7. Assignment of Proceeding
Michael R. Peevey is the Assigned Commissioner and Mark S. Wetzell is the assigned ALJ for this proceeding.
1. As the Commission has recognized in previous decisions, there is a need to better address local reliability issues through LSE procurement obligations.
2. The Commission has stated its intention to add a local procurement obligation to the overall RAR program to ensure that sufficient local generation capacity is contracted for and available to the CAISO to meet local reliability needs.
3. Delay in the implementation of the Local RAR program for another year could thwart long-term achievement of the RAR program goals.
4. If the transfer capability into a load pocket is less than the load demand within the area, then, depending on reliability criteria, additional generation capacity within the load pocket will be needed to satisfy the load demand.
5. Using an independent third party rather than the CAISO to perform the 2007 LCR study was not feasible in light of the Commission's objective to implement Local RAR for 2007.
6. The CAISO has determined that, compared to Reliability Option 2 (NERC Category C), the lower level of capacity requirements associated with Reliability Option 1 (NERC Category B) would, in the event of a loss of a single transmission element (N-1), likely require substantial load interruptions in order to maintain system continuity and alleviate equipment overloads, including load interruptions prior to the actual occurrence of the second contingency.
7. For 2007, the totals of the LCRs for the nine local transmission-constrained areas identified by the CAISO are 22,649 MW and 23,857 MW under Options 1 and 2, respectively, a difference of about 5%.
8. Compared to a less stringent 1-in-5 year summer peak load forecast, a 1-in-10 year forecast as used in the CAISO's study is 2.4% greater for the nine local transmission-constrained areas studied by the CAISO.
9. As a rule of thumb, using a less stringent 1-in-5 forecast would result in a corresponding one-for-one reduction in the LCR for a local area.
10. A complete listing of qualifying resources, including the ownership and capacity information, is crucial information for the LSEs who will be obligated to purchase qualifying capacity.
11. SCE has confirmed that the South of Lugo path limit will be increased from 5,600 MW to 6,100 MW by June 1, 2007, which results in a reduction of the LA Basin Area LCR for 2007.
12. A transparent process for interested parties to learn about proposed operational solutions and verify that such solutions are superior to the option of adding generation would be beneficial to parties.
13. Determining the feasibility of operating solutions is within the province of the CAISO and its PTOs.
14. The CAISO`s LCR study takes into account energy imported into the load pockets, and it identifies the capacity requirement that allows the energy to be imported while maintaining grid reliability.
15. Because the Commission seeks reasonable assurance that the local procurement obligations that it establishes are based on up-to-date information about the transmission grid and its operational characteristics, an annual determination of LCRs through a process that allows meaningful party participation is appropriate.
16. While a fixed definition of local areas may promote long-term transactions, the transmission system is continually evolving, and transmission constraints are not necessarily fixed over time.
17. Procurement obligations that are based upon stale information could lead to wasteful over-procurement or under-procurement that could degrade reliability.
18. A probabilistic rather than a deterministic approach to determining local capacity requirements could lead to more economically efficient decisions regarding the capacity that is needed at any particular location.
19. Compared to identifying which load is located in each particular local load pocket, assigning Local RAR obligations by proportion of load served in existing IOU distribution service areas would provide administrative simplicity.
20. Transactions of less than 1 MW are not commercially reasonable at this time.
21. Even if the problem of IOUs withholding capacity exists or arises, subtracting IOU generation from LCRs may not be the most effective solution to such problem.
22. LSEs need adequate time to meet their procurement obligations once those obligations are known, and we intend to preserve as nearly as possible the three-month interval between official notification of the obligation and the compliance filing date.
23. Market power issues can arise when procurement obligations are established for small local areas, and aggregation of such areas for the purpose of establishing local procurement obligations can mitigate market power; however, aggregation of local areas could possibly lead to over-procurement in some areas and under-procurement (with CAISO backstop procurement required) in others.
24. Compared to the IOU proposal for aggregation, the adopted local area aggregation provision set forth in the foregoing discussion could be more effective in mitigating the exercise of market power, and would be administratively less complex; however, it could also lead to greater backstop procurement by the CAISO.
25. Even if all LSEs procure their full allocation of Local RAR, they will not necessarily have procured all of the resources necessary to meet the reliability needs of a particular local load pocket.
