A new settlement agreement among a large swath of California energy organizations that outlines a residual resource-adequacy "central buyer" structure was the product of a lengthy negotiation process, participants said.

The diverse group—the California Community Choice Association, Calpine, the Independent Energy Producers Association, Middle River Power, NRG Energy, San Diego Gas & Electric, Shell Energy North America and the Western Power Trading Forum—filed a joint motion Aug. 30 asking the California Public Utilities Commission to adopt the agreement.

The settlement is the result of the CPUC seeking a "feasible" central-buyer model for resource-adequacy resources. It calls for the creation of a central purchasing entity called the Resource Adequacy-Central Procurement Entity that would be responsible for procuring residual multiyear RA capacity on behalf of load-serving entities on an as-needed basis to make certain that LSEs' RA requirements are met. An LSE would be able to choose whether to self-procure some or all of its RA needs under the agreement, but if it opted not to self-procure, the central procurement entity would then purchase resources to span the gap and "bill providers for costs incurred," according to the filing.

"If adopted, the settlement agreement will advance the commission's stated preference for a central buyer framework, reduce the need for California Independent System Operator backstop procurement, preserve LSE self-procurement autonomy, maintain and enhance a liquid and robust bilateral capacity market, and preserve a meaningful role for the State in ensuring reliability," the joint motion said. 

CalCCA in a news release said the settlement is "a workable, implementable solution for the central procurement of resource adequacy on a three-year forward basis."

The 45-page joint motion/settlement agreement is an integrated package settlement that "describes fairly clearly" the agreement reached by the parties, John Leslie, an attorney for Shell, said. As a party to the agreement, he said Shell will not only be expressing its support for the settlement, but will also be seeking CPUC approval of the settlement.

The agreement has been a long time coming, said CalCCA Executive Director Beth Vaughan. It originated during CPUC RA discussions—specifically from universal opposition to the proposed central procurement structure. "Nobody liked that," she said. "Everybody was shocked."

The CPUC in June 2018 proposed a central buyer structure, and in a later "Track 2" decision considered multiple proposed central buyer solutions. But the commission delayed implementation of a central buyer structure to allow time for a series of workshops to be held to identify workable proposals.

Three workshops were held in April and May, but determining the identity of the central buyer stalled workshop talks, which led the interested parties to put aside that issue and begin a Rule 12 settlement process focused on how the market would function. With this protection in place, the parties were able to work out all the other issues on the commission's checklist. Some of the requirements were exceeded, Vaughan said.

Costs incurred by the central buying entity on behalf of an LSE would be billed on a monthly basis to that LSE. These costs are already being recovered from ratepayers. Vaughan said it will not make any difference to ratepayer bills because RA is already incorporated into rates.

"It is important to SDG&E that costs are allocated to LSEs based on cost causation principles," said SDG&E spokesman Robert Iezza. "The settlement agreement ensures that costs are charged to LSEs that relied on the central procurement entity's procurement."

What the structure does do is eliminate RA waivers and penalties. It will also likely increase the supply available in the market, with prices for generators "as good as, if not higher than, the CAISO backstop," Vaughan said.

In the document, the signatories state that they are agreeing "to the SA as a whole rather than . . . to specific elements of the SA in isolation."

But the big unanswered question is what entity will serve as the central buyer.

The settlement does not specify any entity as the central buyer. Rather, it says this should be a "competitively neutral, independent and creditworthy entity" able to coordinate operations with the CPUC, the California Energy Commission and CAISO.

"SDG&E strongly agrees with those principles," said Iezza.

"If any settling party does not agree with the decision designating a central buyer (issued by the commission or by some other entity with authority), the settling party nevertheless agrees to continue to support the SA for the term of the SA," the settlement states.

CalCCA is advocating for the creation of a state agency that is not a market participant.

The filing opened a 30-day comment period. "We'll have a much better idea after that period as to how folks are responding to it," said Leslie. There will then be a 15-day period during which replies are to be filed.

Comments on the joint motion are due Sept. 29 with the deadline for replies Oct. 14.

"It's hard to speculate as to how quickly the commission can act" on the settlement, Leslie said, but he said the expectation is that it will be before the end of the year.

It also is unclear whether the CPUC will act on the request, given the historically tense relationship between CCAs and the commission. The fractious nature of interactions between the two organizations prompted the California Alliance for Community Energy, a community choice advocacy group, to send a letter to California Senate President Pro Tempore Toni Atkins (D-San Diego) and Assembly Speaker Anthony Rendon (D-Lakewood) in May, asking lawmakers to shield community choice aggregators from perceived attacks by the CPUC.

Many of the offensive parries were courtesy of former CPUC President Michael Picker, who repeatedly railed against CCAs based on his fear that changes in the state's regulatory structure could trigger problems on a par with those it faced circa 2000-2001. 

Nevertheless, without a competing proposal, Vaughan said, the parties to the agreement expect the core proposal to be adopted by the CPUC.

"We're not throwing out everything we've learned over the last 10 years," Vaughan said. "This is readjusting policy to the new reality." That reality centers on the new, multiple LSEs in the state and the changing complexion of how the three major state investor-owned utilities operate. It should also, she said, add flexibility and confidence in insuring reliability by placing the procurement obligation solely with the central buyer. But there is a possibility that central buyer may not be needed.

There are already good examples of synergies that have solved local reliability issues and involved clean-energy sources, such as the Oakland Energy Initiative, which was developed by East Bay Community Energy and Pacific Gas & Electric, Vaughan said (see CEM No. 1548). Vistra Energy, which owns a 40-year-old power plant in Jack London Square, plans to provide resource-adequacy capacity to the Alameda County community choice aggregator via a 20-MW/80-MWh battery energy storage project designed to partially replace the aging facility. It will add 20 MW of RA to the system, which ECBE is purchasing. PG&E is purchasing the plant's transmission.

The settlement agreement will be considered in the resource-adequacy proceeding [R17-09-020], according to CalCCA.