8. Reporting, Review, and Sanctions

8.1. Preliminary Load Forecast Reporting

Scope Of Load Forecasts - The Phase 1 workshop discussions regarding year-ahead reporting requirements assumed that load forecasts would cover the five summer months of May through September only. However, D.04-10-035 adopted a year-round month-ahead requirement as well as the year-ahead requirement. The Phase 2 workshops revealed that the month-ahead requirement results in (1) a need to have the LSEs' preliminary load forecasts submitted as part of the year-ahead process include load forecasts for all 12 months of the year, and (2) a need for the CEC review process to make adjustments for the entire year. We therefore direct LSEs to submit documented hourly load forecasts for all 12 months of the year as part of the year-ahead preliminary load forecasts they submit each spring.

Schedule for Preliminary Forecasts - As set forth in the workshop report, the Phase 2 workshop discussions resulted in the following suggested annual schedule:

April 1 - May 1	LSEs submit preliminary forecasts to initiate CEC review for anomalies and CEC adjustments for EE/DR/DG impacts and coincidence
July 1	Final forecasts determined by CEC and sent to LSEs for resource acquisition
September 30	Final compliance package submitted by LSE

We recognize that a key issue for LSEs is their need to receive final, adjusted load forecasts from the CEC by July 1 to allow them sufficient time for final resource acquisition and a showing of such acquisition on September 30. This means that the LSEs' preliminary forecasts need to be submitted by the April 1 to May 1 period.

For the first RAR compliance cycle, this process was initiated by ALJ ruling. (See Footnote 12, supra.) For subsequent years, the suggested schedule should be followed with minor modifications. Rather than specify a range of dates (April 1 to May 1) we will set April 15 as the submission date for preliminary load forecasts. We also adopt the CEC staff suggestion that historic data be filed by each LSE prior to its preliminary load forecast, as this would allow coincidence studies to be undertaken and assure that data transfer issues are resolved prior to the critical load forecast review itself. Historic data should be submitted a month prior to the LSE's load forecast, i.e., on March 15.

As we gain experience with the RAR program, modifications to this schedule may be necessary. We also note that Rule 48(b) of the Rules of Practice and Procedure provides an expedited informal process for parties to request extensions of time. As TURN points out, the possibility of an "open season" for CCAs to declare their intent to begin serving customers raises additional coordination issues. The ALJ assigned to this or any successor proceeding addressing RAR and the ALJ assigned to R.03-10-003 may need to establish procedures and schedule modifications for such coordination.

Documentation Requirements - D.04-10-035 adopted certain agreements, reached in the Phase 1 workshops and described in the Phase 1 Workshop Report, regarding the level of detail that each LSE will use in submitting its preliminary load forecast. In the Phase 2 workshops, the following additional points were raised:

Load forecast submissions encompass:

Load forecasts will need to encompass all months of the year, because it is impractical to use the month-ahead reporting process to make the necessary adjustments to the non-summer month load forecasts that will already have been made for the five summer months.

Load forecasts should include hourly load values for each month.

Load forecasts should include estimates of losses including distribution, transmission, and UFE added onto customer-meter loads.

Load forecast documentation includes:

Current and projected customer counts.

Projected changes in contract loads.

Adjustments for municipal departing load and community choice aggregators projected to depart from an IOU in the forthcoming year.

Description of load forecasting methodology including regression equations and other descriptive information.

Other historic data needed to understand nature of load forecasting methodology.

Historical hourly loads for the previous year.

Historical hourly loads adjusted to normal weather, and the weather data and methodology used to make such adjustments.

The workshop process has clarified that in order for the CEC to determine what level of EE, DR, and DG impacts should be used to adjust an LSE's preliminary load forecast, the LSE must document any such impacts it believes are already included in the preliminary load forecast and provide a methodological rationale supporting this belief.

As discussed earlier, we recognize that CEC staff may need to work with LSEs in their review of LSE forecasts, and that LSEs will be obligated to respond timely to CEC data requests. We believe that this process will be enhanced if, a month or more before the LSEs' respective historic and forecast load submittals are due, the CEC, in coordination with our Energy Division, issues instructions to each LSE regarding those submittals. CEC may wish to consider PG&E's suggestion that LSEs use the data format used for the 2005 Integrated Energy Policy Report.

