On October 17, 2019, FERC denied rehearing of its order denying a complaint filed by CXA La Paloma, LLC (“La Paloma”), which argued CAISO’s resource adequacy regime had become unjust and unreasonable. Stakeholders asserted, among other things, that FERC ignored certain evidence suggesting inadequate capacity prices would lead to near-term reliability problems; FERC disagreed, restating the evidence and arguments initially presented in the complaint, explaining that based on the evidence presented it did not find CAISO’s resource adequacy regime unjust and unreasonable. In its order denying rehearing, FERC weighed in (again) on low capacity prices and reliability concerns in California, as well as the scope of its section 206 authority.

In its complaint filing, La Paloma asked FERC to direct CAISO to implement a centralized resource adequacy program with a transitional payment mechanism; in its denial, FERC found that La Paloma had not met its burden under section 206 to demonstrate that CAISO’s tariff is unjust and unreasonable, or unduly discriminatory or preferential (see December 4, 2018 edition of the WER). Three separate requests for rehearing were filed, all of which were rejected by FERC.

With respect to low capacity prices, stakeholders argued that FERC had ignored certain evidence that California’s existing resource adequacy construct is resulting in inadequate revenue signals that will lead to the premature retirement of resources needed for reliability. FERC disagreed and explained it simply did not find the evidence presented persuasive. According to FERC, economic pressure for conventional resources does not necessarily demonstrate an unjust and unreasonable resource adequacy paradigm because competitive markets do not guarantee cost recovery, but rather only the opportunity to recover costs.

Stakeholders similarly asserted that in its order denying the complaint, FERC had failed to consider evidence regarding La Paloma’s reliability concerns. For example, stakeholders argued that FERC ignored evidence that under certain circumstances, enough flexible resources could be forced to retire within three years, creating a reliability issue. Again FERC disagreed, explaining that it found CAISO’s specific evidence more persuasive than La Paloma’s generalized claims. With respect to the increased use of backstop procurement authority, FERC reiterated its finding that the increased use was largely due to unique and transitional events, that it was not indicative of a failure to attract and retain flexible capacity, and that La Paloma did not demonstrate any changes that have rendered the CAISO tariff unjust and unreasonable.

FERC also confirmed its belief that portions of La Paloma’s complaint were not actionable under section 206. Because La Paloma’s claims of undue discrimination in state-administered programs were not under either CAISO’s tariff or its implementation of its resource adequacy authority, FERC explained that no legally cognizable claim had been established under section 206. FERC distinguished its similar findings regarding PJM’s capacity market—where FERC found PJM’s tariff unjust and unreasonable because it did not address the impact of subsidized existing resources in the capacity market—noting that CAISO does not have a centralized capacity market with a market clearing price. As such, FERC rejected arguments that it must consider the impact of state subsidies on capacity prices in the CAISO market.

Finally, FERC declined to hold a technical conference or order any additional proceedings.

A copy of the order is available here.