ALJ/BWM/sid Mailed 5/26/2006

Decision 06-05-039 May 25, 2006

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Implement the California Renewables Portfolio Standard Program.

Rulemaking 04-04-026 (Filed April 22, 2004)

OPINION CONDITIONALLY APPROVING

PROCUREMENT PLANS FOR 2006 RPS SOLICITATIONS,

ADDRESSING TOD BENCHMARKING METHODOLOGY,

AND CLOSING PROCEEDING

TABLE OF CONTENTS

Title Page

OPINION CONDITIONALLY APPROVING

PROCUREMENT PLANS FOR 2006 RPS SOLICITATIONS,

ADDRESSING TOD BENCHMARKING METHODOLOGY,

AND CLOSING PROCEEDING 2

I. Summary 2

II. Procedural History 5

III. Overview of RPS Program and 2006 Plans 7

A. PG&E 8

B. SCE 10

C. SDG&E 12

IV. Issues Common to All Plans 14

A. Transmission 15

1. Deliveries Anywhere in California 15

2. Cost 17

3. Projects 20

B. Compliance 21

1. IPT of 1.2% 21

2. Full Earmarking and Flexible Compliance in 2010 24

a) Background 24

b) Proposal 26

c) Discussion 27

C. Utility Construction and Ownership 33

D. Deposits and Collateral 34

1. Summary of IOU Requirements for Deposits and Collateral 35

2. Bid Deposit 36

3. Other Collateral 38

E. Resource Stacks 38

F. CAISO Market Redesign 40

1. Proposals 40

2. Adopted Term 41

G. Bid Selection, Evaluation, and Potential Discrimination 41

1. IOU Report on Evaluation Criteria and Selection 44

2. Independent Evaluator 46

3. Workshops and Use of Alternative Dispute
Resolution Procedures 47

4. Equal Treatment, Fair Dealing and Good Faith Performance 48

5. Disclaimers and IOUs Discretion 49

H. Evaluation Criteria, Environmental Stewardship
and Water Action Plan 50

1. Evaluation Criteria 50

2. Environmental Stewardship and Water Action Plan 52

I. Multiple Bids 53

J. Timing of Next Solicitation and Compliance for 2006 55

K. Other items 60

1. SCE's 2006 Procurement Target 60

2. Other Items 61

V. Issues Specific to an IOU Plan 61

A. PG&E 62

B. SCE 63

C. SDG&E 64

VI. TOD Benchmarking Methodology 67

A. IOU Proposals and Comments 67

B. Discussion 67

1. Uniform Benchmarking Method 68

2. Forward Prices Based On NYMEX And One Day 68

3. Capacity Values in Benchmarking Exercise 69

4. TOD Factors for SCE 69

5. TOD Factors for PG&E 71

6. Adjust TOD Periods 72

VII. Close Proceeding and Move Record to New OIR 73

VIII. Comments on Draft Decision 74

IX. Assignment of Proceeding 75

Findings of Fact 75

Conclusions of Law 80

ORDER 86

APPENDIX A - RPS Solicitation Timeline

APPENDIX B - Summary of TOD Benchmarking Methodology Proposals
and Comments

OPINION CONDITIONALLY APPROVING

PROCUREMENT PLANS FOR 2006 RPS SOLICITATIONS,

ADDRESSING TOD BENCHMARKING METHODOLOGY,

AND CLOSING PROCEEDING

I. Summary

Each California electrical corporation is required each year to procure a minimum amount of electricity from eligible renewable energy resources, eventually reaching procurement equal to 20% of total retail sales. To fulfill this requirement, each electrical corporation must prepare a procurement plan (Plan). The Commission is required to review and accept, modify or reject each Plan.

In this order, we conditionally approve for the next procurement cycle each proposed renewables portfolio standard (RPS) procurement Plan and draft request for offer (RFO) filed by Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E). In doing so, the important steps we take include:

1. Adopt PG&E's proposal to allow deliveries anywhere in California

2. Agree with PG&E, SCE and SDG&E (collectively Investor-Owned Utilities (IOUs)) and decline to adopt an Incremental Procurement Target (IPT) of 1.2%, but, in exchange:

a. stress the importance of each IOU continuing to include its own procurement margin of safety

b. adopt limited additional reporting on the progress of each project meeting its development and initial operation milestones

3. Retain existing flexible compliance rules by declining to adopt full earmarking or flexible compliance for 2010

4. Encourage, and in some cases direct, IOUs to:

a. consider whether or not to build their own renewable
generation

b. consider reducing bid and other deposits

c. not employ resource stacks in resource selections

d. amend Plans to reflect renewable resource neutrality

e. amend Plans to address California Independent System Operator (CAISO) market redesign

f. reconsider disclaimers and elements of IOU discretion

5. Remove barriers to program success by adopting the following measures:

a. require IOUs to report on evaluation criteria and solicitation results, as recommended by Aglet Consumer Alliance (Aglet)

b. require that IOUs use an Independent Evaluator to separately evaluate and report on the entire procurement process

c. encourage each IOU to hold workshops it believes will advance the program

d. note parties may consider use of the many alternative dispute resolution (ADR) tools available at the Commission

e. require IOUs to include an equal treatment, fair dealing and good faith requirement in their RFOs

f. require IOUs to include a clear and consistent statement of evaluation criteria in their Plans

g. provide clarity on environmental stewardship and the relationship to the Commission's Water Action Plan

h. permit multiple simultaneous bids

6. Address limited elements unique to each IOU's Plan, such as

a. clarify treatment of transmission (PG&E and SDG&E)

b. include references, where appropriate, to Commission General Order (GO) 167 (PG&E and SCE)

c. include payment of interest on deposits (SCE)

d. include IPT (SDG&E)

e. strongly encourage a 2006 solicitation (SDG&E)

7. Adopt a schedule for the next solicitation cycle (see Appendix A)

PG&E, SCE and SDG&E shall submit amended Plans and amended RFOs to the Director of the Energy Division within 15 days of the date of this order. Unless suspended by the Energy Division Director within 20 days of the date of this order, each utility shall proceed to use its amended Plan and RFO for its 2006 RPS program and solicitation.

We continue to employ the presumption that utilities are able to use their business judgment in running their solicitations, with the guidance we provide and within the parameters we establish. Utilities ultimately remain responsible for program success, within application of flexible compliance criteria. We will later judge the extent of that success, including the degree to which each IOU elects to take the guidance provided herein, demonstrates creativity and vigor in program execution, and reaches program targets and requirements.

We also here address issues related to a time of delivery (TOD) benchmarking methodology. We adopt TOD factors, but decline to adopt a specific benchmarking methodology.

All issues which need to be addressed in Rulemaking (R.) 04-04-026 are now resolved. We incorporate the record in this proceeding into a new Order Instituting Rulemaking (OIR). This will permit us to most efficiently take advantage of the current work and continue the RPS program efforts of utilities, parties and the Commission toward reaching the goal of 20% of retail sales generated by renewable resources no later than 2010. This proceeding is closed.