D0712052 Appendix A List of Appearances
D0712052 Appendixes B-E
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ALJ/CAB/sid Date of Issuance 12/21/2007

Decision 07-12-052 December 20, 2007


Order Instituting Rulemaking to Integrate Procurement Policies and Consider Long-Term Procurement Plans.

Rulemaking 06-02-013

(Filed February 16, 2006)

(See Appendix A for a list of appearances.)



Title Page

APPENDIX A - List of Appearances

APPENDIX B - Summaries of PG&E, SCE and SDG&E's Long-Term Plans

APPENDIX C - Summaries of Intervenors' Positions

APPENDIX D - PRG Participation Working Group CAM Group Proposal

APPENDIX E - Compliance Summary Table


1. Introduction

1.1. Summary

This decision reviews, critiques and adopts, with modifications, Pacific Gas and Electric Company's (PG&E), Southern California Edison Company's (SCE) and San Diego Gas & Electric Company's (SDG&E) Long-Term Procurement Plans (LTPP), for the 10-year period 2007 - 2016, and provides direction to the utilities on preparing their conformed 2006 LTPPs compliance filings.  Summaries by the utilities of their LTPPs are attached as Appendix B.  More than 30 intervenors provided valuable insight and dissection of these LTPPs and gave us guidance for our evaluation.  Summaries of the intervenors' contributions are attached as Appendix C.

Our primary focus in reviewing the LTPPs was whether the utilities are procuring preferred resources as set forth in the Energy Action Plan (EAP), in the order of energy efficiency, demand response, renewables, distributed generation and clean fossil-fuel.  In addition, California is the pioneer in the nation, and in some areas of the world, in emphasizing and implementing policies that promote the reduction of green house gases (GHG), especially in the production and delivery of electric resources by the utilities we regulate.  Each LTPP was to prepare different candidate plans that indicated how the utility would meet its renewable portfolio standard targets, demand response as a percentage of resource adequacy requirements, energy efficiency savings from committed and uncommitted programs,1 and then show how each candidate plan minimized environmental impacts, at what cost to ratepayers, and at what reliability level.

Our analysis determined that all three LTPPs were deficient and spotty in regards to addressing filling their net short position with preferred resources from the EAP loading order and particularly inadequate in accounting for GHG emission reductions. The LTPPs show the utilities, for the most part, filling and projecting to fill their projected net short positions with conventional resources without providing a highly developed analysis to support this strategy.  Going forward the utilities will be required to reflect in the design of their requests for offers (RFO) compliance with the preferred resource loading order and with GHG reductions goals and demonstrate how each application for fossil generation comports with these goals.

In summary, although the 2006 LTPP filings substantially complied with the directives in the scoping memo, we are requiring that the investor-owned utilities (IOUs) conform their 2006 LTPPs through a compliance filing in order to reflect the modifications we direct in this decision. In addition, we will require that subsequent LTPP filings for our regulated utilities not only conform to the energy and environmental policies in place, but aim for even higher levels of performance.  We expect the utilities to show a commitment  to not only meet the targets set by the Legislature and this Commission but to try on their own to integrate research and technology to strive to improve the environment, without compromising reliability or our obligation to ratepayers.  

1.2. Energy Procurement and California Environmental Policy

There are numerous principal sources of guidance that apply to the California Public Utilities Commission's (Commission) review of the long-term procurement plans filed by each IOU on December 11, 2006: The February 16, 2006 Order Institution Rulemaking (OIR); the Scoping Memo; and the stated policy direction of the Governor and Legislature, to be implemented by the Commission, for California's energy policies going forward in the 21st Century.

California is a pacesetter in the nation in emphasizing and implementing policies that promote the reduction of GHG, especially in the production and delivery of electric resources by our regulated utilities. While many of the rules and regulations concerning GHG and the reduction of carbon emissions are still under consideration in open proceedings at the Commission, others are choate and imbedded in Commission policy. As discussed throughout this decision, the primary principles that are of importance to the Commission are the procurement of the preferred resources set forth in the EAP in the following "loading order": energy efficiency, demand response, renewables (including self-generation), followed at the end of the loading order with efficient fossil-fuel resources.

