INTRODUCTION AND SUMMARY

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1 Comments of the Natural Resources Defense Council (NRDC), Sierra Club, and the California Environmental Justice Alliance (CEJA) on the California Public Utilities Commission and California Independent System Operator s Joint Staff Proposal for a Multi-Year Reliability Framework July 25, 2013 Submitted by: Devra Wang (NRDC), Matt Vespa (Sierra Club), and Deborah Behles (CEJA) The Natural Resources Defense Council (NRDC), Sierra Club, and California Environmental Justice Alliance (CEJA) appreciate the opportunity to offer these comments on the California Public Utilities Commission (CPUC or Commission) and California Independent System Operator s (ISO) joint staff proposal: Joint Reliability Framework to Develop Multi-Year Resource Adequacy Obligations With a Market-based ISO Backstop Capacity Procurement Mechanism ( Multi-Year Reliability Framework or Framework ) dated July 10, NRDC is a non-profit membership organization with a long-standing interest in minimizing the societal costs of the reliable energy services that Californians demand. Sierra Club is a non-profit public benefit organization with over 150,000 members in California supporting its mission to protect the environment and the climate in part by reducing greenhouse gases and dependence on fossil fuels through conservation, efficiency, and development of renewable energy. CEJA is an alliance of six grass root environmental justice organizations throughout the State advocating for environmental justice and clean energy futures for low-income communities and communities of color. I. INTRODUCTION AND SUMMARY NRDC, Sierra Club and CEJA appreciate the CPUC and ISO staffs joint efforts to develop a multi-year reliability framework. The future electric system will be fundamentally different from the traditional system relying on energy efficiency and renewable resources as the foundation, with other resources filling in the gaps. California must continue forwardlooking efforts to ensure the state succeeds in maintaining reliability while also meeting its longterm renewable energy and greenhouse gas (GHG) reduction goals. We support the CPUC and ISO staffs efforts to develop a joint proposal. It is essential to have the CPUC, ISO and the California Energy Commission working together collaboratively to build the state s clean energy future. Although the Framework leaves some critical questions unanswered, and its success depends on many details that have not yet been developed, we 1

2 believe the basic outline is worth pursuing further, assuming the issues we discuss below can be resolved satisfactorily. Our comments elaborate on the following key points: The Framework should recognize and incorporate the Loading Order and California s target of deep GHG emission reductions by NRDC, Sierra Club and CEJA support integration of flexible capabilities into the state s procurement framework to enable the state to rely on renewable energy for most of its needs in the future. The Framework should explicitly state that it will complement and not replace the CPUC s Long-Term Procurement Plan (LTPP) proceeding and other procurement mechanisms that provide longer-term commitments for preferred resources. NRDC, Sierra Club and CEJA are concerned about extending the ISO s backstop procurement authority to three-years, absent further clarity on how the need for backstop procurement would be determined. The Framework must enable clean demand response and other preferred resources to fully participate from the start. The CPUC and ISO must rely on all reasonably expected energy efficiency and other preferred resources to decrease expected loads in determining RA requirements and any ISO backstop procurement. NRDC, Sierra Club and CEJA support the Framework s proposal for joint annual reliability assessments to provide more transparency, however the assumptions about preferred resources within those assessments should be equally transparent and developed through a public process. We offer several overarching comments, followed by responses to the questions posed by the CPUC and ISO staff (denoted in bold italics). II. OVERARCHING COMMENTS A. The Framework should recognize and incorporate the Loading Order and California s target of deep GHG emission reductions by The Framework provides relatively little context for its proposal. Much of the paper s discussion focuses on reliability 1 and describes some of the fundamental changes that are underway in the state s electric system and notes that the transformation presents challenges. (p. 1.) We support the agencies efforts to maintain a reliable electric system. However, the proposed procurement framework will impact not just reliability but also the state s ability to 1 Reliability, however, has not been clearly defined in the Framework. We urge the CPUC and ISO to develop a reasonable definition of reliability to guide the development of the Framework. 2

