonable terms were received. These provisions had rarely been exercised. However, last fall, 11 LSEs filed waiver requests to cover local deficiencies totaling roughly 270 MW. It’s currently unclear whether the increase in waiver requests is a short-term issue due to the transitions in the energy landscape or whether these are signals of more to come.

Comments

Need for bill. According to the author, this bill is intended as a conversation and discussion regarding whether changes to RA statute are needed. The author is accurate to note the changed landscape from the time RA was first developed, including: the increasing use of renewable energy (in particular intermittent resources, such as wind and solar), passage of landmark climate change legislation that requires GHG reductions from the electric system, the growth of LSEs, the loss of generation from the unexpected retirement of San Onofre Nuclear Generating Station, implementation of the once-through-cooling water regulations that have resulted in retirement of several powerplants, and the load migration from IOUs to CCAs. According to the CPUC, when the RA program began in 2004, there was a total of 15 LSEs (the three large IOUs and 12 ESPs) serving load in California. The total number of LSEs has grown to potentially 39 in total that will serve load in 2018. The growth in LSEs is driven by the increasing number of CCAs, including potentially 13 CCAs which have proposed to begin serving load for the first time this year.

At a time of such transformation and change in the electricity landscape, the author is justified in questioning whether the RA rules need to be revisited. Currently, the CPUC is in the midst of a proceeding which is delving into this very question. As written, this bill proposes to have the statute more accurately reflect the current rules regarding RA, including the flexible requirements, desire to minimize CAISO backstop procurement (a sentiment shared by most parties, likely including the CAISO), and better reflect the state’s energy policies in the RA statute. As such, as currently intended by the author, this bill is not changing the current RA situation. Rather, this bill is proposing to have it better reflected in statute.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 5/8/18)

Union of Concerned Scientists

OPPOSITION: (Verified 5/8/18)

None received

ARGUMENTS IN SUPPORT: According to the author:

“Renewables now make up a major fraction of our energy supply in California, which has created the need for substantial flexible capacity [see, the famous Duck Curve]. The loss of the San Onofre Nuclear Generation Station and the once-through cooling plants, in addition to load migration from investor-owned utilities to CCA providers also creates complications for administering RA and for financing operational upgrades at power plants throughout California. As a result, there is some instability in the RA market. Given these new goals for our electricity system, the need for flexibility to integrate renewables, our climate goals, and some market instability, it is time to reexamine the RA statute.”

Prepared by:

5/9/18 13:23:50

**** END ****

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2017 - 2018 Regular

Bill No: SB 1136 Hearing Date: 4/25/2018

SUBJECT: Electricity: load-serving entities: resource adequacy requirements

DIGEST: This bill would require the CPUC, in establishing resource adequacy requirements, to ensure the reliability of electrical service in California while advancing the state’s goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases. This bill would add as a specified purpose minimizing the need for backstop procurement by the California Independent System Operator.

ANALYSIS:

Existing law:

1. Authorizes the California Public Utilities Commission (CPUC) to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities, including electrical corporations, subject to its jurisdiction. (Article 12 of the California Constitution)
2. Requires that all charges demanded or received by any public utility for any product, commodity or service be just and reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code §451)
3. Requires the CPUC, in consultation with the California Independent System Operator (CAISO), to establish resource adequacy (RA) requirements for all load-serving entities (LSEs), as defined, in accordance with specified objectives. Further requires each LSE to maintain physical generating capacity adequate to meet its load requirements, including peak demand and planning and operating reserves, deliverable to locations and at times as may be necessary to provide reliable electric service.

Requires the CPUC to determine and authorize the most efficient and equitable means for LSEs to achieve specified purposes when meeting their RA requirements.

(Public Utilities Code §380)

This bill:

1. Requires the CPUC, in establishing RA requirements, to ensure the reliability of electrical service in California while advancing, to the extent possible, the state’s goals for clean energy, reducing air pollution, and reducing emissions of greenhouse gases (GHG).
2. Requires each LSE as part of their existing requirements to maintain physical generating capacity or demand response to ensure those resources are deliverable to locations and at times as may be necessary to maintain electrical service system flexibility, in addition to currently required reliability and local area reliability. Provides that costs associated with meeting the flexibility RA requirements are recoverable in rates, as they are with meeting reliability and local area reliability.
3. Requires the CPUC to determine and authorize the most efficient and equitable means for achieving the goal to minimize the need for backstop procurement by the CAISO, in addition to the existing goals.

