Industry experts discuss CPUC's RA framework implementation proposal

The California Public Utilities Commission (CPUC) proposed a decision earlier this month on how the new resource adequacy (RA) requirements would be implemented, including a solution to alleviate pressure on load-serving entities (LSEs) during the 2024 test year.

Seth Hilton, partner in the San Francisco office for the Stoel Rives law firm, told NPM that the proposed decision outlining the implementation approach was issued March 3. This is Phase 2 of the reform track, which began effectively mid-2202 when the CPUC decided to reform how it handles RA requirements.

Hilton explained that instead of having a single monthly resource RA requirement based on peak load, plus a planning reserve margin, the CPUC decided to adopt a proposal from Southern California Edison (SCE) for the 24-hour slice-of-day framework. This means that the new RA requirements are separate for each hour of the day in a month. These requirements are calculated based on the worst day of that month, plus a planning reserve margin edition designed to ensure there is sufficient capacity every single hour.

“The challenge had previously been when there was a single requirement, peak load didn’t reflect some challenges that California had at net peak,” Hilton said, adding that when solar goes off the system in the evening, the state faces capacity challenges even outside of peak load. This is due to so much solar providing California’s capacity during the day.

Though the CPUC adopted the SCE’s RA proposal, the implementation details needed to be established. This led the CPUC to set up workshops during the latter half of 2022.

From those workshops came the three workstream areas suggesting implementation moving forward. The first centered around compliance tools and a master resource database to list resources that can be sued to comply with the new requirements. It also included forms for LSEs to submit to show compliance, and then the forecast that the Energy Commission would create.

Holding the attention of renewable energy developers was the second workstream, which established the value toward RA compliance. This mostly impacted solar and wind resources, though also affected storage energy, Hilton said. The concern here was once the valuation of a resource changes, those resources may have already been subject to long-term power purchase agreements (PPAs) of up to 20 years with an investor-owned utility (IOU). Once the resource value is changed, there are issues on who takes the risk or the benefits when there is already an agreement about where capacity is being purchased.

“So, parties have dealt with that in PPAs before and I would say this change to the valuation methodology for wind and solar was a long time coming,” Hilton said, explaining that this meant parties were aware of the potential change and addressed how it would be handled in PPAs.

This means that provisions were included in contracts stating whether an offtaker would receive all the RA value of a project if the value went up or down.

“That’s one way that regulatory risk has been handled,” he said. “It is handled in some form or fashion in that offtake agreement, as well as pricing.”

Hilton stated he believes offtakers and developers will move forward with the new methodology and see as it is implemented if it makes things more volatile or not.

“The valuation of wind and solar has moved around before and is a dynamic that parties are familiar with, and I think they will adapt to the new decision readily if it is adopted,” he said, adding that the CPUC could change the value of other resources going forward.

In that second workstream, the major changes impacting solar and wind were required due to the RA structure being changed. Previously, wind and solar were evaluated on the effective load carrying capability (ELCC) methodology. The CPUC’s implementation proposal chooses an exceedance methodology, which measures the hours of the day that type of resource exceeds.

“So, it is a slightly different methodology, and they will calculate values for each hour of the day, and also for each month those values will change,” Hilton said.

The third workstream was one that Hilton described as “the most interesting” piece. This addressed the CPUC’s concerns surrounding pressure on LSEs during the 2024 test year. Previously, LSEs were to do the test year to explore how the new RA framework operates and then in 2025 implement it.

However, this required LSEs in 2024 to comply with both the new and old RA framework, doubling their compliance load.

The third workstream calls for LSEs to do the test year by filing the annual November 30 submission to show yearly compliance to the old framework, then require LSEs to do compliance filings under the new framework for three months in March, June, and September. This would not require LSEs to file under the new framework each month.

Rick Umoff, senior director and counsel for the Solar Energy Industries Association (SEIA), told NPM that SEIA has been actively engaged in the new RA framework development.

“The updated framework better accounts for the central role that solar and storage now play in California’s energy mix,” Umoff said. “The methodology will help California tap into clean reliable power when the grid needs it most, allowing the state to meet its energy needs and climate targets in a more cost-effective manner.”

Public comments on the implementation proposal are due March 23, providing input from LSEs, IOUs, and developers.

*This story was originally published exclusively for NPM subscribers last month.


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