3 meet its other core policy objectives including affordability, the Loading Order and long-term GHG reductions. Therefore, the objectives driving the development of the Framework must include these other key policy objectives as well. Helping California achieve its goal of deep GHG emission reductions by 2050 should be an explicit objective guiding further development of the Framework. Recognition of the 2050 GHG reduction goals and the Loading Order is critical given the Framework s potential ramifications for California s successful transition to a low-carbon future. The proposal aims to increase reliability by providing additional revenue streams to resources by extending resource adequacy procurement and establishing a market-based Reliability Services Auction. The Framework can further California s environmental policies by ensuring meaningful participation by energy storage and preferred resources and complying with the Loading Order in the procurement of these resources. Conversely, if the Framework functions to primarily provide additional economic incentives to fossil fuel generators and excludes demand response and energy storage, achievement of California s greenhouse gas goals may be compromised. Although we are confident that the CPUC and ISO s intent is to help move California s electric system in the right direction, the Framework should be explicit in relying on the Loading Order and avoiding outcomes that would hinder achievement of the state s policy objectives. B. NRDC, Sierra Club and CEJA support integration of flexible capabilities into the state s procurement framework to enable the state to rely on renewable energy for most of its needs in the future. Resources needed to integrate very high penetrations of renewables will need to be flexible and may be unable to receive adequate compensation through short-term energy markets. Therefore, we support the integration of flexible capabilities into the state s procurement framework as long as preferred resources and energy storage that have flexible capabilities are able to participate, and procurement of flexible capabilities is consistent with the Loading Order. However, the state should also avoid unnecessarily prolonging the life of resources that will no longer be needed in the low-carbon electric system of the future. As the CPUC and ISO staff discussed at the July 17 th workshop, retirement of certain power plants is consistent with the state s vision. It is unclear that non-preferred, inflexible resources need or should receive longer- 3

4 term commitments than are already available under the state s existing procurement framework. Therefore, NRDC, Sierra Club and CEJA take no position at this time on the proposal for a multi-year RA requirement for system or local resources. III. RESPONSES TO STAFF S QUESTIONS 1. Is the CPUC and ISO staff s Joint Reliability Framework proposal preferable to the existing set of policies and regulations designed to ensure long term resource adequacy in California? A. The Framework should explicitly state that it will complement and not replace the CPUC s Long-term Procurement Plan (LTPP) proceeding and other procurement mechanisms that provide longer-term commitments for preferred resources. The Framework s description and this first question that parties were requested to answer both leave open the possibility that the new Framework could replace the state s existing policies to ensure long term resource adequacy. NRDC, Sierra Club and CEJA would oppose replacing the state s existing policies with this Framework, as it would be inadequate to ensure both resource adequacy and achievement of the state s long-term pollution reduction goals. However, as the CPUC and ISO staff discussed at the July 17 th workshop, the intent of the Framework appears to be to supplement, but not replace, the LTPP and other existing procurement mechanisms. This should be explicitly stated as a core element of the Framework. In particular, the Framework should not replace the LTPP now or in the future. (pp. 1, 8) In addition, it should complement and not reduce or replace the existing opportunities for longterm commitments for low-carbon resources (i.e., through the energy efficiency proceeding, renewable portfolio standard, etc.). Renewables in combination with energy efficiency, demand response and energy storage will be the foundation of the state s electric system in the future. This new system must be supported by long-term financial commitments that appropriately value the benefits they provide. The Framework can help supplement this move to the future and help ensure the system remains reliable. 2. What are the strengths and weaknesses of the Joint Reliability Framework in comparison to the existing set of policies and regulations designed to ensure long term resource adequacy in California? 4

5 A. NRDC, Sierra Club and CEJA are concerned about extending the ISO s backstop procurement authority to three-years, absent further clarity on how the need for backstop procurement would be determined. Under the state s existing policies, the CPUC sets year-ahead resource adequacy requirements and authorizes or requires long-term procurement, and the ISO has backstop authority for year-ahead procurement. The Framework would extend the ISO s backstop authority out to three years, however, it is unclear how the need for backstop procurement would be determined. The Framework notes that backstop procurement would be utilized both if a load-serving entity (LSE) fails to meet its resource adequacy obligation set by the CPUC, and if a collective deficiency exists even when all LSEs have met their RA obligations (p. 14); but the process for determining a collective deficiency is yet to be determined. We are concerned about extending backstop authority out to three years absent greater certainty that it would (i) fully count preferred resources before determining the need for any additional procurement, and (ii) avoid prolonging the life of non-preferred resources that will not be needed to integrate renewables. Many of the preferred resources such as energy efficiency and renewable distributed generation add relatively small amounts of capacity each year but accumulate to be large resources over time. Over three years, including or excluding such resources could make a significant difference in any determination of the need for additional procurement. To date, there has been a significant disconnect between the CPUC, CEC and ISO forecasts for preferred resources. We appreciate the CPUC, CEC and ISO s commitment to begin working together on energy efficiency forecasts. 2 However, the significant differences in past approaches leave us concerned about the Framework s approach that is undefined. We oppose extending backstop authority without assurances that any determination of need would fully rely on preferred resources, and be determined through a transparent process. 3. Could the Joint Reliability Framework further the goals of ensuring sufficient resource capabilities to operate the grid and creating an opportunity for preferred resources? A. The Framework must enable energy storage, clean demand response and other preferred resources to fully participate from the start. 2 CEC, ISO, CPUC, Letter to Senators Padilla and Fuller, February 25, 2013, 5

