5. Preliminary Scoping Memo

As required by Rule 7.1(d)²¹ of the Commission's Rules of Practice and Procedure (Rules), this Order includes a preliminary scoping memo. In this Preliminary Scoping Memo, we describe the issues to be considered in this proceeding and the timetable for resolving the proceeding.

5.1. Track I - Long-Term System and Local Reliability Resource Plan

The purpose of the "system" planning track is to identify CPUC-jurisdictional needs for new resources to meet system or local resource adequacy over the 2011-2020 planning horizon, including issues related to long-term renewables planning and need for replacement generation infrastructure to eliminate reliance on power plants using OTC. In addition to maintaining an adequate reserve margin, we anticipate that system requirements to: 1) integrate renewables, 2) support OTC policy implementation, 3) maintain local reliability, and 4) meet GHG goals will be primary drivers for any need for new resources identified in this proceeding. Furthermore, we may address or reassess the Energy Efficiency and Demand Response assumptions utilized in determining future need.²²

Finally, because the system resource plans conducted in this proceeding will be based on an integrated resource planning approach, the Commission will have comprehensive information on which to base resource policy choices applicable to all jurisdictional LSEs. While 33% renewables portfolio standards (RPS) implementation scenarios will likely be a central focus of this proceeding, additional scenarios to assess other cost-effective resource strategies to achieve GHG goals, including scenarios considering GHG adders, transmission, distributed generation, and OTC may also be considered. The nature and extent of the scenarios that are covered in this proceeding will be addressed in a later ruling.²³

The assigned Commissioner or ALJ will issue a ruling shortly after the issuance of this Order presenting staff's proposed preliminary planning standards. Additionally, the ALJ will issue a separate ruling requesting parties to comment upon an appropriate range of energy efficiency assumptions to be used in this proceeding. Staff will subsequently present a report on renewable planning standards. Parties will be given an opportunity to comment.

5.2. Track II - IOU Section 494.5 Bundled Plans

Track II will consider individual IOU procurement plans pursuant to § 454.5, in light of any guidance derived from Tracks I and III adopted no later than the Commission meeting scheduled for November 19, 2010, as noted above. Each IOU shall file its individual bundled plan consistent with guidance to be provided in the Track II Scoping Memo and any rulings or decisions arising from Tracks I and III.

In this phase, we anticipate that the IOUs shall file their bundled plans and associated testimony, to be followed by intervenor testimony. Evidentiary hearings are anticipated, followed by a round of post-hearing briefs and reply briefs. We anticipate issuance of one or more proposed decisions on the IOU bundled plans by December 2011.²⁴

Track II may begin after Track III has had a reasonable opportunity to consider rule and policy issues necessary to prepare and evaluate the bundled plans (see below). We anticipate that Track II will begin no later than December 2010.

Based on the record in R.08-02-007, we find it reasonable to direct the IOUs' filing of bundled LTPPs to be based on a limited set of planning standards using the best information available at that time. Our intent is to ensure that the IOUs' plans can be more easily compared to each other and to maintain consistency, where appropriate, with Commission policy in other procurement-related proceedings.

5.3. Track III - Rule and Policy Issues

Track III will address numerous rule and policy issues related to procurement plans. Some of these issues must be resolved prior to the initiation of Track II of this proceeding. The issues include, but may not be limited to, the following:

1. Updates to Procurement Rules to Comply with SB 695 and Refinements to the D.06-07-029 Cost Allocation Methodology (CAM) - SB 695²⁵ addresses many of the same issues addressed in the CAM we adopted in D.06-07-029. SB 695 applies to both Utility Owned Generation (UOG) and Independent Power Producer-owned (IPP) generation, and eliminates the CAM election process, providing that a cost allocation must be "on a fully nonbypassable basis consistent with departing load provisions as determined by the Commission."²⁶ This proceeding will consider any necessary modifications to the LTPP rules needed to implement SB 695 or to otherwise address refinements to the CAM process.

2. Clarification / Refinement of Existing Procurement-Related Requirements in Support of the Development of a Procurement Requirements Summary Document (a.k.a. "Rulebook") - A Staff draft of a procedural requirements summary document or Rulebook will be distributed by separate ruling shortly after issuance of this Rulemaking, which will include a timetable for at least one workshop and for responses to the draft.²⁷

3. Procurement Rules to Comply with OTC Policies²⁸ - This proceeding will consider a number of procurement policies related to IOU-owned or contracted OTC generation units. Examples of such policies include (but are not limited to) policies encouraging retirement of OTC units; Request for Offer (RFO) design to procure new greenfield or repowered projects for local resource adequacy (RA), while minimizing market power; and RFO bid evaluation protocols to allow comparison of retrofitting projects.²⁹

4. California Independent System Operator Corporation Market-Related Procurement Implementation Issues - The CAISO instituted a new market structure in 2009, previously known as the Market Redesign and Technology Upgrade. This proceeding will consider LTPP issues that arise from the new CAISO market design, with a particular focus on the upfront standard for IOU procurement activity in CRR and convergence bidding markets.