The Scoping Memo directed the IOUs to include GHG forecasts as part of their 10-year resource plans and to specify which methodology and assumptions they used to make their GHG calculations. Attachment A provided further guidance to the IOUs by instructing them to provide "expected GHG emissions of candidate resource plans," and to "explicitly express the RPS [renewable portfolio standard] percentages that will be met by the candidate resource plans, the percentage of demand response as a percentage of RA requirements, and energy efficiency savings from committed and uncommitted programs."2

In addition to evaluating their plans for minimizing environmental impacts, the IOUs were to weigh the ratepayer costs and reliability impact of each proposed plan.

Each of the IOUs appears to assume fossil-fuel generation, for the most part, will be procured to fill their net short positions. The overarching problem in all three LTPPs is the absence of any scenario analysis regarding what types of resources the IOUs should use to fill their net short positions to best transition to the inevitably GHG-constrained world we are moving towards. While the specific Assembly Bill (AB) 32 implementation details are still under consideration in Rulemaking (R.) 06-04-009, it would be prudent for the IOUs to make reasonable assumptions and/or develop reasonable scenarios regarding different mixes of preferred resources and the operational characteristics of additional fossil generation that the IOUs will need to reduce their carbon emissions from electric generation resources back to, at a minimum, 1990 levels.

We share the concern raised by many intervenors that the IOUs are filling, and are projecting to fill, their respective net short positions with conventional resources to the effect of there being no room in an IOUs' portfolio for other resources, or the conventional resources will be obsolete and result in large stranded costs.

The perception, real or otherwise, is that, once state mandates for preferred resources are met, filling net short positions with fossil resources is somehow a foregone conclusion. Such a conclusion would be legitimate, if it were based on highly developed analysis. Even in a GHG-constrained world, fossil resources are likely to play a vital role, due to flexibility and reliability attributes; but the IOUs' plans do not demonstrate the analytical rigor to draw this conclusion.

Several parties have made strong arguments that, in general, the IOUs' approach to resource planning and analysis fails to provide information on both the cost and risk of resource plan alternatives in the face of long-term planning uncertainties, such as GHG regulations. Informed decision-making depends on robust analysis. While we recognize that electric resource planning is inherently uncertain, perhaps now more than ever before, we expect the IOUs to integrate the best, most recent planning methodologies and analytical techniques.

In subsequent iterations of the long-term procurement process, the IOUs will be expected in their resource planning to meet and exceed the high standards Californians expect as pacesetters on energy and environmental issues. We agree with parties that find areas that could be improved on throughout the IOUs' planning process from planning assumptions and scenario development, to candidate portfolios and portfolio analysis, and ultimately, evaluation and final selection of a preferred portfolio. The IOUs need to focus on loading order goals and how any fossil generation will complement these goals when filling net short positions. We will reinforce this by:

1. Requiring IOUs to reflect in the design of their RFOs compliance with the preferred resource loading order and how the resources sought will advance the IOU's efforts to reduce GHG levels;

2. Requiring a demonstration of how each application for fossil generation filed based on the procurement authority granted in this proceeding fits into each IOU's GHG reduction strategy; and

3. Providing more explicit directions in the next LTPP OIR regarding steps the IOUs must take to plan for reducing carbon emissions, achieving the State's 33% renewables goal, and conform to the EAP II loading order through the application of resource planning methodologies and analytical techniques that consider cost and risk.

Our overall analysis of the three LTPPs in general, without reference to specific plans or sections of plans, is that while it is apparent that IOU staff labored to comply with the Scoping Memo, their efforts resulted in plans that do not fully reflect our goals in regards to preferred resources and a commitment to the EAP loading order. We will be more specific in subsequent proceedings with our expectations for the long-term plans.