Background

Resource adequacy. Following the California energy crisis of 2000-01, the California Legislature enacted legislation to prevent future incidents of widespread black outs and rolling brown outs due to lack of electric generating capacity. Among the reforms was the adoption of Public Utilities Code §380 which directs the CPUC, in consultation with the CAISO, to establish RA requirements for all LSEs, including investor-owned utilities (IOUs), electric service providers (ESPs), and now also includes community choice aggregators (CCAs) which did not exist at the time of the crisis.

The current RA program consists of system, local, and flexible requirements for each month of a compliance year. In October, LSEs under the jurisdiction of the CPUC must demonstrate that they have procured 90 percent of their system RA obligations for the five summer months (May-September) of the following year, as well as 100 percent of their local requirements, and 90 percent of their flexible requirements for each month of the coming compliance year.

System RA. Following the year-ahead showing, the LSEs are required to demonstrate procurement of 100 percent of their system and flexible RA requirements on a month-ahead basis. The monthly and annual system RA requirements are derived from load forecasts that LSEs submit to the CPUC and California Energy Commission (CEC) annually. The adopted forecast methodology requires jurisdictional and non-jurisdictional LSEs (publicly owned utilities) to submit historical hourly peak load data for the preceding year. Additionally, LSEs must provide monthly energy peak demand forecasts for the coming compliance year which are based on reasonable assumptions for load growth and customer retention. The CEC then makes a series of adjustments to the load forecasts, which are then aggregated to form the total load forecast used for the year-ahead RA compliance. Throughout the year, LSEs must also submit monthly load forecasts to the CEC that account for load migration which are used to calculate monthly RA requirements.

Local RA. The current RA framework includes 45 local sub-areas that form 10 local capacity areas across California. Each local capacity area’s overall requirement is determined by achieving each sub-area requirement. Among the areas are a number of local sub-areas where the RA requirement exceeds the available capacity (9 of 45 areas), these are locally constrained areas of the electric system. Additionally, some local sub-areas have only one or two generators available to serve the local load. Local RA requirements are developed through the CAISO’s annual Local Capacity Requirement stakeholder process. The CAISO conducts a Local Capacity Technical Analysis to identify the minimum local resource capacity required in each local area to meet energy needs used a 1-in-10 weather year and N-1-1(emergency) contingency. The study results are provided to the CPUC for consideration in its RA proceeding for the annual RA program. The CPUC votes on a decision adopting the local capacity requirements in June each year. The CPUC then allocates the adopted local RA requirements to each jurisdictional LSE in each Transmission Access Charge (TAC) area using the ratio of the LSE’s peak load in the TAC area in August. The CAISO also uses the final results of this study for assisting in the allocation of costs of any backstop capacity procurement needed for reliability.

Flexible RA. An interim flexible capacity requirement was implemented in 2015 to address ramping needs associated with integration of variable energy resources. The interim product is the largest three-hour net load ramp of the month plus 3.5 percent of peak load. Resources are counted as flexible RA capacity if they can be economically dispatched to ramp up or sustain output for three hours. Each year, the CAISO conducts a Flexible Capacity Needs Assessment to determine the quantity of economically dispatched capacity needed by CAISO to manage grid reliability during the largest three-hour continuous ramp in each month. The study is submitted to the CPUC. Flexible requirements are allocated once annually and then revised in April, alongside the local RA requirements. While intended to be in place for only three years, according to the CPUC, the efforts to develop a durable flexible product have proven challenging with parties failing to reach consensus on the key elements of what should constitute the flexible product.

CAISO backstop procurement. If California RA rules fail to provide sufficient resources, the CAISO may be forced to utilize centralized backstop procurement mechanisms whereby the CAISO enters into contracts to address the shortfall in order to maintain electric system reliability. Under Federal Energy Regulatory Commission (FERC) rules, the CAISO, like all other balancing authorities, must ensure system reliability or face penalties by FERC. The CAISO has two mechanisms for centralized backstop procurement: Reliability Must Run (RMR) and Capacity Procurement Mechanism (CPM).

