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ALJ/CAB/hl2 Mailed 2/23/2006


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

FEBRUARY 16, 2006
RULEMAKING 06-02-013


1. Summary

We open this rulemaking to continue our efforts to ensure a reliable and cost-effective electricity supply in California through integration of a comprehensive set of procurement policies and review of long-term procurement plans (LTPP). The LTPP proceeding is the successor to Rulemaking
(R.) 04-04-0031 and R.01-10-024,2 and it will be the forum in which we consider, in an integrated fashion, the Commission's electric resource procurement policies and programs.

We will use the recently adopted Energy Action Plan II (EAP II) as our guidepost in this proceeding.3 Under the EAP II, the State's energy agencies have jointly adopted the goal "for California's energy to be adequate, affordable, technologically advanced, and environmentally-sound." (EAP II, p.2) The agencies developed a set of priorities for energy policy, many of which are directly relevant to this rulemaking. The EAP II priorities for "Electricity Adequacy, Reliability and Infrastructure" and "Electricity Market Structure" identify many key actions that will take place in this proceeding. Among the Key Actions related to this procurement proceeding and a companion rulemaking (R.) 05-12-013, that focuses on resource adequacy issues are:

· Ensure that all load serving entities meet the state's adopted reserve and resource adequacy requirements of a
15-17 percent planning reserve no later than June 2006, through a reasonable mix of short-, medium- and long-term resource commitments. (p.10)

· Provide for the continued operation of cost-effective and environmentally-sound existing generation needed to meet current reliability needs, including combined heat and power generation. (p. 10)

· After incorporating higher loading order resources, encourage the development of cost-effective, highly-efficient, and environmentally-sound supply resources to provide reliability and consistency with the State's energy priorities. (p.10)

· Establish appropriate incentives for the development and operation of new generation to replace the least efficient and least environmentally sound of California's aging power plants. (p.10)

· Complete and refine, as necessary, the current investor owned utilities (IOU) electricity procurement process to provide that it is competitive, transparent, fair, proceeds in a timely fashion, and achieves California's resource adequacy requirements. (Key Action under Electricity Market Structure, p.12)

We will also consider the California Energy Commission's (CEC) 2005 Integrated Energy Policy Report (IEPR), for procurement-related recommendations during this and related rulemakings.4

In addition to the EAP II and the recent IEPR, the Commission also received guidance from the legislature on procurement issues with the enactment of AB 57 (Stats. 2002, Ch. 850, Sec 3, Effective Sept. 24, 2004, added Public Utilities Code Section 454.5) and AB380 (Stats. 2005, Chapter 367, added Public Utilities Code Section 380). Both pieces of legislation required the Commission to take certain steps with respect to procurement in the State.

To comply with A380, we recently initiated R.05-12-013 as the primary forum for Commission review and implementation of the resource adequacy issues identified in the legislation and statute.

On April 1, 2004, we opened R.04-04-003 to implement the provisions of AB 57 and in that proceeding we reviewed and approved the utility energy procurement plans of the three large IOUs, Pacific Gas and Electric Company (PG&E), Southern California Edison company (SCE) and San Diego Gas & Electric Company (SDG&E) for 2005-2014. This successor rulemaking will review and approve the next cycle of energy procurement plans for 2007-2016.

R.04-04-003 initially named the three IOUs as respondents. Decision (D.) 05-03-013 (as modified by D.05-03-035 and D.05-08-029) modified the April 1, 2004 order that instituted that rulemaking by naming registered Energy Service Providers (ESP) and Community Choice Aggregators (CCA) as respondents for the Resource Adequacy portion of the proceeding. Because this proceeding is a forum for implementing Section 380, which requires that resource adequacy requirements be established for all load serving entities (LSEs), we will adopt a more expansive approach and name as respondents all LSEs as defined in Pub. Util. Code § 380(j).

In R.04-04-003, ESPs have been respondents only to the resource adequacy portion of the proceeding, but not to the long-term planning portion of the proceeding. Section 380 requires the Commission to establish resource adequacy requirements that facilitate the development of new generation capacity and equitably allocate the cost of generating capacity.5 To achieve these objectives, the Commission names all LSEs as respondents to this long-term procurement planning proceeding,6 although we defer to the Assigned Commissioner and the Assigned ALJ to scope their participation in the proceeding. To meet the resource adequacy requirements of Section 380 which need to be implemented through the long-term planning process, the Commission will need the participation of all LSEs in the Commission's LTPP process. While we understand that ESPs and CCAs may not be subject to the same regulatory oversight as IOUs, we do expect that the Commission will use this proceeding to find a way to facilitate cooperative planning with all LSEs in order to achieve the objectives of Section 380. Our expectation is that this proceeding will build on the work of previous proceedings, and establish a collaborative planning process, that includes appropriate participation from state agencies, the California Independent System Operator (CAISO), and all LSEs, as appropriate.

1 Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning, dated April 1, 2004.

2 Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development, dated October 29, 2001.

3 Energy Action Plan II was adopted by this Commission in October 2005, and is a joint policy plan by the CPUC and the CEC. See http://www.cpuc.ca.gov/PUBLISHED/REPORT/50480.htm.

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

5 See Pub. Util. Code § 380(b)(1) and (2).

6 D.05-11-025 has determined that Energy Service Providers, Community Choice Aggregators, and Small/Multi-jurisdictional utilities are required to comply with the fundamental aspects of the RPS program, including procuring 20% of their retail sales from renewable energy sources by 2010. The extent to which they are to comply is to be determined in R.04-04-026.

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