CPUC Issues a Proposed Decision on the California Planning Reserve Margin and CPE Operations

On October 29, 2024, the California Public Utilities Commission (the "Commission") issued a Proposed Decision for Track 2 issues in the Resource Adequacy (RA) proceeding, R.23-10-011. California's RA program incentives and monitors the procurement of energy capacity to ensure reliable electric service in California. This proceeding is important to many California energy market participants due to its impact on energy demand, the criteria used allowing generators to qualify as supply, and energy affordability. The Proposed Decision makes three important proposals: (1) delaying the adoption of a high planning reserve margin (PRM) until further analysis; (2) mandating information exchange between load-serving entities (LSEs) and the central procurement entity (CPE); and (3) locking CPE allocations to LSEs one year earlier.

California's RA program specifies the quantity and characteristics of the energy LSEs are obligated to procure to ensure reliable electricity service. To prescribe RA obligations, the Commission determines peak electricity demand and adds a PRM, expressed as a percentage of the peak demand, that buffers for unexpected events like heat waves, generator outages, etc. The Commission determines the appropriate PRM by conducting Loss of Load Expectation (LOLE) study, which analyzes different scenarios and determines under what conditions the desired level of electricity reliability, often one day (24 hours) worth of outages over 10 years, is maintained. Historically, the PRM has been about 15 percent of peak demand. The Commission adopted a 17 percent PRM for 2025. However, the Commission's recent LOLE study suggested a 2026 PRM of 26.5 percent for January – May and 23.5 percent for June – December. Parties with a strong interest in reliability like the California Independent System Operator and the Western Power Trading Forum supported the PRM, while parties like the Public Advocates Office at the Public Utilities Commission, a ratepayer advocate, opposed the PRM due to the likely effect of increased electricity rates. Additionally, many parties submitted comments criticizing the underlying assumptions of the LOLE study that created the PRM. Consequently, the Proposed Decision delays the adoption of the PRM and authorizes the Commission to revise the 2026 PRM analysis and redistribute it in early December 2024. Adopting a high PRM would increase demand and likely exacerbate California's high energy prices. Hopefully, revisions to the PRM analysis will reveal that reliability can be achieved at a lesser cost.

Next, the Proposed Decision modifies the CPE's operations. The CPE procures local RA, a type of energy capacity, on behalf of LSEs in California. The CPE was created to avoid gaps in energy procurement by centralizing the process. The Commission previously set up a non-compensated self-show option that allowed LSEs to voluntarily provide the CPE with information valuable to the CPE for meeting its procurement obligations. Due to the administrative burden, the non-compensated self-show option didn't elicit participation. Consequently, the Proposed Decision mandates a direct exchange of information from the LSE to the CPE and then from the CPE to the Commission to ensure sufficient energy capacity has been procured. The Proposed Decision also locks CPE allocations to LSEs one year earlier. The Commission reasoned that providing the LSEs more time will allow them to procure more favorable RA contracts. California's energy regulatory atmosphere can be dauntingly complex. These modifications to the CPE's operations seem like a positive step towards simplicity and predictability.

The Proposed Decision also modifies the Load Impact Protocols for demand response participation in the RA program. These modifications are found in Appendix C.

Initial comments on the Proposed Decision are due November 18, 2024. Reply comments are due November 23, 2024.