2. Background

This long-term procurement proceeding (LTPP) is the successor to Rulemaking (R.) 08-02-007,⁵ R.06-02-013,⁶ R.04-04-003,⁷ and R.01-10-024,⁸ the rulemakings initiated by the Commission to ensure that California's major investor-owned utilities (IOUs)⁹ could resume and maintain procurement responsibilities on behalf of their customers.

The LTPP proceedings generally operate on a two-year cycle with the IOUs responsible for submitting procurement plans that project their need, and their action plan for meeting that need, over a ten-year horizon. Pursuant to AB 57,¹⁰ codified as Section 454.5, by approving procurement plans, the Commission establishes "up-front standards" for the IOUs' procurement activities and cost recovery. This obviates the need for after-the-fact reasonableness review by the Commission of the resulting utility procurement decisions that are consistent with the approved plans.

In Decision (D.) 04-01-050, the Commission established that each load serving entity (LSE) has an obligation to acquire sufficient reserves for its customer loads, endorsed a hybrid market structure, and extended utilities' procurement authority into 2005. In D.04-12-048, the Commission approved the IOUs' long-term procurement plans and gave the IOUs procurement authority for short-, medium-, and long-term contracts for the planning period 2005 through 2014. D.07-12-052 approved, with modifications and compliance filings, the LTPPs for PG&E, SDG&E and SCE for 2007-2016.

After the 2006 LTPP proceeding was initiated, the legislature also passed AB 32¹¹ and Senate Bill (SB) 1368,¹² California's Climate Change laws, providing further guidance to the Commission. In addition to the "upfront standards" established in Section 454.5, procurement decisions must now consider carbon risk when filling net short positions with fossil resources, so as not to "crowd out" preferred resources¹³ or incur stranded costs by purchasing technology that may soon become obsolete.

R.08-02-007 differed significantly from the prior LTPP proceedings. Because the 2006 process had just concluded with D.07-12-052 immediately before the opening of R.08-02-007, the Commission determined that rather than requiring the IOUs to file new 2008 LTPPs, the new proceeding would address a series of policy proposals to refine technical practices used to develop resource and procurement plans, and consider other procedural matters. The primary focus of this effort was to lay the groundwork to evaluate, side-by-side, the cost effectiveness of different resource portfolios. Any new policies, practices and procedures adopted in R.08-02-007 were anticipated to be incorporated into the present proceeding. R.08-02-007 was split into two phases.

The scope of Phase I of R.08-02-007 included:

· Standardized resource planning practices, assumptions and analytic techniques applied in long-term procurement plans, based on an integrated resource planning framework ("planning standards");

· Interim standards and practices to evaluate the uncertain cost of future greenhouse gas (GHG) regulations during AB 32 implementation and in anticipation of possible federal legislation;

· Preparation of a report which provides specific information on each of the relevant programs either under the Commission's purview or funded by utility ratepayers that contribute to a reduction in GHG;

· A methodology to quantify energy efficiency in the California Energy Commission's (CEC's) load forecast;

· Methodologies to estimate firm capacity from demand-side resources for long-term planning and procurement purposes;

· A customer risk preference study; and

· Other identified LTPP program implementation issues, including congestion revenue rights (CRRs); virtual bidding, now known as convergence bidding; and other wholesale energy market concerns.

The scope of Phase II of R.08-02-007 included:

· Considering whether and to what extent to adopt refinements to policies distinguishing system versus bundled resource needs, including a methodology that allocates the cost of new generation to system and bundled customers; and

· Evaluating whether and how refinements can be made to the bid evaluation process to ensure fair competition between power purchase agreements and utility-owned generation bids, and alternatives to the competitive market approach where competition cannot be used to reach equitable and efficient outcomes.

An initial Assigned Commissioner Ruling and Scoping Memo for Phase I was issued on August 28, 2008, which was modified by an Amended Assigned Commissioner Ruling and Scoping Memo (Amended Phase I Scoping Memo) on July 1, 2009. No activity was taken on Phase II.

The Amended Phase I Scoping Memo was accompanied by two documents.¹⁴ The first, Survey of Utility Resource Planning and Procurement Practices for Application to Long-Term Procurement Planning in California, was drafted by a technical support consulting team of Aspen Environmental Group and Environmental Economics, Inc. (Consultant). The second was a Staff Proposal on Resource Planning Standards (Staff Proposal) drafted by Energy Division staff with technical assistance from the Consultant.

