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Resource Adequacy California Style

Resource Adequacy California Style. An Overview and Examination of Implications for Public Power. Presentation Goals . Overview of California Resource Adequacy Policies Evolution State Law and Regulation Affects on Public Power FERC Orders and Market Design

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Resource Adequacy California Style

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  1. Resource AdequacyCalifornia Style An Overview and Examination of Implications for Public Power Tony Braun Bruce McLaughlin Braun & Blaising, P.C APPA Legal Seminar October 9, 2006

  2. Presentation Goals • Overview of California Resource Adequacy Policies • Evolution • State Law and Regulation • Affects on Public Power • FERC Orders and Market Design • Raise Issues of Policy Relevance for All of Public Power

  3. Things to Think About • Impact on Costs • Whether This Causes Higher Rates Probably Depends on Current Practices • Disturbing Trend Toward Light-handed Review of Procurement Rules, i.e. “Reliability at Any Cost” • Jurisdictional Implications • Erosion of Local Control? • Federalization of Procurement Rules?

  4. Background and California Context – THE CRISIS • All Policy in California is Shaped by the 2000-2001 Energy Crisis • Restructuring Choices • Major Incentives for Divestiture of Generation by the Investor-Owned Utilities • Result, Almost 100% of Thermal Units Sold • No Legacy Contracts with Divested Units • Mandatory Buy-Sell into California Power ExchangeResult – Few Forward Positions by the IOUs • PG&E, SCE, and SDG&E Roughly 50,000 MWs

  5. “Recovery” From the Crisis • The State Assumed Long Positions in Wholesale Energy Markets • IOUs are by now not creditworthy. • State Law froze retail competition • The Politics of Exit Fees results in delay. • Finally, statutes are enacted that require some long term procurement process for the IOUs

  6. What Have We Been Doing Since Then? • As a State, enacting ever changing rules to govern procurement • As public power not subject to the jurisdiction of our public utilities commission: • Trying to Make Sense of It All • Protecting Our Turf • Bouncing Between State Rules and the Rules that Migrate to the Cal ISO

  7. California Law Tackles Resource Adequacy • Post Crisis Response • Putting the IOUs Back in the Procurement Business • AB 57 • Required IOU Procurement Plans • Guaranteed Recovery in Rates • The Key Political Issue • IOUs Agree. Generators Agree. Consumers?

  8. CPUC Implementation of Procurement for IOUs • CPUC Implements Process to Review IOU Procurement Plans • 2004 First Effective Year • Details • Adopts 7% Reserve Margin • Permits Contracts up to 5 years • Targets 5% Spot Market Purchases

  9. Evolution of IOU Requirement • CPUC January 2004 Order • Adopted Year Ahead Demonstration of Adequacy • 15-17% Planning Reserve Margin • 90% of Share of Summer Peak Requirements One Year Ahead • 100% of Load Share Plus Reserves One Month Ahead

  10. The California Legislature Gets Involved • AB 380 • Passed 2005, Effective January 1, 2006 • Creates Statutory Requirement to Prudently Plan to Meet Load Serving Obligations • Establishes Minimum Requirements for Planning Reserves for Almost All Entities • Adopts Western Electricity Coordinating Council standards. But, there really are no WECC standards for planning reserves.

  11. AB 380 and Data Collection for Public Power • Along with Other Statutes, California Recreates its Integrated Forecasting, Data Collection, and Planning Function in the California Energy Commission (circa 1975) • CEC has broad powers to require production of data and forecasts from public power to integrate into their own efforts and report on our compliance • No Sanctions, Just Reporting to the Legislature

  12. Net Result of State Initiatives on Public Power – Not So Bad • The CPUC’s Rules for the IOUs Did Not Directly Apply to Public Power • Other Than Concerns About Burdensome Reporting Requirements, Most Municipal Utilities Treated Power Supply and Load Information as in the Public Domain • No major impact on planning and procurement practices

  13. The CAISO Gets Involved • The CAISO Was An Active Participant in CPUC Proceedings on Resource Adequacy • The CPUC Adopted Many Recommendations on Implementation Details Made by the CAISO • The CAISO Has Migrated These Details Into its Tariff, Thus Applying Them to Public Power Entities in its Control Area

  14. The Various Moving Parts (Not Necessarily In Chronological Order) • Step 1 – The Interim Reliability Requirements Program (“IRRP”) • Filed in Spring 2006 for Implementation Summer 2006 to “Ensure Reliability” • Deferred to the CPUC and the Local Regulatory Authorities (our boards) to set planning reserve policies • Requires Annual and Monthly Reporting to the CAISO • Sets Forth Grid Operational Procedures Whereby CAISO Uses Resources Identified by Load to Meet Grid Requirements

