October 15, 2007

What is resource adequacy?

By Alex Makler, Calpine

Under its Resource Adequacy (RA) program, the California Public Utilities Commission (CPUC) requires load-serving entities—both independently owned utilities and electric service providers—to demonstrate in both monthly and annual filings that they have purchased capacity commitments of no less than 115% of their peak loads. These purchase requirements are intended to secure sufficient commitments from actual, physical resources to ensure system reliability.

 

As with most aspects of the California markets, the RA program is still evolving. RA is often referred to as the replacement for the Reliability Must Run (RMR) commitments entered into between generators and the California Independent System Operator (CAISO). From calendar year 2006 through calendar year 2007, CAISO was able to reduce its RMR purchases from approximately 10,000 MW to approximately 4,000 MW.

There also seems to be some acknowledgement by policy makers that RA is an important source of revenue to generators in a mitigated energy market. The revenue-generating ability of power generators in energy markets has been limited by price caps and must-offer requirements as well as by discrimination against existing generators in the utilities' long-term procurement programs.

Recently, the CPUC convened workshops addressing a number of issues related to the future of the RA program. Principally, the stakeholders are grappling with whether RA should ultimately evolve into an East coast–style centralized capacity market or instead continue as a bilateral market. In addition to the high-level policy issues, the CPUC workshops also touched upon the seemingly pedestrian topic of how to contract for RA.

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