On February 15, 2024, the California Public Utilities Commission (CPUC) issued its final decision in an ongoing proceeding concerning the Integrated Resource Planning (IRP) framework for Load-Serving Entities (LSEs) in California and the Resource Adequacy (RA) procurement targets set by the Legislature in Senate Bill (SB) 350 and SB 100 (Final Decision).1 Among other things, the Final Decision 1) adopts a new Preferred System Plan (PSP) portfolio to help meet the state’s electric sector greenhouse gas (GHG) target for 2035 and 2) addresses RA procurement targets for the 2025 and 2028 reporting years. These aspects of the Final Decision modify RA procurement targets in a manner that could affect resource procurement, transmission system planning, the application of interconnection rules, and bargaining dynamics between LSEs and developers/resource owners with respect to the negotiation of RA Agreements (as well as Power Purchase Agreements (PPAs) more broadly).
Background
PSP Portfolio and CAISO TPP
To achieve the procurement targets of SB 350 and SB 100, the CPUC has adopted an IRP planning process that is repeated every two years. In the second year of each cycle, the CPUC develops a PSP portfolio by aggregating the generation resources listed in each LSE’s individual integrated resource plan and analyzing whether further action, such as additional procurement, is required to meet SB 100’s goals of achieving 90 percent clean electricity by 2035 and 100 percent clean electricity by 20452. After finalizing the PSP portfolio, the CPUC also typically recommends that the California Independent System Operator (CAISO) use the PSP portfolio as the basis for its annual Transmission Planning Process (TPP). The annual TPP is crucial in that it helps the CAISO Board streamline, identify, and approve investments for specific critical transmission upgrades. SB 887 requires the CPUC, when making its TPP recommendation, to notify CAISO of anticipated future offshore wind (OSW) generation capacity to allow CAISO to efficiently identify and approve transmission network upgrades necessary to deliver power from OSW facilities to load centers.
RA Procurement Requirements
Under the CPUC’s RA policy framework, all California LSEs are required to satisfy certain forward RA procurement obligations established by the CPUC to ensure reliable electric service in California. As discussed in a previous Wilson Sonsini Client Alert, the CPUC, in an unrelated docket, is currently considering various sweeping reforms to the overall RA policy framework. In contrast, the Final Decision in this proceeding does not involve fundamental alterations to the RA framework, but rather addresses the timelines for the following two existing procurement obligations that were established in prior CPUC decisions:
- Diablo Canyon Replacement Capacity: By June 1, 2025, LSEs must procure a total of 2,500 MW Net Qualifying Capacity (NQC) from generation resources with specific characteristics intended to replace a portion of the Diablo Canyon Power Plant's contribution to system reliability.
- Long Lead-Time (LLT) Resource Capacity: By June 1, 2028, LSEs must procure i) a total of 1,000 MW NQC of "clean firm" resources that can deliver a minimum capacity factor of 80 percent, and ii) a total of 1,000 MW NQC of long-duration storage resources.
Key Provisions of Final Decision
PSP Portfolio and CAISO TPP
In the Final Decision, the CPUC adopted a PSP portfolio which would result in a 25 million metric ton (MMT) reduction in GHG emissions below 2020 levels within the electricity sector by 2035, putting the state on track to surpass the SB 100 targets and achieve 113 percent clean electricity (including exported energy) by 2045.3 The PSP portfolio would require the state to deploy approximately 57 gigawatt (GW) of new renewable resources between now and 2035, including, but not limited to, 19 GW of solar, 18.5 GW of lithium-ion batteries, and 4.5 GW of OSW capacity.4 The CPUC estimates that under this PSP portfolio, the use of natural gas plants on the CAISO system would decrease by approximately 70 percent over this period.5
Of particular note, throughout the CPUC's decision-making process, the proper amount of OSW capacity to be included in the PSP portfolio sparked considerable debate between OSW advocates and opponents. In the Final Decision, the CPUC settled on 4.5 GW, which is equivalent to last year’s PSP portfolio. Opponents argued that 4.5 GW is too high, given that the estimated costs for OSW resources have increased over the past year.6 The CPUC was not persuaded to reduce the 4.5 GW target, recognizing that the assumptions underlying the estimated costs have not been tested in a procurement process in California and, therefore, that actual costs could vary significantly.7 Conversely, proponents argued that the 4.5 GW is not aggressive enough and is misaligned with the California Energy Commission's (CEC) target of 25 GW of OSW by 2045.8 In response, the CPUC distinguished the CEC's 25 GW target on the grounds that it is intended to be a goal, whereas the purpose of the CPUC's proceeding is to identify a "realistic scenario" for purposes of the TPP analysis and the requirements of SB 887.9
