Brown Attachment A
Brown Attachment B
Brown Attachment C

ALJ/CAB/jva DRAFT Agenda ID #4073

Ratesetting

12/16/2004 Item 44

Decision PROPOSED DECISION OF ALJ BROWN (Mailed 11/16/2004)

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 ADOPTING PACIFIC GAS AND ELECTRIC COMPANY,
SOUTHERN CALIFORNIA EDISON COMPANY
AND SAN DIEGO GAS & ELECTRIC COMPANY'S
LONG-TERM PROCUREMENT PLANS

Table of Contents

Title Page

OPINION ADOPTING PACIFIC GAS AND ELECTRIC COMPANY, SOUTHERN CALIFORNIA EDISON COMPANY AND SAN DIEGO GAS & ELECTRIC COMPANY'S LONG-TERM PROCUREMENT PLANS 2 2

I. Summary 2 2

II. Background 4 4

A. Background To Rulemaking (R.) 04-04-003 4 4

B. Procedural History 9 9

C. Motions 11 11

D. Summary of Parties' Positions 13 13

1. IOUs 13 13

2. Consumer/Ratepayer Advocates 14 14

3. Environmental Groups 15 15

4. Potential CCA/Municipalization/Direct Access 17 17

5. Co-Generation Facilities 18 18

6. Energy Marketers and Independent Energy Producers 19 19

7. The CAISO 21 21

8. Other Intervenors 22 22

III. Analysis Of Long-Term Procurement Plans 22 22

A. Do The LTPPs Integrate The Commission's Direction From
Other Related Proceedings And Meet The Criteria Established In The ACR/Scoping Memo? 22 22

1. General Assessment 22 22

2. Directions for Load Forecasts and Resource Scenarios 23 23

B. Load Forecasts 24 24

1. Position of IOUs 24 24

2. Position of Parties on Load Forecasts 26 26

3. Discussion of Load Forecasts 28 28

C. Implementing the Energy Action Plan 30 30

D. Net Open Positions 30 30

1. Position of IOUs on Net Open Positions 31 31

2. Discussion of Net Open Positions 32 32

E. Resource Scenario Compliance 33 33

1. Resource Scenarios and Resource Adequacy 35 35

2. Position of IOUs on Implications of Resource Scenarios 36 36

3. Position of Parties on Implications of Resource Scenarios 40 40

4. Discussion on Implications of Resource Scenarios 40 40

F. Natural Gas Price Forecasts 44 44

1. Regulatory Background 44 44

2. Utilities And Party Positions 45 45

Table of Contents

Title Page

IV. How the Utilities' Long-Term Plans Reflect Policies, Goals, And Outcomes
From Other Umbrella Proceedings and Comport with the Energy Action Plan 50 50

A. Umbrella Proceedings 50 50

1. Resource Adequacy 51 51

2. CCA 51 51

a) Potential Stranded Costs Due To Customer Load Uncertainty 53 53

3. Demand Response (DR) 62 62

4. Distributed Generation (DG) 66 66

5. Energy Efficiency (EE) 69 69

6. Qualifying Facilities: Long-Term Policy For Expiring QF Contracts 72 72

7. Renewable Energy Resources 73 73

a) IOU Positions on Renewable Energy in the LTPPs 79 79

b) Parties' Positions 81 81

8. Transmission Assessment Process 84 84

a) Transmission Planning under I.00-11-001 86 86

(1) Phase 5: Generic Economic Methodology for the
Evaluation of Transmission Projects 86 86

(2) Phase 6: Transmission needs in the Tehachapi
Wind Resource Area 87 87

(3) Phase 8: Transmission Costs for Renewable
Portfolio Standard Bid 88 88

b) Integrated Generation and Transmission System Planning,
Timing, Flexibility 89 89

