The CPUC Needs to Address Emergency Reliability for Summer 2021, but It May Not Have Time

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Can a new rulemaking initiated in November 2020 address summer 2021 shortages? The California Public Utilities Commission (CPUC) seems to think so. We at DWT are not so sure.

At its November 19, 2020, Business Meeting, the CPUC signed an Order Instituting Rulemaking (OIR) "to identify and execute all actions within its statutory authority to ensure reliable electric service in the event that an extreme heat storm occurs in the summer of 2021." This is the sort of action that a regulator takes when it is faced with a barrage of criticism following a heat storm that caused rotating outages.

Specifically, in mid-August 2020, the California Independent System Operator (CAISO) initiated rotating outages because of an extended heat storm. Now, the CPUC wants to identify and implement near-term actions to ensure in advance that there are no more blackouts because of an extended heat storm during the summer of 2021.

Threat of Summer 2021 Electrical Shortages Is Significant

In its year ahead report that was made available last week, the CAISO has—for the first time ever—notified market participants that it is short up to 1,700 MW of System Resource Adequacy (RA) for 2021. To that end, the CPUC's proceeding will address two primary issues: How to (1) increase energy supply and (2) decrease demand during the peak demand and net demand peak hours in the event that a heat storm similar to that of August 2020 occurs in the summer of 2021.

With this rulemaking, the CPUC takes on the pressing task of addressing the market shortages that California faces next year. The proceeding will only focus on those actions that the Commission can adopt by April 2021 and that parties can implement before the summer of 2021.

The proposed schedule for this proceeding anticipates a decision in April 2021. However, new resources require final CPUC approval prior to financing and construction.

Rulemakings Are Lengthy Endeavors

Even if the CPUC expedites the procurement process, it is unlikely that an April 2021 decision will provide enough time for new resources to come online by the summer of 2021. Similarly, existing resources need significant lead time for O&M planning. For example, if an existing generator orders a new turbine, it can take 18 months for the turbine to be produced.

For many generators, an April 2021 decision does not allow enough time to bring new generation online by the summer of 2021. Rather than a new rulemaking and procurement that may not happen in time, the CPUC may want to instead focus on near-term regulatory items that have been inhibiting RA transactions.

Parties have already submitted initial comments with numerous examples, and reply comments on these initial proposals are due on December 10, 2020. The CPUC should heed stakeholders who contribute ideas that will make an actual difference prior to the next heat storm.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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