We affirm the Phase 1 determinations regarding the scope and content of LSE load forecasts made in D.04-10-035, and we endorse the additional load forecast definitions and documentation requirements set forth above.

Confidentiality of LSE Load Data - Confidentiality issues for the first RAR cycle of LSE preliminary load data submittals were resolved with the issuance of the ALJ's Protective Order on June 24, 2005.²⁰ Before we adopt specific confidentiality protocols for LSE load data for future years, we will complete our more generic review of confidentiality issues in R.05-06-040. Since that review may not be completed before the next RAR cycle's load data submittals are made next spring, we will provide that such submittals shall be subject to the ALJ's June 24, 2004 protective order or successor protective order.

8.2. Preliminary Load Forecast Review

D.04-10-035 provides for the CEC to review preliminary load forecasts from LSEs to determine plausibility and to make certain adjustments that an LSE cannot make by itself. In Section 5.2, we outlined the process by which the Commission and the CEC will administer the review and adjustment of LSE load forecasts. An additional topic related to the review process--whether the aggregation of adjusted LSE load forecasts should be compared to CEC and/or CAISO short-term load forecasts as the basis for possible further "reconciliation" adjustments--was addressed in the Phase 2 workshops.

Staff reports there was agreement among workshop participants that such comparisons are appropriate, and that LSEs agreed that adjustments to preliminary load forecasts may be needed if the discrepancies are too large. Moreover, the participants seemed to agree that a reasonable threshold for considering reconciliation adjustments was a 1% or greater difference between the aggregated LSE load forecasts and the reference load forecast. Thus, if the sum of the adjusted LSE load forecasts is 99% or less, or 101% or more, of the reference case forecast (itself adjusted as necessary to match RAR load forecasting conventions), then each individual LSE load forecast would be further adjusted proportionally. Such reconciliation adjustments could either be set so that the aggregate sum exactly matched the reference load forecast or was brought to within 1% of the reference forecast.

The comments reflect general agreement that a reconciliation adjustment is appropriate along with concern that a pro rata adjustment could create an incentive for LSEs to socialize procurement costs by under-forecasting their load. IEP notes that pro rata adjustments may not be appropriate for LSEs with flat load shapes, and recommends that thought be given to a better approach to making adjustments.

We find that an adjustment that reconciles the LSEs' load forecasts to the State's official load forecasts provides an appropriate reality check on the integrity of the RAR program, and has the effect of better integrating the RAR program with the state's resource planning efforts. Such adjustments to LSE forecasts should therefore be made by the CEC as part of its load forecast review. We adopt 1% as the minimum threshold. We also adopt the alternative of adjustments that bring aggregate LSE forecasts to within 1% of the reference forecast as that is consistent with the idea of a threshold.

We share IEPs interest in developing adjustment methods that may be more suited to LSEs with flat load shapes, and welcome proposals for such methods in future RAR proceedings. Until and unless such methods are developed, we do not find that pro rata adjustments are unreasonable for all LSEs.

We recognize the concern that pro rata adjustments could, in theory, create an incentive for individual LSEs to under-forecast. This is essentially the same "free rider" issue that we addressed in the Phase 1 decision. We are satisfied that other aspects of the review process, particularly the plausibility check, adequately address any free rider issues associated with a reconciliation adjustment. Additionally, the dispute resolution process being established pursuant to our discussion in Section 5.2 will be available to address anomalous situations.

8.3. Year-Ahead Compliance Filings

Filing Process - The essence of an LSE's year-ahead compliance filing is a demonstration that it has acquired sufficient resources to satisfy the 90% forward commitment obligation for loads plus reserve requirements for each of the five summer months May - September. We see the CAISO as the entity with primary responsibility for performing the reviews of the LSEs'resource tabulation submissions. However, as noted earlier, this Commission is establishing the RAR program pursuant to its authority and jurisdiction, and it retains ultimate responsibility for the program. Among other things, this Commission's determinations regarding confidentiality should be and remain applicable, and this Commission is responsible for compliance and enforcement regarding LSE obligations. Accordingly, RAR compliance filings should be made with the Commission and simultaneously served on the CAISO and the CEC.

