3. Local RA for 2013

3.1. 2013 Local Capacity Requirements Study

D.06-06-064 determined that a study of LCR performed by the ISO would form the basis for this Commission's local RA program. The ISO conducts its LCR study annually, and this Commission resets local procurement obligations each year based on the ISO's LCR determinations. Following a stakeholder process, the ISO posted its "2013 Local Capacity Technical Analysis, Final Report and Study Results" (2013 LCR Study) on its website, served notice of the report's availability, and filed it with the Commission on May 2, 2012. Comments were filed on May 7, 2012 and replies on May 14, 2012 by TURN and SDG&E.

The ISO states that the assumptions, processes, and criteria used for the 2013 LCR study were discussed and recommended in a stakeholder meeting, and that, on balance, they mirror those used in the 2007 through 2012 LCR studies. The ISO identified and studied capacity needs for the same ten local areas as in previous studies: Humboldt, North Coast/North Bay, Sierra, Greater Bay, Greater Fresno, Big Creek/Ventura, Los Angeles Basin, Stockton, Kern, and
San Diego-Imperial Valley. The ISO notes that its studies assume that the
San Onofre Nuclear Generating Station will be fully operational in 2013. However, this plant has been on an extended forced outage this year and the expected date that it will return is unknown. The ISO states that it will continue to monitor the status of this plant and, if needed, will reassess the 2013 LCR values.

D.06-06-064 determined that the reliability level associated with Option 2 as defined in the 2007 LCR study should be applied as the basis for local procurement obligations for that year. The Commission stated that "[w]hile we expect to apply Option 2 in future years in the absence of compelling information demonstrating that the risks of a lesser reliability level can reasonably be assumed, we nevertheless leave for further consideration in this proceeding the appropriate reliability level for Local [resource adequacy requirements] for 2008 and beyond." (D.06-06-064 at 21.) Each of the RA LCR decisions in the last four years adopted Option 2 as recommended by the ISO for 2008 through 2012 local procurement obligations. There is no evidence or recommendation before us suggesting that assumption of the reduced reliability associated with Option 1 is reasonable for 2013. We therefore affirm the continued application of Option 2 to establish local procurement obligations for 2013.

The 2012 and 2013 summary tables in the 2013 LCR report, copied below, show that for all ten areas combined, the total LCR associated with reliability Category C decreased by over 1000 MW (or about 4%) from 26,788 MW in 2012 to 25,769 MW. The existing capacity needed decreased from 26,158 MW in 2012 to 25,189 in 2013. The LCR needs have decreased in the following areas: Sierra, Fresno and LA Basin due to downward trend for load, and Big Creek/Ventura due to downward trend for load, new transmission projects and load allocation change among substations. The LCR needs are steady in Humboldt and Stockton. The LCR needs have slightly increased in North Coast/North Bay, Bay Area and Kern due to load growth; San Diego-Imperial Valley due to load growth as well as deficiency increase in two small sub-areas.

2013 Local Capacity Requirements

2012 Local Capacity Requirements

	Qualifying Capacity			2012 LCR Need Based on Category B			2012 LCR Need Based on Category C with Operating Procedure
Local Area Name	QF/ Muni (MW)	Market (MW)	Total (MW)	Existing Capacity Needed	Deficiency	Total (MW)	Existing Capacity Needed**	Deficiency	Total (MW)
Humboldt	54	168	222	159	0	159	190	22*	212
North Coast / North Bay	131	728	859	613	0	613	613	0	613
Sierra	1277	760	2037	1489	36*	1525	1685	289*	1974
Stockton	246	259	505	145	0	145	389	178*	567
Greater Bay	1312	5276	6588	3647	0	3647	4278	0	4278
Greater Fresno	356	2414	2770	1873	0	1873	1899	8*	1907
Kern	602	9	611	180	0	180	297	28*	325
LA Basin	4029	8054	12083	10865	0	10865	10865	0	10865
Big Creek/ Ventura	1191	4041	5232	3093	0	3093	3093	0	3093
San Diego	162	2925	3087	2849	0	2849	2849	95*	2944
Total	9360	24634	33994	24913	36	24949	26158	620	26778

* CAISO note: No local area is "overall deficient." Resource deficiency values result from a few deficient sub-areas; and since there are no resources that can mitigate this deficiency the numbers are carried forward into the total area needs. Resource deficient sub-area implies that in order to comply with the criteria, at summer peak, load may be shed immediately after the first contingency.

** CAISO note: Since "deficiency" cannot be mitigated by any available resource, the "Existing Capacity Needed" will be split among LSEs on a load share ratio during the assignment of local area resource responsibility.

The comments reveal no disagreement with the ISO's LCR determinations for 2013 except with regards the San Diego sub-area. As Local RA obligations are not set relative to subareas, we do not address this topic here. SDG&E supports the LCR study for the San Diego-Imperial Valley areas. As we noted in
D.11-06-022 and in previous years, it appears that past efforts towards greater transparency and opportunity for participation in the LCR study process have paid off in significant part. We determine that the ISO's final 2013 LCR study should be approved as the basis for establishing local procurement obligations for 2013 applicable to Commission-jurisdictional LSEs.

