Microsoft Outlook - Memo Style · 1 Laura Velarde From: Legal Admin Sent: Wednesday, July 24, 2019...

1

Laura Velarde

From: Legal Admin <[email protected]>Sent: Wednesday, July 24, 2019 12:06 PMTo: Laura VelardeSubject: R1706026 PCIA OIR: PCIA Working Group 3 Workshop #2 PresentationAttachments: R1706026 PCIA Working Group 3 Workshop #2 Presentation.pdf

Importance: High

To: All Parties in Rulemaking (R.) 17‐06‐026 Re: Working Group 3, Workshop # 2 Parties –

(See attached file: R1706026 PCIA Working Group 3 Workshop #2 Presentation.pdf) Attached for your preview in advance of tomorrow’s Working Group 3, Workshop #2 are the workshop materials prepared by the Co‐Chairs. Workshop #2 logistics are set forth below. We look forward to your participation. Subject: PCIA Working Group 3, Workshop #2 Date: Thursday, July 25, 2019 Time: 10:30 a.m. – 1:30 p.m. Location: SCE Energy Education Center

6090 N. Irwindale Ave. Irwindale, CA 91702 EECI 6090 Conference Center Conference Room Lunch will be provided; other lunch options are available in the area if desired / necessary. If you have not already done so, please RSVP via email to [email protected] if you plan to attend in person. The option to join via remotely will be available through the Skype link below.

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Legal Administration Southern California Edison Company Telephone (626) 302‐2810

PCIA Phase 2 - Working Group 3

PCIA Phase 2 – Working Group Three

Portfolio Optimization and Cost Reduction, and Allocation and Auction

Detailed RA Sales Process Strawman,Local RA Allocation,

GHG-Free Allocation &Voluntary Allocation Process

Workshop No. 2July 25, 2019


Site Specific Safety

Meeting location in the event of an evacuation:North side of the building closest to the stop sign between the 6090 & 6070 buildings.

You are hereExit

Safety Assignments:Call 911: Jabari MartinPerform CPR: Philippe GerretsenGet AED: Marci PalmstromMeet 1st Responders: Matt Langer

Exits: Side Door or Main Entrance AED Location: Behind Front Desk

North

1


Overview


Agenda

• Overview• Feedback from First WG3 Workshop• Status of WG3 Discussions• Proposed Excess Resource Adequacy (RA) Sales Strawman for

System and Flex RA• Proposed Local RA Allocation Approach• Proposed GHG-Free Allocation Approach• Proposed Voluntary Allocation & Auction Clearinghouse Strawman• Feedback & Next Steps

3


Progress of Working Group 3

• Working Group 3 (WG3) has met regularly since March 2019• Co-leads have met 2-3 times per week• Each of IOUs and CCAs have convened about 3 times per week

• First Workshop was held on April 29, 2019, which presented:• Strawman for RPS and RA Excess Sales Approach• Introduction to Voluntary Allocation & Auction Clearinghouse

proposal• First WG3 Progress Report was filed June 24, 2019• Third WG3 Workshop expected September/October, 2019

• RPS Excess Sales & Allocations• Voluntary Allocations

• Second Progress Report will be due September 26, 2019• Final WG3 Report due January 30, 2020• Proposed Decision expected Q2 2020

4


Feedback from First Workshop


Stakeholder Feedback from Working Session 1

• Informal comments received from 10 Parties:• Alliance for Retail Energy Markets (AReM), California Large Energy

Consumers Association (CLECA), City of San Diego, NextEra Energy, Pacific Gas & Electric (PG&E), Protect Our Communities Foundation (POC), Public Advocates Office (Cal PA), San Jose Clean Energy (SJCE), Shell Energy, The Utilities Consumers’ Action Network (UCAN)

• Questions posed to Stakeholder Group:• Resource Adequacy (RA):

1. Thoughts regarding the mechanics of reporting a RA buffer?2. Input on proposed timing and frequency of RA sales?

• Renewable Portfolio Standard (RPS):1. Cal CCA and SCE presented 2 versions on what constitutes excess

RPS. Please provide your feedback and pros/cons on those approaches.

