5. Adopted Comments and Clarifications Regarding Initial Proposal
5.1. Three Years to Make Up Deficit
PG&E believes the initial proposal mistakenly states that deficits must be made up within two, not three, years. We clarify here that inadequate procurement in year 1 must be made up within the following three years (i.e., year 2, year 3, and/or year 4). This is clarified in the revised methodology (Attachment A).
5.2. Carry Forward in Relation to IPT
Our flexible compliance rules, regarding explanation of deficits of certain sizes, are currently stated in relation to APT.12 The initial proposal corrected this to IPT. Parties' comments on flexible compliance are generally in relation to IPT. No party initially commented on the clarification relative to IPT.
This makes sense. The flexible compliance rules recognize that acquisition of renewable resources may not be smooth. They also take into account reasonable flexibility in program administration. As a result, up to 25% of the target each year may be under-procured without explanation.
At the same time, the Commission does not want any LSE to get so far behind in its procurement that the LSE simply cannot meet the 20% goal. Also, the Commission does not want any LSE to roll over deficits each year indefinitely. As a result, the under-procurement beyond 25% is subject to explanation. If the explanation is inadequate, a penalty may apply at that time, without deferral. This balances reasonable flexibility and administrative ease for the LSE with the state's interest in monitoring the progress and success of the program. It permits timely enforcement by the Commission if the LSE's explanation is inadequate, thereby providing a reasonable incentive for compliance. It defers enforcement if the explanation reasonably demonstrates the LSE has a plan to succeed, or that the market simply did not provide resources to permit success. (D.03-06-071, pp. 49-53.)
These concerns are reasonable only in relation to IPT. For example, assume the APT in target year "x" is 16% of retail sales. Allowing the carry over of 25% of the APT without explanation would allow carry over of a 4% deficit in the LSE's resource base (25% of 16%) that is otherwise being used to serve retail sales. A deficit of 4% is very large by any measure. A deficit of this size for three years without explanation, and without Commission assessment of a plan to make this up, is unreasonable, and not what the Commission intended. Similarly, it would be unreasonable to allow an LSE without explanation to decline to procure an IPT of 1% of retail sales in each of approximately four years (for a total of 4% of retail sales).
The existing flexible compliance rules are in the context of incremental growth to reach the 20% target. The proper application of the 25% carry forward without explanation is with regard to IPT, not APT. The adopted, revised paper in Attachment A makes this clarification and correction. We also clarify that any amount over 25% of the IPT (theoretically up to 100% of the APT) may be deferred for up to three years based on a reasonable excuse. The LSE may assert the claimed justification with the appropriate report. The Commission will assess the reason and determine whether or not that reason justifies deferral of a related penalty and/or no longer reporting of the amount of energy to otherwise be procured.
PG&E states a concern that the adopted approach subjects an LSE to strict, immediate liability for non-compliance. This is not the case. No amount is immediately due and payable unless the LSE accepts that it is out of compliance, and agrees to pay the penalty. Rather, each LSE may seek deferral of a penalty based on a justified reason. Once such deferral is sought, no penalty is due until payment is later ordered by the Commission.
In comments on the proposed decision, PG&E asks that the rules be modified to permit satisfaction of only the current year's IPT, not the entire APT, before deliveries may be credited toward retirement of a previous year's IPT deferral. We decline to modify existing rules on application of deliveries to retire debts.
We point out, however, that justified and reasonable excuses may permit deferral of amounts over 25% of the IPT (potentially up to the full APT). This approach balances an LSE's need for flexibility to achieve RPS goals with the state's need to ensure each LSE remains on a path to success without falling so far behind that it cannot reach the state's RPS goals.
PG&E specifically asks that deferral of the up to 25% of the IPT that may be deferred without reason continue to be deferred without reason when that amount is otherwise included in next year's APT. We decline to further complicate the reporting of deferrals with and without excuses based on inclusion of one IPT into the next year's APT. Rather, an LSE should properly track and report deferrals, including both the (a) up to 25% of IPT without excuses and (b) over 25% of IPT with excuses. Where appropriate, the LSE may identify the portion of an APT that was up to 25% of the prior year's IPT and excused without explanation. When thus stated and properly tracked, it would appear reasonable to continue deferral without additional excuse or explanation (absent clear justification to do otherwise). This approach will assist with accurate reporting, plus understandable and logical tracking of relevant amounts of energy.
5.3. 2003 Initial Baseline Procurement Amount
The February 2006 initial proposal defined the 2003 initial baseline procurement amount as 2001 RPS-eligible procurement plus 1% of 2001 total retail sales. The revised proposal (attached to the September 2006 proposed decision) modified the definition to be total 2003 eligible renewable procurement less any 2002 or 2003 eligible procurement in excess of the 2002/2003 interim procurement benchmark. PG&E, SCE and TURN address this change and argue that the correct formula is essentially as originally proposed. We agree.
The originally proposed definition tracks the statutory language more precisely and is preferable given the state of the program. Moreover, it permits consistent use of 2003 as the first baseline year with the first APT in 2004.
That is, the RPS Program initially became effective in 2003, with the first target year 2004. D.04-06-014 developed an APT for 2004 based on 2001 retail sales and interim procurement in 2002/2003 to determine both the 2003 baseline and adjusted 2003 IPT. We expressly provided that renewable generation procured in 2002/2003 in excess of the amount required by D.02-08-071 would be bankable procurement, which could be applied to the 2004 APT or future years. (D.04-06-014, p. 11; also Appendix B.)
Several parties, however, now raise credible new questions regarding inclusion in the baseline of unusually high hydro production in 2003, our treatment of banked energy, and whether, as a result, we incorrectly disallowed banking of some 2003 RPS-eligible procurement in excess of the interim procurement benchmark. This may or may not have resulted in our effectively adopting an IPT of more than 1%, and may or may not have been clear to all at the time. No party challenges the assertion that the February 2006 initial proposal (i.e., 2001 plus 1%) is more in line with the statutory language than is the September 2006 revised approach (i.e., reducing 2003 procurement). Nor does any party either allege or convincingly show that the current questions are baseless.
The best way to ensure correct program development before we undertake more detailed compliance and enforcement is to use 2001 deliveries as the basis from which we calculate the 2003 baseline in a manner more directly consistent with the underlying statutory language. This will enable IOUs to bank interim procurement consistent our intention, as expressed in D.04-06-014. The definition of the 2003 initial baseline procurement amount in the February 2006 initial proposal permits us to do this, and we adopt it here.
5.4. Banking of Surpluses
SDG&E and others are concerned that the adopted reporting methodology limits banking of surpluses. We clarify that there is no such limitation. Rather, unlimited forward banking of surplus procurement is consistent with the law and, as we have said previously, it makes sense (e.g., it promotes RPS development by creating an incentive for early procurement). Thus, we do not disturb our earlier decision on this point: "we will permit unlimited forward banking of excess procurement." (D.03-06-071, pp. 43-44.)
5.5. Other
Other modifications are made to enhance clarity, and improve examples.
12 We currently require that an LSE meet 75% of its APT each year, but may carry over a deficit of 25% for up to three years without explanation. Shortfalls in excess of 25% (with a limited exception) are also permitted for up to three years, but require a successful demonstration of one of four conditions. (D.03-06-071, pp. 49-50.) Shortfalls in excess of 25% are also permitted upon a persuasive showing of lack of effective competition, or that deferral would promote ratepayer interests and the overall procurement objectives of the RPS Program. (D.03-06-071, p. 53.) Finally, an LSE may reduce or eliminate a penalty upon a showing of good cause. (D.03-12-065, p. 8.) In each case, these requirements are stated in relation to APT.