We identified many of the same deficiencies in the 2004 LTPPs. Specifically, in Decision (D.) 04-12-048, Finding of Fact (FOF) #54, we stated, "We agree that the renewable procurement sections in SCE's and PG&E's LTPPs are inadequate and need revision. The revisions, with a detailed analysis, will be developed in the IOU's 2005 RPS procurement plans . . . [T]he IOUs must provide detailed analysis of renewable resource potential over the next 10 years in their 2006 LTPPs ..." We further amplified our commitment to preferred resources, and in particular to renewables, in FOF #55: "We find that RPS targets are a floor-not a ceiling. The EAP loading order places renewables above conventional generation."

In summary, the 2006 LTPP filings did not achieve the high standards we require the state's regulated utilities to meet in conforming California's energy procurement with our environmental policies. Since it is too late in this LTPP cycle to require that the IOUs resubmit their LTPPs, we are requiring that the IOUs file conformed 2006 LTPPs via a compliance filing no later than 90 days from the date of this decision. The conformed 2006 LTPPs shall incorporate all of our directives contained in the body of this decision as well as any updates filed through the Commission's Advice Letter process between the issuance of this decision and the due date of the compliance filing. For future LTPP filings, it is our intention that if any LTPPs, or sections therein, are not fully compliant with Commission directives, we will require the IOUs to resubmit the plans until they are in full compliance with the new OIR and Scoping Memo. Subsequent LTPPs, when approved, will constitute the complete AB 57 authority for the IOUs, and any procurement actions not contained within will not be eligible for AB 57 cost recovery.

1.3. Background

The Commission initiated LTPP proceedings to continue our efforts to ensure a reliable and cost-effective electricity supply in California. Each LTPP proceeding serves as the umbrella proceeding for the Commission to consider, in an integrated fashion, all of the Commission's electric resource procurement policies and programs, including implementation of directives from other procurement-related proceedings. The LTPP proceedings operate on a two-year cycle, with IOUs responsible for submitting procurement plans that project their need over a 10-year horizon.

Prior to the first LTPP proceeding, we completed numerous rounds of shorter term procurement planning and preparation for the long-term proceedings in compliance with Pub. Util. Code § 454.5.3 Specifically, this includes:

This decision not only approves the 2006 LTPPs, but also establishes a skeleton upon which future LTPP filings in the biennial cycle may build and grow. It identifies the key issues and areas of planning that the IOUs must address and improve upon in their next LTPP filings.

1.3.1. R.06-02-013

This OIR, R.06-02-013 initiated review of the IOUs LTPPs. It is the successor to R.04-04-003, in which we approved the first set of long-term plans, and R.01-10-024, which initially ordered the biennial cycle of procurement plan filings and review. In this current LTPP proceeding, we again consider in an integrated fashion all of the Commission's electric resource procurement policies and programs, including implementation of directives from other procurement proceedings relevant to this cycle. As set out in the Assigned Commissioner Ruling/Scoping Memo dated September 25, 2006 (Scoping Memo), this combined procurement plan was intended to replace all previous procurement plan authority and move forward into the future with one, combined procurement plan that includes information from prior iterations of short-term and long-term plans. After the approval of the 2006 LTPPs, utilities may no longer continue to conduct procurement indefinitely under the short-term plans originally submitted in April/May 2003.

1.3.2. Related Agency Direction

D.04-12-048, issued by the Commission on December 16, 2004, adopted the three IOUs' LTPPs that were filed in July 2004. This was the first decision by the Commission implementing AB 57, the legislative directive that allowed the IOUs to resume the procurement of electricity for their customers, and D.04-12-048 instructed the IOUs to file procurement plans that included specified criteria set forth in the legislation. The goal of AB 57 was to allow the IOUs to reliably serve their customers' needs at just and reasonable rates, and also to set forth achievable standards and criteria for rate recovery. If the IOUs made procurement decisions consistent with their approved plans, there would be no need for after-the-fact reasonableness review by the Commission of the IOUs' procurement actions. The Commission chose a 10-year horizon for the planning period, and the first LTPPs covered the years 2005 through 2014.