26. Whether a local area will be deficient can only be determined after the CAISO has analyzed the effectiveness factors of all of the units actually procured to meet the Local RAR in a local load pocket.
27. The CAISO needs to be able to prepare for any necessary backstop procurement after the LSEs have made all of their procurement demonstrations, and it must have sufficient time to review any additional procurement demonstrations and determine if backstop or "supplemental procurement" is required.
28. A year-long local procurement obligation should help to provide assurance of revenue adequacy to those units that are most needed to ensure the reliability of the CAISO grid, and encourage longer-term procurement.
29. Unlike System RAR, the Local RAR program entails an iterative process in which the CAISO evaluates nominated local resources and identifies deficiencies requiring either supplemental LSE or backstop CAISO procurement.
30. The CAISO's local reliability needs are not limited to the five summer months.
31. A 90% and/or a five-month local procurement obligation and deferral of implementation of Local RAR by five months may not promote Local RAR objectives.
32. The ability of LSEs to buy and sell portions of resource commitments as load changes, provided such trades take place in a manner that preserves the availability of the underlying resource to the CAISO, should resolve the LSEs' concerns about the impact of load migration.
33. While it is the long-term policy preference of the Commission to minimize the use of RMR contracts, the Commission has agreed that RMR should remain in place for 2007.
34. The timing issue that could preclude RMR units from being eligible to count towards either Local RAR or System RAR demonstrations for 2007 can be resolved by adjustments to the RAR compliance filing schedule for 2007.
35. Allowing Condition 1 and Condition 2 RMR contracts to count for 2007 is consistent with the settlement of the IEP Complaint, gives recognition to the fact that the shift from predominant reliance on RMR to predominant reliance on LSE procurement will require a transition period, and could prevent unnecessary and costly over-procurement to meet the reliability needs of local areas.
36. It may not be possible to count dispatchable demand response resources until 2008.
37. Allowing generating units that are not located within the boundaries of a local area to contribute toward meeting that local area's LCR, if such units meet a minimum effectiveness factor, might reduce the burden of local procurement obligations; however, this would be difficult to administer because each generator would have multiple effectiveness factors depending on the reliability of the system, the transmission contingency that needs to be addressed, and which other units are available to the CAISO.
38. Fixing local area boundaries, and, therefore the generation units within the boundaries that can satisfy the Local RAR, would greatly simplify the administration of the Local RAR program.
39. The adopted Local RAR plan is based upon the expectation that if the local capacity made available to the CAISO by Commission-jurisdictional LSEs in Local RAR compliance filings and by RMR contracts meets or exceeds the Commission-adopted Local RAR level, the CAISO would not engage in backstop procurement even if one or more individual LSEs is deficient in its showing; provided, however, that the CAISO may need to engage in additional backstop procurement if an assessment of unit effectiveness for the capacity procured by LSEs discloses that additional procurement is required.
40. We are establishing locally based procurement obligations that are applicable to the IOUs, ESPs, and CCAs under our jurisdiction, not POUs.
41. Ministerial review of Local RAR filings will be delegated to the staff and will include a determination of whether each LSE has met its procurement obligation and is otherwise in compliance with RAR program requirements.
42. Under the transfer payment mechanism proposed by the IOUs, staff would be required to review compliance filings to determine whether transfer payments are required, determine from and to whom payments are made, track payments, and follow up if transactions are not completed.
43. The proposed transfer mechanism could act to discourage bilateral contracting since LSEs could passively await administrative allocations rather than engage in commercial transactions to meet their obligations.
44. Without the prospect of paying penalties in addition to paying backstop procurement costs, LSEs could freely rely on CAISO contracting to meet their local procurement obligations.
45. The statutes pursuant to which the Commission may impose penalties upon LSEs provide that the proceeds from such penalties accrue to the State's General Fund.
46. The CAISO's tariff provisions for billing deficient LSEs on whose behalf it must engage in backstop procurement are independent from the Commission's enforcement process.
47. Because much of the generation available within local, transmission-constrained areas will be necessary to maintain reliability and serve load, generator market power may be an inherent factor affecting the Local RAR program.
