FERC approved a settlement Thursday between CAISO and the operator of an aging 27.5 MW cogeneration facility over a reliability must-run agreement (RMR) — a continuation of the ISO’s efforts to keep small, aging natural gas plants online to help ensure reliability this summer and beyond (ER20-1708).

The Channel Islands Power plant, owned and operated by the California State University-Channel Islands Site Authority, came online 33 years ago and was set to retire last year after its power-purchase agreement with Southern California Edison expired in March 2020.

CAISO, however, contended that the plant is needed to maintain reliability under ISO planning standards in a part of Central California — the Santa Clara subarea of the Big Creek/Ventura local area — where the local capacity requirement is 288 MW but total available resources, including the Channel Islands plant, total 250 MW.

FERC rejected the original agreement between CAISO and the Site Authority in June 2020 following protests from parties, including the California Public Utilities Commission, over the $2.6 million revenue requirement from May to December 2020. FERC ordered an evidentiary hearing while encouraging the parties to settle.

CAISO and the authority came back to FERC in December with a lower cost of just over $2 million for 2020, $3.2 million for 2021 and $3.2 million for 2022, if the plant is still needed for reliability. At the recommendation of trial staff, FERC found the new agreement was reasonable and in the public interest.

The new settlement agreement “substantially reduces the fixed revenue requirement for the initial eight months of the RMR agreement,” trial staff said in comments. “Furthermore, it provides rate certainty because the settlement sets forth the fixed revenue requirement for 2021 and the contingent fixed revenue requirement for 2022, thereby eliminating the need for additional commission proceedings.”

RMR Agreements

FERC’s approval of the Channel Islands settlement is the latest development in a series of RMR agreements between CAISO and generators that started in 2019 after the ISO projected potential summer shortfalls from 2020 through at least 2024. (See CAISO, CPUC Warn of ‘Reliability Emergency’.)

The state is transitioning from fossil-fuel generation to renewables and storage under the mandates of Senate Bill 100, which requires load-serving entities to provide 100% fossil-free electricity by 2045.

CAISO and other state agencies projected the transition could lead to capacity shortfalls during summer peak demand until new solar, wind and storage resources in the ISO’s queue come online. But the energy emergencies of August and September, when demand exceeded or nearly exceeded supply during severe Western heat waves, caught the ISO and CPUC off guard.

CAISO had to order rolling blackouts affecting hundreds of thousands of customers Aug. 14-15 and would have done so again during Labor Day weekend if not for dramatic conservation efforts. (See CAISO Avoids Blackouts amid Brutal Heat, Fires.)

In response, the CAISO Board of Governors approved an RMR designation in December for two units at the Midway Sunset Cogeneration facility, a 250-MW natural gas plant built in the late 1980s in a Kern County oilfield. The units were scheduled to retire at the end of this year. (See CAISO Board Fields RA Measures, Big and Small.)

FERC said on April 2 that it needed more information before it could rule on the CAISO-Midway RMR agreement and sent the matter to settlement proceedings. (See CAISO’s 1st System RMR Agreement Set for Hearing.)

The CAISO governors approved an RMR designation in March for PurEnergy’s 34.5-MW Kingsburg Cogeneration plant after ISO management said the 30-year-old gas plant was required for the reliable operation of the transmission system in 2021.

Four months before last summer’s events, CAISO designated three Central California natural gas plants as RMR resources to meet summer demand — the Channel Islands plant, Starwood Energy Group’s 49.5-MW Greenleaf II Cogen facility and Atlantic Power’s 48.5-MW E.F. Oxnard plant. (See CAISO Board OKs $141.7M Tx Plan, RMR Contracts.)

The Board of Governors’ Severin Borenstein noted at the time that CAISO had sought only one RMR designation the year before. “Are we seeing an increase, or should I not think this is a trend?” Borenstein asked.

ISO management said the RMR designations were not a trend “yet” but could become one. “I think the operative word being used is ‘yet’ … but we’re going to continue to be vigilant about this issue,” then-CEO Steve Berberich said.