In addition, the CPUC acknowledged it is "not a matter of if, but rather when" transmission upgrades will be needed to accommodate OSW deployment, and, as a result, the CPUC encouraged CAISO to pursue OSW-related transmission upgrades "with consideration of the timing of other long-term efforts, such as port and workforce development, to harmonize as much as possible the state’s overall strategy for developing and evolving OSW."10
Finally, the CPUC recommended that CAISO utilize the 25-MMT PSP portfolio as its "reliability base case" and "policy-driven base case" for its 2024-2025 TPP.11 In addition, due to the anticipated reduction in natural gas resources under the PSP portfolio, the CPUC suggested that CAISO analyze a “policy-driven sensitivity case” to determine the transmission upgrades required for a grid stress case in the event that 15 GW of natural gas generation resources are retired by 2039.12
RA Procurement Requirements
Elsewhere in the Final Decision, the CPUC addressed two petitions filed in the proceeding which sought modification of earlier procurement decisions issued by the CPUC in the same docket. The first petition, filed jointly by Southern California Edison Company (SCE) and Pacific Gas & Electric Company (PG&E), sought a two-year extension on the requirement to procure the Diablo Canyon Replacement Capacity from June 1, 2025, to June 1, 2027. SCE and PG&E claimed they are already procuring significant energy and capacity resources in a "resource-scarce and competitive market environment" which makes it challenging to bring sufficient resources online by the existing deadline.13 The second petition was filed by the California Energy Storage Alliance (CESA) and the Western Power Trading Forum (WPTF) and sought the ability of a LSE to request from the CPUC an extension of up to three years for procurement of LLT Resource Capacity from June 1, 2028, to June 1, 2031. CESA and WPTF claimed that meeting the 2028 compliance deadline may not be possible, as LSEs have been “reluctant” to sign contracts for LLT Resource Capacity due to "longer permitting timelines, material supply constraints, potential for interconnection delays, and unavoidably long construction periods."14
The CPUC denied SCE/PG&E's petition because it could result in a reliability shortfall in 2025 and have impacts on fairness and equity between LSEs. Pointing to prior analysis conducted by CPUC staff, the CPUC explained that California is already expected to face reliability challenges in 2025 and "granting the [petition] will likely compound the risk of reduced system reliability."15 While the CPUC did acknowledge PG&E's argument that the inputs and assumptions used for analysis in this cycle of the IRP show possible price increases to the resource categories most likely to qualify as Diablo Canyon Replacement Capacity, the CPUC ultimately held that granting the petition could "create inequities for LSEs that procured resources to meet the Diablo Canyon replacement requirements on time, perhaps at greater cost" and discourage LSEs that are capable of meeting the deadline from following through on the original compliance timeline, which could cause further reliability impacts.16
The CPUC accepted CESA/WPTF's petition, but with significant modification, conceding that it may not be possible for all LSEs to meet the 2028 compliance deadline for the reasons cited in the petition. In particular, after recognizing that CAISO interconnection Cluster 13 does not contain enough resources to make a "collectively competitive solicitation process" for LSEs to meet their LLT Resource Capacity requirements, the CPUC expressed a "prefer[ence] to allow more projects in Cluster 14 and possibly Cluster 15" to compete for contracts, which would require compliance deadline extensions beyond June 1, 2028.17 In light of the foregoing, the CPUC held that LSEs will be permitted to file individual extension requests for the 2028 compliance deadline while making a "good faith showing" of progress towards the procurement target, by satisfying the following requirements:
- By June 1, 2025, each LSE seeking a compliance deadline extension must provide a set of proposed or executed contracts and associated pricing data for procurement of the LLT Resource Capacity from generation resources with an estimated commercial operation date no later than June 1, 2031.18
