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Calif. PUC ignores staff recommendation, nixes AES capacity contracts

For opposing reasons, the California Public Utilities Commission on Aug. 10 rejected contracts between Southern California Edison Co. and three AES Corp. power plants that ranged from 2,242 MW to 3,763 MW over two time periods.

On a 3-2 vote, the PUC bucked the recommendations of its energy division, which proposed that the commission approve the resource adequacy capacity contracts connected with the AES Alamitos and AES Huntington Beach plants while rejecting capacity contracts for the AES Redondo Beach plant.

The energy division said the Alamitos and Huntington Beach power plants are needed to meet an identified Los Angeles Basin local reliability need for 2018 and a forecast local reliability need for 2019 and 2020. However, PUC staff recommended against the Redondo Beach contract, which staff said would lead to significantly more capacity than was needed.

The three power plants are in the L.A. Basin Western subarea, where the California ISO has identified a need for 3,621 MW next year, according to the PUC's recommended decision.

The proposed contracts would run from June 1, 2018, through Dec. 31, 2019, and then at lower capacity levels for another year starting Jan. 1, 2020.

In its request for approval to enter into the capacity contracts, Edison International subsidiary SoCalEd said noncompliance with the local capacity requirements could lead to expensive back-stop procurement by CAISO and possible PUC penalties, according to the energy division.

SoCalEd argued that entering into the contracts would provide a hedge against CAISO determining that additional capacity is required for the utility to meet its local capacity requirements.

The PUC's Office of Ratepayer Advocates recommended that the commission reject the AES contracts, partly over concerns that excess capacity shouldn't be bought as a hedge against possible changes to local capacity requirements.

Also, SoCalEd failed to use an independent evaluator to analyze the contracts, according to the ratepayer advocate. The utility failed to adequately justify entering into the contracts outside of a competitive solicitation process, the ratepayers office said.

PUC staff said the Alamitos and Huntington Beach contracts were "reasonably priced." The pricing details are confidential.

Contracts might have displaced 'preferred' resources

Commissioner Martha Guzman Aceves voted against the contracts, partly because they would preclude potential preferred resources such as demand response and energy storage from meet resource adequacy needs in the L.A. Basin.

"We need to do everything we can to make sure clean resources can succeed and reduce our reliance on gas-fired resources," she said.

Also, Guzman Aceves said the resource adequacy program only seeks resources for a single year while the proposed contracts ran until 2021.

On the other hand, PUC President Michael Picker voted against the recommendation because he believed all three contracts should be approved. "I think there's a need … we fail to meet that at our risk," Picker said, noting there are grave threats to reliability in the L.A. Basin.

Commissioner Carla Peterman also voted against the contracts, while commissioners Liane Randolph and Cliff Rechtschaffen supported them.

California's utilities are required to show at the end of October that they have enough capacity to meet there resource adequacy needs for next year.

PG&E time-of-use plan approved

Meanwhile, the PUC approved a pilot plan for PG&E Corp. subsidiary Pacific Gas and Electric Co. in March to shift 250,000 residential customers to time-of-use, or TOU, rates that will run from 4 p.m. to 9 p.m. every day of the week. Community choice aggregators Marin Clean Power and Sonoma Clean Power customers will participate in the program.

The PUC in May approved a pilot program for Sempra Energy subsidiary San Diego Gas & Electric Co. to default about 120,000 residential customers to TOU rates, which are seen as a way to address the state's growing duck curve.

Earlier that month, the commission approved a similar pilot project covering about 400,000 SoCalEd customers.

The utilities are launching the default TOU pilots in preparation to shifting all residential customers to TOU rates in 2019.

The move is in response to a December 2015 PUC decision on residential rate reform, including TOU rates that best match expected electricity supply and demand. TOU rates are higher during periods of increased electric demand and lower when power use is less.

California has had time-of-use rates for decades, with most nonresidential customers subject to default or mandatory rates. However, CAISO has been arguing that there is a growing mismatch in the rate structure because of the increase in solar generation in the state.

Traditional TOU rates encourage conservation from noon until 6 p.m., which is misaligned with California's current demand curve, according to CAISO.

CAISO wants rates that encourage energy use during the midday periods that are subject to over-generation.

Ethan Howland is a contributing reporter to S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.