Stakeholder Comments Template

Transcription

1 Stakeholder Comments Template Submitted by Company Date Submitted Mona Tierney-Lloyd (415) EnerNOC, Inc. July 25, 2013 Please use this template to provide your comments on the Multi-year Joint Reliability Framework Proposal as posted on July 10 and as presented and discussed during the July 17 ISO/CPUC stakeholder workshop. Submit comments to and Comments are due July 25, 2013 by 5:00pm The Multi-year Joint Reliability Framework and presentation materials can be found here: The CPUC and ISO welcome stakeholder feedback on the proposal, including feedback on the following questions: 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 Joint Reliability Framework identifies, perhaps, a gap in resource planning in the State. Currently, the CPUC s resource adequacy (RA) process is only a one-year forward requirement upon load-serving entities (LSE) to demonstrate % compliance with meeting their peak demand obligation plus a 15% reserve margin. The need for and the authority to procure long-term resources is identified in the CPUC s long-term procurement proceeding (LTPP). Resource and demand forecasts for long term RA is assessed through the California Energy Commission s (CEC s) Integrated Energy Policy Report (IEPR). But, this assessment is a done on a gross basis and certainly doesn t identify local capacity needs within local capacity areas (LCAs) or whether certain resource types are needed. While it is true that the LTPP is a 10-to-20 year forward projection of resource needs, focusing primarily on the first 10 years, the 1

2 IOUs, as the largest LSEs, have authority to procure resources in the intermediate term (1-5 years). The Joint Staff Proposal recognizes this by acknowledging that most of the IOUs are nearly, fully resourced over the 3-year forward period that is being proposed for the Reliability Framework Proposal. However, if the CPUC and the CAISO want to have further visibility into the types of and location of available resource, a mid-term RA requirement would certainly provide that visibility. However, that visibility, under the current structure would only be known to the CPUC and the CAISO, with significant percentage of the knowledge would also be known by the IOUs, as the largest LSEs in the State. Therefore, extending the RA obligation further forward into the future without providing some visibility as to where and when resources are needed, and the value associated with providing the resource, to the full spectrum of market participants creates an information imbalance, haves and have-nots, and certainly does not send any signals for future resource development. Smaller LSEs, demand response providers (DRPs) and smaller generators 1 would be on the losing side of the information imbalance. In that way, there is a benefit to having a voluntary capacity market for those entities to submit bids and offers for capacity and receive a price based upon a market mechanism, as opposed to being at a disadvantage to achieve fair commercial terms with large IOUs or large generators. Implementing a 3-year forward RA requirement upon load-serving entities (LSEs) without providing an opportunity for buyers and sellers to transact capacity in a transparent manner would be problematic, especially for smaller LSEs, generators and for DRPs. However, the type of mechanism that is implemented to achieve a transparent price signal for future resource development is important. The devil IS in the detail. The most vibrant example of forward capacity mechanisms encouraging demand response participation is PJM. The Midwest ISO has a one-year forward capacity construct, a voluntary mechanism, the results of which will be discussed below. 1 Larger generators within a utility service territory will know whether its resources are acquired by the IOUs and have a sense as to whether the IOU needs to procure more. Smaller generators would not have that basic knowledge. 2

3 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? Strengths: A centralized capacity construct that is administered by the CAISO is the same structure that has been successfully adopted in several other ISOs/RTOs. A properly constructed market mechanism is the best way to determine the value of, need for and location of capacity and other resources. A market mechanism would facilitate capacity transactions, especially for small LSEs, small generators and DRPs. A market mechanism would transmit information that is not otherwise transparent to market participants. As an introduction to a further forward capacity requirement, decreasing the capacity commitment as you move further into the future (years 2 and 3) is probably a good idea to give market participants an opportunity to learn from the structure. (Other concerns indicated in the weaknesses.) A centralized capacity construct would facilitate the ability for DR resources to obtain capacity payments. Weaknesses: The voluntary aspect of the LSE demonstration auction creates the potential for market distortions and non-representative clearing prices that may, or may not, send forward resource procurement signals. The Midwest ISO (MISO) has had a voluntary capacity auction (VCA) for years. It was a month-ahead auction and is now a one-year forward auction. However, the amount of capacity that actually participated in any given month varied significantly, as did the clearing price. In any event, the amount of capacity transacted in the VCA was a very small percentage, less than 4%, in some instances of the peak demand on the system, over 95,000 MW, and the available generating capacity, over 131,000 MW. Therefore, one could not extrapolate that the VCA results were representative of capacity across MISO s system and, therefore, represented a price signal upon which future investments would be made. The same concern is true with this contract. If the voluntary 3

4 capacity transactions are subject to large fluctuations in both volume and price, it would not be wise to extrapolate those results as representative or as drivers for future resource needs. For example, the results for MISO s most recent annual capacity auction for , across all zones, produced a result of $.38/kW-year. As indicated above, MISO has a significant reserve margin, as does CAISO. A clearing price at this level will neither encourage DR participation nor encourage future resource development. MISO has very little DR participating in its wholesale market both because of regulatory limitations and because the market signals do not encourage DR participation, in strong contrast to the participation of DR resources in PJM. Building upon the above-stated concern about the potential lack of liquidity, nonrepresentative and volatile results of a voluntary auction process, it is possible that with a declining RA demonstration obligation in years 2 and 3, this would also dampen the amount of capacity that would be transacted in the forward-year auctions, especially if the IOUs are already fully resourced. There are going to be a lot of auctions each year, with a lot of potentially conflicting price signals, both in terms of the voluntary versus mandatory auctions as well as the different product types. (At present, it is unclear to EnerNOC if there are 3 auctions (local, system, flexible) or 4 auctions (local inflexible, local flexible, system inflexible, system flexible) or something else.) Further complicating the number of auction results will be how the CAISO will calculate individual LSE deficiencies versus overall non-lse based deficiencies. So, unless there is a convergence of prices across these auctions, which price signal is indicative? This is also, potentially, an overcomplication. Could the Joint Reliability Framework further the goals of ensuring sufficient resource capabilities to operate the grid and creating an opportunity for preferred resources? If participation in the auction is light, or varies significantly from year-to-year, and clearing prices are low, reflecting a high reserve margin, then the answer is no. This type of auction will not send a signal to encourage preferred resources to participate. 4

5 What other policy initiatives should the CPUC and the ISO coordinate with when undertaking further consideration of the Joint Reliability Framework? The Joint Staff Proposal recognizes that there are many unanswered questions and issues that will need to be addressed. This discussion must be closely coordinated with the development of the Flexible RA Capacity Must Offer Obligation, the CPUC RA Proceeding (R , or successor proceeding), the import or impact, if any, to the Rule 24 Process, the next 3-Year DR Program Plans and Long-Term Procurement Proceedings. This process would appear to augment, not replace, forward contract processes. EnerNOC reserves the opportunity to supplement these comments. Stakeholders may also comment on any other aspects of the Multi-year Joint Reliability Framework proposal for which they would like to provide comments, including issues listed on page in the proposal, or issues discussed at the July 17 stakeholder workshop. 5