48. Market power mitigation is addressed in the adopted Local RAR program by (a) minimizing but not eliminating backstop procurement by the CAISO through the use of waivers, (b) aggregating local areas within the PG&E service territory, and (c) adjusting LCRs determined by the CAISO to account for corresponding resource deficiencies identified by the CAISO.
49. Without a waiver option, LSEs that are unable to bilaterally contract for local capacity needed to meet their assigned obligation would, despite good faith efforts to acquire such capacity, be subject to both backstop procurement costs and potential penalties.
50. No purpose is served by requiring the participation in this proceeding of ESPs that have elected to discontinue their operations, as evidenced by their cancelled ESP registration.
1. It is reasonable to implement Local RAR for 2007 using the Phase 1 record.
2. Parties had an adequate opportunity to participate in the CAISO's post-LCR study workshop, to submit comments and replies on the study, and to make their substantive concerns about the study known to the Commission.
3. It is reasonable to rely on the CAISO to perform the 2007 LCR study and to use the CAISO's study results as the basis for implementing Local RAR for the 2007 compliance period.
4. For 2007, the required procurement of an additional 5% of needed capacity under Option 2, compared to Option 1, is reasonable in light of the reduced risk of interruptions expected under Option 2.
5. For purposes of establishing Local RAR for 2007 only, a 1-in-10 load forecasts should be used to calculate LCRs.
6. The total LCRs calculated by the CAISO should be allocated to jurisdictional LSEs on the most accurate basis possible.
7. The CAISO and the PTOs should be encouraged to continue their efforts to identify and implement cost-effective transmission-related solutions.
8. The objective of consistency in LCR study methodology and approach should not prevent needed study improvements from being considered.
9. Future LCR determinations should reflect, as nearly in time as possible, the then-current state of the transmission system.
10. For 2007 only, and without prejudice to a determination for future years, the CAISO's LCR study did not inappropriately exclude the CCSF Hetch Hetchy resource.
11. For 2007, it would not be reasonable to require LSEs to procure capacity that, according to the 2007 LCR study, does not currently exist in an area.
12. An LSE's Local RAR obligations should be a percentage of the total Local RAR adopted by the Commission based on that LSE's forecasted peak load in the applicable IOU distribution service area; the adopted formula for determining the local procurement obligation for an LSE is as follows:
[LSE IOU service area RAR/Total IOU service area RAR] * Total Jurisdictional Local RAR in IOU service territory = LSE Local RAR
13. LSEs should be exempted from procurement obligations of less than 1 MW in a particular local area. In addition, RARs of 0.5 and greater should be rounded up to the next highest MW and RARs of .49 and lower should be rounded down to the prior MW; provided, however, that this rounding convention does not supersede the local area exemption of less than 1 MW.
14. Energy Division should be authorized to perform the calculations necessary to establish local procurement obligations for individual LSEs employing the policies and procedures adopted herein.
15. Aggregation of local areas as set forth in the foregoing discussion appropriately balances concerns about backstop procurement, administrative complexity, and market power mitigation, and should therefore be adopted.
16. LSEs should be required to make annual compliance filings demonstrating that they have met 100% of the applicable local procurement obligation for each month of the following calendar year (January through December) concurrently with the LSE's "year-ahead" compliance filing for System RAR.
17. Resources that count towards meeting Local RAR should also count towards meeting System RAR.
18. There is no reason to prohibit the sale of qualifying Local RAR capacity that was nominated in fulfillment of an LSE's local procurement obligation provided that the capacity remains fully available to the CAISO under the same terms and conditions, for the same periods, and in the same local area for which the capacity was nominated in fulfillment of the local obligation when the selling LSE made its compliance showing. Accordingly, an LSE that sells its Local RAR capacity must include documentation in its next System RAR monthly compliance showing following such sale demonstrating that the capacity was sold but remains fully available to the CAISO.
19. RMR units should be allowed to count for Local as well as System RAR for 2007 as consistent with the foregoing discussion, and the RAR filing schedule for 2007 should be adjusted as necessary to coordinate the RAR and RMR processes.
20. Qualifying, dispatchable demand response resources as well as DG resources should be allowed to count for Local RAR showings to the extent feasible.
21. Staff's recommendation to disregard effectiveness factors for the 2007 Local RAR program should be adopted due to concerns about undue program complexity.
