California energy regulators on Oct. 10 approved new rules for energy imports used to meet resource-adequacy requirements, meant to ensure imports are available at critical times such as when solar energy is diminishing on the grid.

The California Public Utilities Commission approved the new set of rules after taking extensive comment from stakeholders, including the California Independent System Operator, load-serving entities, community choice aggregators, energy sellers and others [R17-09-020]. The CPUC first issued an "assigned commissioner's ruling" on July 3 to seek comment on the new regulations, which are meant to address concerns that California load-serving entities might be relying on unspecified imports for RA and questions regarding whether some imports meet requirements that they cannot be curtailed for economic reasons. It is also unclear whether these unspecified RA contracts can deliver energy when it is needed most, mainly as the grid ramps up generation to make up for declining solar output each day, the commission said.

The decision adopts qualifying capacity methodology, stating that capacity for import contracts is the contract amount; is for an import energy product with operating reserves; cannot be curtailed for economic reasons; and is delivered on a transmission line that cannot be curtailed during operating hours for economic reasons or bumped by higher-priority transmission (or specifies a firm delivery point). The decision also phases out "non-unit-specific, liquidated damages" contracts, saying there is a likelihood of "double-counting" as they are not subject to deliverability screens, which have the potential to affect reliability. Liquidated-damages contracts that meet import deliverability requirements and demonstrate they are associated with physical resources—such as spinning reserves and firm energy delivery—were retained.

Many commenters said the commission should not require RA contracts to include actual delivery of firm energy with firm transmission, as this would lead to inefficiencies in the market and increase costs for load-serving entities and retail customers. Others said the failure to add an energy-delivery obligation makes the imports speculative supply that can't be relied upon.

The California Community Choice Association, Morgan Stanley Capital Group and Shell also argued that requiring out-of-state generation to actually supply energy to California impedes upon the Federal Energy Regulatory Commission's regulatory jurisdiction, but the CPUC disagreed, saying the Federal Power Act allows states to ensure reliability within their jurisdictions. CAISO said that an RA must-flow requirement could affect its ability to use RA imports to meet net-load ramping needs and increase the need for flexible generation.

"While we recognize the CAISO's concerns, we emphasize the commission's purpose to ensure a reliable, adequate energy supply for the state and the RA program's purpose to ensure sufficient, reliable energy to maintain grid reliability during peak system periods—objectives which may not necessarily align with the CAISO's market inefficiency concerns," the CPUC said in the decision.

Key elements of the order include: an affirmation of previous rules, and clarification that energy products that cannot be curtailed for economic reasons shall self-schedule into CAISO markets, consistent with the time frame in the governing contract; that contracts for import energy that are only available when called for in CAISO's day-ahead market or residual unit commitment process do not qualify as an energy product that cannot be curtailed for economic reasons; that import RA resources shall align with identified reliability needs; that additional contract compliance shall be reviewed; and that the Energy Division shall report on the annual aggregated data in its annual RA report.

CAISO's Department of Market Monitoring in September 2018 produced a report saying that RA imports are only required to bid into the day-ahead market and that imports can bid at any price up to the $1,000/MWh offer cap without further obligation to bid into the real-time market if not scheduled there, or into CAISO's residual unit commitment process. The existing rules could allow a large portion of RA requirements to be met by imports that might have limited availability during critical market conditions, DMM said. RA imports could routinely bid above projected prices in the day-ahead market to help ensure they don't clear, relieving them of any other further obligation in the real-time market, DMM said in the report. CAISO has raised similar concerns, the CPUC's proposed decision says.

CalCCA, San Diego Gas & Electric and Shell said the clarification of RA import rules might be unnecessary and the concern overstated, while others urged a delay in crafting new rules until other stakeholder processes continue.

CPUC said it underscored that a contract for import energy that is called for only in the day-ahead market or residual unit commitment process does not meet the qualification of being an energy product that cannot be curtailed for economic reasons. The CPUC declined to grandfather existing contracts into the new rules.