2. Input on proposed timing and frequency of RPS sales?3. What type(s) of RPS transactions are needed?

6


Topics Raised in Informal Comments

• Resource Adequacy (RA) Sales – Addressed in this workshop• Existence of RA Buffer• Transparency of RA Buffer• Proposed Timing and Frequency of RA Sales

• Renewables Portfolio Standard (RPS) Sales - Addressed in next workshop

• Definition of “Excess” RPS• Proposed Timing and Frequency of RPS Sales• Types of RPS Transactions

• Voluntary Allocation and Auction Clearinghouse (VAAC) –Addressed in this and next workshop

• Other Topics:• WG3 Principles – Not updating at this time• Solicitation Mechanisms & Terms and Conditions – To be discussed at

later workshop

7


Status of RA Proposals


Status of RA Proposal Discussions

• Co-Leads developed a proposed end-to-end Excess Sales framework for RA

• Robust discussion however there were challenges in finding alignment among co-leads and between IOUs

• What is the appropriate amount of capacity to be used as a buffer by IOUs for compliance and risk mitigation purposes?

• How do we account for uncertainty prior to the final RA requirement?

• Co-Leads began exploring allocations of Local RA as a path forward

• Proposal for allocation would remove requirements around buffers and uncertainty tranches in favor of pro rata allocation of entire PCIA-eligible Local RA position in the portfolio

• Co-Leads are aligning in favor of an allocation proposal over an excess sales approach for Local RA

• Continuing to explore approaches for System and Flex RA

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Excess RA Sales Strawman For System and Flex RA


Basic Structure for a System/Flex Excess Sales Approach

• IOU will offer for sale RA that is above its compliance obligation, based upon the IOU’s final allocation, plus a buffer.

• Excess RA will be made available to the market as follows: • Annually - Spring and Fall solicitation• Quarterly

• Major areas where Co-Leads struggled with finding alignment:• Methodology for RA Buffer to meet unforeseen requirements;• Amounts of capacity that are considered Excess but which IOUs may

retain in forward solicitations to account for forecast uncertainty;• PCIA cost treatment for capacity that is not offered for sale in Spring

solicitation; and• Treatment of capacity not shown in Supply Plan due to foreseen

operational constraints and outages

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Supply-Side:

• Planned/forced outages• Delays to new generation or

deliverability• Operational constraints• Distribution deferral capacity• Regulatory rule changes• NQC changes• Contract default risk

Factors Affecting RA Compliance Uncertainty

• An Excess RA Sales Framework must be designed to account for uncertainties that can impact how LSEs manage their RA obligations

Load-Side:

• Load growth/decline • Regulatory rule changes• Customer migration

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Excess RA

• Excess RA are amounts of RA that are above 100% of the IOU’s monthly bundled service load compliance obligation, plus a Buffer

• The compliance obligation amount is based upon the IOU’s final RA allocation adopted by the CPUC for each period

• Applies for each RA product category: System, Flex

0

5000

10000

15000

20000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Illus

trat

ive

RA P

osit

ion

(MW

)

Excess RA as of Fall Solicitation

Compliance Obligation Buffer (5%) Will Offer

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RA Buffer

• CalCCA proposes the IOU be subject to penalties for failing to comply with the approved Buffer process

Purpose of the Buffer Maximum Buffer Volumes

Incremental Buffer Volumes

Retain an additional portion above the IOU’s need to account for unforeseen position changes after the annual compliance filing

Not to exceed a [%]* relating to IOU’s highest monthly peak RA compliance obligation or position for which IOU is Scheduling Coordinator

*Percentage may have to be customized for each IOU

IOUs may file a request to increase the buffer through an expedited advice letter* demonstrating the need for the incremental amount

*Provides Parties the opportunity to review and comment

An amount of RA reserved to meet unforeseen requirements and valued at the RA Market Price Benchmark in the PCIA calculation.• Co-Leads are considering appropriate avenue for filing of the Buffer

• If IOU stays within the Buffer it is per se reasonable (i.e., acts as a safe harbor)

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Uncertainty Tranche

Uncertainty Tranche is defined as an amount that is considered Excess but which will be retained for:

• System/Flex: Until the Fall publication of final year-ahead requirements

• Local*: Until the Fall publication of final N-2 requirements.

