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Calif. power suppliers pitch central buyer model to ensure grid reliability

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A poster of the California state flag plastered on a wall in San Francisco. Power suppliers have proposed a new
central buyer model to ensure resource adequacy as the state's energy sector decarbonizes and diversifies.

Source: S&P Global Market Intelligence

In an agreement filed with the California Public Utilities Commission, the state's community choice aggregators joined with Calpine Corp., NRG Energy Inc., San Diego Gas & Electric Co., Shell Energy North America (US) LP and other energy market participants in proposing a new central buyer model to bolster grid reliability.

If adopted, the plan would create a central buyer to plug potential power gaps, reduce the California ISO's use of expensive backstop purchases, preserve suppliers' "self-procurement autonomy," enhance a "liquid and robust bilateral capacity market" and secure "a meaningful role for the state in ensuring reliability," the groups said in the Aug. 30 filing.

The proposal comes just weeks after the ISO warned that California could face a 2,300-MW capacity shortfall in 2020 and a 4,700-MW deficit by 2022. This reflects a growing concern over resource adequacy as the state transitions to higher volumes of variable renewable energy sources amid a sweeping diversification of retail energy suppliers.

"We all agree the model is changing and we need to make some adjustments," Nick Chaset, CEO of East Bay Community Energy, one of the state's 19 operating community choice aggregators, or CCAs, said in a recent interview. "The house is not on fire," he added in response to comments by former CPUC President Michael Picker about lapses in the state's resource adequacy program and a potential crisis brought on by the fragmentation of California's retail energy supply.

CCAs have procured more than 3,140 MW of renewable energy and battery storage under long-term contracts, mostly signed in the past two years, according to an S&P Global Market Intelligence analysis.

CCAs plan to purchase about 10,000 MW by 2030, largely supplanting procurement from investor-owned utilities. But regulators, lawmakers and the ISO have voiced concern that power suppliers may not be purchasing enough capacity to provide sufficient reserves during periods of peak demand.

The agreement was reached after the CPUC established three-year forward purchasing obligations in February and directed energy suppliers to identify a workable central buyer proposal. Under the agreement, a new "Resource Adequacy-Central Procurement Entity" would become the default buyer of "residual" capacity that load-serving entities do not procure to meet those obligations.

"It's great to see that we were able to collaborate and come up with a workable solution," Beth Vaughan, executive director of the California Community Choice Association, said in a news release. The state's two largest utilities, Pacific Gas and Electric Co. and Southern California Edison Co., did not sign the agreement.

The CPUC could vote on the proposal by the end of 2019.

In July, lawmakers failed to pass a bill that sought to create a central power authority to keep California's lights on. Local government-run CCAs, which now procure power for about 10 million Californians, opposed the measure as a CPUC "power grab" that would "significantly scale back local control."