The Federal Energy Regulatory Commission set for hearing a contract to keep a gas-fired cogeneration facility in California operating to meet systemwide reliability needs, prompting one commissioner to urge Cal-ISO to "fix its markets."
California Independent System Operator's reliability must-run (RMR) program allows the grid operator to require retiring resources to stay online when it determines they need to keep running to maintain grid reliability."RMR agreements are a product of market failure and they themselves cause markets to fail," Commissioner James Danly said in a April 2 statement that also referenced now-Chairman Richard Glick's prior criticism of FERC's approval of Cal-ISO's unacceptably "broad authority to perform an end-run around the commission-approved market structures in order to retain particular resources."
Nevertheless, Danly and the rest of the commission supported an April 2 order accepting an RMR agreement with the 248-MW Midway Sunset Cogeneration facility (ER21-998).
"Given the reliability crisis [Cal-ISO] faced in August, 2020, there does not appear to be any question that [Cal-ISO] requires Midway to ensure resource adequacy in the immediate future," Danly said in a concurring statement. "But this is an example of a short-term fix that is almost certain to exacerbate the long-term problem."
The April 2 order accepted and suspended for a nominal period Midway's proposed RMR agreement with a Feb. 1, 2021, effective date, subject to refund, and set the filing for hearing and settlement judge procedures.
RMR designationMidway, co-owned by a NRG Energy subsidiary and a joint venture between Exxon Mobil and Shell Oil, planned to shut one of its combustion turbines in September 2020 and its remaining two turbines in December 2020 as purchase agreements it secured as a qualifying facility under the Public Utility Regulatory Policies Act were coming to an end.
But Cal-ISO's Board of Governors on Dec. 17 designated the facility as an RMR unit, in light of supply shortfalls that forced rolling outages in California over the summer.
According to Midway, the designation marked the first time Cal-ISO had used RMR to meet systemwide reliability deficiencies, rather than just local area reliability needs or congestion.
While there were no objections to the RMR designation, the terms of the RMR agreement Midway filed Jan. 29 and amended Feb. 3 drew protests from Cal-ISO, the California Public Utilities Commission, Pacific Gas and Electric, San Diego Gas & Electric and Southern California Edison.
Protesters' concernsCal-ISO took issue with Midway's characterization of its designation as "unique" and perceived attempt to use that to justify significant departures from the FERC-approved pro forma RMR contract.
The grid operator did not necessarily oppose major repairs and upgrades Midway identified as possibly necessary to provide reliability service, saying those would be eligible for cost recovery, but insisted that additional documentation was needed to support those requests.
PG&E, in its protest, emphasized that settlement discussions should clarify what condition would remove the need for Midway to continue to provide RMR service in the future, since this is the first RMR designation made to address systemwide needs.
Entities generally sought hearing and settlement judge procedures to allow time for third-party reviews to ensure that the proposed costs in the RMR agreement were just and reasonable.
Hearing procedures"Rather than RMRs being the last resort that commission precedent demands, it appears that the instant RMR agreement with Midway is [Cal-ISO's] first resort to address its failure to ensure that it acquires and retains sufficient capacity," Danly said in his concurrence. He also noted that the latest RMR agreement appears to address resource adequacy, even though Cal-ISO's tariff prohibits the use of RMR authority to meet resource adequacy deficiencies.
"Given the cited reliability concerns and the commission's limited role in 'approving' [Cal-ISO's] RMR agreements, I agree that the commission must accept the filing before us," Danly said. "But [Cal-ISO] really should fix its markets."
FERC, in the April 2 order, found that there were issues of material fact that could not be resolved based on the existing record and set the matter for hearing. It added that its preliminary analysis concluded that Midway's proposed RMR agreement "has not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful."
FERC intends to hold the hearing on the matter in abeyance to grant parties time to settle the dispute on their own. A settlement judge will be appointed, and that judge will update the commission and the chief administrative law judge within 60 days of their appointment on the status of the settlement discussions.
If a settlement has not been reached, the chief judge will then decide whether to provide parties more time to continue their negotiations, with the settlement judge providing a status report at least every 60 days thereafter, or to assign a presiding judge to move forward with the trial-type evidentiary hearing.
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