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Commissioner Blog: Keeping the Lights On

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By Commissioner Liane M. Randolph

Yesterday my Commissioner colleagues and I took action in a 5-0 vote to ensure that the state's electric providers secure enough power to keep the lights on for Californians. Such grid reliability is grounded in a complicated but very important energy market program that the CPUC manages, called Resource Adequacy.

A successful Resource Adequacy program ensures that every part of California has instantaneous power to serve their customers every hour of the year. It is invisible to the public when it is functioning as it should, because power flows without curtailment or outages even when the grid is stressed.

But we are facing new challenges to the program. The law requires us to avoid costly backstop procurement, but that has become more frequent in recent years. We must ensure that all load-serving entities procure their share of local resources, but several entities are telling us that they have been unsuccessful at procuring sufficient capacity. There is a narrowing number of gas-fired plants in the state that provide such local reliability, and the plant owners are increasingly able to exercise market power. Customers continue to migrate to community choice aggregators (CCAs) on a default basis and to electricity service providers on an elective basis, but I am not always persuaded that those entities are prepared to meet this statutory reliability obligation. 

Here is how my colleague, CPUC President Michael Picker, put it during his remarks on the dais: "We've seen a number of failures of meeting the Resource Adequacy requirements over time. I'll just point to the fact that last year we issued 11 waivers to small electricity service providers and to CCAs who could not meet the legislative requirement to keep our grid reliable. What happens when that takes place is the Independent System Operator steps in and makes expensive purchases in a backstop arrangement under federal requirements for reliability."

Our decision yesterday takes aim at these issues with new market structures. We set multi-year procurement requirements for all entities that secure electric generation resources for their customers.

This means that all of California's investor-owned utilities, community choice aggregators, and electric service providers to procure 100 percent of the resources they need for local reliability each year for the next two years, and 50 percent of what they need three years from now. Our aim is to encourage investment in longer-term contracts with the resources that already exist, allow space for load-serving entities to invest in new resources that might come online three years from now, and avoid over-procurement in case some of the local areas with tightening generation supply receive new transmission.

It is well known that this decision was controversial, as will be our next steps. Even while I am pleased with today's decision, I remain concerned that this approach is incomplete. It relies on each load-serving entity playing its part in this statewide program, and may not address the reliability deficiencies, market power, and expensive last-minute procurement that we are experiencing today. 

My colleagues on the Commission agreed, and so we also adopted two significant next steps:

First, to increase public understanding of the tightness in the energy market, we adopted a transparency proposal. As Commissioner Martha Guzman Aceves pointed out, "Our local reliability comes from gas, and we are going to need to keep using gas." California's remaining gas-fired power plants provide much of this local Resource Adequacy, and we would like the public to understand that all types of load-serving entities - utilities, community choice aggregators, and electricity service providers - need to use these plants to serve their load. At the same time, we encourage development of local renewable resources that can provide local Resource Adequacy, as part of California's transition toward a zero-carbon electric grid. To further everyone's understanding, our Energy Division will prepare public reports about the state of the market: which resources needed for Resource Adequacy are receiving multi-year contracts, the magnitude and pace of development of preferred resources for local capacity, waiver requests for local Resource Adequacy, and deficiencies.

Second, we are pressing parties to develop implementation details for a central procurement mechanism.  Our Energy Division put forward a detailed proposal in 2018, which parties critiqued without supplying alternatives that address statutory obligations or the very real challenges we are facing today. The decision thus directs parties to develop workable implementation solutions for central procurement via a series of workshops over the next six months. Each one is to be facilitated by a different market representative, including the community choice aggregators, investor-owned utilities, and energy service providers.  

My hope is that parties will arrive at a consensus regarding how to implement a central procurement mechanism. If they don't, I intend to issue a decision in the fourth quarter of 2019 that addresses and adopts implementation details for a central buyer structure that will address reliability issues, load migration and market power, as well as meets our greenhouse gas goals, at an affordable price. My fellow Commissioners and I believe it is the responsible thing to do for California.

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