  15. IEPA v. CAISO, FERC Docket ER05-146-000 • Complaint filed by the state merchant generator trade association • Alleges CAISO energy-only market not compensatory • Alleges CAISO operational practices to procure local capacity dissuade load from entering into contracts

  16. IEPA v. CAISO • Offer of Settlement • Creates Reliability Capacity Services Tariff (RCST) • Provides that CAISO determine local and system capacity requirements • Allows LSEs to Attempt to Meet Requirements • If LSEs Procurement not Sufficient per CAISO determination, CAISO makes RCST designation of units, and pays a Tariff price for capacity

  17. IEPA v. CAISO • Offer of Settlement pending before the Commission. • Settling Parties are the CAISO, CPUC, IOUs, and Generators. Not Public Power. • Issues Raised • Price, i.e. paying all generators the cost of new entry • CAISO determinations of local requirements • Cost Allocations

  18. Going Forward – Market Redesign and Technology Upgrade (“MRTU”) • The CAISO MRTU filing merges many of the CPUC policy decisions and other elements • MRTU Order of “Conditional Approval” Issued Last Month • Implementation of MRTU Scheduled for November 2007

  19. MRTU • Establishes a Pooled Dispatch of the Grid Based on Locational Marginal Pricing (LMP) • Defers to the CPUC to set Planning Reserve margins for LSEs under CPUC jurisdiction • Defers to Public Power Boards, unless the local authorities do not meet a minimum planning standard • Provides the CAISO as the default provider of capacity if state and local efforts are not “adequate.”

  20. MRTU Order • With a Major Exception, Approved What the CAISO proposed on Resource Adequacy • Major Exception • Refused to Specify a Planning Reserve Margin in the CAISO Tariff • The Order Did Approve • Mandatory availability of units designed to meet Resource Adequacy • CAISO Determine of Reliability Requirements

  21. MRTU Order and FERC Authority Over Supply Adequacy • Questions Wisdom of Energy Bid Caps if Not for a Regulatory Requirement to Ensure Capacity Adequacy • Reliable Service Part of Just and Reason Terms of Service and CAISO Mandate • It is Reasonable to Condition Participation in the CAISO Markets on a Resource Adequacy Requirement • FERC Does Not “Have to” Regulate All Aspects of Resource Adequacy, But Must Ensure Some Policy Exists

  22. Key Implementation Issues for CA Public Power • Allows State and Local Officials to Determine the Planning Reserve Margin • Rejected CAISO Proposal to Specify Level Only for Public Power and Defer to the CPUC • Applies RA to All Entities Taking Service from the CAISO, including Federal PMAs • Gives CAISO discretion to determine level of local procurement requirements • Gives CAISO authority to procure to levels necessary to meet reliability criteria, and pass costs onto load.

  23. MRTU Order Continued • Establishes procedures to determine how to allocate import capacity into California for capacity counting purposes • California imports 20% of its energy. • Capacity eligible to be counted toward an LSE requirement must be bid into the CAISO markets • CAISO establish rules for counting capacity, and will test, monitor, and verify generator availability • Hydro and other use limited resources have bid requirements.

  24. MRTU Bottom Line • FERC claims broad jurisdiction to include Resource Adequacy rules in FERC-regulated tariffs • On every issue but the planning reserve margin itself (which is not too controversial), CAISO is given broad powers and discretion

  25. What We Have Learned, Continue to Learn • Be Careful What You Ask For. • We Supported Resource Adequacy Requirements but Never Envisioned Something This Pervasive or Complex • Ultimately, FERC Believes It Has Broad Authority Over Procurement Rules. How Far Will This Go? • Location, Levels, Types of Resources, Fuel Mix • What is Not Included in Reliability?

  26. Lessons Learned Continued • Our local control embodied in state law was eroded by FERC assertion of jurisdiction and state industry politics • FERC tariff application of rules homogenize all load serving entities. • Dominant state regulators get more deference than local city councils and boards. • The CAISO Knows Where Its Bread is Buttered

  27. More Lessons Learned • If You Don’t Pool Resources Now … • Central Pooled Dispatch and Mandatory Bid Rules for Resource Adequacy Capacity Can Fundamentally Alter Your Procurement • How Your Resources are Located • What Fuel Type • How Use Maximize Their Value, i.e. when your units run may not be within your control

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