Because the LSEs' submittals are compliance filings, we will invoke the Commission's existing advice letter process rather than either (1) requiring formal filings with our Docket Office or (2) requiring only informal submittals to our staff. We believe that the advice letter mechanism is sufficiently flexible and adaptable to the needs of the RAR program with respect to IOUs as well as ESPs and CCAs.

Resource Tabulation Template - A quantitative tabulation of each resource that contributes qualifying capacity to meet loads plus reserves is needed for each month. Appendix I to the Phase 2 Workshop Report is a working proposal prepared by the CAISO that incorporates revisions discussed in the workshops. In general, the CAISO's proposal creates a set of reporting instructions and a template focusing on a display of resources, by category, for a specific peak load forecast for which a compliance demonstration is required. Comments on the Phase 2 workshop report demonstrate support for use of this template.

As IEP notes, a minor correction is needed. The template and instructions should reflect that the year-ahead obligation is 90% of the LSE's load including 15% reserves, i.e., 90% of 115%, not 90% plus 15%. Staff notes that the proposed template and the instructions fail to identify DR programs that the LSE submits as part of the qualifying capacity to cover loads and reserves.

We endorse and adopt the proposed template and instructions with the corrections noted by IEP and by staff.

Confidentiality Issues - The comments revealed a general consensus that LSE resource tabulations are considered as confidential as LSE load data or even more so. As we noted earlier in connection with the confidentiality of LSE load data, the Commission is generically considering confidentiality protocols in R.05-05-040. Pending the completion of that process, we will take a conservative approach to the treatment of LSE resource data by providing that such data shall remain confidential until further order. Subject to appropriate non-disclosure protocols, access to this confidential data shall be limited to this Commission, the CAISO, the CEC, and other government agencies to the extent required by law. In addition, non-market participants shall have access to this data to the same extent, if any, that non-market participants have access to historic and forecast load data pursuant to ALJ ruling in this or successor RAR proceeding. Since these data represent an important improvement in the quantity and quality of data about future load and resource balances, we will authorize public disclosure by the CEC of aggregations of these data in making overall control area and statewide assessments.

8.4. Review of Year-Ahead Compliance Filings

D.04-10-035 established a September 30 compliance filing requirement each year (beginning in 2006 for procurement in 2007) for the year-ahead forward commitments for May-September of the following year. LSEs are to use the final, CEC-adjusted load forecast as the basis for resource commitments that total to 90% of peak load plus 15%-17% planning reserves. The year-ahead compliance filing review process will enable the Commission to confirm that all LSEs have met their RA obligations by having acquired qualifying capacity for each of the five summer months of the following year. As described in the workshop report, participants developed the following list of review activities.

Verify use of the "final" load forecast as issued by the CEC.

Ascertain that qualifying capacity rules applicable to the resources nominated for each month were followed.

Verify that the LSE used appropriate limitations on some categories of resources (e.g., limits on certain kinds of DR resources based on percentage of peak load or hourly load).

Verify that the resources are consistent with the CAISO's qualified capacity listing which accounts for deliverability, generator performance, etc.

Ensure that local capacity requirements were secured by resources within each load pocket.

Determine that no double-counting of generator capacity by more than one LSE was submitted unless explicitly recognized and called out in documentation.

These steps appear to represent a reasonably complete summary of the process that we will need to follow in reviewing LSE compliance filings. While our Energy Division will have primary responsibility for the administration of the filing process as well as the review process, we expect that the Energy Division will work closely with, and rely on the expertise of, the CAISO and the CEC in carrying out its responsibilities.

