3. Overview of Proceeding

As noted above, the Commission has had several occasions to comment on the PRM since it was adopted more than four years ago. However, questions and concerns about the PRM have largely arisen in the context of complex policy inquiries where time and resources have not permitted a full inquiry into the role of the PRM and the methods and procedures that should be followed to set it. We concur in the assigned Commissioner's assessment that there is a need for greater analytical rigor and transparency in the way the PRM is established and applied by the Commission. Once this is accomplished, we expect that there will be greater confidence in the value of the PRM as a primary tool for balancing reliability and costs, as well as consistency in its application. In short, the Commission has not had the opportunity to review the PRM in a comprehensive fashion that would allow the confidence and the certainty that the marketplace needs. We institute this rulemaking to remedy that situation.

This rulemaking will establish a preliminary methodology to determine a short-term capacity and reserve requirement for RA program compliance years 2010 and 2011 based on maintenance of historic reliability levels. Once a methodology is adopted, the Commission will periodically reassess capacity and reserve requirements in coordination with the LTPP or other Commission proceedings. We recognize the CAISO's Planning Reserve Requirement Study (PRRS) and WECC efforts to move towards probability-based reliability modeling; by this Order Instituting Rulemaking (OIR) we confirm the Commission's active participation and lead role in establishing and evaluating the appropriate reliability level to be served by LSEs subject to our jurisdiction.

This rulemaking will be split into two phases with an optional third phase, as described in more detail below. Phase I will evaluate and adopt a computer model and detailed data requirements including a set of resource buildout scenarios with which the Commission will establish capacity and reserve obligations required to maintain a range of reliability levels based on this model. In Phase II we will use the adopted methodology to study, determine, and finally adopt a capacity and reserve requirement for RA program compliance year 2010 and potentially 2011 while creating a mechanism to repeat this assessment for future LTPP and RA cycles. Included in the Phase II decision is determination of whether to pursue an optional Phase III, which will refine the methodology and data sets by inclusion of economic optimization of customer preferences and possible evaluation of locationally-specific reliability assessments in conjunction with the CAISO's Local Capacity Requirements (LCR) analysis. Each phase is discussed below.