CPM contracts – are a type of centralized procurement performed by the CAISO for reliability. Under its CPM tariff authority, the CAISO can offer specific resources via a contract to provide capacity services under specified circumstances, including: collective deficiency in Local Capacity Area Resources. CPM can be used for resources that may be needed in the following year and where the resource is at risk of retirement. Price for CPM is based on a price approved by the FERC. Generally, the CPM price is higher than typical RA prices addressed through the CPUC review/approval process.

RMR contracts – RMRs have been used since the early 2000s before the development of RA requirements. The use of RMR contracts declined after implementation of the local RA program, except RMR for the Oakland peaker powerplants (~150 MW). A resource receiving RMR designation must continue to operate and is compensated at its cost of service. RMR contracts are relatively expensive, especially considering their limited operating parameters.

CAISO recent use of backstop. Backstop procurement had been on the decline, except for the above noted contract for the Oakland peaker powerplants. However, recently the CAISO has contracted for resources through RMRs and CPMs, mostly to address local reliability shortfalls. Per the CPUC, these include:

CPM – had not been used for monthly or annual backstop until this year

• Encina for 545 MWs ~ $41.3 million
• Moss Landing for 510 MWs ~ $37.9 million

RMR – No new capacity designations since start of RA until this year

• Feather River for 47 MWs ~$4.5 million (proposed)
• Yuba City for 47 MWs ~ $5.5 million (proposed)
• Metcalf for 570 MWs ~ $83.4 million (proposed)

Additionally, this January, the CAISO filed a tariff proposal with FERC to change the compensation for CPM risk-of-retirement (CPM-ROR). The CAISO is proposing changes because generators are requesting a “longer runway” to make retirement decisions. The proposed changes would allow resources an earlier window to request an assessment of CPM-ROR designation and to adjust the compensation to what is provided to RMRs. However, this month, FERC rejected the proposal.

Need for bill. According to the author, this bill is intended as a conversation and discussion regarding whether changes to RA statute are needed. The author is accurate to note the changed landscape from the time RA was first developed, including: the increasing use of renewable energy (in particular intermittent resources, such as wind and solar), passage of landmark climate change legislation that requires GHG reductions from the electric system, the growth of LSEs, the loss of generation from the unexpected retirement of San Onofre Nuclear Generating Station (SONGS), implementation of the once-through-cooling water regulations that have resulted in retirement of several powerplants, and the load migration from IOUs to CCAs. According to the CPUC, when the RA program began in 2004, there was a total of 15 LSEs (the three large IOUs and 12 electric service providers) serving load in California. The total number of LSEs has grown to potentially 39 in total that will serve load in 2018. The growth in LSEs is driven by the increasing number of CCAs, including potentially 13 CCAs which have proposed to begin serving load for the first time this year.

Of important note, the Local RA requirements provide measures to mitigate market power and to address resource availability. For example, LSEs can request a waiver for the deficiency in cases where the LSE is unable to secure enough capacity to meet its local RA requirements, subject to specified conditions. The conditions include a demonstration that the LSE made a good faith effort to solicit bids and that no bids were received or bids with unreasonable terms were received. These provisions had rarely been exercised. However, last fall, 11 LSEs filed waiver requests to cover local deficiencies totaling roughly 270 MW.

At a time of such transformation and change in the electricity landscape, the author is justified in questioning whether the RA rules need to be revisited. Currently, the CPUC is in the midst of a proceeding which is delving into this very question. As written, this bill proposes to have the statute more accurately reflect the current rules regarding RA, including the flexible requirements, desire to minimize CAISO backstop procurement (a sentiment shared by most parties, likely including the CAISO), and better reflect the state’s energy policies in the RA statute. As such, as currently intended by the author, this bill is not changing the current RA situation. Rather, this bill is proposing to better reflect it.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT:

Union of Concerned Scientists

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the author:

“Renewables now make up a major fraction of our energy supply in California, which has created the need for substantial flexible capacity [see, the famous Duck Curve]. The loss of the San Onofre Nuclear Generation Station and the once-through cooling plants, in addition to load migration from investor-owned utilities to CCA providers also creates complications for administering RA and for financing operational upgrades at power plants throughout California. As a result, there is some instability in the RA market. Given these new goals for our electricity system, the need for flexibility to integrate renewables, our climate goals, and some market instability, it is time to reexamine the RA statute.”

-- END --