8.5. Month-Ahead Reporting

Definition of "Month-Ahead" - In addition to the 90% year-ahead obligation, D.04-10-035 requires that LSEs make month-ahead filings demonstrating they have acquired 100% of their obligation for a "compliance month." The decision left open for Phase 2 the definition of the month-ahead obligation. The workshops addressed two alternatives in which LSEs' monthly compliance filings would either be due the middle of the month prior to the compliance month ( e.g., April 15 for May) or the last day of the second month prior to the compliance month (e.g., March 31 for May).

As the workshop report observes, Option 1 would allow for economic opportunities that may occur closer to real-time. On the other hand, Option 2 would facilitate analysis and enforcement. D.04-10-035 noted the CAISO's position that there are market power mitigation as well as operational benefits to a confirmation that LSEs are resource adequate a month ahead. Option 2 is more consistent with the objectives of the month-ahead requirement and will therefore be adopted.

Adjustment to Forecasts - Even though additional direct access has been suspended, there can be considerable migration of existing DA load among ESPs. ESPs maintain that they should be allowed to incorporate adjustments to their year-ahead load forecasts in their month-ahead filings to account for customer migration. This is consistent with D.04-10-035, which observed that a benefit of month-ahead filings "is the ability to update load forecasts ... [which] can recognize changes in customers served by a specific LSE as DA customers shift, community choice aggregation takes place, etc." (D.04-10-035, p. 38.)

With respect to month-ahead RAR filings, it would be unreasonable to require an LSE that has lost a significant portion of its customer base to procure capacity commitments for load it no longer has. Similarly, it would be unreasonable to allow an LSE that has gained substantial load from customer migration to acquire only the capacity needed for the load that it forecast a year ahead, before it acquired the new load.

Since load that is lost by one LSE is likely to migrate to another LSE, allowing a voluntary forecast true-up in month-ahead compliance filings could create incentives for under-forecasting that leads to socialization of costs. Accordingly we require that month-ahead compliance filings include adjustments for positive and for negative load growth due to migration. Apart from load changes due to load migration, load forecasts should not be updated from the LSE's year-ahead filing.

We are adopting this limited provision for load forecast updates to prevent the imposition of unreasonable capacity acquisition obligations on LSEs that have lost substantial load due to customer migration. We recognize that this may create additional need for review of load forecasts for which the CEC has particular expertise.

Waivers for Fully Resourced LSEs - SCE suggests that if the LSE chooses to meet it full 100% peak load plus reserves in the year-ahead timeframe, there should be no additional month-ahead reporting requirement. We will not grant a waiver for such circumstances, primarily because we are requiring migration-based load forecast updates in month-ahead filings. However, a month-ahead compliance filing for a fully-resourced LSE that experienced no load migration affecting its year-ahead load forecast would be a simple showing to that effect.

Reporting Mechanism - The workshop report invited comment on reporting protocols for the month-ahead compliance filings. Workshop participants felt it was appropriate that LSEs report to both this Commission and CAISO, although they expected that the CAISO would be the principal entity with the resources and need to track Month-Ahead compliance. This is because the CAISO not only needs assurance that each LSE has acquired 100% of their forward commitment obligations, it also needs to know the specific resources that the LSE has nominated for that month.

To comply with the month-ahead obligation, LSEs would show that they met their capacity obligation from the list of qualifying capacity maintained by the CAISO. This could be accomplished by the LSE providing a contract reference number or a generator ID number. The LSE would make available the amount of capacity purchased and the capacity provider information (but no price information) to the CAISO as well as the Commission. The reviewing entity would then verify that the LSE's filing satisfied all general and local capacity requirements.

As with year-ahead compliance review, this Commission will maintain ultimate authority for administration of month-ahead filings as well as compliance. As a practical matter, the month-ahead requirement involves the transition from a planning environment to an operational environment, and the CAISO may have the greatest need for the information provided in the month-ahead compliance filings. We require that month-ahead compliance filings be made through the advice letter process, and that they be concurrently served on the CAISO as well as the CEC.

