California’s RA Supply Problem
Background
California’s resource adequacy (RA) program is a critical tool to ensure load-serving entities (LSEs) procure the resources that are needed to keep the lights on. A shortfall of RA supply in California has created challenges for LSEs including Community Choice Aggregators (CCAs), resulting in increasing penalties. CalCCA believes the California Public Utilities Commission (CPUC) needs to take immediate action to address this persistent energy market challenge, one that has been building and worsening for years. Ultimately it is ratepayers that are paying a high price for California’s ongoing RA supply problem.
The Problem
California’s RA shortage makes it difficult, if not impossible, for every LSE to meet its RA requirements. Specifically, the demand for RA in California exceeds the available supply, even after accounting for imports and expected additions of resources, as this recent stack analysis notes: California’s Constrained RA Market: Ratepayers Left Standing in a Game of Musical Chairs.
California is experiencing shortages of two types of RA: Local and System. However, the CPUC only gives waivers for failing to meet Local RA compliance obligations; there are no waivers for failure to meet System RA requirements. The Commission has assigned LSEs millions of dollars in penalties for failing to meet System RA requirements, even when supply is not readily available. Ultimately, it is electricity consumers who are paying the price for this unresolved problem that is outside the control of RA purchasers.
RA scarcity ultimately harms consumers by driving up prices. Prices for resources averaged $3.63 kilowatt (kW)-month in 2019;3 summer 2023 has seen individual transactions at prices over $60 kW-month – the highest for CCAs being $82.94/kW-month – and resources are increasingly unavailable at any price.
Newer market entrants such as CCAs and Direct Access (DA) providers are most impacted by RA shortages. That’s because the incumbent utilities — the IOUs — hold “legacy” supplies built prior to the recent growth of retail choice. Consequently, the burden of finding new energy supplies has fallen largely to CCA and DA customers. Notably, in 2023, the CPUC recognized that CCAs and DA providers had procured new generating resources above and beyond their requirements making up for the shortfall from California’s three Investor-Owned Utilities.
Updates
CalCCA Seeks Rehearing of CPUC’s Unlawful Decision to Restrict CCA Expansions
RA white paper now available: California’s Constrained RA Market: Ratepayers Left Standing in a Game of Musical Chairs
RA penalties for LSEs unable to secure supply in a deficient market do nothing to get new resources in the ground, and they unnecessarily add to customer costs and indirectly increase the cost of supply.
RA program compliance has essentially become a game of musical chairs: some chairs are occupied by the IOUs and some have been grabbed by out-of-state entities, leaving some California LSEs without a chair when the music stops. Until more new resources come online, the race to find a chair in the game will increase costs for all consumers.
The Causes
A wide range of factors have contributed to tight RA supply conditions:
- Weather conditions are more extreme, increasing load and reducing generation output.
- Hydro resource availability has declined under drought conditions.
- New resources are delayed due to permitting, interconnection, and supply chain challenges.
- The entire Western region is constrained, reducing the availability of imports to California and risking increased exports of California resources to meet other Western region requirements (e.g., Western Resource Adequacy Program (WRAP)).
- The CPUC has reduced the ability of LSEs to meet RA requirements with clean energy resources such as wind and solar.
- The CPUC authorized California’s Investor-Owned Utilities (IOUs) to exceed their planning reserve margin targets for summer months, reducing RA supply for competing LSEs.
- Unnecessarily restrictive requirements for energy imports, resulting in reduced availability of imports to the CPUC-jurisdictional RA market (see graphic below).
New CPUC rules require external resources to be at or below $0/MWh to count towards an RA obligation. In simple terms, some external resources (RA Imports) will not clear in the CAISO Day Ahead markets as often. Since this rule has passed, there has been a ~2,340 MW reduction in “import” RA. Source: GridStatus.io.
The Solution
Penalties will not result in more RA in the market and only hurt customers. Penalties are not a solution. The only durable solution is to bring new generation resources online, yet new resources continue to face supply chain, interconnection, and permitting challenges. Until those challenges are met holistically, RA supply will remain tight and prices paid by consumers will remain high.
We urge the CPUC to consider these actions:
1) Publicly acknowledge the RA supply insufficiency and its consequences.
2) Establish a “safety valve,” through a discretionary waiver structure for LSEs left deficient in meeting their requirements despite best efforts, to prevent the exercise of market power by suppliers.
3) Increase the likelihood that California LSEs can secure imports for RA compliance by increasing the CPUC-imposed energy market bid cap on imports — currently set at $0/MWh — to reduce sellers’ risk of financial loss.
4) Limit IOU excess planning reserve margin procurement to incremental non-RA resources procured only after LSE month-ahead compliance filings have been made.
5) Increase market transparency by providing aggregated compliance data to reveal (a) trends in the categories of resources (e.g., imports, storage) used for compliance and (b) the extent of California resource exports.
Our RA Work Continues
CalCCA will continue to advocate for sensible RA solutions. Check back soon for updates!
