FERC Schedules a Staff Technical Conference on California’s Reliability Issues

The Federal Energy Regulatory Commission (“FERC” or “Commission”) will hold a Technical Conference on July 31, 2013, in Sacramento (California), to discuss reliability issues arising from the California Independent System Operator’s (“CAISO”) proposal to implement a flexible capacity and local reliability resource retention (“FLRR”) mechanism, which was filed with FERC on December 12, 2012.

The FLRR mechanism was presented as an interim measure that would allow CAISO to address medium-term reliability concerns while working with the California Public Utilities Commission (“CPUC”) and other local regulatory authorities on the design of a multi-year forward capacity procurement obligation for all load serving entities within CAISO’s balancing authority area.

CAISO’s existing backstop funding system (known as the Capacity Procurement Mechanism) allows CAISO to levy a tax on power customers to keep qualifying resources in business. However, only the risk of energy shortages identified for the next calendar year can trigger such a backstop mechanism under CAISO’s current Tariff. The proposed FLRR mechanism would provide out-of-market compensation to resources at risk of retirement in the current year but determined to be needed in the two to five year forward period. CAISO justified the need for the FLRR mechanism as a way to avoid one-time waivers such as the one requested in 2012 for Calpine’s Sutter power plant.

FERC rejected the FLRR mechanism in an Order issued on March 29, 2013 in Docket No. ER13-550-000. The Commission found that CAISO had not demonstrated that its proposal would: (i) be effective in ensuring long-term reliability; (ii) be consistent with CAISO’s market design; and (iii) result in just and reasonable rates not unduly discriminatory or preferential. The Commission further directed its staff to convene a technical conference for the purpose of coordinating with the CPUC, CAISO and other industry participants on resolving the reliability issues presented in the FLRR proceeding.

The Technical Conference on July 31^st will consist of two panels discussing: (i) the risk-of-retirement problem and its impact on reliability; and (ii) whether a multi-year resource adequacy framework with a CAISO backstop mechanism is a solution to the risk-of-retirement problem.