Clarifications

Before addressing the settlement as a whole, we address several aspects that require clarification.

D.06-07-029 states that the auctions are to be administered by a third party (FOF 20), but the Settlement indicates that the IOU will hire an independent evaluator to oversee the utility's preparation for and administration of the energy auction.   Since the joint parties appear agreeable to IOU administration of the auctions with independent oversight, this decision approves this change in implementation details.

Item I.A. of the Settlement Agreement states that the IOU identifies the new generation for which it "elects to use the D.06-07-029 cost allocation methodology...." As noted in D.06-07-029, implementation details associated with the CAM are being addressed in Phase II of the proceeding.  The energy auction is one component of the implementation details, but additional components, including how the IOU is to determine whether a resource qualifies as a system resource eligible for CAM treatment will be addressed in Track 2 of the proceeding.  At that time, if necessary, the Settlement and this decision will be modified to accurately reflect how system resources eligible for CAM treatment are identified by the IOU.

We also clarify aspects of Section VIII, A.2. a-d, and language reflecting this clarification is attached as Appendix B. The Commission's ED staff, instead of the CEC, will have the responsibility for allocating RA capacity. This clarification is consistent with the current process of RA capacity allocation. Currently, the CEC does not allocate RA impacts except for load forecasts and demand response.

In addition, the Settlement Agreement specifies that all LSEs will be noticed in June of the amount of RA capacity they will be receiving. We changed the notification month to July.

The Joint Parties also requested in their comments that we restore the second sentence of Section VII.A.2.e in the Settlement Agreement providing for revised allocations of RA credits to account for not only load migration, but also for any changes in the capacity associated with an energy auction contract. We confirm in this decision that we will allocate the capacity based on the net qualifying capacity (NQC) or changes in NQC to a unit.

We also clarify, at the request of the Joint Parties, that all RA credit allocations will be provided to LSEs by the ED consistent with current practice that ensures that the LSEs receive the allocation information in time for their compliance filing deadlines.

And finally, the PD clarified that ED would be performing quarterly reallocation of capacity subject to the CAM, instead of monthly as set forth in the Settlement Agreement. The PD stated that RA allocations for each LSE would be performed each year, even in multiyear contracts, so as to accurately reflect potential shifts in proportionate load share, and the revisions would be done by Ed on a quarterly basis. ED staff does not anticipate a large quantity of capacity allocated via this mechanism in compliance year 2008. In comments, AReM and the Joint Parties suggested adoption of a sunset date for the quarterly reallocations, so that the decision reflects the concerns of the Settling Parties that the reallocations accurately reflect any changes in the capacity. The Commission is mindful of Settling Parties concerns and will see that a means for ensuring fair and equitable implementation of the CAM for RA purposes is discussed in a workshop in the RA proceeding, R.05-12-013 or its successor proceeding.

Finally, some of the terms used in the Settlement Agreement are not entirely common to Commission electricity regulation parlance. Consequently, to ensure that all Settling Parties and other stakeholders are clear about the meaning of the language used in the agreement, Appendix C provides a list of definitions for terms used in the Settlement Agreement that are somewhat unique to the proposed Energy Auction.

These clarifications are consistent with the "fair and reasonable compromise" that the Settling Parties have aimed to accomplish. In particular, the clarifications ensure that Commission involvement is maintained throughout the RA allocation process without placing an undue burden on Commission or CEC staff.