D.04-12-048 established upfront standards and criteria for rate recovery and authorized the IOUs to make procurement decisions that incorporated the Commission's policy direction from other procurement proceedings. In particular, the IOUs were directed to prioritize their resource procurements following the "loading order" of preferred resources established in the EAP9 discussed below. In addition, the IOUs were authorized to enter into short-term, mid-term and long-term contracts, and we promoted head-to-head competition in the bidding process and adopted guidelines and safeguards for the procurement practices.

EAP I was updated with the adoption of EAP II by the Commission in October 2005, and is a joint policy plan by the Commission and the CEC.10 EAP II builds on EAP I and identifies the set of priorities for energy policy, many of which are directly relevant to this proceeding. The priorities, or "loading order" is as follows: energy efficiency (EE), demand response (DR), renewable power, distributed generation (DG), clean and efficient fossil-fired generation. EE and DR are considered the highest priority and should be employed first by a utility in making procurement decisions since they are demand-side resources. Once a utility captures the targeted EE and DR opportunities, the utility is to procure renewable generation to the fullest extent possible. The IOUs were directed in the OIR and Scoping Memo to follow the EAP II loading order and these priorities are considered in this review of procurement plans and policies.

The CEC's Integrated Energy Policy Report (IEPR) for 2005 made numerous procurement-related recommendations to the Commission which were considered throughout this proceeding.11 The IEPR's five policy recommendations are:

1. Implementation of the loading order from EAP II: EE, DR, renewable power, DG, clean and efficient fossil-fired generation; addressing the need for long-term contracts; and encouraging combined heat and power (CHP) resources;

2. Development of portfolio and risk assessments to determine least-cost/best-fit resource selection;

3. Implementation of GHG performance standards as part of 2006 LTPP;

4. Requirement of more transparency in energy planning and procurement to facilitate implementation of state energy policy goals from EAP II; and

5. Establishment of rules for departing load customers that implement goals of increasing long-term contracts without risk to IOUs or their ratepayers.

Item (3) is being addressed in a separate GHG proceeding. Item (4) was addressed in the Commission's separate Confidentiality proceeding, R.05-06-040. In that docket, Commission issued D.06-06-066, which adopts rules and guidelines for the treatment of confidential procurement-related data and D.06-12-030 which establishes guidelines for non-disclosure agreements and protective orders.

1.3.3. Related Legislation

The Legislature provided guidance in the procurement plan process via enactment of AB 5712 and AB 380.13 Each piece of legislation requires the Commission to take certain steps with respect to electricity procurement in the State.

AB 57 (Pub. Util. Code § 454.5), as referenced earlier, was enacted to authorize the IOUs to commence again the procurement of electric resources on behalf of their customers after the period of de-regulation had taken that responsibility away from the IOUs. In summary, Pub. Util. Code § 454.5 requires the Commission to review and approve IOU procurement plans, establish policies and cost-recovery mechanisms for energy procurement, ensure that the utilities maintain an adequate reserve requirement, implement a long-term resource planning process, and implement an RPS program. The Scoping Memo directed the IOUs to address each required element set forth in Section 454.5 in their respective LTPPs.

