1 VALLEY CLEAN ENERGY ALLIANCE
Staff Report – Item 15
TO: Board of Directors
FROM: Mitch Sears, Interim General Manager
Gordon Samuel, Assistant General Manager & Director of Power Services SUBJECT: Near-term Procurement Directives and Delegations for 2022 Power Procurement Activities
DATE: January 27, 2022
RECOMMENDATION
Staff recommends the Board adopt a resolution approving the Near-term Procurement Directives and Delegations to SMUD for procuring portions of VCE’s power portfolio for calendar year 2022 through 2023
BACKGROUND AND ANALYSIS
On January 14, 2021, the Board approved VCE’s Procurement Directives and Delegations of Authority which established the near-term procurement plan for 2021.
The intent of this staff report is to update the approval of delegations necessary for VCE and SMUD staff to continue procurement activities on behalf of VCE’s power supply portfolio. This update provides a high-level overview of the products necessary to meet compliance obligations and maintain a balanced power portfolio while meeting power supply portfolio targets set by the VCE Board.
Principles Guiding Procurement Directives and Delegations of Authority The procurement directives and delegations of authority will be guided by the following principles and allow VCE and SMUD staff to:
• Meet VCE’s compliance, regulatory, and business practice requirements under the California Public Utilities Commission (CPUC), California Independent System Operator (CAISO), and other relevant regulatory agencies;
• Satisfy the power supply portfolio targets set by the VCE Board; 2 • Minimize the potential risk exposure of the portfolio, according to practices defined in VCE’s Wholesale Energy Risk Manual;
• Provide the appropriate amount of administrative flexibility for staff to carry out procurement actions.
Product Categories
Resource Adequacy
As a CPUC jurisdictional Load Serving Entity, VCE is required to meet the compliance obligations of the Resource Adequacy (RA) program. The RA program ensures sufficient resources are available to support the anticipated demand in California. The CPUC along with CAISO administer the program and define the requirements necessary to meet reliability standards.
VCE is allocated its share of obligations based on its load ratio of PG&E’s service territory. The delegation for this product allows VCE to meet its RA obligations in a timely manner, support reliability of the grid, and avoid financial penalties. It also allows for the sale of RA when VCE has a long position.
Renewable Energy
CPUC sets minimum renewable energy requirements under its Renewable Portfolio Standards (RPS) program. Along with meeting any annual renewable targets set by the Board, VCE is obligated to adhere to required renewable percentages over the CPUC-defined compliance periods. Some of this renewable energy obligation will be met with Power Purchase Agreements (PPAs) for resources that are still under construction (e.g. Resurgence 90MW solar, 75 MW battery project), as well as online resources (e.g. Indian Valley hydro and Aquamarine Solar). The rest of the requirements can be met with short-term purchases of RPS-qualified energy from existing resources in the market. The delegation approvals are designed to allow staff to procure around the uncertain new resource online dates to meet renewable energy portfolio targets. Procurement of these short-term purchases of RPS-qualified energy are expected to diminish in future years as VCE’s long-term PPA’s displace the need.
Carbon-Free Energy
Carbon-Free energy is a voluntary product that reduces the carbon content of VCE’s power supply. This comes mainly from large-hydro generation resources that do not qualify as Renewable under the RPS program. The delegation for this product allows staff to procure enough carbon-free energy to meet the target set by the Board, taking into consideration the uncertainty of annual PG&E carbon-free allocations.
Price Hedging Energy
Purchasing energy on a forward basis allows VCE to fix some of its power supply costs ahead of more volatile and uncertain spot market prices. A procurement milestone is set to ensure the targeted amount of energy hedging is completed in a timely manner. Under VCE’s Enterprise Risk Management Policy, VCE’s Enterprise Risk Oversight Committee (EROC) reviews and 3 provides guidance to staff on the timing and execution of the hedging strategy to meet procurement directives and minimize budget exposure.
CAISO Market Energy and Congestion Revenue Rights
CAISO Market Energy is scheduled for VCE daily into the Day Ahead Market, as required by the CAISO, based on daily forecasts of VCE hourly wholesale loads. SMUD staff currently purchase and sell energy on a daily basis to maintain balance between forecasted demand and supply.
Congestion Revenue Rights (CRRs) are financial instruments allocated by the CAISO to Load Serving Entities for the purpose of hedging the cost of transmission congestion between generation sources and load. Although CRR portfolio management can be quite complex, with auction mechanisms involving multiple hubs on the system, this delegation allows VCE’s portfolio manager to only nominate CRRs that are directly related to VCE’s supply portfolio. VCE is restricted to participation in the allocation process that does not involve price bidding or speculation.