• This amount will be capped at a percentage** of the IOU’s peak monthly compliance obligation for the year

• Uncertainty Tranche will be reduced to 0 MW in Fall solicitation, with all Excess capacity being made available for sale

* A Local RA Excess Sales Approach is not supported by the Co-Leads** IOUs would likely have different percentages for their Uncertainty Tranches

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System/Flex Treatment in Solicitations

A [%] of System/Flex obligation will be retained in Spring solicitation as Uncertainty Tranche, pending IOU’s final allocation. The Fall solicitation will offer remaining Excess RA.

Illus

trat

ive

Posit

ion

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Apr Oct

Actual Expected Buffer Uncertainty Tranche Offered for Sale

Expected Month-Ahead

Compliance Obligation

Actual Month-Ahead

Excess

IOU’s Need

Excess

Uncertainty Tranche

IOU’s Need

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Additional IOU Considerations

• IOUs may not be able show certain resources with operational constraints (e.g., hydro, old PURPA contracts, use-limited gas turbines, etc.) as the NQC may be greater than the available capacity. Therefore, it should not be sold due to risks and costs of non-performance. Some alternatives to address this issue are:

1. Capacity not offered and not shown should receive $0 value in the PCIA mechanism;

2. If forced to sell, capacity could be sold at a price floor to account for RAAIM penalty and substitution risk, but receive $0 value if unsold; or

3. Implementation of UCAP* mechanism could appropriately assess resources’ actual capabilities

• Granting appropriate protections for IOUs as POLR (e.g., improving load migration forecasting, requiring BNIs, and granting RA waivers), may minimize uncertainty tranche and buffer requirements

• Substitution costs associated with sold RA capacity should receive PCIA cost recovery attributable to the vintage of substituted resource

*CAISO proposal for Minimum Unforced Capacity (UCAP) Requirements17


Quarterly Solicitations

• Quarterly solicitations to be completed no later than 10 Business Days prior to T-45 for the first month in the following quarter to allow LSEs time to procure any remaining shortfall

• IOU can offer balance of year, quarterly or monthly Excess unsold RA from annual solicitations in Year n-1 and incremental excess due to position changes within Year n

• Quarterly solicitations may coincide with Spring and Fall Annual solicitations• Otherwise: January, April, July, October

• Capacity may be made available via other mechanisms, as available and appropriate

Solicitations shall only occur to the extent there is Excess RA

* Dates used for illustrative purposes only.

Launch RFO(January)

10 Business Days T-45 Deadline

Conclude RFO(Feb 1)

T-45 Filing Deadline(Feb 15)

April Showing Month

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Open Issues with Excess Sales Framework

• Perceived lack of transparency around process for determining appropriate Buffer

• Oversight or approval of Buffer and Uncertainty Tranche• Percentage maintained may be unique to each IOU

• How to value unsold Uncertainty Tranche RA, since it was not available for sale in first available annual solicitation

• May impact ability of IOUs to offer a Spring solicitation

• Treatment of capacity not shown in Supply Plan due to known operational and reliability issues

• Impact of Uncertainty Tranche upon ability of LSEs to hedge RA positions forward

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Concerns with Local RA Excess Sales Framework

A Local RA Excess Sales approach is not recommended by Co-Leads

Issues:• Impact of Buffer on Local RA market availability

• Concerns that IOUs could retain too much Local Buffer, leaving insufficient capacity for sale for other LSEs to meet compliance requirements

• Requirements around swaps of Local for System or Flex RA• Complexity around 3 year-forward Local requirements

• Forward compliance requirements can shift around between LSEs

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Proposal for Local RA Allocations


Basic Structure for Local RA Allocation Proposal

• Each IOU’s full PCIA-eligible local RA position is allocated out to LSEs through a CAM-like* mechanism

• Allocation is in proportion to each LSE’s forecasted share of PCIA costs within the vintage in which the asset resides

• i.e., if an LSE is expected to pay 5% of PCIA costs in vintage, it receives 5% of the Local RA capacity from that vintage

• Positions to be allocated shall account for any existing forward sales, contract terminations, etc.

