2. Background
Senate Bill (SB) 695, enacted in 2009, contained a range of provisions relating to direct access and utility procurement of generation resources. At issue here is SB 695's creation of new Public Utilities Code Section 365.1(c), which addresses allocation of the costs of certain generation resources procured by the utilities.
Specifically, the language that is the primary focus here is:
(c) Once the commission has authorized additional direct transactions pursuant to subdivision (b), it shall do both of the following:
(1) Ensure that other providers are subject to the same requirements that are applicable to the state's three largest electrical corporations under any programs or rules adopted by the commission to implement the resource adequacy provisions of Section 380, the renewables portfolio standard provisions of Article 16 (commencing with Section 399.11), and the requirements for the electricity sector adopted by the State Air Resources Board pursuant to the California Global Warming Solutions Act of 2006 (Division 25.5 (commencing with Section 38500) of the Health and Safety Code). This requirement applies notwithstanding any prior decision of the commission to the contrary.
(2) (A) Ensure that, in the event that the commission authorizes, in the situation of a contract with a third party, or orders, in the situation of utility-owned generation, an electrical corporation to obtain generation resources that the commission determines are needed to meet system or local area reliability needs for the benefit of all customers in the electrical corporation's distribution service territory, the net capacity costs of those generation resources are allocated on a fully nonbypassable basis consistent with departing load provisions as determined by the commission, to all of the following:
(i) Bundled service customers of the electrical corporation.
(ii) Customers that purchase electricity through a direct transaction with other providers.
(iii) Customers of community choice aggregators.
(B) The resource adequacy benefits of generation resources acquired by an electrical corporation pursuant to subparagraph (A) shall be allocated to all customers who pay their net capacity costs. Net capacity costs shall be determined by subtracting the energy and ancillary services value of the resource from the total costs paid by the electrical corporation pursuant to a contract with a third party or the annual revenue requirement for the resource if the electrical corporation directly owns the resource. An energy auction shall not be required as a condition for applying this allocation, but may be allowed as a means to establish the energy and ancillary services value of the resource for purposes of determining the net costs of capacity to be recovered from customers pursuant to this paragraph, and the allocation of the net capacity costs of contracts with third parties shall be allowed for the terms of those contracts.
(C) It is the intent of the Legislature, in enacting this paragraph, to provide additional guidance to the commission with respect to the implementation of subdivision (g) of Section 380, as well as to ensure that the customers to whom the net costs and benefits of capacity are allocated are not required to pay for the cost of electricity they do not consume.
The Cost Allocation Mechanism (CAM) adopted by the Commission in Decision (D.) 06-07-029, in the 2006 Long-Term Procurement Proceeding Rulemaking (R.) 06-02-013, fundamentally addresses the same issue. Accordingly, the Commission must now make sure that its administration of the CAM is consistent with the requirements of SB 695.
An Administrative Law Judge's Ruling issued on September 14, 2010, directed parties to file comments on whether and how existing procurement rules should be modified to comply with the relevant provisions of SB 695.2
The September 14, 2010 Ruling preliminarily identified two aspects of the cost allocation provisions of SB 695 that differ from the existing CAM: 1) the eligibility of utility-owned generation resources for CAM treatment, and 2) the use of an energy auction to determine the net capacity cost for resources needed to meet system and local reliability. The Ruling also asked parties to answer the following questions:
1. How should the CAM process adopted in D.06-07-029 and D.07-09-044 be modified or refined to comply with SB 695?
2. How should the Commission interpret and define the term "all customers" in the context of SB 695 and existing procurement rules?
3. Pursuant to Section 365.1(c)(2)(A), should the Commission grant authorization in the proceeding to allow utility-owned generation to be eligible for CAM treatment?
4. What criteria and factors should the Commission consider when determining whether to allow utility-owned generation to be eligible for the CAM?
5. How should the Commission interpret Section 365.1(c)(2)(B) which provides that "an energy auction shall not be required" but "may be allowed as a mean to establish the energy and ancillary services value of the resources for the purposes of determining the net cost of capacity...?"
6. Aside from an energy auction, what are alternative mechanisms that can be used to determine the net cost of capacity?
Opening comments were filed by Alliance for Retail Energy Markets (AReM), California Large Energy Consumers Association, Jan L. Reid (Reid), Pacific Gas and Electric Company (PG&E) jointly with San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE), The Utility Reform Network (TURN), and Women's Energy Matters. AReM, the Commission's Division of Ratepayer Advocates (DRA), Reid, SCE, and TURN filed reply comments.
While parties differ in their recommended approach to reconciling the existing CAM rules with SB 695, there is general consensus that modification of the CAM rules is necessary. We agree. There are aspects of the CAM rules that are not consistent with SB 695. We are modifying the CAM rules to reconcile them with the applicable provisions of SB 695.
2 Administrative Law Judge's Ruling on Implementation of SB 695 and the Cost Allocation Mechanism (Track III), dated September 14, 2010.