- In addition, by June 1, 2028, an LSE with a signed contract for LLT Resource Capacity can file a request for a compliance extension to June 1, 2031, due to project development delays by submitting an executed contract, plus one of the following: i) evidence of site control, ii) an interconnection agreement, or iii) a notice to proceed. If the extension is granted, the LSE must meet its LLT procurement requirements by procuring generic replacement capacity that is eligible for California’s renewable portfolio standard until the contracted LLT resources can come online, no later than June 1, 2031.19
Other Aspects of the Final Decision
In addition to the foregoing, the CPUC also addressed the following:
- After evaluating the 2022 IRPs of all LSEs, the CPUC approved or certified the IRPs of 29 LSEs, determined that nine LSEs are exempt from the IRP filing requirements, and declined to approve or certify the IRPs of 12 LSEs that failed to provide all of the required information in their IRP filing.20
- The CPUC formally adopted a reliability framework to be utilized within the integrated resource planning process. The framework, which had been used in the past two years of this proceeding, includes "a 0.1 loss of load expectation for determining resource need, a planning reserve margin based on gross peak, and resource counting conventions using marginal effective load carrying capability analysis that is updated periodically."21
Key Takeaways
The adoption of the 25-MMT PSP portfolio reflects the CPUC's intent to encourage the rapid deployment of new clean energy resources as well as corresponding transmission upgrades designed to support those resources. In particular, the CPUC’s decision to include 4.5 GW of OSW capacity in the PSP portfolio despite various sources of uncertainty, along with the Final Decision's encouragement for CAISO to pursue transmission upgrades, signals the CPUC's support for the state’s nascent OSW industry. This Final Decision represents just one aspect of the state’s efforts to grow that industry. In October 2023, the state implemented Assembly Bill (AB) 1373, which, among other things, authorizes the CPUC to direct the Department of Water Resources to procure offshore wind generation to fill necessary gaps within the integrated resource plans of the LSEs.22 Although the CPUC has not yet issued an Order Instituting Rulemaking regarding these requirements, it is required to do so no later than September 1, 2024. We encourage all parties interested in OSW deployment to monitor the CPUC’s actions in response to AB 1373.
With respect to the portions of the Final Decision that address RA procurement, the rejection of SCE/PG&E's request for an extension of the deadline for procuring Diablo Canyon Replacement Capacity is likely to impart a sense of urgency for LSEs to timely procure replacement capacity and expediently complete the interconnection process for new projects in time to meet the 2025 compliance deadline for that capacity. As a result, project developers and capacity resources that are in position to help meet those requirements will likely have a stronger bargaining position with the LSEs in both the negotiation of PPAs and the timely completion of any interconnection studies and key network upgrades required to bring such projects online.
With regard to CESA/WPTF's petition, it is unclear exactly how the LSEs' opportunity to extend the 2028 compliance deadline for LLT Resource Capacity will affect bargaining dynamics between LSEs and project developers. In one sense, the CPUC's decision to broadly maintain the 2028 compliance deadline could give generators some leverage by keeping pressure on LSEs to timely execute PPAs for the LLT Resource Capacity. Conversely, the availability of a project-by-project extension to the LLT procurement deadline—and the LSEs' ability to seek such extensions on the basis of price—could work against developers of LLT resources by increasing uncertainty both in contracting and in the interconnection process. How these scenarios play out likely will vary by LSE and LLT resource and almost certainly will depend in significant part on how RA procurement and project interconnection efforts unfold over the next few years.
The Wilson Sonsini energy and climate solutions practice is pleased to assist you in considering the implications of this proceeding. For more information, please contact Wilson Sonsini attorneys Nic Gladd, Peter Mostow, Todd Glass, Matt Bogdan, Nadia Senter, or Max Learner.
Nic Gladd and Nadia Senter contributed to the preparation of this Alert.
[1] CPUC Decision 24-02-047, Decision Adopting 2023 Preferred System Plan and Related Matters, and Addressing Two Petitions for Modification (https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M525/K918/525918033.PDF).
[2] See CPUC Fact Sheet (https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/integrated-resource-plan-and-long-term-procurement-plan-irp-ltpp/2023-irp-cycle-events-and-materials/2022-2023psp_decision_2pager_final.pdf); California SB 100 (https://legiscan.com/CA/text/SB100/id/1819458).
[22] AB 1373 (https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240AB1373).
