ALJ/MSW/tcg Date of Issuance 6/7/2010
Decision 10-06-018 June 3, 2010
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Consider Refinements to and Further Development of the Commission's Resource Adequacy Requirements Program. |
Rulemaking 05-12-013 (Filed December 15, 2005) |
DECISION ON PHASE 2 - TRACK 2 ISSUES: ADOPTION OF A
PREFERRED POLICY FOR RESOURCE ADEQUACY
DECISION ON PHASE 2 - TRACK 2 ISSUES: ADOPTION OF A
PREFERRED POLICY FOR RESOURCE ADEQUACY 1
1. Summary of Decision 2
2. Procedural Background 4
3. Development of a Preferred Resource Adequacy Policy 8
3.1. Introduction 8
3.2. Program Objectives 9
3.3. Description of the Current Program 15
3.4. Assessment of the Current Program 17
3.4.1. Overview 17
3.4.2. The Reliability Objective 19
3.4.3. The Least Cost Objective 21
3.4.3.1. Price Discrimination 21
3.4.3.2. Multi-Year Forward Commitment 25
3.4.3.3. Other Least Cost Considerations 26
3.4.4. The Equitable Cost Allocation Objective 28
3.4.5. The Program and Policy Coordination Objective 29
3.4.5.1. Competitive Wholesale Markets 29
3.4.5.2. Competitive Retail Markets 30
3.4.5.3. Environmental Goals 30
3.4.6. Discussion: Assessment of the Current RA Program 31
3.4.6.1. Forward Investment 31
3.4.6.2. Multi-Year Forward Commitment 32
3.4.6.3. Market Transparency and Efficiency 34
3.4.6.4. The Role of Price Discrimination 34
3.4.6.5. Backstop Procurement 36
3.4.6.6. Administrative Burden 36
3.4.6.7. Equitable Cost Allocation 36
3.4.6.8. Program and Policy Coordination 36
3.4.6.9. Summary 37
3.5. Review of Program Options 39
3.5.1. Bilateral Procurement Options 40
3.5.1.1. Maintain the Status Quo 40
3.5.1.2. BTG Proposal 40
3.5.1.3. Staff Recommendation 2 41
3.5.1.4. PG&E's Proposed Multi-Year Bilateral Approach 41
3.5.1.5. Aglet's Proposal for a Physical Call Option Market 42
3.5.2. CAISO-Administered Capacity Auction Options 43
3.6. Preferred Policy for Resource Adequacy 54
3.7. Implementing the Preferred Option 69
4. Cost Allocation Mechanism Opt-Out 71
5. Disposition of Proceeding 75
6. Comments on Proposed Decisions 75
7. Assignment of Proceeding 76
Findings of Fact 76
Conclusions of Law 79
ORDER 81
Appendix A Public Utilities Code Section 380
Appendix B Resource Adequacy Decisions, 2004-2009
DECISION ON PHASE 2 - TRACK 2 ISSUES: ADOPTION OF A
PREFERRED POLICY FOR RESOURCE ADEQUACY
1. Summary of Decision
Public Utilities Code Section 380 directs us to establish resource adequacy requirements applicable to investor-owned utilities and other load-serving entities in order to facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed for reliability. In this decision we evaluate whether the resource adequacy program is achieving these and other objectives, which include: ensuring reliability at least cost, equitably allocating the costs of reliability, supporting California's renewable energy goals, and promoting competitive markets. We then consider whether any alternatives to the current RA program structure could better satisfy the program objectives.
The resource adequacy program relies upon the imposition of short-term (year-ahead) procurement obligations on load-serving entities. This approach has worked well to assure the availability of existing resources to the California Independent System Operator Corporation for reliable grid operations. However, many parties are concerned that it does not provide adequate price signals or sufficient certainty to promote investment in new generation. These parties argue that it is necessary to modify the program by providing for a multi-year forward commitment of capacity resources. While their concerns have merit, we conclude that a multi-year forward procurement obligation should not be adopted at this time. We direct our staff to review this issue and report its findings to us as the basis for possible future action.
We also consider whether to adopt a policy for a centralized capacity auction mechanism administered by the California Independent System Operator Corporation, or to continue the resource adequacy program's reliance on bilateral contracting for capacity. While each approach has its particular advantages, we find, on balance, that maintaining the current bilateral contracting approach best meets the program objectives at this time. Proponents of the centralized capacity auction mechanism did not persuasively demonstrate how such a system could be structured to prioritize renewable resources and otherwise support the Commission's environmental goals. We therefore decide to preserve the current the bilateral contracting approach for the time being.
We find that the bilateral approach recommended by the Bilateral Trading Group is the option that best comports with our threshold policy determinations for resource adequacy, and we provide guidance for further proceedings to refine and implement the proposal. Finally, we review proposals for allowing load-serving entities to opt out of the Cost Allocation Mechanism adopted in Decision 06-07-029, and determine that none of them is ready for adoption.
With this decision we complete the second track of Phase 2 of this proceeding. Track 3 of Phase 2 was established to address resource adequacy obligations for small and multi-jurisdictional load-serving entities that are not currently subject to the resource adequacy program. We find that it is appropriate to close this proceeding and resolve the Track 3 issues in a more appropriate proceeding.
