On January 10, 2024, a California Public Utilities Commission (CPUC) Administrative Law Judge (ALJ), Judge Julie A. Fitch, issued a Proposed Decision in an ongoing CPUC proceeding concerning the Integrated Resource Planning (IRP) framework for Load-Serving Entities (LSEs) in California and the Resource Adequacy (RA) procurement targets set by the Legislature in Senate Bill (SB) 350 and SB 100.1 Although the scope of the proceeding is quite broad—covering, among other things, the 2022 integrated resource plans of California LSEs—this Client Alert is focused on the aspects of the Proposed Decision that directly relate to RA procurements for the 2025 and 2028 reporting years. Those aspects of the Proposed Decision, if implemented, would modify the current RA procurement requirements for the 2025 and 2028 reporting years in a manner that could affect bargaining dynamics between LSEs and developers/resource owners with respect to the negotiation of RA Agreements (as well as Power Purchase Agreements (PPAs) more broadly) and the application of interconnection rules.
Background
Under the CPUC’s RA policy framework, all California LSEs are required to satisfy certain forward RA procurement obligations established by the CPUC to ensure reliable electric service in California. As discussed in a recent Wilson Sonsini Client Alert, in an unrelated docket, the CPUC is currently considering various sweeping reforms to the overall RA policy framework. In contrast, the Proposed Decision in this proceeding does not involve fundamental alterations to the RA framework, but rather addresses the timelines for the following two existing procurement obligations that were established in prior CPUC decisions:
- Diablo Canyon Replacement Capacity: By June 1, 2025, LSEs must procure a total of 2,500 MW Net Qualifying Capacity (NQC) from generation resources with specific characteristics intended to replace a portion of the Diablo Canyon Power Plant’s contribution to system reliability.
- Long Lead-Time (LLT) Resource Capacity: By June 1, 2028, LSEs must procure i) a total of 1,000 MW NQC of “clean firm” resources that can deliver a minimum capacity factor of 80 percent, and ii) a total of 1,000 MW NQC of long-duration storage resources.
Key Provisions of Proposed Decision
In addition to addressing the IRP filings at issue, the Proposed Decision addresses two petitions filed in the proceeding which sought modification of earlier procurement decisions issued by the CPUC in the same docket. The first petition, filed jointly by Southern California Edison Company (SCE) and Pacific Gas & Electric Company (PG&E), seeks a two-year extension on the requirement to procure the Diablo Canyon Replacement Capacity to June 1, 2027. As the rationale for their petition, SCE and PG&E claim they are already procuring significant energy and capacity resources in a “resource-scarce and competitive market environment” which makes it challenging to bring sufficient resources online by the existing deadline.2 The second petition was filed by the California Energy Storage Alliance (CESA) and the Western Power Trading Forum (WPTF) and seeks the ability of an LSE to request from the CPUC an extension of up to three years for procurement of LLT Resource Capacity from June 1, 2028, to June 1, 2031. CESA and WPTF claim that meeting the 2028 compliance deadline may not be possible, as LSEs have been “reluctant” to sign contracts for LLT Resource Capacity due to “longer permitting timelines, material supply constraints, potential for interconnection delays, and unavoidably long construction periods.”3
In the Proposed Decision, the ALJ proposes denying SCE/PG&E’s petition because it could result in a reliability shortfall in 2025. Pointing to prior analysis conducted by CPUC staff, the ALJ explained that California is already expected to face reliability challenges in 2025 and “granting the [petition] will likely compound the risk of reduced system reliability.”4 The ALJ also found that granting the petition could “create inequities for LSEs that procured resources to meet the Diablo Canyon replacement requirements on time, perhaps at greater cost.”5
Elsewhere in the Proposed Decision, the ALJ proposes accepting CESA/WPTF’s petition with significant modification, conceding that it may not be possible for all LSEs to meet the 2028 compliance deadline for the reasons cited in the petition. In particular, after recognizing that CAISO interconnection Cluster 13 does not contain enough resources to make a “collectively competitive solicitation process” for LSEs to meet their LLT Resource Capacity requirements, the ALJ expresses a “prefer[ence]” by the CPUC “to allow more projects in Cluster 14 and possibly Cluster 15” to compete for contracts, which would require compliance deadline extensions beyond June 1, 2028.6 In light of the foregoing, the ALJ proposes that LSEs be permitted to file individual extension requests for the 2028 compliance deadline while making a “good faith showing of progress” towards the procurement target, even if they have not obtained a signed contract, by satisfying the following requirements:
- By June 1, 2024, each LSE must file either 1) evidence of contracts for procurement of the LLT Resource Capacity or 2) a good faith extension request for more time to conduct solicitations “on the basis of high, non-competitive, or unreasonable pricing in the bids received in their solicitations.”7
- By June 1, 2028, an LSE with a signed contract for LLT Resource Capacity can file a request for a compliance extension to June 1, 2031, by submitting an executed contract, plus one of the following: i) evidence of site control, ii) an interconnection agreement, or iii) a notice to proceed. If the extension is granted, the LSE must meet its LLT procurement requirements by procuring generic replacement capacity that is eligible for California’s renewable portfolio standard until the contracted LLT resources can come online, no later than June 1, 2031.
Key Takeaways
If the Proposed Decision is implemented, the rejection of SCE/PG&E’s petition is likely to impart a sense of urgency for LSEs to timely procure replacement capacity and expediently complete the interconnection process for new projects in time to meet the 2025 compliance deadline associated with the Diablo Canyon RA replacement requirements. As a result, project developers and capacity resources that are in position to help meet those requirements will likely have a stronger bargaining position with the LSEs in both the negotiation of PPAs and the timely completion of any interconnection studies and key network upgrades required to bring such projects online.
With regard to CESA/WPTF’s petition, it is unclear exactly how the LSEs’ opportunity to extend the 2028 compliance deadline for LLT Resource Capacity will affect bargaining dynamics between LSEs and project developers. In one sense, the CPUC’s decision to broadly maintain the 2028 compliance deadline could give generators some leverage by keeping pressure on LSEs to timely execute PPAs for the LLT Resource Capacity. Conversely, the availability of a project-by-project extension to the LLT procurement deadline—and the LSEs’ ability to seek such extensions on the basis of price—could work against developers of LLT resources by increasing uncertainty both in contracting and in the interconnection process. How these scenarios play out likely will vary by LSE and LLT resource and almost certainly will depend in significant part on how RA procurement and project interconnection efforts unfold over the next few years.
ALJ Fitch’s Proposed Decision is not binding until voted on and approved by the CPUC. The earliest that the CPUC could be heard is the CPUC’s meeting on February 15, 2024. Third parties engaged in resource adequacy transactions, including project developers and resource owners, should continue to monitor this proceeding.
[1] Proposed Decision of ALJ Fitch (https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M523/K201/523201875.PDF).
[2] Id. at 86.
[3] Id. at 90.
[4] Id. at 89.
[5] Id.
[6] Id. at 96.
[7] Id.