Portfolio Composition Approach
VCE’s portfolio management strategy is evolving as its portfolio matures. VCE has signed multiple long-term renewable PPAs, contributing to the renewable composition of the California grid. Renewable PPAs bring a level of uncertainty regarding construction completion and online dates, as well as annual output. Whereas VCE’s early procurement actions focused primarily on firm volume deliveries from existing generation assets, VCE will be the off-taker of variable output resources under the long-term agreements. Once all PPA assets are online, VCE anticipates exceeding renewable targets set by the California RPS program. But the uncertainty during the transition to new resources complicates the achievement of internal portfolio targets. Irrespective, VCE is required to achieve the renewable target for the California RPS program compliance period and is on course to meet these minimum requirements. The upcoming RPS compliance period is 2021-2024.
PG&E’s carbon-free allocations will continue into calendar year 2022, and these carbon-free allocations are expected to contribute to VCE’s carbon-free portfolio content in the form of large hydro resources paid for by VCE customers in the Power Charge Indifference Adjustment (PCIA). However, the exact volumes of these resources will not be certain until after the calendar year is complete.
Procurement Directives
Taking into account the considerations outlined in the sections above, Table 1 shows the specific Procurement Directives and Delegations recommended for 2022. 4 Table 1. 2022 Procurement Directives
REQUESTED ACTION
Adopt a resolution approving:
1. Near-term Procurement Directives and Delegations to SMUD for procuring portions of VCE’s power portfolio for calendar year 2022 through 2023 Product For Year
Procurement
Milestone Date
Cumulative
Percentage Procured
by Milestone Date Delegated To Notes
CAISO Market Energy 2019 1/1/2019
CAISO Market Energy 2022 Daily 100% SMUD Procure Day Ahead and Imbalance Energy for 100% of VCE wholesale load.
Congestion Revenue Rights 2019 1/1/2019
Congestion Revenue Rights 2022 Monthly During Year Up to 100% SMUD Request monthly allocations, if economic, as approved by VCE AGM.
Congestion Revenue Rights 2023 October 31, 2022 Up to 100% SMUD Request annual and/or quarterly year ahead allocations, if economic, as approved by VCE AGM.
Price Hedging Energy 2019 1/1/2019
Price Hedging Energy 2022 Daily/Balance of Month TBD SMUD Daily hedging strategy to be revisited, contingent upon analysis of Daily and/or Balance of Month hedging efficacy, changes upon approval of EROC.
Price Hedging Energy 2023 December 31, 2022 100% SMUD Quantity and timing contingent upon review by the VCE EROC of forward market power prices/trends.
Renewable Energy 2019 1/1/2019
Renewable Energy 2022 September 30, 2022 100% * SMUD True up procurement as needed based upon actual loads/updated load forecast and updated PPA generation
forecast.
Renewable Energy 2023 December 31, 2022 100%* SMUD Minimal short term renewable procurements anticipated, based upon expected long term renewable PPA deliveries.
Once greater certainty regarding renewable online dates, procure short term PCC1 power as needed and approved by GM.
Large Hydro Energy 2019 1/1/2019
Large Hydro Energy 2022 September 30, 2022 100% * SMUD 100% of the forecast need for Large Hydro. Only needed if carbon-free portfolio targets exceed expected PG&E allocation volume.
Large Hydro Energy 2023 December 31, 2022 up to 100% * SMUD Up to 100% of the forecast need for Large Hydro, based upon pricing and availability, as approved by VCE GM. Only needed if VCE sets 2023 carbon-free portfolio target that exceeds expected PG&E allocation volume.
Resource Adequacy Capacity 2019 1/1/2019
Resource Adequacy Capacity 2022 October 31, 2021 100% SMUD Procure for any remaining monthly RA deficiencies and sell monthly RA surpluses, as approved by GM.
Resource Adequacy Capacity 2023 October 31, 2021 100% SMUD All RA products forecast, including some provision for RA from possible CEC Load Forecast adjustments or Local RA obligation increases, required to achieve compliance by October 31, 2022 for 2023. Procurement amount may exceed 100% in total for year to insure that all months achieve at least 100%
compliance.
Valley Clean Energy Power Procurement Directives and Delegations for Calendar 2022 Note: Procurement milestone dates represent targets but do not represent expiration of SMUD delegation. Where necessary to achieve compliance, procurement is approved under this delegation until the next calendar year delegation is approved by the Board of Directors.
