Calif. CCA Group Concerned About Level Playing Field In Wake of Procurement Decision

June 15, 2020

by Paul Ciampoli
APPA News Director
Posted June 15, 2020

The California Community Choice Association (CalCCA), which represents community choice aggregators in the state, on June 11 expressed disappointment in a California Public Utilities Commission decision that designates Pacific Gas & Electric (PG&E) and Southern California Edison (SCE) as central buyers to procure local, multi-year resource adequacy.

In the wake of the CPUC decision, CalCCA said it remains concerned “that the playing field will not be level under such a framework, nor will it be transparent and neutral.”

CalCCA said it continues to support the terms of a settlement agreement that would have established a residual central buyer framework, and put a competitively neutral, independent and creditworthy entity in the role of central buyer.

CalCCA and several energy market stakeholders — Calpine Corporation, Independent Energy Producers Association, Middle River Power, NRG Energy, Inc., investor-owned San Diego Gas & Electric Company (SDG&E), Shell Energy North America, and the Western Power Trading Forum — reached the settlement agreement last year.

The parties in August 2019 filed a joint motion for adoption of the settlement agreement with the CPUC.

CalCCA argued that the June 11 CPUC decision:

* Is a significant departure from the current framework for ensuring local reliability;
* Limits the scope of costs that CCAs can control for their customers;
* Will have a significant effect on the resource adequacy (RA) market, moving from a market with many buyers of local RA to one dominated by PG&E and SCE;
* Will blunt incentives for CCAs to invest in “behind the meter” resource solutions, allocating costs to all customers on the same basis, regardless of the unique efforts of their load-serving entities; and
* While characterized as a “local RA” mechanism, it allows the central procurement entity to procure any associated system and flexible RA capacity with mandatory allocation of these rights to LSEs without sufficient time to position their portfolios for annual compliance.

CalCCA said that the settlement agreement would achieve the state’s aims by reducing the need for California ISO backstop procurement, maintaining and enhancing a liquid and robust bilateral capacity market, while also preserving the self-procurement autonomy of load-serving entities including community choice aggregators.

Details on CPUC decision

Under the PUC’s decision, beginning in 2021, PG&E and SCE will serve as the central procurement entities for their respective distribution service areas and begin procuring local resource adequacy for the 2023 compliance year.

The CPUC said its decision adopts a hybrid procurement model that tasks the central procurement entities with the responsibility to procure the entire amount of required local resource adequacy on behalf of all LSEs, while still allowing individual LSEs the opportunity to procure their own local resources.

If an LSE procures its own local resource, it may:

* Sell the capacity to the central procurement entities;
* Utilize the resource for its own system and flexible resource adequacy needs, or
* Voluntarily show the resource to meet its own system and flexible resource adequacy needs and reduce the amount of local resource adequacy the central procurement entities will need to procure for the amount of time the LSE has agreed to show the resource

The CPUC said that it is open to considering a compensation mechanism for local capacity requirement reduction achieved through shown local resources by LSEs.

The decision directed parties to form a working group to develop proposals for a local capacity requirement reduction compensation mechanism and the treatment of existing contracts.

The CPUC said it would address any proposed local capacity requirement reduction compensation mechanisms in a subsequent decision to be issued prior to the central procurement entities’ 2021 procurement (for the 2023 and 2024 compliance years).

SDG&E

With respect to SDG&E’s distribution service area, the decision declined to adopt the central procurement entities framework.

The PUC said it recognizes that the SDG&E service area is uniquely situated in that the local resource adequacy requirements, which must meet a higher reliability threshold than system capacity requirements, exceed the system resource adequacy requirements for most months of the year.

Given that local capacity procured by the central procurement entities would also count towards LSEs’ system resource adequacy requirements, LSEs would have very little procurement autonomy for system resource adequacy requirements if a central buyer were to procure all needed local capacity, the CPUC said.

Decision directs filing of independent evaluator report

In addition to directing the creation of a working group to develop a local capacity requirement reduction compensation mechanism, the decision directs an independent evaluator report to be filed annually with the central procurement entities’ compliance filing, “which will increase transparency into any gas-fired procurement by including the basis for any fossil fuel procurement that exceeds the minimum multi-year requirements,” the CPUC said in a news release.

The independent evaluator report will also assess the neutrality of the procurement process, any market power or aggregate pricing concerns, procurement of preferred resources (e.g., on what basis preferred resources were not selected), and consideration of disadvantaged communities in the procurement process, according to the CPUC.

The decision also directs the CPUC’s Energy Division to prepare a report assessing the effectiveness of the central procurement entities structure by 2025.

The proposal voted on last week by the PUC is available here.

The American Public Power Association has initiated a new category of membership for community choice aggregation programs.

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