AB 380 (Pub. Util. Code § 380), requires the Commission to establish a resource adequacy (RA) program. The Commission initiated R.05-12-013 to refine the RA requirements for all load serving entities (LSEs), including IOUs. As R.05-12-013, and successor Rulemakings, revise and improve the RA program requirements, we will expect the IOUs to incorporate the updates into their LTPPs.14

1.4. Proceeding History

This rulemaking proceeded in two phases. In Phase I, we examined the need for additional policies to support new generation and long-term contracts in California. We issued D.06-07-029, as modified by D.07-11-051, which adopted a cost-allocation mechanism that allows the advantages and costs of new generation to be shared by all benefiting customers in an IOU's service territory. D.06-07-029 designated the IOUs as the procuring agents to sign long-term power purchase agreements (PPAs) for new generation for their respective service territories. The capacity and energy are unbundled, and the rights to the capacity are to be allocated among all the LSEs in the IOU's service territory. Each LSE would share in the capacity according to the LSE's share of the 12-month service area coincident peak, and the LSE can apply the capacity towards its RA requirement. The LSE's customers receiving the capacity only pay for the net cost of the capacity, once the energy revenues are subtracted from the cost of the PPA. The energy revenues are to be determined by the results of periodic energy auctions for the PPA energy rights.

D.06-07-029 did not specify the implementation details of the energy auction, but instead instructed the IOUs to file proposals for the auction process in Phase II.15 After extensive mediation efforts by the parties, a Joint Proposal for an energy auction was submitted to the Commission, and adopted by the Commission, with clarifications, on September 20, 2007, D.07-09-044. In summary, the Settlement Agreement establishes principles that ensure an independent, transparent and fair auction procedure in which multiple stakeholders and the Commission maintains active involvement, and which establishes products that facilitate an active market and allows for the development and auction of new products.

Phase II focuses on our obligations under Pub. Util. § 454.5 to oversee the IOUs' LTPPs from 2007-2016. Within Phase II are three tracks: Track 1 addressed the energy auction, and other issues deferred to this phase; Track 2 focuses on the LTPPs; and Track 3 addresses issues involving the nonbypassable charge (NBC) issue that was ordered in D.04-12-048 to keep IOU ratepayers indifferent to migrating load.

1.5. Scope of Phase II, Track 2

In this phase of the proceeding, we review the LTPPs filed by PG&E, SCE and SDG&E in accordance with the directives set forth in the Scoping Memo, including Attachment A. In particular, the Scoping Memo required two volumes in each utility's filing. Volume 1 must be a stand-alone plan covering procurement practices and the resource plan for the next 10 years based on existing Commission policies, and Volume 2 should include the IOU's comments on selected policies and procedures for implementing plans that the Commission has identified for review during the 2006 proceeding cycle. Whereas Volume 1 should incorporate existing Commission policies related to procurement without commenting upon those underlying policies, Volume 2 should review and potentially expand and amend those policies. Volume 1 must be based on existing procurement authority and Commission established procurement policy, and is not designed to be an advocacy piece. On the other hand, Volume 2 may present testimony on the issues identified by the Scoping Memo and gives the IOUs the opportunity to advocate for the continuation of existing practices, the adoption of new practices and policies, or modification of certain policies that the IOU has implemented and has suggestions for improvement.

1.6. Requirements of the 2006 IOU Plans

The specific requirements of the IOU Plans were outlined in detail in the Scoping Memo's Attachment A. However, to inform the IOUs as they drafted their respective LTPPs, the Scoping Memo also set out the Commission's key goals for the 2006 LTPP review process, as set forth below:

· IOUs will file one complete set of 2006 LTPPs that merges the contents of approved short-term and long-term plans, following the outline provided in Attachment A.

· IOUs will integrate EAP II goals and specific procurement targets from other proceedings into 2006 long-term procurement plans.

· IOU 2006 LTPPs will detail practices and procedures required for implementation of procurement.

· IOU 2006 LTPPs will include a 10-year resource plan, including a resource supply portfolio consistent with the EAP II, especially the EAP loading order.

· IOU 2006 LTPPs will identify need for new resources and describe how they will be procured, examining both bundled customer need and system need in the context of new generation resources.

· IOU 2006 LTPPs will include greenhouse gas forecasts for its 10-year resource plan and a discussion of compliance with the Commission's GHG policies.

· IOU 2006 LTPPs will include cost estimate forecasts for its 10-year resource plan.