Item 15
VALLEY CLEAN ENERGY ALLIANCE
RESOLUTION NO. 2022- _______
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE VALLEY CLEAN ENERGY
ALLIANCE APPROVING THE NEAR-TERM PROCUREMENT DIRECTIVES AND DELEGATIONS FOR 2022 POWER PROCUREMENT ACTIVITIES FOR PORTIONS OF VALLEY CLEAN ENERGY’S POWER PORTFOLIO FOR CALENDAR YEAR 2022 THROUGH 2023 WHEREAS, in order to achieve its strategic goals, VCE has established procurement policies and goals and on January 18, 2018 the Board approved VCE’s Procurement Guide which provided the roadmap for implementation and established the procurement plan for 2018 and 2019 power portfolio, along with delegations to Sacramento Municipal Utilities District (“SMUD”) to execute on this plan; and,
WHEREAS, on January 23, 2019, the Board adopted via Resolution 2019-002 a revised Procurement Guide and delegated authority to VCEA Staff and SMUD to procure energy for calendar years 2020, 2021 and 2022, including the procurement of price hedging energy for VCE’s expected 2020 needs with no delegation to procure hedging energy beyond 2020, consistent with the procurement policy and guide; and,
WHEREAS, on December 12, 2019, the Board adopted Resolution 2019-018 approving the 2020 Procurement Plan, directives and delegations for procuring VCE’s power portfolio for calendar year 2021, the targeted portfolio mix, and the maintenance of minimum renewable target for 2021; and,
WHEREAS, at the Board’s June 11, 2020 meeting, policy strategies were adopted to plan for incorporation of long-term renewable contracts into VCE’s portfolio, to address fiscal year 2020/2021 Power Charge Indifference Adjustment (PCIA) and Resource Adequacy (RA) cost impacts; and,
WHEREAS, on January 21, 2021, the Board adopted via Resolution 2021-004 and delegated authority to VCEA Staff and SMUD to procure energy for calendar years 2021 through 2023 and the elimination of specific portfolio renewable and carbon-free targets in 2022.
NOW, THEREFORE, the Board of Directors of the Valley Clean Energy Alliance resolves as follows:
1. Approves Directives and Delegations to SMUD for procuring portions of VCE’s power portfolio for calendar year 2022 through 2023 as shown below:
Item 15
Product For Year
Procurement
Milestone Date
Cumulative
Percentage Procured
by Milestone Date Delegated To Notes
CAISO Market Energy 2019 1/1/2019
CAISO Market Energy 2022 Daily 100% SMUD Procure Day Ahead and Imbalance Energy for 100% of VCE wholesale load.
Congestion Revenue Rights 2019 1/1/2019
Congestion Revenue Rights 2022 Monthly During Year Up to 100% SMUD Request monthly allocations, if economic, as approved by VCE AGM.
Congestion Revenue Rights 2023 October 31, 2022 Up to 100% SMUD Request annual and/or quarterly year ahead allocations, if economic, as approved by VCE AGM.
Price Hedging Energy 2019 1/1/2019
Price Hedging Energy 2022 Daily/Balance of Month TBD SMUD Daily hedging strategy to be revisited, contingent upon analysis of Daily and/or Balance of Month hedging efficacy, changes upon approval of EROC.
Price Hedging Energy 2023 December 31, 2022 100% SMUD Quantity and timing contingent upon review by the VCE EROC of forward market power prices/trends.
Renewable Energy 2019 1/1/2019
Renewable Energy 2022 September 30, 2022 100% * SMUD True up procurement as needed based upon actual loads/updated load forecast and updated PPA generation
forecast.
Renewable Energy 2023 December 31, 2022 100%* SMUD Minimal short term renewable procurements anticipated, based upon expected long term renewable PPA deliveries.
Once greater certainty regarding renewable online dates, procure short term PCC1 power as needed and approved by GM.
Large Hydro Energy 2019 1/1/2019
Large Hydro Energy 2022 September 30, 2022 100% * SMUD 100% of the forecast need for Large Hydro. Only needed if carbon-free portfolio targets exceed expected PG&E allocation volume.
Large Hydro Energy 2023 December 31, 2022 up to 100% * SMUD Up to 100% of the forecast need for Large Hydro, based upon pricing and availability, as approved by VCE GM. Only needed if VCE sets 2023 carbon-free portfolio target that exceeds expected PG&E allocation volume.
Resource Adequacy Capacity 2019 1/1/2019
Resource Adequacy Capacity 2022 October 31, 2021 100% SMUD Procure for any remaining monthly RA deficiencies and sell monthly RA surpluses, as approved by GM.
Resource Adequacy Capacity 2023 October 31, 2021 100% SMUD All RA products forecast, including some provision for RA from possible CEC Load Forecast adjustments or Local RA obligation increases, required to achieve compliance by October 31, 2022 for 2023. Procurement amount may exceed 100% in total for year to insure that all months achieve at least 100%
compliance.
Valley Clean Energy Power Procurement Directives and Delegations for Calendar 2022 Note: Procurement milestone dates represent targets but do not represent expiration of SMUD delegation. Where necessary to achieve compliance, procurement is approved under this delegation until the next calendar year delegation is approved by the Board of Directors.
PASSED, APPROVED AND ADOPTED, at a regular meeting of the Valley Clean Energy Alliance, held on the ____ day of _______________, 2022, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
_____________________________________
___________, VCE Chair
__________________________________
Alisa M. Lembke, VCE Board Secretary