The California Public Utilities Commission (“CPUC”) developed the integrated resource planning (“IRP”) process pursuant to SB 350 (De León, 2015) to ensure that California’s electric sector meets its greenhouse gas (“GHG”) reduction goals while balancing reliability and affordability. The IRP process works in tandem with California’s Renewables Portfolio Standard (“RPS”) which requires every electric load serving entity (“LSEs”) to procure 60% of its portfolio from eligible energy resources by 2030. The IRP program includes interim annual RPS targets and requires 65% of RPS procurement to be derived from long-term contracts of ten years or more.
The CPUC handles the above programs through “proceedings,” or legal processes that form the basis of their decisions, often focusing on establishing policies for regulated entities. Within the IRP Proceeding (R.20-05-003), the Commission has issued, and continues to issue, a series of decisions increasing the capacity and type of resources/contracts that LSEs are required to procure.
Initially, within Decision (“D.”) 19-11-016, the Commission ordered 3,300 MW of “incremental” capacity that qualifies as System Capacity in the Resource Adequacy program. The CPUC then expanded on this requirement in their 2021 “Decision Requiring Procurement to Address Midterm Reliability” (D.) 21-06-035, which ordered 11,500 MW of additional capacity to come online over four years which certain implementation deadlines each year up until 2026. The 2021 Decision included requirements for resources that generally take longer to construct and bring online (“long-lead-time or LLT resources”), as well as penalties for failure to procure.
Current IRP Compliance Structure
CPUC jurisdictional LSEs (that did not opt out of D.19-11-016) demonstrate their compliance with the above orders by submitting Individual IRP filings to the Commission within the IRP docket, with the next filing due on February 1, 2023. As of D.21-06-035, the CPUC organized a penalty structure for LSEs that fail to comply with the decision’s procurement requirement that includes threat of backstop procurement by Investor Owned Utilities (“IOUs”) and further penalty per MW of capacity not procured. The penalty is set at the level of the Cost of New Entry (“CONE”), net of estimated energy market and ancillary services revenues. The net CONE value is based on the cost of a new battery storage facility, and the most recent estimate is embedded in the Avoided Cost Calculator for demand-side resources.
CPUC’s January 13, 2023 Proposed Decision
On January 13, 2023, the Commission issued a proposed decision ("PD") in the IRP proceeding which would require 4,000 MW of capacity in addition to the 11,500 MW ordered in D.21-06-035. This supplemental capacity is intended to help address: the forecasted increase in electric demand, the accelerating impacts of climate change, the likelihood of fossil-fueled generation retirements, and the likelihood that LLT resources will be delayed. The PD also recommends electricity resource portfolios to the California Independent System Operator for the 2023-2024 Transmission Planning Process.
The PD clarifies that an LSE may split the capacity associated with a single resource between its D.19-11-016 and D.21-06-035 obligations, as long as the resource meets the requirements of the decision for which it is being counted, including being incremental to the respective decision’s baseline generator list of resources.
The additional procurement will be subject to the same compliance rules, penalties, monitoring and enforcement processes, and need allocation as the capacity ordered in D.21-06-035. This includes continuing the semi-annual filing requirements in perpetuity. Assessment of compliance and need for backstop procurement will continue to be evaluated after data is submitted on February 1st of each year.
Further, the PD would allow any LSE to show compliance with its LLT requirements at any time between 2026 and 2028. This would effectively move the requirement for 2,000 MW of LLT resources to 2028, instead of 2026, obviating the need for LSEs to make an extension filing by February 1, 2023.
Comments are due on the PD on February 2, 2023, with reply comments due on February 7.
IRP Reform
Within the same IRP proceeding, the Commission issued a Ruling on September 8, 2022 seeking comments on a staff paper titled “Reliable and Clean Power Procurement Program: Staff Options Paper” (available here).
Within the paper, CPUC staff described options for the design of a new procurement program to “determine the amount of reliable and clean resources that are required to be procured, by whom, by when, and what the reliability and greenhouse gas (GHG) parameters to demonstrate compliance should be.” The paper proposed to establish a “Reliable and Clean Power Program” that would establish new long-term contracting requirements for LSEs to meet their share of total system reliability as compared to the ad hoc procurement orders that currently order capacity. The paper noted that the new program would align with the existing IRP process, but as noted above, the CPUC will issue a Decision ordering procurement through the conventional process if the January PD is approved.
Opening comments on the Staff Options Paper were due on December 12, 2022, and reply comments were submitted on January 9, 2023. We expect further refinement of the Staff Options Paper and a possible decision later in 2023.
For more information, please contact Jessica Melms or Brian Biering.