5. Refinements to Bid Evaluation in Competitive Solicitations (particularly with respect to UOG Bids) - D.07-12-052 identified several concerns related to the process for evaluating UOG bids against Power Purchase Agreements bids. These concerns focus on the need to ensure that the bid evaluation process is fair, just and reasonable, and include the need to determine whether and how bid criteria can be developed to improve head-to-head comparisons of UOG and IPP bids. Issues which may be considered include:

· How IOU bid development costs would be addressed ("at-risk" or ratepayer-guaranteed);

· The extent to which penalty and reward components are or should be added to UOG bids to make them consistent with IPP bids;

· What measures should be taken to prevent sharing of sensitive information between utility staff involved in developing utility bids and staff who create bid evaluation criteria and that select the winning bids;

· How failed contracts should be handled within the IOU RFO/procurement process; and

· Whether parties might agree on a common set of risk factors better managed by IOUs as compared to IPPs, to simplify the standard terms and conditions in the IOUs' pro forma contracts and subsequent counterparty contract negotiations.

6. Refinements to the Timelines Associated with IOU RFOs for RA Products - D.06-06-064 instructs the IOUs to develop "least cost/best fit" portfolios and to sell contracted resources that are not needed. To meet this obligation, IOUs need to provide the excess resources to the market with sufficient time that other LSEs have an opportunity to purchase them to meet their resource obligations. We shall evaluate potential schedule milestones that IOUs can adopt to allow for smoother LSE compliance with RA filing deadlines.

7. GHG Compliance Products and Risk Management Strategies - This proceeding will also consider the GHG compliance products that IOUs will be authorized to procure to meet their anticipated California GHG compliance obligations. Included in this authorization will be the GHG risk management approaches the IOUs plan to employ to manage this new risk.³⁰

8. Other Procurement Rule Changes - Staff have identified (at least) two issues in the Quarterly Compliance Report approval process: (1) net debtor IOU transactions with non-investment grade counterparties and collateral requirements; and (2) refinements to Independent Evaluator (IE) guidelines (e.g., restrictions on IEs engaging in other business with the utility while being an IE). Parties should be prepared to discuss other potential rule changes at the Prehearing Conference (PHC).

Some of these policies and rules relate specifically to Track II, and should be resolved prior to the filing of the IOUs' bundled procurement plans. We invite parties to comment on which issues must be resolved prior to the initiation of Track II, and which issues should be addressed later in the proceeding.

Under no circumstances will commencement of Track II be delayed such that there is insufficient time to meet the anticipated issuance date for a decision by December 2011. The IOUs' ability to cost effectively procure may become constrained if a decision is delayed beyond this date.

5.4. Issues Not Within the Scope of this Proceeding

We recognize the potential that the LTPP proceeding, as the umbrella proceeding, may attract "forum-shopping" proposals from parties that have had their ideas rejected, or have yet to be considered, in other proceedings. As in the predecessor proceeding, the Commission finds it necessary to adopt a scoping standard for this proceeding, in order to highlight what constitutes an issue that is legitimately in scope in this proceeding.

LTPP Scoping Standard. The LTPP scoping standard is defined as follows:

· Any procurement-related issue(s) not already considered in other procurement-related dockets in Table 1 below may be considered, subject to the following conditions. The issue(s) must:

(1) Materially impact procurement policies, practices and/or procedures;

(2) Be narrowly defined; and

(3) Demonstrate consistency with one or more of the LTPP proceeding goals set forth in R.08-02-007.

Therefore, issues that do not meet this standard are not in the scope of this proceeding.

Table 1 - Procurement-Related Dockets

²¹ "An order instituting rulemaking shall preliminarily determine the category and need for hearing, and shall attach a preliminary scoping memo. The preliminary determination is not appealable, but shall be confirmed or changes by assigned Commissioner's ruling pursuant to Rule 7.3, and such ruling as to category is subject to appeal under Rule 7.6." (Rule 7.1(d).)

²² We will not consider new EE goals in this proceeding. However, we may review the energy efficiency planning assumptions adopted in D.08-07-047 for procurement purposes. Additionally, we may consider any new information about EE projections after parties file proposals in response to a subsequent ruling served in both this proceeding and R.09-11-014.

²³ This may also include the common assumptions that parties will use in specific scenarios.

²⁴ The Commission is aware that the authorizations granted in D.07-12-052 only extend through 2016, and that the IOUs may need some decision on procurement authority by December 2011.

²⁵ SB 695 (Stats. 2009, ch. 337, effective October 11, 2009).

²⁶ Section 365.1 (c)(2)(A).

²⁷ While this document is known informally as the "Rule Book," its final implementation may be in one of several different forms, including as a General Order.

²⁸ We anticipate that changes to procurement rules may be necessary to ensure that IOU procurement activity is in accordance with any adopted OTC policy.

²⁹ Retrofitting refers to a modification of an existing plant through the installation of a cooling system that complies with an adopted OTC policy. Retrofitting projects do not add new capacity to the system.

³⁰ The Commission may also authorize in Track III interim IOU authority to procure a limited amount of these products, since the adoption of final Air Resources Board Cap and Trade Program regulations is anticipated in advance of the Track II decision in which bundled procurement authority will be addressed.