8.6. Compliance Issues

Some parties have urged that the RAR program be implemented on a trial run basis, or as an educational opportunity, without threat of penalties for the first year. However, 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 noncompliance that outweigh the costs of compliance. Accordingly, we will not institute the program with the first year amounting to little more than a data gathering exercise. We note that parties have been on notice since the issuance of D.04-01-050 in January 2004 that we intend to hold LSE's responsible for procurement obligations, and that they have been on notice since D.04-10-035 was signed in October 2004 that those obligations would commence as early as fall 2005 for resource adequacy for June 2006.

We are encouraged that, in general, LSEs are willing to be accountable for showing they have purchased the sufficient reserves to meet their RA requirement. The workshop participants suggested a penalty equal to three times the cost for new capacity as an appropriate sanction for an LSE's failure to acquire the capacity needed to meet its RA obligation. As a general proposition we believe this is appropriate to induce compliance with the RA obligation, and we hereby adopt it as our policy. In deference to the concerns raised by many parties regarding the uncertainties of compliance with a new program, we adopt TURN's suggestion for establishing a baseline penalty of 150% of the monthly cost of new capacity for 2006 only. For 2007 and beyond, a penalty of 300% should apply. As noted earlier, this Commission retains authority and responsibility for administration of its own programs. This applies to compliance and enforcement as well.

The essence of the RAR program is mandatory LSE acquisition of capacity to meet load and reserves. As discussed above, failure of an LSE to meet that obligation can result in the LSE having to pay, as a sanction for that failure, a multiple of the cost of that capacity. However, there are additional dimensions to RAR program compliance, such as requirements to make timely filings and responding to data requests from the Commission or the CEC, for which sanctions in the form of capacity costs may not be appropriate. We will hold LSE's accountable for compliance with all aspects of the program through the exercise of our existing authority and process.

To provide guidance in setting fines, the Commission has distilled the principles that it has historically relied upon in assessing fines and restated them such that they may form the basis for future decisions. (Rulemaking to Establish Rules for Enforcement of the Standards of Conduct Governing Relationships between Energy Utilities and Their Affiliates Adopted by the Commission in Decision 97-12-088, 84 CPUC 2d 155, 188 (D.98-12-075, App. A.) Those principles begin by stating that the purpose of fines is to deter further violations. In determining whether to impose a fine and, if so, at what level, the Commission will consider five factors, namely, the severity of the offense, the entity's conduct, the financial resources of the entity, the role of precedent, and the totality of circumstances in furtherance of the public interest.

8.7. After-The Fact Review

The Phase 2 workshop report included a discussion of several possible ways that the Commission and other agencies could perform "after-the-fact reviews" of LSE compliance filings. These reviews would consist of comparisons of load forecasts with actual loads and review of the performance of nominated resources. The discussion included the possibility of sanctions based on the reviews.

We have already addressed our findings on the need for accuracy in load forecasts and the degree to which LSEs will be held accountable for their forecasts. Similarly, we have discussed the importance of oversight of resource performance and have asked our staff to work with the CAISO in the development of protocols aimed at resource accountability. Additionally, we expect that all parties, including LSEs, resource providers, and oversight agencies, will engage in ongoing monitoring and evaluation of the RAR program. Nevertheless, at this time we do not find it necessary to specify the details of a formal after-the-fact review program.

8.8. Timing Issues: The First RAR Cycle

In determining that annual year-ahead compliance filing should be made on September 30 of each year, the Commission adopted an exception for the first year whereby filings should be made 90 days after the date of this decision in the event of delay in issuance of the decision. Accordingly, the first year compliance filings (for compliance year 2006) are due January 27, 2006. Also, while the year-ahead filings will cover the summer period months of May through September in future years, D.04-10-035 determined that the 15-17% planning reserve margin requirement will become operative beginning with June 1, 2006. Therefore, for 2006 only, the year-ahead filings and the "90% year-ahead" RA obligation shall apply to the period June through September. Finally, we specify that the month-ahead filing requirement and the "100% month-ahead" RA obligation shall begin with the June 2006 compliance period. Thus, the first month-ahead filings are due May 1, 2006 (the first business day after the due date of April 30, 2006).

²⁰ By a joint motion filed on August 31, 2005, TURN, AReM, SCE, IEP, and Constellation have proposed a revised protective order.