8. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Mark S. Wetzell is the assigned ALJ in this proceeding.

Findings of Fact

1. The RA program has generally yielded the availability of capacity resources that the CAISO needs to reliably operate the transmission grid.

2. Addition of a required multi-year forward capacity commitment to the RA program would potentially provide reliability and other benefits, but it is premature to conclude that the same benefits cannot be achieved under the current RA program.

3. The RA program, in combination with the LTPP and RPS programs, is meeting California's needs for infrastructure development, and no other proposal in this proceeding offers a reasonable likelihood of doing so more effectively or at lower cost to ratepayers.

4. The RA program would better promote investment, and do so more cost-effectively, if greater price transparency and symmetry of information were available to market participants.

5. An electronic bulletin board or equivalent mechanism with appropriate public disclosure of price and trading information would facilitate trading and promote greater liquidity.

6. Achieving sustained reduced payments for existing generation relative to payments for new generation would be offset by the fact that owners of existing capacity will attempt to compensate for the prospect of reduced capacity payments by adjusting their bids accordingly.

7. Third-party intermediaries would seek opportunities to capture a share of any surpluses associated with price discrimination between classes of generation, which would diminish any consumer savings associated with such price discrimination.

8. Price discrimination between resource classes would be possible only to the extent that the market is opaque, which would be inconsistent with a policy of greater price transparency and symmetry of information available to market participants.

9. The absence of a durable backstop mechanism is a shortcoming of the current RA program that jeopardizes the reliability and cost-effectiveness objectives.

10. The bilateral approach clearly allows the Commission to prioritize renewable and low GHG generating capacity over conventional capacity.

11. With a centralized capacity auction administered by the CAISO, the Commission's primary role in ensuring resource adequacy would be establishing, or participating in the establishment of, capacity needs assessments and issuing and enforcing regulations governing LSE participation in the CAISO auction mechanism.

12. Even if the RA program succeeds in bringing about new generation that provides generic capacity needed for reliability, perhaps even local reliability, there could be a need for additional, duplicate investment in renewable generation in California if the program fails to account for the need for renewable generation.

13. Maintaining the current scope of Commission jurisdiction over the RA program would enable the Commission to make changes to the program going forward, both for routine program refinement and for responding to any market breakdown or other unforeseen consequences.

14. A centralized auction would tend to promote investment in, and development of, generic RA capacity without significant regard to the locational, environmental, and operational aspects of the resource.

15. To the extent that the RA program results in development of new capacity but fails to bring about investment in specialized resources that will need to be developed in any event, irrespective of RA needs, the result could be unnecessary and costly duplication of capacity investment.

16. Parties have not adequately demonstrated how a centralized auction could be structured in order to facilitate and prioritize development of renewable resources while avoiding development of excess capacity.

17. Development of a capacity auction mechanism in California most likely would be accompanied by difficult challenges involving a complex balancing of several market design elements.

18. Once a resource has been committed under the CAM, the reliability need that gave rise to CAM procurement in the first place has been filled, and any future opt-outs would lead to over-procurement for the system and stranded costs for the IOUs and their customers.

19. The CAM mechanism, modified as necessary to comply with Section 365.1(c)(2), will ensure that the costs of any new infrastructure required to meet system and local reliability needs are allocated fairly to the customers of all LSEs.

20. The record of this proceeding does not support making any major structural modifications to the current RA program.

21. Any of a wide range of roles for this Commission in performing a comprehensive forward assessment will require resource augmentation for our staff.

Conclusions of Law

1. Based on the objectives and requirements of Section 380, as well as the Commission's prior policy determinations, the RA program's four main objectives are reliability, least cost, equitable cost allocation, and coordination with state policies for the electric sector.

2. The RA program, as currently structured, satisfies the Commission's RA policy goals and the requirements of Section 380.

3. RA program modification proposals should be evaluated not only on whether they enable new generation, but also on whether they enable the types of generation that fits California's unique reliability needs and policy considerations.

4. Any RA program redesign should, to the extent possible, support or avoid undermining the broad objective of a competitive retail market, provided, however, that reliability and least cost should be given greater weight.

