ALJ/MSW/hl2 Mailed 11/4/2004

Decision 04-10-035 October 28, 2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning.

Rulemaking 04-04-003

(Filed April 1, 2004)

INTERIM OPINION REGARDING RESOURCE ADEQUACY

TABLE OF CONTENTS

Title Page

INTERIM OPINION REGARDING RESOURCE ADEQUACY 2 2

1. Summary 2 2

2. Background 3 3

2.1 The RAR Framework 3 3

2.2 Implementing the RAR Framework 4 4

2.2.1 Workshops 4 4

2.2.2 Additional Issues 5 5

2.2.3 Comments 7 7

2.2.4 Phasing of Resource Adequacy Issues 9 9

3. Phase 1 RAR Issues 9 9

3.1 Nature of the Obligation to be Satisfied 9 9

3.2 What Does "Year-Ahead" Mean? 11 11

3.3 PRM Phase-In Schedule 12 12

3.4 Load Forecasting Protocols 16 16

3.4.1 Coincidence Adjustment 16 16

3.4.2 Basis for LSE Load Forecasts 17 17

3.4.3 Protocols for Forecasting Loads 18 18

3.4.4 Nature of Losses to be Included 18 18

3.4.5 Energy Efficiency Impacts 19 19

3.4.6 Inclusion of Distributed Generation (DG) 20 20

3.4.7 Inclusion of Demand Response 20 20

3.5 Resource Counting Conventions 21 21

3.5.1 General Formulas for Determining Qualifying Capacity 21 21

3.5.2 Contracts with Liquidated Damage Provisions 23 23

3.5.3 Wind and Solar Without Backup 24 24

3.5.4 Treatment of Qualifying Capacity for QFs 25 25

3.5.5 Treatment of Energy-Limited Resources 25 25

3.5.6 Treatment of Demand Response 26 26

3.5.7 Counting Generating Facilities Under Construction 28 28

3.5.8 DWR Contracts 29 29

3.6 Aggregate and Local Deliverability Requirements 30 30

3.6.1 CAISO's Baseline Deliverability Proposal 31 31

3.6.2 Local Deliverability Requirements 32 32

3.7 Month-Ahead Forward Commitment Obligation 34 34

3.7.1 Positions of the Parties 35 35

3.7.2 Discussion 37 37

3.8 Availability of Resources for System Support 40 40

3.8.1 Positions of the Parties 41 41

3.8.2 Discussion 42 42

3.9 Nature of the Compliance Filings 44 44

3.10 Resource Adequacy Requirements: Capacity v. Energy 45 45

4. Next Steps 45 45

4.1 Workshops and Other Processes for Phase 2 46 46

4.2 Second Generation of Requirements 48 48

5. Comments on Draft Decision 49 49

6. Assignment of Proceeding 50 50

Findings of Fact 50 50

Conclusions of Law 52 52

INTERIM ORDER 55 55

Attachment A: Workshop Report on Resource Adequacy Issues

INTERIM OPINION REGARDING RESOURCE ADEQUACY

1. Summary

In this decision we provide definition and clarification with respect to the policy framework for resource adequacy requirements (RAR) that we adopted last January in Decision (D.) 04-01-050.¹ This represents another significant step toward establishing a new resource adequacy regulatory program whose purpose is to ensure that consumers of electricity within the service territories of California's three largest investor-owned electric utilities (IOUs) receive service that is as reliable as reasonably possible, consistent with current technology and economic constraints.² In addition, among other things, we revisit the schedule for implementing the 15-17% planning reserve margin (PRM) requirement that we adopted in D.04-01-050. We do so in light of new concerns about the reliability of California's electricity grid in the near term. Finally, recognizing that additional work on RAR remains to be done in the near future, we address the next procedural steps that are required to ensure that a functioning regulatory program for RAR can be implemented during 2005.

¹ D.04-01-050 has been modified in certain respects by D.04-07-037. Where reference is made herein to D.04-01-050, such reference is to the modified decision. ² The three service territories of the IOUs account for 80% of California's electricity usage. (D.04-01-050, Finding of Fact 4.)