5. Compliance with Loading Order

All utility procurement must be consistent with the Commission's established loading order. The loading order, first set forth in the Commission's 2003 Energy Action Plan, and subsequently reiterated in multiple forums (including D.07-12-052), requires the utilities to procure resources in a specific order:

The "loading order" established that the state, in meeting its energy needs, would invest first in energy efficiency and demand-side resources, followed by renewable resources, and only then in clean conventional electricity supply. (Energy Action Plan 2008 Update at 1.)

Pacific Environment argues that the loading order sets forth the priority sequence that should govern all utility procurement actions:

Under this order, energy efficiency and demand response should first be utilized to meet need. Should these resources be unsuccessful in meeting need, then renewable energy and distributed generation should be employed. Only after all preferred resources fail to satisfy demand can utilities resort to using conventional fossil fuel-generated energy. (Pacific Environment Opening Brief at 6, citations omitted.)

The utilities do not contest the applicability of the loading order to their procurement, but describe the mechanics of applying it in a different way. SCE describes its operation as follows:

Therefore, SCE's AB 57 Bundled PP addresses the procurement required to serve the residual energy requirements of SCE's bundled customers, after first fully accounting for all of SCE's committed and forecasted preferred resources (i.e., Energy Efficiency (EE), Demand Response (DR), renewables, Qualifying Facility (QF) contracts, Combined Heat and Power (CHP), and Distributed Generation (DG)) and utility owned generation (UOG). SCE fully considers all cost-effective preferred resources before committing to conventional resources. Indeed, SCE's residual procurement is open to all resource technologies that can meet SCE's procurement requirements, including preferred resources. SCE provided a comprehensive description of its adherence to the Preferred Loading Order in its AB 57 Bundled PP. (SCE Opening Brief at 6, emphasis in original, citations omitted.)

SDG&E takes a slightly different position:

As Mr. Anderson observed "the Commission determines the amounts of cost-effective EE and DR in separate proceedings that look at the full range of options and then approves specific programs and funding for the next program period, usually a two- or three-year period. Thus, by the time SDG&E seeks to fill its bundled customers' near-term net short position, it has already incorporated reductions from these resources." (SDG&E Opening Brief at 9-10, quoting Exhibit 306, citations omitted.)

The utilities are fundamentally correct that the Commission analyzes and sets goals for programs such as energy efficiency and demand response in other proceedings, and the results of those other proceedings inform the procurement plans to be approved in this proceeding. There is no need to re-analyze or re-litigate those same issues here, particularly since the results of those other proceedings have largely been incorporated into the standardized planning assumptions.⁶

The question raised by the utilities' arguments is whether the obligation to procure resources in the sequence set forth in the loading order is finite or if it is ongoing. The utility position is that the obligation is finite - - once the required levels of preferred resources are reached, the obligation to procure more of those resources ends, and the utility is free to procure any needed residual amounts from conventional sources (although it may procure additional preferred resources).

Under the Pacific Environment interpretation (also supported by Sierra Club), even if enough of the preferred resources have been procured to meet the utilities' obligations under the Commission's program-specific decisions, any residual procurement should also follow the loading order.

Each of these two interpretations has plusses and minuses. The utility interpretation would result in a simpler approach, as it would provide the utilities a clearer idea up front of how they will procure generation resources. On the other hand, the Pacific Environment interpretation would tend to maximize the procurement of preferred resources under the loading order.

In D.07-12-052, this Commission stated what appears to be a somewhat intermediate position:

The priorities, or "loading order" is as follows: energy efficiency (EE), demand response (DR), renewable power, distributed generation (DG), clean and efficient fossil-fired generation. EE and DR are considered the highest priority and should be employed first by a utility in making procurement decisions since they are demand-side resources. Once a utility captures the targeted EE and DR opportunities, the utility is to procure renewable generation to the fullest extent possible. (Id. at 12.)

In other words, once the pre-established targets for energy efficiency and demand response are hit, the utility is no longer required to procure more of those resources. But once the utility gets to the procurement of renewable power, the utility is under a continuing obligation to maximize its procurement of cost-effective renewable generation, even if it has hit the target set by this Commission in another proceeding.

Given the differing interpretations of the loading order offered in this proceeding, it is important that we clarify the correct implementation of the loading order. Based on the record of this proceeding, the Commission could apply a number of different interpretations in implementing the loading order, but our goal is to clarify existing policy and ensure its implementation, not adopt a new policy or approach.

Accordingly, to clarify the Commission's position, we expressly endorse the general concept that the utility obligation to follow the loading order is ongoing. The loading order applies to all utility procurement, even if pre-set targets for certain preferred resources have been achieved. This is only a clarification of our existing policy, and does not modify any Commission decision relating to procurement of specific resources, such as energy efficiency or renewable generation.

In addition, because the standardized planning assumptions are based upon the Commission's loading order, the position of PG&E and SDG&E that the standardized planning assumptions do not reflect their preferred (or even a likely) set of resources raises some concerns regarding utility compliance with the loading order. This is reinforced by the Commission's finding in D.07-12-052 that:

7. We find that in general all three LTPPs do not fully reflect our goals in regards to addressing preferred resources and the EAP [Energy Action Plan] loading order and GHG [greenhouse gas] reductions. (Id., Finding of Fact 7, at 271.)

That same decision also found that the utilities planned and projected to fill their net short positions with conventional resources, rather than the preferred resources. (Id., Finding of Fact 6, at 271.) It appears necessary to reiterate here the centrality of the loading order, and to direct the utilities to procure all of their generation resources in the sequence set out in the loading order. While hitting a target for energy efficiency or demand response may satisfy other obligations of the utility, that does not constitute a ceiling on those resources for purposes of procurement.

We understand that opportunities to procure additional energy efficiency or demand response resources may be more constrained than just signing up for more conventional fossil generation, but the utilities should still procure additional energy efficiency and demand response resources to the extent they are feasibly available and cost effective. If the utilities can reasonably procure additional energy efficiency and demand response resources, they should do so. This approach also continues for each step down the loading order, including renewable and distributed generation.

⁶ The primary exceptions are the recent decisions relating to Direct Access/Community Choice Aggregation and Combined Heat and Power.