Pacific Gas & Electric and Southern California Edison raised sharp objections to a proposal that would establish a central procurement entity to handle the state's resource-adequacy requirements, saying in Sept. 30 filings to the California Public Utilities Commission that the plan is unworkable and against the public interest.

The proposal was outlined in an Aug. 30 joint filing by the California Community Choice Association, San Diego Gas & Electric, Shell Energy North America, Calpine Corp. and other parties. If adopted, it would create a "resource adequacy-central procurement entity" saddled with the default role of meeting local, flexible and system RA requirements on a three-year-forward basis. The entity would work within a residual model, meaning load-serving entities would continue procuring RA resources and the central buyer would cover any residual obligations (see CEM No. 1555).

But in comments, attorneys for SCE objected to the proposal's inclusion of a multi-year procurement framework for system and flexible RA. PG&E, meanwhile, suggested that it represented a "suboptimal solution" to procuring resources and is riddled with loopholes that could require the California Independent System Operator to step in with significant backstop procurement.

The proposal is part of the CPUC's larger effort to reform the state's resource-adequacy program, an initiative launched in 2017. In June 2018, the commission issued a decision setting the state on a path toward a central-buyer structure, with a multi-year local RA procurement model. The agency instructed parties in the proceeding to hold a series of workshops and outline how a central-buyer model would work. 

According to CalCCA, SDG&E and other parties behind the proposal, their model would resolve all the issues raised by the commission except one—identifying who exactly would be the central buyer. But the other utilities raised a litany of complaints about the proposal in their comments.

According to SCE, locking in flexible and system RA capacity for three years could also lock in various deficiencies, especially given how recent studies from CAISO have found that the state's net peak load has shifted a few hours later. The utility also said in its comments that the proposal's approach toward load migration was extremely complicated, and advocated instead for a "front-stop procurement model" that would appoint the utilities as central procurement entities in their own service territories.

The central-buyer proposal includes a clause that would require LSEs with excess shown RA to either transact with another LSE or add it to an annual solicitation conducted by the central buyer. But SCE questioned whether the commission has the authority to implement such a system.

"To force an LSE to sell any excess shown RA as proposed is inappropriate, because LSEs' commercial transactions, i.e., buying and selling bilaterally, should be a decision each LSE needs to make for themselves and those decisions are dependent on their circumstances, the RA program structure, and CAISO rules which may impart cost risk," SCE said.

In addition, the utility objected to the proposal's treatment of LSEs that default—specifically, allocating costs stemming from this default to other power providers—saying it would unfairly shift costs to other customers.

The proposal could also conflict with PG&E's bundled procurement plan, which deals with short-term RA issues and is updated through advice letters filed with the CPUC, utility attorneys said in their comments. On a broader level, PG&E protested against a model wherein RA obligations are shifted to a central procurement entity.

"PG&E believes that one of the foundational responsibilities of an LSE is to maintain generating capacity, either owned or contracted, to meet the load requirements of its customers and to equitably share in the responsibility to maintain the reliability of the electrical grid," the utility said.

PG&E said in August comments to the commission that a residual-procurement model could create the need for backstop procurement because LSEs do not necessarily procure the most effective resources, leading to collective deficiencies.

However, the proposal received support from CAISO, which noted in comments that the residual central-buyer structure provides a framework that can "increase near-term reliability, reduce the likelihood of CAISO backstop procurement, and maintain load serving entity self-procurement and the existing bilateral capacity market."

In February, the CPUC moved to a three-year framework for local RA but refrained from extending system and flexible RA cycles, since procurement issues at the time were limited to local capacity. But according to CAISO, the need for system- and flexible-capacity forward procurement is also growing. The grid operator pointed to a September proposed decision from the CPUC that outlined RA shortages beginning in 2021.

"The CAISO believes these three-year procurement requirements are a reasonable first step toward ensuring near-term reliability," it said.

Ratepayer advocates expressed mixed opinions of the proposal. Attorneys with The Utility Reform Network pointed to a large gap in the filing—the identity of the central procurement entity. According to TURN, the only feasible option for a central procurement entity beginning in 2021 is state investor-owned utilities. The commission, it added, could work to develop a new entity in the next few years.

The Public Advocates Office raised a number of issues with the proposal, such as the lack of sufficient oversight of the central procurement entity; the multi-year system and flexible RA obligations; and the fact that it could prevent the commission from using the IOUs as the central procurement entity.

Kavya Balaraman covers the California Public Utilities Commission and PG&E Corp. for California Energy Markets. She has reported on climate policy and science in Washington, D.C. and graduated from Columbia University's Graduate School of Journalism.