United States: Generators Urge FERC To Adopt Centralized Capacity Market In California

A coalition of electric generators in California has urged the Federal Energy Regulatory Commission (FERC or "the Commission") to require the California Independent System Operator (CAISO) to implement a centralized capacity market to procure the electric generation capacity needed to reliably operate California's electric grid. The generators, which filed comments in support of a complaint filed against CAISO by CXA La Paloma, LLC ("La Paloma"), argue that California's existing resource adequacy process—which principally relies on bilateral contracting between load-serving entities (LSEs) and generators—has produced outcomes that are unjust, unreasonable, and discriminatory. The generators claim, among other things, that California's resource adequacy process fails to send accurate price signals that are needed to attract and retain resources needed for reliability, does not provide generators with a reasonable opportunity to recover their costs, and results in CAISO having to resort to out-of-market mechanisms to acquire capacity that is needed to operate its system.

While FERC may be unlikely to mandate a centralized capacity market in CAISO, the complaint proceeding is nevertheless significant since FERC will need to address long-standing, yet increasing, concerns among generators that California's capacity procurement process is flawed.  

California's Resource Adequacy Regime

Unlike the three Eastern organized electricity markets,1 CAISO does not use a centralized resource adequacy procurement process (e.g., a capacity auction) to ensure adequate system capacity and reliability. The reasons for this—and the complex nature of resource planning and capacity procurement in California—are rooted in California's history and its status as a single-state wholesale market subject to both federal oversight by FERC (through CAISO) and state energy policies and initiatives. 

CAISO and the California Public Utilities Commission (CPUC) address resource adequacy principally through bilateral, near-term contracting between LSEs and generators of a "Resource Adequacy" (RA) capacity product. For various reasons, including a lack of alignment between resources that LSEs can use to meet RA requirements and those that CAISO actually needs to run its system, the RA market has been viewed by many as flawed. The RA market has increasingly resulted in LSEs not securing capacity commitments from specific generators needed by CAISO—including capacity from flexible natural gas-fired generators that are needed to balance out the system due to increased generation from intermittent resources. This has primarily affected existing natural gas-fired generators, which, unlike new generators, are not eligible under state policy to be included in Investor-Owned Utilities' Long-Term Procurement Plans, since their capacity is already presumed to be available when assessing additional resource needs. As a result, CAISO has had to rely on "last-resort" out-of-market mechanisms to secure capacity from generators that could not sell RA capacity at sufficient prices to sustain operations, even though they are needed by CAISO to operate the system.

The Complaint Proceeding

On June 20, 2018, La Paloma, which owns a 1,124 MW generating facility in McKittrick, California, filed a complaint against CAISO alleging that CAISO's tariff is unjust, unreasonable and unduly discriminatory as it relates to resource adequacy. Premised on the failure of the RA market to send accurate price signals that can attract and retain resources needed for reliability, La Paloma urges FERC, as a remedy, to implement a centralized resource adequacy procurement process like those used in the Eastern markets (i.e., a capacity market with centralized, uniform locational pricing and other key features). 

While the complaint was filed by a single generator, it has garnered broad support from other generators and proponents of competitive markets. On August 24, 2018, the Electric Power Supply Association, a trade association representing independent power producers, filed comments supporting the complaint and the implementation of a centralized capacity market. The Western Power Trading Forum also filed comments supporting the complaint. Calpine, a major independent power producer, filed comments supporting La Paloma's claim that the CAISO tariff is unjust and unreasonable as it relates to resource adequacy, but proposed, as a remedy, comprehensive reform of CAISO's backstop capacity procurement mechanisms, which it views as more realistic than a centralized capacity market given the nature of the California market. CAISO, along with various LSEs and public interest groups, has opposed the complaint.

Significance and Next Steps

Complaints about California's wholesale electricity market and capacity procurement process are nothing new. To date, FERC has been reluctant to take action that could be viewed as interfering with the state's energy policy objectives and resource planning process, instead relying on market changes to be considered through CAISO stakeholder processes and CPUC proceedings. La Paloma's complaint reflects an attempt to place the alleged flaws in California's capacity procurement process squarely before FERC to resolve.

In order to direct any reforms, FERC would first need to find the current CAISO market rules unjust and unreasonable. While it is unknown whether FERC will find that La Paloma has met this burden, the complaint comes at a time when the Commission has shown an interest in considering significant reforms to capacity procurement processes in other markets where state policies have allegedly contributed to unjust and unreasonable wholesale market outcomes. Most recently, FERC initiated a proceeding in PJM to consider reforms to address the impact of state energy policies on the wholesale market.2

The next step is for FERC to issue an order on the complaint. If FERC were to find the CAISO tariff unjust and unreasonable, FERC could direct reforms to the CAISO tariff or initiate further proceedings to consider such reforms. There is no deadline for FERC to act on the complaint.

Footnotes

1 PJM Interconnection, L.L.C.; ISO New England Inc.; and the New York Independent System Operator.

Calpine Corp. v. PJM Interconnection, L.L.C., 163 FERC ¶ 61,236 (2018).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions