Please provide a summary of your organization’s comments on fixed cost outputs from the California Energy Commission’s cost of generation model.
The CAISO should provide additional information on the CEC’s Cost of Generation Study and Model update
At the May 11 Workshop, the CAISO explained that the CEC has not published an updated Cost of Generation Study and Model since the 2018 CEC Study. The CAISO instead coordinated with the CEC to create a special run of the 2018 CEC Study using minor updates to create a set of fixed costs to be used in the determination of a new CPM Soft Offer Cap (the special run is referred to here as “2023 CEC Update”). CAISO presented the 2023 CEC Update values at the May 11 Workshop.
The CAISO intends to publish a straw proposal for this initiative on July 3, 2023. In that straw proposal, the CAISO should describe all inputs and assumptions used to create the 2023 CEC Update values and say how the inputs and assumptions differ from the 2018 CEC Study. The CAISO Tariff requires the present initiative to consider the final results from the CEC cost of generation study, or a similar study that the CAISO administered or commissioned. The May 11 Workshop lists results from the 2023 CEC Update; however, it is unclear how these results were generated. Namely, the CAISO should clarify if the 2023 CEC Update results used precisely the same inputs and assumptions as the 2018 CEC Study, how any inputs and assumptions were adjusted, and for what reason. Given that the 2023 results are up to 25% higher than the 2018 results, it is especially important for stakeholders to vet and understand those results.
Complete information on the 2023 CEC Update is also necessary to evaluate whether to continue using the CEC Study to inform the CPM Soft Offer Cap or use a new study. The CAISO’s Department of Market Monitoring (DMM) previously performed a comparison of operations and maintenance (O&M) costs from various sources, copied below, and stated, “DMM’s analysis provided further indications that the CEC report data used by the ISO significantly overestimates the actual going forward costs of gas-fired generating units.”
Table 1: DMM Comparison of O&M Costs
The DMM recommended that CAISO reassess the accuracy of costs reported in the CEC Study, which has not occurred. Comparing the 2023 CEC Update to other studies may be warranted given the gap between Lazard’s 2023 fixed O&M assumption for an existing combined cycle plant of $9.25-$14.00/kW-year and the 2023 CEC Study’s value of $50.95/kW-year.
 CEC Staff Report, The Estimated Cost of New Utility-Scale Generation in California: 2018 Update, May 2019. Available at: https://www.energy.ca.gov/sites/default/files/2021-06/CEC-200-2019-005.pdf.
 CAISO, Capacity Procurement Enhancements – Track 2, May 11, 2023 (May 11 Presentation) at “CEC Cost of Generation Model: Fixed Costs Study for CAISO’s CPM Soft Offer Cap” slide 5. Available at: http://www.caiso.com/InitiativeDocuments/Presentation-Capacity-Procurement-Mechanism-Enhancements-May112023.pdf.
 The Proposal Development milestones are noted on this initiative’s webpage, accessed by Cal Advocates on June 1, 2023. Available at: https://stakeholdercenter.caiso.com/StakeholderInitiatives/Capacity-procurement-mechanism-enhancements.
 CAISO Tariff 43A.18.104.22.168.
 May 11 Presentation at “CEC Cost of Generation Model: Fixed Costs Study for CAISO’s CPM Soft Offer Cap” slide 4-5.
 Capacity Procurement Mechanism Soft Offer Cap Draft Final Proposal Comments by Department of Market Monitoring, January 24, 2020 at 2. Available at: http://www.caiso.com/InitiativeDocuments/DMMComments-CapacityProcurementMechanismSoftOfferCap-DraftFinalProposal.pdf.
 Capacity Procurement Mechanism Soft Offer Cap Draft Final Proposal Comments by Department of Market Monitoring, January 24, 2020 at 4.
 Capacity Procurement Mechanism Soft Offer Cap Draft Final Proposal Comments by Department of Market Monitoring, January 24, 2020 at 1-4.
 Lazard, 2023 Levelized Cost of Energy+, April, 2023 at 40. Available at: https://www.lazard.com/media/2ozoovyg/lazards-lcoeplus-april-2023.pdf.
 May 11 Presentation at “CEC Cost of Generation Model: Fixed Costs Study for CAISO’s CPM Soft Offer Cap” slide 5.
Please provide a summary of your organization’s comments on the CPM track 2 proposed scope and schedule.
The reference unit used for the Soft Offer Cap should represent resources that are qualified for CPM procurement and reasonably expected to receive CPM designations
CAISO Tariff 43A.22.214.171.124 establishes the process to determine and update the design of the CPM Soft Offer Cap using the levelized going-forward fixed costs of a reference unit. The reference unit currently is a “merchant-constructed mid-cost, 550 MW combined cycle with duct firing or similar advanced combined cycle resource.” The CAISO should continue to use a reference unit representing a generation technology that is both typically qualified for CPM designations and expected to bid for CPM designations through the Competitive Solicitation Process (CSP).
At the May 11 Workshop, the CAISO noted that actual CPM designations were issued largely to natural gas resources, but that storage resources and imports received designations in 2020 and 2021 as well. The designations of energy storage calls into question whether storage should be used as a reference resource for the CPM Soft Offer Cap. Storage resources are increasing in number on the CAISO grid, driven largely by the CPUC’s Integrated Resource Plan (IRP). Continuous storage procurement, along with the inability of fossil-fueled resources to count towards IRP targets, will increase the proportion of storage resources in the resource fleet compared to natural gas.
However, the storage resources procured through the IRP include a requirement that the new resources be contracted for resource adequacy (RA) for at least a ten-year term. A resource’s RA capacity is not eligible to be designated as CPM. Portions of the energy storage designated as CPM in 2021 were from resources procured for IRP targets but had come online prior to their contract’s commercial operation date. Once that commercial operation date occurred, additional CPM designations were no longer possible until the contract terminated in ten years or more. For these reasons, the CAISO should not consider using energy storage as a reference resource for the Soft Offer Cap at this time.
In order to further evaluate changing the reference unit used to determine the CPM Soft Offer Cap, the CAISO should summarize CSP offers from recent years. A summary of the offers received at the CSP would provide stakeholders with information of what types of resources are likely to receive a CPM designation. If the information is market sensitive, an aggregated summary showing numbers of offers and sum volumes of capacity for different technology categories and average size of offered units may avoid market sensitivity concerns. CAISO already reports CPM designations and includes the CAISO ID of the designated resource, but this does not provide information on other resources offered at the CSP that were not given CPM designations.
 CAISO Tariff 43A.126.96.36.199. Available at: http://www.caiso.com/Documents/Section43A-CapacityProcurementMechanism-asof-Aug15-2022.pdf.
 May 11 Presentation at 16.
 The CPUC plans for 3,097 MW of energy storage to come online to meet IRP requirements from 2023 to 2026, and 81% of the initial 3,300 MW procurement target is being met by stand-alone or paired energy storage resources. CPUC, Summary of Compliance with IRP Order D.19-11-016 and Progress Toward Mid Term Reliability D.21-06-035 Procurement, February 2023 at 9, 21, 33. Available at: https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/integrated-resource-plan-and-long-term-procurement-plan-irp-ltpp/d1911016andd21.pdf.
 Decision (D.) 23-02-040, Decision Ordering Supplemental Mid-Term Reliability Procurement and Transmitting Electric Resource Portfolios to California Independent System Operator for 2023-2024 Transmission Planning Process, February 23, 2023 at 28.
 D.21-06-035, Decision Requiring Procurement to Address Mid-Term Reliability, June 24, 2021 at 70. Available at: https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M389/K603/389603637.PDF. See also D.19-11-016 Decision Requiring Electric System Reliability Procurement for 2021-2023, November 7, 2019 at Conclusion of Law 28 and Ordering Paragraph 3.
 CAISO Tariff 43A.188.8.131.52. See also Draft Tariff Language – CPM Enhancements, February 9, 2023. Available at: https://www.caiso.com/InitiativeDocuments/Draft%20TariffLanguage-CapacityProcurementMechanismEnhancements-Feb9,%202023.docx.
 May 11 Presentation at 16.
 E.g., Genesis McCoy received a CPM designation on July 9, 2021 lasting until July 31, 2021. Genesis McCoy is contracted with Southern California Edison Company (SCE) with a planned-for commercial online date of August 1, 2021. A CPM designation would not have been possible after the commercial online date due to the contract with SCE. For CPM information, see: CAISO, 2021 Annual Report on Market Issues & Performance, July 27, 2022 at 271. Available at: http://www.caiso.com/Documents/2021-Annual-Report-on-Market-Issues-Performance.pdf. For contract information, see CPUC Resolution E-5101, Approves Southern California Edison’s plan submitted in Advice Letter 4218-E to procure 770 megawatts of resources to satisfy requirements of D.19-11-016, and as modified by Supplemental Advice Letter 4218-E-A, August 27, 2020 at 3. Available at: https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M344/K058/344058591.PDF.