• Allocations for two- and three-year forward Local RA requirements will track the mechanisms adopted by the CPUC for the obligations imposed upon LSEs

• Expected that benchmark percentage for year 1 will apply to years 2 and 3, but will follow any final CPUC decision

• Exception that PCIA allocations will track cost shares, rather than contributions to peak capacity needs

• System and Flex RA attributes will follow the allocation of the Local RA attributes toward the position of benefiting LSEs

* See Appendix (pg. 41) for explanation of how this mechanism would compare to CAM

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Basic Structure for Local RA Allocation Proposal (continued)

• Preference to follow mechanisms utilized in current PCIA ratemaking for determining how to allocate capacity

• Allocation is credited to LSEs and debited from IOUs in accordance with the CAM schedule

• Disagreement on Voluntary vs. Mandatory Allocation: • CalCCA and SCE: No opting out of the Local RA allocation• Commercial Energy: LSEs may elect what portion of Local RA

allocation to accept or reject• Unallocated capacity to be offered via an auction process • Revenues from sales credited back pro rata to opt-out LSEs

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Local RA Allocation Process: Trading, Term

• Trading Local Attributes: • LSEs may trade or sell their RA allocations to other LSEs in the RA

program and must notify CPUC monthly* of the resulting changes in RA allocation “showings”

• i.e., move 5 MW shown for LSE A to the credit of LSE B• Would not require any involvement by IOUs

• i.e. no supply plan check out requirement• Trading of allocated RA attributes will have no impact upon any PCIA

Market Price Benchmarks

• Term: • The allocation spans a rolling three-year period, and is adjusted each

year• Two- and three-year forward allocations are subject to change in

subsequent year

* See Appendix (pg. 42) for draft CalCCA proposal on how to enable simple CPUC review process24


Local RA Allocation Process: Effect on PCIA

• RA attributes allocated to LSEs receive $0 value in the PCIA mechanism

• Allocations do not contribute to the RA market price benchmarks

• Any substitution capacity and any CAISO costs or penalties required for, or imposed as a result of, Local RA resource outages will receive full cost-recovery through the PCIA

• This proposal would allocate the full costs and full benefits of Local RA to all LSEs, except for any costs disallowed through the IOU’s ERRA proceeding

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GHG-Free Allocation Proposal


Basic Structure for GHG-Free Allocations

• LSEs have an option to receive a proportional share of GHG-free attributes from each applicable vintage of the IOU’s GHG-free, non-RPS, PCIA-eligible asset portfolios on an hourly basis

• Options for nuclear pool and non-nuclear (i.e., large hydro) pool• Energy will be liquidated in the CAISO market by IOU, acting as

Scheduling Coordinator

• Each benefiting LSE will receive credit within Power Content Label, Clean Net Short, or other similar reporting mechanisms

• IOUs will convey the pool’s aggregated meter data on a regular basis to indicate estimated YTD production available for allocation

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GHG-Free Allocation: Opt Out, Trading, and Term

• Voluntary Allocation:• CalCCA & SCE: An LSE may elect to opt out of a pool in its entirety.

Allocations not accepted by a participant would be reallocated automatically amongst LSEs participating in the allocation of that pool

• Commercial Energy: An LSE may opt out of all or a portion of each pool. Unallocated attributes are auctioned off with revenues credited pro-rata to LSEs that opted out.