3.2. Refinements to the Resource Adequacy Program

3.2.1. Continuation of the Local RA Program

The RA program includes both "system" and "local" RA requirements. Each LSE must procure sufficient RA capacity resources to meet both obligations. "System" RA requirements are calculated based on an LSE's peak load plus a 15% planning reserve margin. "Local" RA requirements are calculated based on the ISO's Local Capacity Technical Analysis, and are allocated to each individual Commission-jurisdictional LSE by the Commission. Each LSE must then procure sufficient RA capacity resources in each Local Area to meet their obligation.

D.06-06-064 adopted a framework for local RA and established local procurement obligations for 2007 only. D.07-06-029, D.08-06-031, D.09-06-028, D.10-06-036 and D.11-06-022 established local procurement obligations for 2008, 2009, 2010, 2011 and 2012, respectively. We intend that the local RA program and associated regulatory requirements adopted in those decisions shall be continued in effect for 2013 and thereafter until changed, subject to the 2013 LCRs and procurement obligations adopted by this decision.

In previous decisions, we delegated ministerial aspects of RA program administration to the Commission's Energy Division. Once again, Energy Division should implement the local RA program for 2013 in accordance with the adopted policies.

In the following sections, we discuss issues which were both in the scope of Phase One of the proceeding and developed sufficiently in the record to allow us to make a decision today. Issues in the scope of Phase One not discussed herein may be subsequently considered in another decision in Phase Two of this proceeding.

3.2.2. Flexible Capacity and Maximum Cumulative Capacity Buckets Proposals

The RA proceedings to date have focused upon providing for local reliability needs for the upcoming compliance year, in order to ensure that the Commission's efforts to ensure reliable grid operation succeed. To that end, we adopt local capacity requirements each year with technical input from the ISO. For example, in this year's decision we adopt local capacity requirements for 2013. The RA proceedings have also been a forum to refine the RA program; for example, in past years the RA proceeding has improved ways of determining which and how resources count for local reliability purposes or to provide a penalty system for non-compliance with RA requirements.

In consultation with the ISO and with other stakeholders, we recognize that there may be a need for more specificity in procurement for RA purposes. We can accomplish this through defining "flexibility," so that LSEs can procure resources to meet RA needs in ways which more precisely meet changing reliability needs. Reliability needs are changing over time because of a number of factors. First, recent State Water Resources Control Board rules may now require once-through cooling (OTC) plants to shut down or significantly change their operations before the previously-expected retirement dates for these plans. This rule change necessitates contracting for resources to replace potential lost capacity in the local areas, which are presently dependent on these plants for local reliability. Per the ISO, this is particularly true in the Los Angeles Basin,
Big Creek/Ventura, and San Diego areas. Second, the increased flexibility requirements due to the state's 33% Renewable Portfolio Standard might change the reliability characteristics of the grid over the next several years. Some renewable resources have different operating characteristics than many traditional non-fossil based resources - for example, wind or solar resources are typically more intermittent in nature and subsequently they have less operational predictability and flexibility than gas-fired power plants. Going forward, we expect that our continued standard of high reliability of the grid is dependent upon a more complex and flexible fleet of generating resources. Third, there have been changes in load characteristics with changes to peak, shoulder and mid-peak times such that increased supply flexibility (as well as tools such as demand response) is needed.

The ISO raises the issue of the need for flexible capacity to maintain grid reliability over a number of years. The ISO contends that without multi-year capacity contracts, existing flexible resources may not receive sufficient revenues from the energy and ancillary service markets to remain economically viable. They further contend that there is an operational need for the flexibility conventional resources provide, especially during critical ramping periods. Therefore, the ISO seeks modifications to the Commission's programs to ensure that these flexible resources remain economically viable and available to them in order to maintain system reliability, in order to minimize the need for procurement through the ISO backstop procurement mechanism. The ISO also states that if retirement of all planned OTC resources were to occur, insufficient flexibility will occur potentially as early as 2018.

Taken together, these developments mean that there may be a need for additional capacity to meet reliability needs. Because this proceeding concerns capacity needs for one year in the future, but can take several years to plan and build new generation, the ISO calls for both multi-year contracts for RA resources and a definition of flexible capacity. The Scoping Memo of the current Long Term Procurement Process (LTPP) proceeding, Rulemaking (R.) 12-03-014, commits to consider new rules for procurement of multi-year flexible capacity for local reliability purposes, in coordination with Commission decisions on flexible capacity in this RA proceeding. The LTPP Scoping Memo also foresees an LTPP decision at or near the end of 2012 that may authorize or require
Commission-jursidictional Investor-Owned Utilities and/or other LSEs to contract for multi-year local reliability needs to the extent that the Commission finds there is such a need.

Therefore, in this proceeding, we will focus on defining which flexible attributes can or should be included for RA resources one year out. These flexible attributes may also be appropriate for any multi-year local capacity procurement that may be authorized in the LTPP proceeding.

The ISO and Energy Division have each presented a proposal in the record to address the changing flexible attribute needs for local reliability.