5. Pending further order of the Commission the CAM procedure adopted in D.06-07-029 should remain in effect, subject to modification to conform to the provisions of Section 365.1(c)(2) and the determinations made in this decision.

6. This proceeding should be closed.

7. The record of Track 3 of Phase 2 of this proceeding (establishment of RA requirements for small and multi-jurisdictional LSEs) may be incorporated into an appropriate proceeding.

8. The Executive Director should be authorized to commit to expenditures not to exceed $1 million per year, reimbursable through LSE payments, for consultants to assist the Commission's staff in performing the analysis necessary for a collaborative forward assessment of resource adequacy requirements.

ORDER

IT IS ORDERED that:

1. The Commission's Energy Division and other appropriate Commission staff shall make recommendations to the Commission as necessary to implement the policies adopted by this decision, including in particular the recommendations set forth in the proposal of the Bilateral Trading Group.

2. The Cost Allocation Mechanism adopted in Decision 06-07-029 shall remain in effect, subject to modifications in future proceedings to conform to changes that may be required by Public Utilities Code Section 365.1(c)(2) and the policy determinations made in this decision.

3. The Executive Director is authorized to employ consultants to assist the Energy Division and other appropriate Commission staff in the development of a collaborative forward assessment of resource adequacy requirements, subject to further guidance of the Commission or the assigned Commissioner in the resource adequacy implementation proceeding as to the scope of work to be performed. To this end, the Executive Director is authorized to spend up to $1 million for this purpose each fiscal year beginning July 1, 2010, and continuing until the issuance of a final decision implementing resource adequacy requirements based upon a collaborative forward assessment. Any unspent amount for a fiscal year may be carried over to subsequent fiscal years during the pendency of the resource adequacy implementation proceeding. The Commission intends that the cost for any such expenditures will be reimbursed through payments by some or all Commission-jurisdictional load-serving entities, as defined in Public Utilities Code Section 380(j), through mechanisms to be developed in the resource adequacy implementation proceeding.

4. Rulemaking 05-12-013 is closed. As to Phase 2/Track 3 issues delineated in the December 22, 2006 Assigned Commissioner's Ruling and Scoping Memo for Phase 2, i.e., resource adequacy requirements for all load-serving entities, including small and multi-jurisdictional utilities and electrical cooperatives, the record of this proceeding shall be available for consideration in an appropriate rulemaking.

This order is effective today.

Dated June 3, 2010, at San Francisco, California.

MICHAEL R. PEEVEY

President

DIAN M. GRUENEICH

JOHN A. BOHN

TIMOTHY ALAN SIMON

NANCY E. RYAN

Commissioners

I reserve the right to file a concurrence.

/s/ TIMOTHY ALAN SIMON

Commissioner

I reserve the right to file a concurrence.

/s/ DIAN M. GRUENEICH

Commissioner

APPENDIX A

Public Utilities Code Section 380

(a) The commission, in consultation with the Independent System Operator, shall establish resource adequacy requirements for all load-serving entities.

(b) In establishing resource adequacy requirements, the commission shall achieve all of the following objectives:

(1) Facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed.

(2) Equitably allocate the cost of generating capacity and prevent shifting of costs between customer classes.

(3) Minimize enforcement requirements and costs.

(c) Each load-serving entity shall maintain physical generating capacity adequate to meet its load requirements, including, but not limited to, peak demand and planning and operating reserves. The generating capacity shall be deliverable to locations and at times as may be necessary to provide reliable electric service.

(d) Each load-serving entity shall, at a minimum, meet the most recent minimum planning reserve and reliability criteria approved by the Board of Trustees of the Western Systems Coordinating Council or the Western Electricity Coordinating Council.

(e) The commission shall implement and enforce the resource adequacy requirements established in accordance with this section in a nondiscriminatory manner. Each load-serving entity shall be subject to the same requirements for resource adequacy and the renewables portfolio standard program that are applicable to electrical corporations pursuant to this section, or otherwise required by law, or by order or decision of the commission. The commission shall exercise its enforcement powers to ensure compliance by all load-serving entities.

(f) The commission shall require sufficient information, including, but not limited to, anticipated load, actual load, and measures undertaken by a load-serving entity to ensure resource adequacy, to be reported to enable the commission to determine compliance with the resource adequacy requirements established by the commission.