• Trading Attributes:• Attributes would be tradeable bilaterally in a secondary market after

received by an LSE, with no further involvement of the IOU

• Term:• LSEs could opt in or out for each year’s allocation by a certain

deadline

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GHG-Free Allocation: Forecasting

• IOU will provide past three years of historical, aggregated, hourly production data by nuclear or non-nuclear pool

• IOU will provide the following forecasts of aggregated* GHG-free, non-nuclear and aggregated* nuclear production:

• Resource IDs for all resources in the hydro pool of assets and nuclear pool

• Aggregated, total year-ahead ERRA forecast;• Aggregated, year-ahead ERRA forecast of the total production for

each of the 12 months; and• Quarterly updates for remaining balance of year of the monthly total,

aggregated production

• The forecast is provided as is, without any warranty

* If forecasts cannot be aggregated, then only historical data would be provided

• Specific forecasting requirements still under discussion by Co-Leads

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GHG-Free Allocation: Impact on PCIA

• Current PCIA would be unchanged• Currently, no benchmark value is added for GHG-free attributes• GHG-free resources are accounted for identically to brown power

resources • i.e., benchmarked against Platts forward and trued-up to actual CAISO

revenues• Participating LSEs would receive their allocation at no additional cost

and receive no credit if opting out• Commercial Energy: Opting out LSEs would receive revenues from sale

of GHG-free attributes from auction process

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Voluntary Allocation & Auction Clearinghouse Strawman


Voluntary Allocation & Auction Clearinghouse

• Principles:• Preservation of IOU Portfolio balanced with LSE planning• Transparency of Forward Attribute value• Creation of Markets for Emerging Products• Tool to clear All “Unallocated Resources” while minimizing over-

saturation of various resource types

• Potential Concerns of CCAs/IOUs:• Minimize number and variety of attribute pools offered • Resource-specific energy scheduling too difficult to implement• PCIA cost recovery by meter/customer challenging versus LSE

payments• Attributes must count towards LSE compliance requirements• Allocated attributes should be at no incremental cost to the LSE if

customers are bearing full costs• Ability to enter into year-plus sales terms

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Voluntary Allocation & Auction Clearinghouse

• Solutions/compromises:• Annual Attributes only, with no energy scheduled on behalf of LSE• 5 Pools: Local RA/GHG Free Nukes/No-Nukes/System RA/RPS • No cost to Allocated LSE for Attributes, as costs are recovered in PCIA• IOU liquidates unallocated attributes through Auction

• Money from auctions will be credited back to Unallocated LSEs • IOU sums revenues from all auctions and credits LSEs pro rata• All market participants may bid

• Next Steps/Issue• Co-Leads to continue to vet issues around VAAC proposal• Flexibility on LSE discretion over allocation options/percentages• Work through vintaging by LSE for Auction revenues• Define treatment of System RA and RPS• Ability to utilize or not utilize price floors or caps and/or minimums• Regulatory commitment to Compliance from VAAC products

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Next Steps


Feedback Requested

• Co-Leads are seeking feedback on concepts presented by 8/9• Please submit informal comments through CPUC Service List

• Topics the Co-Leads would ask the audience to opine upon in informal comments:

• Excess RA Sales Strawman Proposal• Local RA Allocation Proposal• GHG-Free Allocations Proposal• Voluntary Allocation & Auction Clearinghouse Proposal


Next Steps

• Review informal comments received from workshop participants• Continue discussions on Allocations and incorporate comments

and feedback• Focus on determining an appropriate mechanism for transfers of

RPS attributes:• Explore Excess RPS Sales structures; and • Explore RPS Allocations

• Upcoming deliverables:• Second Progress Report will be due September 26, 2019• Third WG3 Workshop expected September/October, 2019

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Appendix A – Excess RA Sales Strawman


-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

n-3(2019)

n-2(2020)

n-1(2021)

n(2022)

Local RA (3-Year Ahead) Illustration

Local Requirement Buffer Local Uncertainty Tranche Excess

Excess RA Sales: Local RA Treatment in Solicitations

An Excess Sales approach for Local RA is not recommended by the Co-Leads, but would function in a similar fashion as for System/Flex RA, except that Uncertainty Tranche would be released in Fall of N-2.