· IOUs will review procurement policies related to procurement practices and risk management in Volume II, as listed above.

Attachment A to the Scoping Memo set forth the outline and organizational structure the IOUs were to follow in drafting their LTPPs to comply with their Volume 1 requirements. The issues for Volume 2 were set out in the Scoping Memo at § D(8), p. 25 and focused on procurement practices and risk management issues.

A summary of each IOU's 2006 LTPP is provided in Attachment B.

1.7. Intervenors

In addition to the three IOUs, the following intervening parties are participating in this proceeding:

Appendix C provides a summary of the positions of each intervenor who filed a post-hearing brief.

1 We recognize that the terms, "committed" and "uncommitted," have specific meanings as adopted by the California Energy Commission (CEC) in its demand forecast, however in this decision this Commission's use of the terms differs slightly and therefore warrants clarification. According to the CEC, "committed programs are defined as programs that have already been implemented or for which funding has been approved. (CED 2008 Revised, p. 25.)" In the CEC's use of the term, committed EE includes (but is not limited to) savings from the 2006-2008 EE program cycle, and is treated as a load forecast reduction embedded in the forecasting methodology. According to the CEC, "uncommitted effects are the incremental impacts of the level of future programs...impacts of new programs, and impacts from expansions of current programs (CED 2008 Revised, p. 25)." These incremental savings are treated as a resource for planning purposes.

In this decision, we define "committed EE" as only those savings attributed to the IOUs' 2006-2008 EE program cycle portfolios that meet or exceed Commission-adopted EE goals. We define "uncommitted" EE as the projected savings attributable to future EE program cycles (2009-2011 and beyond) that meet or exceed the Commission-adopted EE goals. Due to certain mechanics in the CEC's demand forecasting methodology, a situation arises where uncommitted EE (in this Commission's use of the term) is reflected in one of two places in the 2006 LTPPs: either (1) embedded as a reduction in the load forecast (to the extent that uncommitted EE does overlap with the CEC's concept of committed effects) or (2) forecasted as an available resource (to the extent that uncommitted EE does not overlap with the CEC's concept of committed effects."

2 Scoping Memo, September 25, 2006, Attachment A, p. 20.

3 Herein, references to Code sections are to the State of California Public Utilities Code and references to Rules are to the California Public Utilities Rules of Practice and Procedure.

4 D.02-10-064 ordered the IOUs to submit modified STPPs to reflect issues decided in D.02-10-064, incorporate the allocation of existing California Department of Water Resources (DWR) contracts (D.02-09-053), and cover procurement that would be undertaken by the IOUs in the 2003 year.

5 D.02-12-074.

6 D.03-12-062.

7 D.04-01-050.

8 D.04-12-048.

9 EAP I was issued jointly on May 8, 2003, by the Commission, the CEC and the California Consumer Power and Conservation Financing Authority (CPA). EAP I was updated with the adoption of EAP II in October 2005.

10 See http://www.cpuc.ca.gov/PUBLISHED/REPORT/50480.htm.

11 CEC's IEPR 2005 is available at http://www.energy.ca.gov/2005publications/CEC-100-2005-007/CEC-100-2005-007-CMF.PDF.

12 AB 57, (Stats. 2002, Ch.850, Sec. 3. Effective September 24, 2004). AB 57 added Section 454.5 to the Pub. Util. Code.

13 AB 380, (Stats. 2005, Ch. 357, Sec. 10. Effective September 24, 2006). AB 380 added Section 380 to the Pub. Util. Code.

14 In the future, it may be necessary for the Commission to require all LSEs to submit LTPPs in order to comply with Pub. Util. Code § 380.

15 D.06-07-029, Ordering Paragraph (OP) 2, "Pursuant to the mechanism adopted herein and as refined in response to the IOUs' Implementation Proposals for an energy auction filed in Phase 2, each IOU is to conduct periodic auctions for the energy rights to all resources acquired pursuant to this mechanism..."

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