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FERC Rejects Generator’s Complaint That Sought Use Of Centralized Capacity Procurement In CAISO

November 20,2018

FERC rejected as unsupported a complaint from CXA La Paloma, LLC which alleged that the resource adequacy regime in California is unjust, unreasonable, and unduly discriminatory, and which had requested that the Commission direct the California ISO to implement centralized resource adequacy procurement and a transitional payment mechanism.

"We find that CXA La Paloma has not satisfied its burden under FPA section 206 to demonstrate that the CAISO tariff is unjust, unreasonable, or unduly discriminatory or preferential," FERC said

"As a threshold matter, we find that CXA La Paloma’s complaint fails to identify any specific CAISO tariff provisions that are unjust and unreasonable. Sections 40, 41, and 43A of the CAISO tariff create the framework for ensuring that CAISO has enough system, local, and flexible capacity to reliably operate the grid, while respecting the role of local regulatory authorities, such as CPUC. The Commission has held that this bifurcated framework respects the jurisdictional boundaries of the FPA while recognizing the states' historical role in ensuring resource adequacy. CXA La Paloma has not demonstrated that circumstances have changed such that this division of responsibilities has become unjust and unreasonable, nor has CXA La Paloma alleged that any provisions of sections 40, 41, or 43A of the CAISO tariff have failed to achieve their objective of ensuring sufficient capacity to operate the grid reliably," FERC said

"Rather, CXA La Paloma complains generally about low prices for capacity transactions and posits that these low prices will lead to a shortage of generation resources with the needed flexibility attributes to maintain reliability. We find that this line of argument fails for several reasons. First, we are not persuaded by CXA La Paloma’s arguments regarding inadequate revenue. The Commission has been clear that suppliers in competitive wholesale electricity markets are not guaranteed full cost recovery, but only the opportunity to recover their costs. Thus, even if CXA La Paloma is experiencing financial hardship, it has not demonstrated that the existing resource adequacy construct in California systematically denies it or other resources a meaningful opportunity to recover their costs," FERC said

"Second, we find that CXA La Paloma has not adequately supported its claims that the perceived insufficiency of revenues under the current resource adequacy paradigm will lead to the premature retirement of needed gas-fired resources. CXA La Paloma’s only evidence proffered on this issue is the CAISO DMM’s 2017 Annual Report, which found that 'net operating revenues for many older existing gas-fired generators may be lower than their going-forward costs.' The DMM’s 2017 Annual Report, however, focused solely on the performance of the CAISO-administered energy markets. The report did not analyze prices for resource adequacy contracts or evaluate how revenue from bilateral resource adequacy contracts affected the financial viability of these generators," FERC said

"Third, we find that CXA La Paloma fails to identify any reliability violation resulting from the purported inadequacies of the resource adequacy paradigm, nor does it provide credible evidence that any such reliability violations are likely in the foreseeable future," FERC said

"Although CXA La Paloma does provide evidence that CAISO’s use of its CPM and RMR authority has increased recently, we agree with CAISO that this evidence alone does not demonstrate a reliability concern, and specifically does not indicate a failure of the current resource adequacy paradigm to attract and retain flexible capacity. We agree with CAISO that each recent issuance of a CPM or RMR designation has been unique and transitional in nature, and consistent with the purposes of CAISO’s backstop procurement authority, and has not been for the purpose of curing a deficiency in flexible capacity," FERC said

"We find that CXA La Paloma’s undue discrimination argument and its claim that the LTPP/IRP gives undue preference to renewable resources is not legally cognizable under FPA section 206," FERC said

Docket No. EL18-177

California   Capacity markets  

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