Procurement Year for Delivery

in 2022

Expected2 Year-Ahead

Expected3 Year-Ahead(50%)

Expected1 Year-Ahead

Delivery Year

IOU

’s N

eed

Excess

IOU

’s N

eed

Excess

Uncertainty Tranche

Compliance Requirement

Excess

Illus

trat

ive

Posit

ion

38


Excess RA Sales: Swap Local for System/Flex

A Local RA Excess Sales approach is not recommended by Co-Leads, but if it existed, the following approach could be pursued for Local for System or Flex swaps to enable LSEs to meet Local procurement obligations.

• IOUs agreed to offer swaps when long Local and short System• IOUs do not agree to a mandatory obligation

• IOUs should not be required to sell Local without receiving System in exchange, if they are short System

• Same rules apply for being long Local and short Flex• All annual solicitations to be reviewed by IE and in consultation

with PRG

• CalCCA proposes that acquiring party may pay a premium for Local RA• IOUs propose no swaps if results in net cost to bundled service customers, and

can otherwise show Local resource on System supply plan

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Appendix B – Local RA Allocations


Local RA Allocation: “CAM-like” Mechanism

• IOU will show all PCIA-eligible Local RA resources on its supply plan and for each Local RA compliance filing

• Annually in the Fall, CPUC will determine appropriate share of each vintage’s Local RA position to be allocated to each LSE for N+1, N+2, and N+3 and System and Flex RA position to be allocated to each LSE for N+1

• Annually, concurrently with the publication of the final RA compliance requirements, CPUC will:

• Issue a letter to IOU indicating quantities of RA debited from IOU positions for allocation purposes; and

• Issue a letter to each benefiting LSE indicating quantities of RA credited towards LSE’s positions

• Each LSE will reflect the PCIA credit/debit within its annual CAISO RA showing• Actual quantities debited and credited may vary year-over-year, subject to changes in

load share, IOU contract management activities, NQC adjustments, etc.• Contract management activities are governed through ERRA and AB57, with PRG

consultation (as appropriate)• IOU will maintain responsibility for outages, substitution capacity, backstop

procurement, penalties, etc.• Costs incurred passed through PCIA mechanism, except for any costs disallowed through the

IOU’s ERRA proceeding

For more information on CAM process, refer to: https://www.cpuc.ca.gov/General.aspx?id=6311See 2019 Final RA Guide and CAM Allocation links

41

https://www.cpuc.ca.gov/General.aspx?id=6311


Local RA Allocation: CPUC Review of Trades

• Propose that CPUC Staff could insert a new table in the RA template (LSE Allocations tab) to credit and debit Local RA allocation trades

• LSE would be responsible for updating template as trades occur• Propose that CPUC Energy Division staff would match debit and

credit updates on LSE template • Similar to current process of Table 5 in RA compliance filing for

incremental true-up allocation process

• LSEs will list debits and credits on their year-ahead and/or month-ahead compliance filing deadlines, unless requested otherwise by Energy Division Staff.

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Appendix C – Natural Gas Allocation Process used on PG&E Gas Transmission System since 2011


PG&E Natural Gas Allocation Process

Product Pools• Pipeline transmission capacity from three primary producing basins• Storage capacity owned or contracted• Natural gas in storage at time of AllocationProcess for Allocations• Every four (4) months for pipeline transmission capacity contracted from

GTN, Ruby, and El Paso, semi-annual for gas storage capacity• All holdings allocated proportionate to CTAs market share of consumption

for forward period• All contract costs shown for each pipeline for the period borne by CTA• Each CTA dispatches its Allocated pipeline and storage assets• Temporary assignment issued to each CTA (approx. 20)Residual, Un-Allocated Assets• Any remaining balance auctioned within a month, for the same period,

with no minimums• All revenues deducted from stranded costs borne by CTAs.

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