ALJ/MSW/sid Mailed 10/31/2005

Decision 05-10-042 October 27, 2005

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning.

Rulemaking 04-04-003 (Filed April 1, 2004)

OPINION ON RESOURCE ADEQUACY REQUIREMENTS

TABLE OF CONTENTS

Title Page

OPINION ON RESOURCE ADEQUACY REQUIREMENTS 1

1. Summary 1

2. Background 1

3. The RAR Policy Framework 1

3.1. Introduction 1

3.2. The Adopted RAR Policy Framework 1

3.3. Revenue Adequacy 1

3.4. Resource Planning vs. Operational Requirements 1

3.5. LSE-Based Procurement 1

3.6. A New Paradigm for LSEs and Their Suppliers 1

3.7. Current Objectives for RAR 1

4. Nature of the RA Obligation 1

4.1. Generator Obligations 1

4.2. Treatment of De-Rated Resources 1

4.3. The Must-Offer Obligation (MOO) 1

4.4. SVLG's Standard Contract Proposal 1

5. Interagency Coordination 1

5.1. Introduction 1

5.2. Load Forecasts 1

5.3. CAISO Enforcement 1

5.4. Resource Listing and Testing 1

6. Load Forecasting Issues 1

6.1. Best Estimate vs. Current Customers Approach 1

6.2. Coincidence Adjustment Methodology 1

6.3. Allocating Demand Side Impacts 1

6.4. Measurement and Evaluation 1

6.5. Responsibility To Quantify EE, DR, and DG Effects 1

6.6. DG Impacts 1

6.7. Total Losses Methodology 1

7. Resource Issues 1

7.1. Monthly Peak Method vs. Load Shape Method 1

7.2. Dispatchable Demand Response (DR) Programs 1

7.3. Deliverability Issues 1

7.4. Liquidated Damages Contracts 1

7.5. Imports 1

7.6. Allocation of Capacity to Non-IOU LSEs 1

7.7. Wind and Solar Resources 1

7.8. Energy-Limited Resources 1

7.9. Commercial On-Line Dates 1

7.10. Local RAR 1

8. Reporting, Review, and Sanctions 1

8.1. Preliminary Load Forecast Reporting 1

8.2. Preliminary Load Forecast Review 1

8.3. Year-Ahead Compliance Filings 1

8.4. Review of Year-Ahead Compliance Filings 1

8.5. Month-Ahead Reporting 1

8.6. Compliance Issues 1

8.7. After-The Fact Review 1

8.8. Timing Issues: The First RAR Cycle 1

9. Next Steps 1

10. Comments on Draft Decision 1

11. Assignment of Proceeding 1

Findings of Fact 1

Conclusions of Law 1

ORDER 1

OPINION ON RESOURCE ADEQUACY REQUIREMENTS

1. Summary

Reaffirming and clarifying the policy framework that it established in Decision (D.) 04-01-050 and D.04-10-035, the Commission implements a program of resource adequacy requirements (RAR) applicable throughout the service territories of California's three largest investor-owned electric utilities (IOUs). The IOUs as well as electric service providers (ESPs) and community choice aggregators (CCAs) (collectively, load-serving entities or LSEs) are required to demonstrate that they have acquired the capacity needed to serve their forecast retail customer load and a 15-17% reserve margin beginning in June 2006. The Commission takes this action to promote investment in the resources needed to reliably serve California's growing demand for electricity and ensure that those resources are available to the California Independent System Operator (CAISO), all while effectively and fairly allocating procurement and reliability responsibilities among market participants and oversight agencies. We are adopting RAR in order to spur infrastructure development and assure that capacity is available to the CAISO for dispatch. In so doing, we are rejecting business as usual and instead favoring more robust LSE procurement practices.

Key RAR program determinations made herein include the following:

· We adopt a monthly system peak approach to defining the resource adequacy (RA) obligation instead of a resource duration curve approach.

· We require that supply contracts that count for RAR purposes identify the specific resources that provide the qualifying capacity. In recognition of current industry practice, we provide for phased implementation of this requirement to avoid unduly impairing existing business arrangements.

· We affirm the need for a localized capacity requirement but defer its implementation to the 2007 procurement year so that it can be fully considered.

· We affirm that sanctions for LSE non-compliance with RAR are required.

While we believe that this decision is a significant forward step, it does not represent the final word for resource adequacy in California. More work needs to be done. We have deferred action on certain RAR program elements that have been proposed because, despite their promise of more effectively promoting achievement of RAR program goals, they require further consideration before they can be implemented. In addition, D.04-10-035 identified important "second generation" RAR topics, including multi-year RAR and resource tagging, and these topics warrant full consideration in the near future. Further consideration of RAR issues before this Commission will take place in a new, more focused proceeding. While the RA portion of this rulemaking proceeding is concluded by this decision, R.04-04-003 remains open for consideration of other pending issues.