6 NRDC, Sierra Club and CEJA support the Framework s intention to provide additional opportunities for preferred resources (p. 7) and its objective of expanding participation of demand response, storage and other preferred resources in near-term capacity markets. (p. 8) NRDC, Sierra Club and CEJA urge the CPUC and ISO staff to make clear that energy storage, demand response (DR) and other preferred resources will be full participants from the start. The Framework should identify the grid support attributes and benefits that storage, demand response, energy efficiency and other preferred resources can offer in meeting the operational needs associated with high penetrations of variable renewable resources on the grid, and target them for procurement. This will require considerable work over the coming year to define product eligibility rules up-front to enable full use of these resources (so that they are not required to try to meet eligibility rules defined around fossil generators). Otherwise, the proposal to give the Framework an amount of time to operate and mature before considering any significant alterations (p. 15) could effectively lock out energy storage, DR, and other preferred resources for some period of time. In addition, the Framework should help ensure that DR is truly clean, with clear and well enforced rules against using dirty back-up generators. Finally, as noted above, opportunities for preferred resources to participate in near-term capacity markets should supplement and not replace longer-term opportunities through other elements of the state s procurement framework. While some resources (such as DR and storage) provide flexible capacity that could be well-valued in the near-term capacity markets, other resources such as energy efficiency and renewable distributed generation would be undervalued if they were solely examined through this Framework. B. The CPUC and ISO must rely on all reasonably expected energy efficiency and other preferred resources to decrease expected loads in determining RA requirements and any ISO backstop procurement. Energy efficiency is the state s top priority resource, and can be extremely valuable in both reducing load and re-shaping the load curve to reduce operational flexibility needs. The value of reducing load at certain times of day and months should be fully reflected in the CPUC s cost-effectiveness framework for energy efficiency so that it can guide program planning and implementation. And as noted above, energy efficiency should continue to be procured through the state s existing framework; replacing the state s existing approach and 6

7 requiring EE to instead bid in the short-term capacity market would significantly undervalue EE and reduce the state s ability to capture all cost-effective energy savings. The Framework should explicitly state how energy efficiency will be addressed. We urge the CPUC and ISO to rely on all reasonably expected energy savings to decrease load forecasts used to determine RA requirements and ISO backstop procurement needs. Energy efficiency has not traditionally been a significant focus in the RA program as it has been focused on a relatively short timeframe. However, as discussed above, energy efficiency can accumulate to become a significant resource in examining needs three years into the future as contemplated in the Framework. This is also true for other preferred resources such as demand-side distributed generation. Excluding energy efficiency and other preferred resources could result in significant over-procurement of other unneeded resources. Therefore, we urge the CPUC and ISO to clarify up-front that EE and other preferred resources will be fully utilized to reduce load forecasts, consistent with their role as the state s priority resources. C. NRDC, Sierra Club and CEJA support the Framework s proposal for joint annual reliability assessments to provide more transparency, however the assumptions about preferred resources within those assessments should be equally transparent and developed through a public process. NRDC, Sierra Club and CEJA support the Framework s proposed annual long-term reliability assessments to provide greater transparency about the state of California s electric system. This assessment should be developed through a public process to standardize and refresh assumptions and create a more unified approach to system planning. (pp. 9, 15) In particular, preferred resources such as EE must be part of the analysis, and based on transparent estimates developed through a public process such as the Demand Analysis Working Group. We appreciate the Framework s proposal that the reliability assessment would be used solely for information purposes and not to create procurement authority. (pp ) However, any analysis that fails to fully rely on preferred resources could give policymakers a false sense of concern or urgency to procure traditional resources; therefore, the Framework should explicitly commit to relying on all reasonably expected preferred resources in conducting the reliability assessment. 7

8 4. What other policy initiatives should the CPUC and the ISO coordinate with when undertaking further consideration of the Joint Reliability Framework? The CPUC and ISO should coordinate with all of the state s efforts to procure preferred resources to ensure that the Framework effectively supports the goal of enabling development of a low-carbon electric system. For example, the Framework should take advantage of the CPUC s and CEC s oversight of energy efficiency programs and standards to use EE to reshape the load curve to reduce flexible capacity needs. In addition, the Framework should coordinate with the Demand Analysis Working Group as part of the CPUC, ISO and CEC s joint commitment to agree on consistent load forecasts that include all reasonably expected energy efficiency for planning purposes. Moreover, there are many DR initiatives that this Framework should coordinate with, including the CPUC s proceeding, and the ISO and CEC s development of DR roadmaps. These are just a few examples of the state s many other efforts to develop low-carbon resources that this Framework should support. IV. CONCLUSION We appreciate the CPUC and ISO staffs efforts to work together to create a multi-year procurement framework. We appreciate the opportunity to comment on the Framework, and urge the CPUC and ISO to continue working together and with stakeholders on an approach that addresses the issues discussed above. 8