The Staff Proposal recommended adoption of a series of Guiding Principles and Working Principles as a theoretical framework for the development of proposed planning standards. The Staff Proposal further recommended an integrated portfolio approach to resource planning for each of the IOUs, wherein the resource needs for the service areas of the IOUs would be considered comprehensively in light of the loading order in the Energy Action Plan and other state energy policies. Indicative portfolios representing overall system need would be developed and these portfolios would inform the development of bundled plans.

A workshop was held on the Staff Proposal on August 6-7, 2009.¹⁵ An alternative joint proposal was offered by SDG&E and SCE (Joint Alternative), and a variation of the Staff Proposal was offered by L. Jan Reid, both of which were considered in the workshop. Comments and reply comments were filed by parties.¹⁶

The Joint Alternative recommended focusing on adoption of bundled procurement plans for the individual IOUs in a straight-forward and expeditious manner, while considering system-level portfolios in a separate "integrated resource planning" proceeding.

An Assigned Commissioner Ruling (ACR) was issued on December 3, 2009 suspending the schedule in R.08-02-007.¹⁷ R.08-02-007 is being closed herein. We recognize that much of the groundwork needed to develop system plans was achieved through the workshops, filings, and negotiations in R.08-02-007. We feel the work performed in that proceeding is foundational, and will be used as a starting point for the current proceeding. Though the Commission will not issue a final ruling in R.08-02-007, we do not wish to duplicate work or backtrack and revisit matters that have already been resolved in R.08-02-007. Therefore, the record of R.08-02-007 will be incorporated into this proceeding. It is expected that all matters resolved in good faith through ACRs, Administrative Law Judge (ALJ) Ruling, as well as those resolved in good faith amongst parties in R.08-02-007 remain in effect, and that these matters will not be revisited in the current proceeding unless the Commission determines otherwise.

⁵ Order Instituting Rulemaking to Integrate and Refine Procurement Policies Underlying Long-Term Procurement Plans, dated February 14, 2008.

⁶ Order Instituting Rulemaking to Integrate Procurement Policies and Consider Long-Term Procurement Plans, dated February 16, 2006.

⁷ Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning, dated April 1, 2004.

⁸ Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development, dated October 29, 2001.

⁹ Unless otherwise specified, IOUs shall refer to Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison (SCE).

¹⁰ AB 57 (Stats. 2002, ch. 850, Sec 3, Effective September 24, 2002), added Pub. Util. Code § 454.5., enabling utilities to resume procurement of electric resources.

¹¹ AB 32 (Stats. 2006, ch. 488, effective September 27, 2006).

¹² SB 1368 (Stats. 2006, ch. 598, effective September 29, 2006).

¹³ Preferred resources are defined by EAP II. EAP II ranks the preferred resources as follows: Cost effective Energy Efficiency and Demand Response, renewable resources, distributed generation, and clean and efficient fossil generation

¹⁴ The Amended Phase I Scoping Memo also incorporated in the record of the proceeding an Energy Division Staff Report based upon the Consultant's analysis entitled 33% Renewable Portfolio Standard Implementation Analysis Preliminary Results (Preliminary 33% RPS Report), which was issued on June 12, 2009.

¹⁵ Pre-workshop questions and comments were offered by the Alliance for Retail Energy Markets (AReM), the California Large Energy Consumers Association (CLECA), the Division of Ratepayer Advocates (DRA), the Green Power Institute (GPI), L. Jan Reid (Reid), PG&E, SDG&E, SCE, The Utility Reform Network (TURN) and the Western Power Trading Forum (WPTF).

¹⁶ Comments were filed on or before August 21, 2009 by AReM, Calpine Corporation, the Center for Energy Efficiency and Renewable Technologies (CEERT), CLECA, DRA, jointly by Energy Producers and Users Coalition (EPUC) and the Cogeneration Association of California (CAC), the Independent Energy Producers (IEP), the Large-Scale Solar Association (LSA), PG&E, Reid, SDG&E, SCE, TURN, jointly by the Union of Concerned Scientists and GPI, Women Energy Matters (WEM), and WPTF. Reply Comments were filed on or before August 31, 2009 by AReM, EPUC/CAC, CEERT, CLECA, DRA, IEP, LSA, PG&E, Reid, SDG&E, SCE, TURN, WEM and WPTF.

¹⁷ The December 3, 2009 ACR also proposed bifurcation into two companion proceedings. Upon further review, we conclude that bifurcation would introduce unnecessary procedural complications and that establishing independent tracks best addresses the concerns underlying the initial proposal of bifurcation.