On October 16, 2014, the Federal Energy Regulatory Commission (“FERC”) issued an Order on Tariff Revisions, FERC Docket No. ER14-2574, conditionally accepting, with two substantive modifications, tariff changes proposed by the California Independent System Operator (“CAISO”) to establish new flexible resource adequacy capacity (“FRAC”) and must-offer obligation (“MOO”) requirements intended to ensure that adequate flexible capacity is available to address the added variability and net load volatility associated with ongoing and expected future changes on the CAISO-controlled grid.  The FRAC-MOO requirements will be effective, subject to a compliance filing by the CAISO (due within 30 days of the date of the order), effective November 1, 2014, to allow load serving entities (“LSEs”) subject to the requirements time to make their first FRAC showings to the CAISO by November 15, 2014.

As detailed in a prior Clean Energy Law Report, the CAISO proposed its FRAC-MOO requirements to help meet the expected increased need for flexible capacity resources that can ramp up and down quickly and start and shut down potentially multiple times per day to address what the CAISO described as a “significant transformation” taking place on the CAISO-controlled grid in terms of increasing deployment of renewable energy-based variable energy resources, including the possible deployment of 12,000 megawatts of distributed generation resources being contemplated under state policies. In its filing, the CAISO relied on studies showing (as illustrated in the CAISO’s well-known “duck chart” (as excerpted from filing)) the heightened level of uncertainty and variability of operating conditions on the CAISO-controlled grid.

As detailed in the prior Clean Energy Law Report, the CAISO’s FRAC-MOO proposal contained seven basic elements designed in conjunction with the resource adequacy mechanisms of the California Public Utilities Commission and other local regulatory authorities in California that seek to provide a mechanism for ensuring that flexible capacity resources that want to qualify as FRAC resources submit economic bids into the CAISO-administered markets for energy and ancillary services. These elements are: (1) a needs determination; (2) three flexible capacity categories; (3) the allocation of needs across each of the three flexible capacity categories to local regulatory authorities; (4) month-ahead and year-ahead FRAC showings; (5) the CAISO’s evaluation of those FRAC showings; (6) the MOO associated with each flexible capacity category; and (7) the CAISO’s backstop flexible capacity procurement authority.

FERC conditionally accepted this proposal with only two substantive modifications. First, the CAISO will remove the part of its proposed FRAC-MOO requirements that would calculate an effective flexible capacity value only for those resources that submitted an economic bid for energy in the prior year. Second, the CAISO will include a limited exception from a MOO for use-limited resources, such as hydroelectric generation resources. FERC also directed the CAISO to make a compliance filing (as discussed above), and an informational report filing, 12 months after the FRAC-MOO is implemented.