22. LSEs should be given first opportunity to engage in additional procurement rather than have no choice but to rely on CAISO backstop procurement.
23. The IOUs' proposed transfer mechanism should not be adopted as it would be administratively complex and burdensome for our staff to administer, and it may not promote bilateral trading.
24. An LSE should be subject to penalties when it fails to make a required compliance filing that shows that it has met its local procurement obligation; however, a penalty for being deficient would not be imposed if a waiver has been granted.
25. A penalty equal to 100% of the cost of new capacity is an appropriate penalty for failure of an LSE to meet its local procurement obligation.
26. A price of $40 per kW-year is a reasonable and appropriate measure of the cost of new capacity for purposes of both Local and System RAR penalties.
27. A waiver process is necessary as a market power mitigation measure, and should therefore be adopted as a component of the Local RAR program.
28. An LSE that has not met its local procurement obligation should be able to request waiver of penalties for such failure with a demonstration that meets the requirements enumerated in the foregoing discussion; such a request is a necessary but not a sufficient condition for the grant of such waiver since the Commission will consider the reasonableness of the waiver request in light of all information brought to its attention. However, such a deficient LSE would be responsible for any applicable backstop procurement costs even if it received a waiver from penalties.
29. The OIR should be modified to provide that any respondent ESP or CCA whose registration is cancelled during the course of the proceeding would, upon confirmation of such cancellation by the Energy Division, cease to be a respondent and be excused from further participation.
30. The Energy Division should be authorized and directed to do the following:
a. Notify LSEs of reduced local procurement obligations for 2007, if any, that reflect any LCR reductions from the 2007 LCR study that are determined by the CAISO to be warranted.
b. Calculate and establish reduced LCRs for those areas for which the CAISO has identified a deficiency in qualifying capacity resources.
c. Make appropriate revisions to the compliance filing templates and filing guides attached as Appendixes A-G to the April 10, 2006 Staff Report as necessary for orderly program implementation.
d. Notify LSE's whether their Local RAR compliance filings have been approved.
e. Administer the ministerial aspects of the Local RAR waiver process.
IT IS ORDERED that:
1. The Local Resource Adequacy Requirements (Local RAR) program is hereby established and shall be implemented in accordance with the foregoing discussion, findings of fact, and conclusions of law.
2. The following load-serving entities (LSEs) are subject to the requirements of the Local RAR program adopted herein and shall comply with all decisions, rulings, and directives pertaining to the program:
a. Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE) (collectively, investor-owned utilities or IOUS); and
b. Electric service providers (ESPs) and community choice aggregators (CCAs) that serve retail customers within the service territory of one or more of the IOUs through direct access or CCA transactions.
3. The "Option 2" Local Capacity Requirements (LCRs) set forth in the California Independent System Operator's (CAISO) corrected LCR study for 2007, dated April 28, 2006, are adopted as the basis for establishing Local RAR procurement obligations for LSEs, subject to the following:
a. The Energy Division may calculate and establish reduced local procurement obligations, if any, that may result from the supplemental LCR Study review process described in the foregoing opinion and as agreed to by the CAISO; and
b. The Energy Division may calculate and establish reduced local procurement obligations, if any, that may result from adjustments for resource deficiencies in particular local areas, as described in the foregoing opinion.
4. The Executive Director shall ensure that Commission staff undertakes the activities identified for staff in the foregoing discussion, findings, and conclusions.
5. Appendix A of the December 15, 2005 order instituting this proceeding is modified as follows:
a. At page 5 of Appendix A, at the end of the one-sentence paragraph that begins with "In addition, any electric service provider..." and ends with "...to this proceeding," the following sentence is added: "Any registered electric service provider whose registration is cancelled during the course of this proceeding shall, upon confirmation of the cancellation by the Energy Division, cease to be a respondent."
b. At page 5 of Appendix A, at the end of the one-sentence paragraph that begins with "Any community choice aggregator..." and ends with "...to this proceeding," the following sentence is added: "Any registered community choice aggregator whose registration is cancelled during the course of this proceeding shall, upon confirmation of the cancellation by the Energy Division, cease to be a respondent."
6. This proceeding remains open for consideration of issues listed in the Scoping Memo that are not resolved by today's order.
This order is effective today.
Dated June 29, 2006, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
