Lowering the Cost of California’s RA Program

CalCCA is sponsoring SB 1138, authored by Senator Steve Padilla (D-San Diego), so that California’s load serving entities (LSEs) have the flexibility to transact load obligations at the hourly level in order to reduce millions of dollars in unnecessary costs to consumers–without compromising reliability.

The need for SB 1138 is supported by this CalCCA analysis: cal-cca.org/ra-transactability.

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, LSEs (community choice aggregators, investor-owned utilities  and energy service providers) 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.

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.  

Solution
At a time of rapidly rising costs in the electricity sector, policymakers should provide LSEs maximum flexibility in how they contribute their fair share to keep the overall system reliable. SB 1138 would lower the costs to consumers of California’s RA trading program by allowing LSEs to transact RA load obligations on an hourly basis to align with the new slice-of-day RA program.

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.

Benefits
Enabling hourly load obligation trading:

✓ Promotes efficiency: LSEs with excess resources in one hour could trade with LSEs that are short, reducing the need to purchase additional RA.
✓ Delivers affordability: In 2025, hourly trading could have lowered RA costs for consumers by avoiding $105 million in excess RA purchases for summer 2025 and potentially saving an additional $77 million annually.
✓ Maintains LSE Responsibility: Creates a new procurement product rather than offering relief from meeting existing requirements
✓ Requires limited administrative oversight: Trades can be executed bilaterally with existing RA tracking tools, making the system administratively simple while maintaining each LSE’s full responsibility to meet obligations.

Check back soon for more on SB 1138!

To learn more about transactability, see CalCCA’s RA Transactability page.