tony braun bruce mclaughlin braun & blaising, p.c appa legal seminar october 9, 2006 resource...
TRANSCRIPT
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
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?
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
“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
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
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?
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
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
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.
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
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
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
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
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
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
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
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
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.”
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
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
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.
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.
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
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?
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
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