On January 18, 2018, FERC approved California Independent System Operator Corporation’s (“CAISO”) changes to its resource adequacy program to, among other things, (1) allow capacity located in a local capacity area, but procured as system capacity, to provide system substitution capacity during forced outages and (2) cap a load serving entity’s (“LSE”) monthly local capacity requirement at its monthly system capacity requirement.

CAISO and the local regulatory authorities within its footprint administer the resource adequacy program to ensure that LSEs procure enough transmission system capacity to meet their forecasted load, plus a reserve margin set by their local regulatory authority. Additionally, LSEs are required to procure local area capacity—capacity capable of meeting capacity requirements in a transmission-constrained area and that is also located within that area—and flexible resource adequacy capacity—resources that can ramp up and down quickly to manage variability. Moreover, LSEs must submit annual and monthly resource adequacy plans to CAISO demonstrating that they have procured enough capacity to meet their forecasted load and reserve margin, while scheduling coordinators for resource adequacy resources submit annual and monthly supply plans that CAISO uses to verify that LSEs are meeting their resource adequacy requirements.

In October 2015, FERC approved CAISO’s initial phase of tariff revisions to enhance its evaluation of compliance with resource adequacy requirements (see October 12, 2015 edition of the WER). In September 2017, CAISO proposed the next phase of revisions to the resource adequacy program to, among other things, allow capacity located in a local capacity area but procured and demonstrated as system capacity to provide system, rather than local, substitution capacity during forced outages; and cap the amount of local capacity required in an LSE’s monthly adequacy plan at its system capacity requirement for that month. In addition, CAISO proposed revisions to its outage evaluation process, the timeline for the monthly resource adequacy process, its use of a default method for allocating flexible capacity procurement costs, and the resource adequacy reporting obligations for small LSEs.

In the current order, FERC approved CAISO’s proposal to allow capacity located in a local capacity area but shown as system capacity on a resource adequacy plan to have a system substitution requirement. In doing so, FERC found that allowing resources to provide substitute capacity based on how their capacity is shown on a resource adequacy plan better aligns resource adequacy obligations with the service for which the capacity was procured. In addition, FERC found that CAISO’s proposal to cap an LSE’s monthly local capacity requirement at its system capacity requirement for that month appropriately limited the over-procurement of local capacity. Approving the proposed changes, FERC found CAISO’s revisions just and reasonable.

A copy of FERC’s order is available here.