II. BACKGROUND
Against the backdrop of California's energy crisis, the Commission established comprehensive RAR rules that require LSEs to demonstrate both (1) aggregate and system resource adequacy (acquisition of sufficient generation capacity to serve forecasted retail customer load, including a reserve margin), and (2) local resource adequacy (acquisition of sufficient generation capacity within defined, transmission-constrained areas)1 in their service areas.
In Decisions (D.) 05-10-042 and 06-06-064, the Commission established rules requiring all Load-Serving Entities (LSEs) in the service territories of California's three largest investor-owned electric utilities to procure sufficient generation capacity, including reserves, to ensure that all retail customers within their service areas have reliable electric service. D.05-10-042 required LSEs to demonstrate that they had acquired sufficient generation capacity to serve forecasted retail customer load plus a reserve margin without accounting for local transmission constraints. D.06-06-064 required LSEs to demonstrate that they had acquired sufficient generation capacity within certain areas of their load with transmission constraints.
These decisions were part of a series of Decisions the Commission issued over a period of two and half years, beginning in 2004, to secure cost-effective investments in electric generation capacity for California. In each of these Decisions, the Commission considered and vetted the concerns of all affected LSEs and other interested parties to ensure that the RA program it established is effective and sustainable.
The Commission found that an LSE's failure to make the necessary RAR showings in its compliance filings jeopardizes the reliability of the grid and may burden the California Independent System Operator (CAISO) with the potential obligation to make the requisite procurement as a backstop. The Commission and the CAISO rely on accurate resource procurement and reporting to manage the many uncertainties that pose threats to the reliability of the grid. Therefore, the Commission has determined that LSEs should be held accountable in procuring and reporting accurate resource adequacy compliance filings.
A. Resource Adequacy Requirement Compliance Filings
The RAR rules require LSEs to file a report showing that they have procured 100% of the resources necessary to serve their forecasted demand for the month ahead, plus reserve.
● Month-Ahead System Resource Adequacy Compliance Filings: (1) a monthly Advice Letter filing with Energy Division using an approved template which demonstrates: (a) acquisition of 100% of the qualifying system capacity obligation (adjusted forecast plus reserve margin) for a "compliance month" from the qualifying capacity providers maintained by the CAISO and the amount of capacity from each provider; and (b) the sale of any qualifying capacity previously identified in a resource adequacy compliance filing for system resource adequacy requirements, and that the capacity remains fully available to the CAISO, and (2) a monthly load forecast submitted to the CEC demonstrating adjustments to the Preliminary Load Forecast for positive and negative load growth due to load migration.
(Resolution E-4017, pp. 2-3.) CNE's failure to file a valid Month-Ahead System RA compliance Advice Letter is at issue in this proceeding.
B. System Resource Adequacy Requirement
The System RAR requires LSEs to demonstrate that they have acquired sufficient capacity to serve their retail customer load along with a 15-17% reserve margin. The supply contracts that count for RAR purposes must identify specific resources that provide the qualifying capacity. The Commission also established penalties for non-compliance with System RAR filing requirements, stating that such penalties were necessary for the program to achieve its objectives of providing reliable, cost-effective electricity and fostering an environment for cost effective investment in generation infrastructure. The penalties were set as a multiple of the cost of replacing the capacity an LSE failed to procure.
C. Public Utilities Code §380
In January 2006 the California Legislature enacted Public Utilities (PU) Code §380, essentially codifying the Commission's activities under the RAR proceedings and authorizing the Commission to determine the most equitable means for achieving the RAR program goals.2 In D.05-10-042, the Commission determined that a penalty regime is the most equitable means for achieving the RAR goals.
[A] regulatory program that imposes significant procurement obligations upon LSEs cannot be expected to succeed unless those LSEs have reason to believe there are consequences for non-compliance that outweigh the costs of compliance.
(D.05-10-042, p. 93; see also, D.06-06-064, p. 66.)
The Commission is empowered to see that the provisions of statutes, such as Section 380, which affect public utilities "are enforced and obeyed, and that violations thereof are promptly prosecuted and penalties therefore ..., recovered and collected."3 Electric service providers (ESPs) are subject to Commission enforcement authority pursuant to the same statutes as if they were public utilities.4
1 Resolution E-4017, p. 2.
2 PU Code §380(h).
3 PU Code § 2101.
4 PU Code § 394.25.
