Improving California’s RA Trading Program
Background
At a time of rising electricity bills and challenging market conditions, California’s resource adequacy (RA) program is transitioning to a new Slice-of-Day (SOD) framework. Previously, load serving entities (LSEs) were required to meet a monthly RA obligation using resources accredited with a monthly RA contribution. In the new SOD framework, LSE obligations are based on the 24 hours of the peak day in each month. LSEs must show resources sufficient to meet load obligations in each hour, including excess resources to charge storage on the peak day.
Under existing rules, LSEs are restricted in how they can transact with other entities to ensure compliance. Adjustments to an LSE’s portfolio are limited to transacting product for the whole month even though obligations are unique to each hour. This mismatch means LSEs must purchase more RA than they need to meet their obligations, creating artificial market scarcity and unnecessarily driving up RA demand (and prices). It’s akin to having to buy a crate of oranges when you only need a few slices. The net result is tens of millions of dollars in unnecessary costs that fall to California ratepayers.
CalCCA is proposing that LSEs have the flexibility to transact load obligations at the hourly level in order to reduce costs to consumers. If RA requirements are set on an hourly basis, some or all of the products should be transactable on an hourly basis. CalCCA’s proposal is backed by a new analysis, Effective Mechanisms for Slice-of-Day RA Trading, which highlights consumer cost savings and other benefits of trading RA load obligations at the hourly level. The proposal has the support of a broad range of market stakeholders including LSEs, clean energy providers, consumer advocates, and the environmental justice community.
Evidence of Problem
During the SOD transition, LSEs submitted portfolios of resources to meet hourly obligations for a 2024 test year and for the binding 2025 year-ahead requirements. From these submittals, CalCCA observed that individual LSEs were short in some hours, requiring them to purchase additional RA resources to meet requirements, while other LSEs had excess capacity in those hours. Trading between LSEs would be sufficient to meet reliability requirements without needing to purchase additional RA.
From this early experience, it is apparent that restrictions on trading create artificial market scarcity and unnecessarily drive-up demand for already scarce RA products. LSEs have been penalized for non-compliance even though other LSEs showed excesses that could cover their shortages in the non-compliant hours.
Gains From Trade
With hourly load obligation trading, an LSE that has excess resources in an hour could offer to take on a share of the obligation of an LSE that is short in the same hour. By trading load obligations, LSEs could avoid $105 million in purchases of excess RA resources for the summer of 2025. This reduction in RA demand puts downward pressure on RA prices for all California LSEs, potentially reducing RA costs by an additional $77 million per year.
The gains from bilateral trading of hourly long and short positions, which is simple to implement, would achieve 80% of the gains that could be achieved with the help of an intermediary, such as a broker, that implements a sophisticated mechanism to coordinate trades across the market.
With such an intermediary, resource and hourly obligation trading achieve similar total benefits. However, trading hourly obligations allows much more targeted transactions between trading participants because prices for hourly obligations are only high for hours of overall scarcity of resources, such as hours in the early evening.
RA transactability is currently being considered in the CPUC’s Rulemaking 25-10-003. For CalCCA’s latest comments on the proceeding, visit our Policy Page, and search for “transactability.”
The Case for an RA ‘Slice Exchange’
A new CalCCA analysis highlights consumer cost savings and other benefits of trading RA load obligations at the hourly level: Effective Mechanisms for Slice-of-Day RA Trading
CalCCA Launches RA Stack Analysis and Interactive Dashboard
CalCCA’s RA Stack Analysis reveals how limited trading flexibility under California’s Slice-of-Day program creates challenges for hourly grid reliability—and how targeted reforms could improve resource adequacy, lower costs, and support a more efficient clean energy future – try it out here.
CalCCA Expresses Disappointment in Proposed CPUC Decision
The CPUC has released a proposed decision in the RA proceeding, rejecting CalCCA’s hourly slice-of-day trading proposal. Read CalCCA’s response here.
Prices for hourly obligations fall to zero in the other hours because of the overall surplus of available resources to meet hourly obligations. In contrast, trading resources can require complex, coupled transactions where an LSE is selling one type of resource at the same time it is buying another, just to remain compliant in all hours.
Hourly Load Obligation Trading is Sensible and Valid
At a time with rapidly rising costs in the electricity sector, policy makers should provide LSEs maximum flexibility in how they contribute their fair share to keep the overall system reliable. Enabling hourly load obligation trading:
- promotes affordability by reducing artificial RA scarcity
- is administratively simple in that LSEs can document bilateral trades using existing RA showing tools with the CPUC
- maintains LSE responsibility by creating a new procurement product rather than offering relief from meeting existing requirements
Growing support for CalCCA’s hourly obligation trading proposal in the CPUC’s RA reform proceeding (R.23-10-011) — from LSEs, clean energy providers, consumer advocates, and the environmental justice community — demonstrates that this is the time to act. Supporters include American Clean Power–CA, Alliance for Retail Energy Markets, Cal Advocates, Clean Energy Buyers Association, Center for Energy Efficiency and Renewable Technologies, California Environmental Justice Alliance, Hydrostor, Microsoft, and Shell.
Unfortunately, the CPUC has released a proposed decision in the RA proceeding, rejecting CalCCA’s hourly slice-of-day trading proposal. Read about CalCCA’s disappointment in this decision here.
Californians are already doing their part to move toward a clean energy future. Now it’s time to make the system work smarter — and save everyone money along the way.
