The Federal Energy Regulatory Commission should reject a complaint submitted by the owner of a power plant in California against the California Independent System Operator that calls for the grid operator to implement mandatory centralized resource adequacy procurement, the American Public Power Association recently argued.
In July, CXA La Paloma filed a complaint against CAISO (Docket No. EL18-177). La Paloma owns a 1,124 MW natural gas-fired, combined cycle generation facility in McKittrick, California.
La Paloma argued that CAISO’s existing resource adequacy framework is unjust and unreasonable and unduly discriminatory, asserting, in particular, that CAISO’s framework does not adequately compensate generators that provide flexibility attributes needed in California.
La Paloma said that FERC should require CAISO to implement mandatory centralized resource adequacy procurement, including a downward-sloping demand curve and minimum offer price rule (MOPR). La Paloma also contended that the new framework should include “appropriate flexibility requirements.”
“The relief requested by La Paloma is unwarranted and would improperly interfere with California’s authority over the generation mix in the state,” the Association said in a late August filing that urged the Commission to deny the complaint.
The Association said that the crux of La Paloma’s complaint is that CAISO’s current resource adequacy construct is not securing enough of a particular type of resource – those that provide flexibility attributes.
La Paloma does not argue that the CAISO’s resource adequacy construct is providing for an insufficient level of resources overall. To the contrary, the Association noted, La Paloma claims that one of the reasons flexible resources allegedly are receiving inadequate revenue is because “California is consistently long capacity” due to the state’s legislatively-mandated long-term procurement plan.
According to the complaint, the alleged problems with the CAISO’s resource adequacy construct are largely attributable to California legislative enactments and the manner of their implementation by the California Public Utilities Commission.
La Paloma takes issue, in particular, with California’s efforts to promote renewable resources in the state through a renewables portfolio standard program and other legislative and administrative mechanisms.
The complaint characterizes renewable resources promoted under state legislative and regulatory policies and procedures as “subsidized” generation and contends that they should be subject to a MOPR in a centralized capacity construct.
La Paloma’s request that the Commission impose a mandatory centralized capacity construct with flexibility requirements and a MOPR applied to state-promoted renewable generation would improperly intrude on the authority of California state policymakers to regulate the resource mix in the state, the Association told FERC.
Eastern RTOs show capacity markets far from perfect
Meanwhile, the public power group said that the lessons learned from the Eastern regional transmission organization markets show that implementation of a capacity market is not a remedy to address a specific resource need.
The capacity markets in the Eastern RTOs “are far from proven success stories, as they have been plagued by endless disputes and design changes,” the Association noted, especially in the PJM Interconnection and ISO New England.
“Moreover, because the Eastern RTO capacity auctions do not differentiate between each megawatt of capacity that submits an offer, these constructs are not designed to target specific resource types. As a result, in recent years, these RTOs have reported that the resource output developed pursuant to capacity auctions may not be meeting certain standards or needs.”
Moreover, the Association pointed out that FERC has made clear that centralized mandatory capacity markets are not appropriate in all regions.
Proposed capacity construct would lead to unjust and unreasonable auction outcomes
In addition, the Association said that while La Paloma has not demonstrated the need for a centralized mandatory capacity market within California, many of the features that it asserts are critical to the success of the proposed capacity market would lead to unjust and unreasonable outcomes.
One example the Association gives is La Paloma’s proposal to include a MOPR or a “MOPR-like” rule, where “new entrants with costs above a certain percentage of CONE [cost of new entry] would not be permitted to offer at prices below that percentage of CONE.”
The MOPR would apparently apply to all technology types and no exemptions for state-sponsored resources would be provided. “Further, the complaint makes no mention of any exemptions from the MOPR for self-supply resources developed by public power, cooperative, or investor-owned utilities to meet the load of their service territory.”
The Association said that this widespread application of a MOPR could create a direct conflict between the auction rules and state policies.
It said that a MOPR could cause ratepayers to fund a double payment of capacity if resources procured pursuant to state policy or self-supply are subject to the MOPR and fail to clear the auction.
An affidavit included in the complaint argues that “the issue of utilities ‘paying twice’ for capacity should not be material” with regard to renewable resources, because most renewables are already in operation and therefore not subject to the MOPR, and that the resource’s cost determination would not include the federal tax policies or energy revenue earned as a result of California’s cap and trade system.
“Nevertheless, renewable procurement pursuant to state requirements is unlikely to cease, resulting in the application of a MOPR to such new renewable resources. If those renewable resources fail to clear the auction, such double payment is in fact a material concern,” the Association said.