(g) An electrical corporation's costs of meeting resource adequacy requirements, including, but not limited to, the costs associated with system reliability and local area reliability, that are determined to be reasonable by the commission, or are otherwise recoverable under a procurement plan approved by the commission pursuant to Section 454.5, shall be fully recoverable from those customers on whose behalf the costs are incurred, as determined by the commission, at the time the commitment to incur the cost is made or thereafter, on a fully nonbypassable basis, as determined by the commission. The commission shall exclude any amounts authorized to be recovered pursuant to Section 366.2 when authorizing the amount of costs to be recovered from customers of a community choice aggregator or from customers that purchase electricity through a direct transaction pursuant to this subdivision.

(h) The commission shall determine and authorize the most efficient and equitable means for achieving all of the following:

(1) Meeting the objectives of this section.

(2) Ensuring that investment is made in new generating capacity.

(3) Ensuring that existing generating capacity that is economic is retained.

(4) Ensuring that the cost of generating capacity is allocated equitably.

(i) In making the determination pursuant to subdivision (h), the commission may consider a centralized resource adequacy mechanism among other options.

(j) For purposes of this section, "load-serving entity" means an electrical corporation, electric service provider, or community choice aggregator. "Load-serving entity" does not include any of the following:

(1) A local publicly owned electric utility.

(2) The State Water Resources Development System commonly known as the State Water Project.

(3) Customer generation located on the customer's site or providing electric service through arrangements authorized by Section 218, if the customer generation, or the load it serves, meets one of the following criteria:

(A) It takes standby service from the electrical corporation on a commission-approved rate schedule that provides for adequate backup planning and operating reserves for the standby customer class.

(B) It is not physically interconnected to the electric transmission or distribution grid, so that, if the customer generation fails, backup electricity is not supplied from the electricity grid.

(C) There is physical assurance that the load served by the customer generation will be curtailed concurrently and commensurately with an outage of the customer generation.

(END OF APPENDIX A)

APPENDIX B

Resource Adequacy Decisions - 2004 to 2009

Decision/ Proceeding

Summary

Decision (D.) 04-01-050/ Rulemaking (R.) 01-10-024

In conjunction with a long-term procurement framework for the three largest California IOUs, adopted a policy of forward procurement obligations applicable to all LSEs, including ESPs and CCAs as well as IOUs. The forward procurement obligation includes a 15% planning reserve margin (PRM). LSEs must demonstrate acquisition of 90% of the capacity needed to meet their forecast peak load plus the PRM, for the following May through September.

D.04-07-028/ R.04-04-003

Responding to the CAISO's increasing need to manage congestion and address reliability issues in Southern California, modified prior orders to make clear that reliability is not only the CAISO's job. It is also a utility responsibility to procure resources necessary to meet its load system-wide and locally.

D.04-10-035/ R.04-04-003

Accelerated implementation of the 15% PRM requirement from January 2008 to June 2006. Provided definition and clarification regarding the RA policy framework. Key elements of the decision included load forecasting protocols, resource counting conventions, month-ahead compliance showings by LSEs in addition to year-ahead showings, and a policy that resources that qualify for RA compliance purposes should be obligated to bid into the CAISO's day-ahead market if not scheduled by the LSE.

D.05-10-042/ R.04-04-003

Ordered the implementation of "system" RA program beginning in June 2006 and stated intention to establish Local RA procurement obligations beginning in 2007. Addressed several RA program implementation issues, including the nature of the RA obligation (monthly system peak), the role of the CEC in reviewing and adjusting LSE load forecasts, coordination of the RA program and CAISO operations, load forecasting and resource counting issues, standard RA contract elements, the phase-out of the ability to count non-unit specific contracts for RA showings, the "must-offer obligation" (MOO) of RA resources to be available to the CAISO, and penalties for an LSE's failure to meet RA procurement obligations.

D.06-02-007/ R.04-04-003

Removed a prohibition on reselling and re-trading import capacity rights.

