Discussion Paper – Standard Capacity Product Workshop December 14, 2009 Background: For many years RA proceedings have discussed the idea of a standard capacity product (SCP) and the CPUC has expressed support1 for an SCP. Parties have requested California ISO to develop an SCP to reduce transaction costs associated with RA compliance. In 2008 and 2009, California ISO facilitated a stakeholder process that led to an adoption by FERC of a limited SCP. At the same time, the CPUC considered these issues and decided that the SCP would be accepted, but not required, for 2010 RA compliance. The adopted SCP is a framework of availability standards as well as penalties and payments for performance relative to these standards. This SCP will be effective beginning January, 2010. FERC has directed California ISO to work toward extending SCP to currently exempt resources (Demand Response and resources whose QC is based on historical data that is not “corrected” for outages including, wind, solar, cogeneration, and other non-dispatchable resources). Now, California ISO is beginning a stakeholder proceeding to extend the SCP to these exempt resource types and has posted an issue paper on its website.2 California ISO has suggested in comments that the CPUC should reach a decision on Qualifying Capacity (QC) counting rules relevant to the currently exempt resources by March, 2010. This would allow California ISO to rely on these updated counting rules in an April, 2010 filing at FERC to extend the SCP to currently exempt resources. Then, California ISO would expect a FERC decision adopting the extended SCP in June, 2010 – in time for the 2011 RA compliance year. In the Pre-hearing Conference (PHC) in R.09-10-032, many parties offered strong resistance to the idea of a March SCP decision and stated that they do not feel that ending the exemptions is an urgent issue. Further, many parties noted that the currently exempt resource classifications are not generally traded in the RA markets. Therefore, there is little need for the SCP rules for these resources to be adopted significantly before the year-ahead RA filings. Beyond this lack of urgency, there were three basic objections noted by parties to a March SCP decision: 1 See, e.g. D.09-06-028 at 42; D.06-07-031 at 4; D.05-10-042 at 26; D.04-10-035 at 42 2 http://www.caiso.com/247a/247a101646f520.pdf Some parties that represent Qualifying Facilities (QFs) oppose addressing the relevant counting rules at this time because of the ongoing QF settlement process. Similarly, parties pointed to the application for rehearing of the wind and solar QC counting rules adopted by D.09-06-028 and suggested delaying further consideration premised on these counting rules. Availability standards for DR resources raise complex issues, which are also at issue in other forums including California ISO’s Proxy Demand Resource (PDR) process and R.07-01-041. Many parties noted in comments, and at the PHC, that they feel a higher priority issue should be ending the LSE-based replacement obligation for RA resources on scheduled outages.3 These parties indicated at the PHC that they do not wish to devote procedural effort to ending exemptions to the SCP that, in their view, would be better spent seeking a means to end the LSE-based replacement obligation. Objectives of the Workshop: 1. Assist California ISO in development of SCP proposal 2. Assist Parties to R.09-10-032 to develop proposals to coordinate CPUC’s Resource Adequacy (RA) rules with SCP 3. Inform California ISO and CPUC staff about views of market participants on the connections between SCP, RA, and DR 4. Cultivate smooth collaboration between the California ISO SCP stakeholder process and the CPUC’s RA and DR programs and proceedings Brainstorm 1 – Resources with QC based on Historical Data One class of resources currently exempt from the SCP is resources whose QC is determined using historical data that has not been corrected for forced outages. This includes: wind, solar, and non-dispatchable cogeneration, biomass, and geothermal. What is an outage for intermittent facilities? How is it reported and measured? California ISO’s SLIC data system does include forced outages for these resources and therefore the same methodology could apply to these resources as the other resource types already included in SCP. However, staff understands that some intermittent resources 3 See section 13 of the 2010 RA Guide: http://www.cpuc.ca.gov/NR/rdonlyres/14DFD39E-40C6-4FAF- 8C36-38F8708BC23A/0/RAGuide2010.doc may be using the SLIC outage codes differently than conventional resources. Are there any necessary changes to the SLIC system to incorporate these resources into SCP? “Correcting” historical data to remove forced outages The exemption to the SCP is premised on the potential “double jeopardy” associated with forced outages for these resource types. There is one penalty for a forced outage in the form of a reduced QC value and a financial penalty under the SCP. In D.09-06-028, the CPUC adopted a methodology to “correct” historical data for scheduled outages. Could this same methodology be applied to forced outages? Would this correction be sufficient to end the exemption? Would such a change create any concerns? Brainstorm 2 – Demand Response Demand Response resources are exempt from the SCP. Other proceedings both at CPUC (R.07-01-041) and California ISO (Proxy Demand Resource) are considering issues fundamental to DR in California. What is an outage for DR? How is it reported and measured? As noted in California ISO’s issue paper, DR is not included in the ISO markets. Therefore no mechanism exists to track the availability of DR resources. How should these resources be tracked? Does CPUC need to change QC counting rules in order for SCP to apply to DR? The exemption for DR does not explicitly refer to the way DR resources are counted in RA. Are there any changes that should be made to DR counting in order to coordinate with SCP? Are these necessary for SCP? Are there any other changes to RA that CPUC needs to make for SCP to apply to DR? Is there anything about the way RA is currently structured that prohibits SCP from applying to DR? Brainstorm 3 – Coordination of RA, SCP, and DR As noted above, there are many overlapping processes covering these issues. Further, SCP touches many parts of RA. Is it possible to end the LSE-based replacement obligation for scheduled outages? Parties have suggested that the SCP is not meeting its goals because LSEs are required to provide replacement capacity for RA resources on scheduled outages. Therefore, the SCP is not yet a fungible product that can be freely traded once it is purchased. What are solutions to this problem? Can the replacement obligation be placed on generators? What is the CPUC’s role and what is California ISO’s? How does SCP effect procurement for local RA? In the California ISO’s local capacity technical study, all resources in the local area are assumed to operate at their August NQC. Does the SCP provide a sufficient incentive that some resources may not sell their full NQC value? Is it possible that this could lead to a residual local procurement deficiency? If so, what happens; should ISO use backstop procurement to fill the deficiency? Should this concern impact the way the LCR study is performed or the way local RA obligations are adopted? Should NQC calculations change due to SCP? In the discussion of the previous question, the possibility of SCP incentives impacting RA procurement and other RA processes is considered. Should there be any changes to NQC calculations as a response?
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