I. INTRODUCTION

In Decisions (D.) 05-10-042 and 06-06-064, the Commission established rules requiring all load-serving entities (LSEs) in the service territories of California's three largest investor-owned electric utilities to procure sufficient generation capacity, including reserves, to ensure that all retail customers within their service areas have reliable electric service. D.05-10-042 required LSEs to demonstrate that they had acquired sufficient generation capacity to serve forecasted retail customer load plus a reserve margin without accounting for local transmission constraints. D.06-06-064 required LSEs to demonstrate that they had acquired sufficient generation capacity within certain areas of their load with transmission constraints.

These decisions were part of a series of Decisions the Commission issued over a period of two and half years, beginning in 2004, to implement a resource adequacy (RA) program that would secure cost-effective investments in electric generation capacity for California. In each of these Decisions, the Commission considered and vetted the concerns of all affected LSEs and other interested parties to ensure that the resource adequacy program it established would sustain the reliability of electric service for the long-term.

On October 31, 2007, Calpine Power America-CA, LLC (Calpine) submitted a Year-Ahead System Resource Adequacy Requirement Compliance filing and a Local Resource Adequacy Requirement Compliance filing, both of which reflected deficiencies in violation of the Commission-established Resource Adequacy Requirements (RAR). Calpine's System RAR filing included a contract that was scheduled to expire, thereby overstating its available resources. This erroneous filing resulted in a System RA deficiency totaling 70.37 megawatt-months between the months of July, August, and September for 2008. Calpine's Local RAR filing used wrong demand response allocations in a manner that resulted in 10.76 MW-months of Local RA deficiencies for 2008.

The Commission found, in D.05-10-042 and D.06-06-064, that an LSE's failure to make the necessary RAR showings in its compliance filings jeopardizes the reliability of the grid and may burden the California Independent System Operator (CAISO) with the potential obligation to make the requisite procurement as a backstop if it needs such capacity in the period of the deficiency. The Commission relies on accurate resource procurement and reporting to manage the many uncertainties that pose threats to the reliability of the grid. The Commission has determined that LSEs should be held accountable in procuring and reporting accurate resource adequacy compliance filings.

Therefore, the Commission initiates this proceeding in order to consider whether the evidence set forth in the Consumer Protection and Safety Division (CPSD) Investigation Report of Calpine Power America-CA, LLC shows that Calpine violated Commission rules and directives. The Commission hereby orders Calpine to appear and show cause why the Commission should not find that Calpine violated Commission rules pursuant to Public Utilities Code section 380 by allowing system and local RAR deficiencies, and whether the Commission should impose appropriate fines and sanctions.