By Robert Mullin

A group of California stakeholders last week filed a plan with regulators that would replace the state’s current resource adequacy framework with a “central buyer” responsible for procuring resources for multiple years.

Advocates for the plan filed a joint motion Friday seeking adoption by the California Public Utilities Commission, which is expected to vote on the measure by the end of the year.

The proposal is the product of a settlement agreement that includes Calpine, the Independent Energy Producers Association, Middle River Power, NRG Energy, San Diego Gas & Electric, Shell Energy North America, Western Power Trading Forum and CalCCA, which advocates on behalf of the state’s growing number of community choice aggregators.

The CPUC originally floated the idea of a central buyer earlier this year out of concern that the state’s growing number of CCAs were not positioned to meet a new state mandate that they ensure RA three years in advance, rather than the year-ahead requirement that applies to other load-serving entities. That mandate was intended to help CCAs — most of which are still relatively new and have short financial track records — compete in the market for reliability resources. (See Calif.: CCAs, Decarbonization Pose Reliability Challenges.)

A bill to require the PUC and California Energy Commission to provide the State Legislature with an assessment of central buyer options is still pending in the State Senate. Friday’s motion suggests that industry players are one step ahead of the legislature.

“If adopted, the settlement agreement will advance the commission’s stated preference for a central buyer framework, reduce the need for California Independent System Operator backstop procurement, preserve LSE self-procurement autonomy, maintain and enhance a liquid and robust bilateral capacity market, and preserve a meaningful role for the state in ensuring reliability,” the motion said.

The state’s CCAs had initially resisted the notion of establishing a central buyer out of fear that such a move would compromise local control of resource procurement — a driving principle behind the rapid spread of CCAs, which have promised their customers a quicker transition to renewable generation.

“CalCCA is pleased that parties representing diverse interests came together and reached consensus on a central buyer structure that supports reliability in California while preserving local procurement autonomy,” said Beth Vaughan, executive director of CalCCA.

The plan issued Friday would apply to all of the state’s LSEs — not just the CCAs — and replace a current framework in which all LSEs are required to show the CPUC they have procured 90% of their system RA obligation for the five summer months of the coming compliance year, as well as 90% of their flexible RA and 100% of their local RA requirement for each month of the coming year. The LSEs must additionally submit monthly filings demonstrating they have obtained enough system and flexible resources to cover their full needs for the month.

New Role for New Entity

The proposal laid out in last week’s motion is the product of three stakeholder workshops held at the CPUC’s direction. Although the workshops failed to reach consensus, the filing parties said they achieved “a better understanding of potential workable central buyer solutions.”

“Based on the foundation established through the workshop process, the settling parties met several times to discuss a possible central buyer structure to satisfy the policy goals identified by the commission and developed in greater detail by the workshop participants,” the motion explains.

Under the settling parties’ proposal, the state’s LSEs would no longer have a compliance obligation for procuring resources but could continue to do so voluntarily to meet all or part of their portion for the collective obligation. That point is key for CalCCA, because it preserves the right of CCAs to pre-emptively procure resources to meet their own needs.

The plan would establish a Resource Adequacy-Central Procurement Entity (RA-CPE) that would take on the “default” role of procuring local, system and flexible RA capacity to meet the “residual” of the three-year obligation not met by a CCA or LSE. The RA-CPE would also assume the responsibility of ensuring multiyear reliability in the service territories of the state’s three investor-owned utilities, in coordination with CAISO and the CPUC.

“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,” according to the motion. Voluntary purchases would be credited against the LSE’s portion of the collective obligation on a megawatt-for-megawatt basis.

“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 motion explains. “The RA-CPE will exercise its authority, to the greatest extent possible, to mitigate the need for CAISO backstop procurement,” such as the ISO’s out-of-market Capacity Procurement Mechanism (CPM).

RA Still a Collaborative Effort

The motion also seeks to establish cost controls, specifying that the RA-CPE would procure capacity needed to meet the residual requirement “only to the extent” that it can obtain RA resources at a cost “not unreasonably in excess of” the CPM soft offer cap defined in CAISO’s Tariff — currently set at $6.31/kW-month.

The new entity would be authorized to purchase resources at prices above the soft cap for individual months and when it deems the price to be consistent with CPUC-approved criteria. It would also procure RA-only capacity and obtain the import capability rights needed to meet the residual need through an annual “pay as bid” request for offer process.

Under the plan, the costs for the residual capacity procured by the RA-CPE would be allocated to each LSE in proportion to the capacity type purchased on their behalf. In cases when the RA-CPE is unable to cover the full residual need, LSEs would be charged for the costs incurred by CAISO to make up the deficiency through its own backstop mechanisms.

While the plan does not specify who will fill the role of the RA-CPE, the settlement agreement provides that the entity must be “competitively neutral, independent and creditworthy,” likely ruling out the possibility that one of California’s IOUs would step into the role, which CPUC officials had discussed in March.

The agreement also stipulates the RA-CPE “will rely on the expertise” of CAISO, the CPUC and the CEC to determine the need for RA capacity. The CEC would continue to develop the load forecasts used by the CPUC to establish collective RA requirements and determine the shares allocated to individual LSEs.

Friday’s motion asked the CPUC to approve the agreement and direct the CEC to begin a workshop process to implement the plan.