ISO Written Comments
 

California Senate Energy, Utilities and Communications Committee
November 19, 2003

The California Independent System Operator believes that ensuring adequate energy resources is the key to preventing a recurrence of California’s recent electricity crisis. An effective resource adequacy program would ensure that adequate supply will be available, every day, to meet consumers’ needs at reasonable prices. While much activity has occurred, most notably the CPUC Procurement proceeding, to date the ISO believes there is still great risk that it will not be provided adequate resources to serve the real-time electrical load requirements of consumers in California, during the next few years. Therefore, a state-sponsored program that includes a set of comprehensive, meaningful, and mandatory resource adequacy requirements is essential and urgently needed.

We believe such a program would include (6) essential elements:

• Required planning Reserve Margin
• Restricted reliance on the Spot Market to satisfy capacity requirements
• Rules for counting of resources towards meeting a Load Serving Entity’s (LSE) obligations
• Specific deliverability criteria
• Established and standardized Load Forecast
• Mechanism for the ISO to utilize LSE-procured resources

In addition, there are three overarching characteristics that would complete an effective resource adequacy framework. First, ex-ante procurement and cost-recovery rules that allow LSEs to enter into long term contracts which in-turn will commit available resources to California load and stimulate needed investment in electricity infrastructure. Second, a reporting mechanism that uses consistent formats and information to update each LSE procurement plan on an ongoing basis. Finally, well-defined consequences for LSE’s who do not procure sufficient capacity and ultimately contribute to a supply shortage.

In sum, a Resource Adequacy Program emphasizes forward planning and procurement, but the ultimate test of resource adequacy is in real time, on a day-in and day-out basis. Therefore, it is important to remember that absent meaningful and effective planning and procurement, the ISO may again be faced with addressing real-time shortages. Some have argued that there is a supply surplus in the western region and thus there is no need to quickly establish a resource adequacy program or, more specifically, stringent procurement obligations on load-serving entities in the state. These parties assert that with surplus capacity, there is no need to contract now for the available capacity but that load-serving entities can instead continue to satisfy their requirements through short-term purchases or in the spot market. The ISO could not disagree more strongly.

Now is the time to lock up uncommitted capacity so that in the future, such capacity is committed to serve California load. The ISO does not recommend, however, that any forward capacity obligation be implemented in full immediately. We acknowledge that the immediate imposition of such a requirement could place buyers at the mercy of suppliers. Therefore, the ISO recommends a prudent, ramped-in approach whereby load-serving entities be required to satisfy a specific target reserve margin by a date certain in the future. We have long supported an eighteen-month to two-year phase-in of any resource adequacy requirement. However, the longer we wait before imposing a mandatory reserve margin, the more we allow today’s capacity surplus to shrink. It is our hope that state policymakers will work swiftly and thoughtfully to provide clear rules for the forward procurement of capacity and the availability of resources to the ISO, so that California can both mitigate price risk exposure and ensure a reliable supply of power in real time.