D.06-04-040/ R.04-04-003

In response to applications for rehearing, modified D.05-10-042 to emphasize that the RA program in place for 2006-2008 is transitional and to clarify that the MOO provision to be included in RA contracts is an independent, RA-based requirement that does not attempt to change or alter the current Federal Energy Regulatory Commission-imposed MOO.

D.06-06-064/ R.05-12-013

Established local procurement obligations for 2007 based on a 2007 Local Capacity Requirements (LCR) study by the CAISO, and set the stage for establishing local procurement obligations in future years. Addressed local RA policy and implementation issues including LCR study methodology, allocation of LCRs to Commission-jurisdictional LSEs, aggregation of local areas for compliance purposes, the compliance filing process, coordination with the CAISO's Reliability Must Run designations, market power, waivers, and penalties for non-compliance.

D.06-07-031/ R.05-12-013

Addressed certain RA policy issues to establish clearer expectations among market participants regarding how contracts for RA resources will count towards meeting LSEs' procurement obligations. Adopted protocols for forced and scheduled outages and refined the definition of the essential elements of an RA capacity product that can be readily traded.

Resolution No. E-4017

Approved a citation program for enforcing compliance with certain RA filing requirements.

D.06-12-037 R.04-04-003

In response to various petitions for modification, modified D.05-10-042 to (1) require that RA-qualified firm liquidated damages import contracts specify a delivery point at an interconnection with the CAISO control area or a CAISO scheduling point, (2) exempt certain import contracts from the requirement that RA resources be available to the CAISO in real time, and (3) make minor clarifying wording changes.

D.07-06-029/ R.05-12-013

Established local procurement obligations for 2008 and addressed zonal transmission constraints by adopting a "Path 26 Counting Constraint."

D.08-06-031/ R.08-01-025

Established local procurement obligations for 2009, modified certain resource counting rules, and approved modifications to the compliance reporting procedure.

Resolution No. E-4195

Modified the citation program adopted by Resolution No. E-4017.

D.09-06-028/ R.08-01-025

Established local procurement obligations for 2010, modified certain resource counting rules, and addressed technical implementation issues.

(END OF APPENDIX B)

Concurrence of Commissioner Dian M. Grueneich

June 3, 2010 Business Meeting, Agenda 3255, Item 30

I support item 30. This Decision rejects the creation of a centralized capacity market in California, concluding that such a market would unwisely relinquish the Commission's jurisdiction over the power supply needed to ensure safe, reliable, and affordable electric service for California.

Less than a decade ago, California experienced disastrous results in its redesign of electricity markets. Our 2000-2001 energy crisis began when centralized energy market mechanisms failed to perform as intended. The crisis expanded, in part, because California had transferred the Commission's authority to repair the dysfunctional markets to the Federal Energy Regulatory Commission.

Today's Decision avoids making the same mistakes that led to the energy crisis. Establishing a centralized capacity auction mechanism, as multiple parties in this proceeding suggested we should do, would require this Commission to once again hand over substantial components of its resource adequacy program to CAISO under the jurisdiction of the Federal Energy Regulatory Commission. Such a move is at best premature.

In rejecting the centralized capacity market, this Decision takes full advantage of the lessons learned from the energy crisis. Specifically, we recognize that preserving our current jurisdiction over the resource adequacy program is a very important benefit of the bilateral approach. Preserving this jurisdiction enables this Commission to make changes to the program going forward, both for routine program refinement and for responding to any market breakdown or other unforeseen circumstances. Certainly the Federal Energy Regulatory Commission has expertise in many areas and shares many of California's policy goals. However, given our experience in the energy crisis, I concur with the Decisions' conclusion that surrendering this Commission's authority on this critical matter is not appropriate, at least at this time.

As the Decision states, the Resource Adequacy program is currently fulfilling its intended purpose: ensuring short-term reliability by making installed capacity available to the CAISO at times and in places needed to operate the transmission grid. Combined with the Commission's Long Term Procurement Planning and Renewable Portfolio Standard, the Resource Adequacy Program is on course to successfully provide long-term reliability through facilitating development of new generating capacity. By all accounts the resource adequacy program has been a success since its inception in 2006. There is no need to introduce a centralized capacity market at this time.

I applaud President Peevey and ALJ Wetzel for the sound judgment exercised in this decision and I am pleased to support item 30.

