Dive Brief:

• The California Public Utilities Commission (CPUC) adopted a framework on Thursday that would designate Pacific Gas & Electric (PG&E) and Southern California Edison (SCE) as the central procurement entities to ensure local resource adequacy (RA).
• The central procurement framework would go into place in 2021, with the investor-owned utilities purchasing the entire amount of required local resource adequacy for 2023 on behalf of all load serving entities (LSEs). "Having numerous entities buying small strips of local resource adequacy is not cost-effective and creates market power concerns," CPUC Commissioner Liane Randolph said in a statement.
• The CPUC excluded the San Diego Gas & Electric (SDG&E) distribution region from the framework since the service area exceeds the system resource adequacy requirements for most of the year.

Dive Insight:

Community choice aggregators (CCAs) in California have opposed the central procurement framework and were disappointed by the decision, due to the limited amount of control that LSEs would have over costs.

Parties in the decision are allowed to challenge the framework after the CPUC decision is officially issued, and ask for a rehearing. The local RA requirement framework has been in place in California since 2004, establishing the responsibility of LSEs to ensure reliability among their customers, and California advocacy group CalCCA said the new decision was a "significant departure from the current framework to ensure local reliability."

"The likelihood that the Commission is at this point going to fundamentally change what it's doing, I suspect, is very, very unlikely," Seth Hilton, a partner in Stoel Rives' energy development group, told Utility Dive. "They've decided that they have to do something ... after years of settlement talks, nobody's come to a kind of consensus on how this is supposed to be handled. So inevitably there are going to be a lot of unhappy people."

Under the framework, CCAs and other LSEs would still be allowed to procure their own local resources through the procurement plan and sell those resources to PG&E or SCE, utilize the resource for their own system or share their procurement capacity annually. Regulators said they are open to considering a compensation mechanism for "local capacity requirement reduction achieved through shown local resources by LSEs," to incentivize LSEs to drive down power demand and RA requirements.

CalCCA said it will co-lead a working group with either PG&E or SCE specific to this decision, to consider "(1) a compensation mechanism providing a local RA credit for LSEs that 'show' their resources and (2) the grandfathering of existing solutions."

Regulators rejected a proposed settlement agreement based on a residual model where LSEs would procure resource adequacy and voluntarily show their procured capacity to the designated central buyer, which would determine the remaining amount of resource adequacy needed. Randolph said there were concerns over whether the model would be effective and that it could potentially cost customers more.

CalCCA also said the framework would "blunt incentives for CCAs to invest in 'behind-the-meter' resource options."

"You need a regulatory structure in place that says we value these [distributed] resources at this amount and then developers can move into that space [once] there's certainty," said Hilton, who represents energy storage projects among other independent power developers and producers.

Regulators distinguished that, unlike PG&E and SCE's service territories, SDG&E did not have a lot of distinction between local area resiliency requirements and overall system requirements.

The CPUC will "continue to monitor LSE-based procurement in the SDG&E service area and may consider whether a central procurement structure is necessary in future years," Terrie Prosper, spokesperson for the regulatory body, told Utility Dive.

SDG&E did not respond to requests for comment in time for publication.