ALJ/jva Mailed 12/22/2003

Decision 03-12-062 December 18, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development.

Rulemaking 01-10-024

(Filed October 25, 2001))

INTERIM OPINION

TABLE OF CONTENTS

Title Page

INTERIM OPINION 2 2

I. Summary 2 2

II. Procedural History 3 3

III. Short-Term Plans 5 5

A. Overview 5 5

B. Appropriate Short-Term Reserve Levels and Reliance on Spot Market Purchases 8 8

C. Review of Risk Management and Reporting Proposals 10 10

1. Portfolio Risk Measurement 11 11

2. Risk Management 17 17

(a) CRT 17 17

D. Authorized Contract Term Duration and Volume Limits 19 19

E. Upfront Standards for Utility Procurement Products and Transactions 20 20

1. Authorized Products 20 20

2. Transactional Processes 25 25

3. Affiliate Transactions 29 29

4. Cost-Effectiveness Testing for Transactions & Benchmarks 31 31

(a) ORA's Proposal 32 32

(b) PG&E's Proposal 33 33

(d) SDG&E's Proposal 36 36

5. Discussion 37 37

F. Cost of Collateral 40 40

G. Fuel and Power Forecasts 43 43

1. Discussion 43 43

H. Role of PRG 44 44

I. Modification and Approval of Short-Term Plans 48 48

IV. QFs 50 50

A. Parties' Positions 51 51

1. Utility Recommendations 51 51

2. CCC Recommendations 52 52

3. CAC/EPUC's Position 53 53

4. ORA's Position 53 53

5. Discussion 54 54

(a) Existing QFs With Expired, or Soon-to-be Expired, Utility Contracts 54 54

(1) New QFs During the Interim Period 56 56

(2) Revision of SRAC Prices 57 57

(3) PG&E's Proposed 1,000 Hours Curtailment Proposal 59 59

TABLE OF CONTENTS

Title Page

V. Energy Efficiency 61 61

A. Procurement Energy Efficiency Funding Levels for 2004-05 61 61

B. Parties' Positions 62 62

C. Discussion 62 62

D. Program Selection Criteria 64 64

1. Parties' Positions 64 64

2. Discussion 65 65

E. Procurement Energy Efficiency Program Submissions, Evaluation and Selection 65 65

1. Projected Utility Energy Efficiency Procurement and PGC
Funded Cost, Energy Savings & Demand Reductions for
Procurement and PGC Funded Programs 67 67

F. Cost-Recovery Mechanism for Procurement Energy Efficiency Activities 68 68

1. Parties' Positions 68 68

2. Discussion 69 69

G. Performance Incentives for Procurement Efficiency Activities 70 70

1. Parties' Positions 70 70

2. Discussion 70 70

VI. Demand Response 71 71

VII. Renewables 74 74

VIII. Procedural Process and Schedule for Future Filings 78 78

A. Quarterly Compliance Filings 78 78

B. ERRA Filings 79 79

IX. Final Oral Argument and Comments on the Proposed Decision 80 80

X. Assignment of Proceeding 80 80

Findings of Fact 81 81

Conclusions of Law 86 86

INTERIM ORDER 91 91

INTERIM OPINION

I. Summary

Today's decision is the first of two decisions to be issued in the Commission's ongoing procurement rulemaking following evidentiary hearings held during July and August of 2003. In today's decision, we decide issues which should be resolved prior to January 1, 2004, opting to address all other issues, constituting the remainder of the record submitted following evidentiary hearings, in a comprehensive policy decision to be issued after January 1, 2004.¹

Today we adopt the short-term procurement plans (STPP) under which California's three largest investor-owned utilities, Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE) will operate in 2004. We adopt appropriate short-term reserve levels, and provide guidance on a target level of spot market purchases for this same period. We also address risk management issues, authorized contract term duration and volume limits, standards for procurement products and transactions, and the process for modification and approval of short-term plans. Our decision addresses the status of the current affiliate transactions prohibition, and continues the Procurement Review Group (PRG) for another calendar year. We also address (1) a limited set of Qualifying Facilities (QF) issues that must be decided now in order to assure the continuing availability of QF power during 2004; (2) funding, program selection, and cost recovery issues related to energy efficiency programs for 2004 and 2005; (3) demand response issues; and (4) short-term renewables issues necessary to ensure that the 2004 plans are consistent with the Renewable Portfolio Standard (RPS). Finally, we provide necessary short-term guidance on certain procedural processes and filing requirements.

¹ Pursuant to Pub. Util. Code Sections 311(d) and 311(e), the parties have filed extensive written comments on the issues to be addressed in both of these decisions. We have carefully considered these comments in our deliberations.