Dated June 3, 2010, at San Francisco, California.

/s/ DIAN M GRUENEICH

Dian M. Grueneich
Commissioner

Decision/ Proceeding	Summary
Decision (D.) 04-01-050/ Rulemaking (R.) 01-10-024	In conjunction with a long-term procurement framework for the three largest California IOUs, adopted a policy of forward procurement obligations applicable to all LSEs, including ESPs and CCAs as well as IOUs. The forward procurement obligation includes a 15% planning reserve margin (PRM). LSEs must demonstrate acquisition of 90% of the capacity needed to meet their forecast peak load plus the PRM, for the following May through September.
D.04-07-028/ R.04-04-003	Responding to the CAISO's increasing need to manage congestion and address reliability issues in Southern California, modified prior orders to make clear that reliability is not only the CAISO's job. It is also a utility responsibility to procure resources necessary to meet its load system-wide and locally.
D.04-10-035/ R.04-04-003	Accelerated implementation of the 15% PRM requirement from January 2008 to June 2006. Provided definition and clarification regarding the RA policy framework. Key elements of the decision included load forecasting protocols, resource counting conventions, month-ahead compliance showings by LSEs in addition to year-ahead showings, and a policy that resources that qualify for RA compliance purposes should be obligated to bid into the CAISO's day-ahead market if not scheduled by the LSE.
D.05-10-042/ R.04-04-003	Ordered the implementation of "system" RA program beginning in June 2006 and stated intention to establish Local RA procurement obligations beginning in 2007. Addressed several RA program implementation issues, including the nature of the RA obligation (monthly system peak), the role of the CEC in reviewing and adjusting LSE load forecasts, coordination of the RA program and CAISO operations, load forecasting and resource counting issues, standard RA contract elements, the phase-out of the ability to count non-unit specific contracts for RA showings, the "must-offer obligation" (MOO) of RA resources to be available to the CAISO, and penalties for an LSE's failure to meet RA procurement obligations.
D.06-02-007/ R.04-04-003	Removed a prohibition on reselling and re-trading import capacity rights.
D.06-04-040/ R.04-04-003	In response to applications for rehearing, modified D.05-10-042 to emphasize that the RA program in place for 2006-2008 is transitional and to clarify that the MOO provision to be included in RA contracts is an independent, RA-based requirement that does not attempt to change or alter the current Federal Energy Regulatory Commission-imposed MOO.

D.06-06-064/ R.05-12-013	Established local procurement obligations for 2007 based on a 2007 Local Capacity Requirements (LCR) study by the CAISO, and set the stage for establishing local procurement obligations in future years. Addressed local RA policy and implementation issues including LCR study methodology, allocation of LCRs to Commission-jurisdictional LSEs, aggregation of local areas for compliance purposes, the compliance filing process, coordination with the CAISO's Reliability Must Run designations, market power, waivers, and penalties for non-compliance.
D.06-07-031/ R.05-12-013	Addressed certain RA policy issues to establish clearer expectations among market participants regarding how contracts for RA resources will count towards meeting LSEs' procurement obligations. Adopted protocols for forced and scheduled outages and refined the definition of the essential elements of an RA capacity product that can be readily traded.
Resolution No. E-4017	Approved a citation program for enforcing compliance with certain RA filing requirements.
D.06-12-037 R.04-04-003	In response to various petitions for modification, modified D.05-10-042 to (1) require that RA-qualified firm liquidated damages import contracts specify a delivery point at an interconnection with the CAISO control area or a CAISO scheduling point, (2) exempt certain import contracts from the requirement that RA resources be available to the CAISO in real time, and (3) make minor clarifying wording changes.
D.07-06-029/ R.05-12-013	Established local procurement obligations for 2008 and addressed zonal transmission constraints by adopting a "Path 26 Counting Constraint."
D.08-06-031/ R.08-01-025	Established local procurement obligations for 2009, modified certain resource counting rules, and approved modifications to the compliance reporting procedure.
Resolution No. E-4195	Modified the citation program adopted by Resolution No. E-4017.
D.09-06-028/ R.08-01-025	Established local procurement obligations for 2010, modified certain resource counting rules, and addressed technical implementation issues.