c) Enhanced Supply to Load Pockets 91 91

V. Implementing the EAP Loading Order 93 93

A. Energy Efficiency 94 94

1. Cost Recovery for IOUs to Meet EE Savings Goals 94 94

2. Energy Efficiency Data in Future LTPPs 96 96

B. Distributed Generation 97 97

VI. Procurement contracting authority: AB 57, upfront standards,
cost recovery and ratemaking 99 99

A. Contracting Authority 99 99

1. Parties' Positions 100 100

2. Discussion 101 101

B. Cost Recovery for Utility Ownership and Turnkey Projects 103 103

1. Parties' Positions 103 103

2. Discussion 105 105

C. ERRA Trigger Mechanism 106 106

D. ERRA Disallowance Cap 107 107

E. Upfront Standards for Utility Procurement Products and Transactions 109 109

F. SCE'S AB 57 Plan 111 111

Table of Contents

Title Page

VII. Policy Issues Related To Long-Term Plans 113 113

A. Proposals Regarding Open And Transparent Competitive Bidding Process 114 114

1. Discussion and Determinations 118 118

2. Requirements for All-Source Solicitations 120 120

B. Affiliate Transactions 121 121

C. Procedures, Rules And Protocols, Including Independent
Third-Party Evaluators 123 123

D. Comparing PPAs to Utility Ownership 131 131

1. Parties' Positions 131 131

E. Debt Equivalence (DE) 136 136

F. Climate Change Issues in the Long-Term Procurement Plans 140 140

1. Background 140 140

2. Party Comments on GHG Issues in the Proposed Decision 145 145

3. Range of values for the GHG Adder 146 146

G. Repowering 149 149

1. Discussion 152 152

VIII. Other Procurement Issues 154 154

A. Resource Adequacy Issues Not Addressed in the Resource
Adequacy Decision 154 154

B. Local Reliability as Part of the Procurement Process 155 155

C. Bottom-up Planning 156 156

D. DWR contract allocation and reallocation (Sunrise) 159 159

E. Long-Term Planning in the Next Procurement Cycle 160 160

F. Utility filings demonstrating compliance 162 162

G. Collateral Requirements 165 165

H. New Accounting Rules 167 167

I. Standard Offer Service 168 168

J. Confidentiality 169 169

Comments on the Proposed Decision 174 174

Assignment of Proceeding 188 188

Findings of Fact 189 189

Conclusions of Law 219 219

ORDER 229 229

OPINION ADOPTING PACIFIC GAS AND ELECTRIC COMPANY,
SOUTHERN CALIFORNIA EDISON COMPANY
AND SAN DIEGO GAS & ELECTRIC COMPANY'S
LONG-TERM PROCUREMENT PLANS

I. Summary

This decision adopts, with modifications, Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE) and San Diego Gas & Electric Company's (SDG&E) Long-Term Procurement Plans (LTPP) and provides direction to the utilities on the procurement of the resources identified in the LTPPs. Summaries of the LTPPs are provided as Attachment A.

In our direction to the Investor-Owned Utilities (IOUs) [PG&E, SCE and SDG&E] regarding the procurement of resources to meet identified needs, and in recognition of the substantial amount of procurement to be undertaken as a result of our resource adequacy decisions, we make a number of significant findings. First, following the "loading order" contained in the Joint Agency Energy Action Plan (EAP) is the highest priority, meaning that energy efficiency and demand-side resources should be employed first. When these opportunities are captured, renewable generation is to be procured to the fullest extent possible - whenever an IOU issues a Request for Offer/Proposal (RFO/RFP) for generation resources, it must justify its selection of fossil generation over renewable generation offers. In other words, selection of renewable generation is the rebuttable presumption guiding IOU generation procurement.

We have extended the IOUs' procurement on a rolling 10-year basis. We will diligently oversee how the utilities are using this authority. We authorize the utilities to enter into short-term, mid-term, and long-term contracts, with contract delivery start dates through 2014, provided that the IOUs submit the necessary compliance filings. Furthermore, we have determined that it is time to allow greater head-to-head competition and hereby lift the affiliate ban on long-term power products. Accordingly, we adopt certain guidelines and safeguards, including an independent third party evaluator (IE) requirement. We will allow the consideration of debt equivalence in the bid evaluation process as specified herein, and we will also require the use of a greenhouse gas (GHG) adder as a bid evaluation component. With these policies we continue to shape and define the hybrid power market in California so as to advance the positive benefits of competition and deliver California's energy services according to the priorities of state policy.

In general, IOUs are directed to procure the maximum feasible amount of renewable energy in the general solicitations authorized by this decision, and we will allow them to credit this procurement towards their Renewables Portfolio Standards (RPS) targets. This is in keeping with the Legislature's clear intent, in creating the RPS program, that renewable procurement be integrated as closely as possible with general IOU procurement practices. To further this effort, we will be working over the course of the next LTPP cycle to fully imbed the RPS into long-term planning, placing renewable energy development where it belongs - central to the IOUs' resource planning efforts. Development of the RPS program will continue in the interim as a high priority for this Commission, and the IOUs will be prepared to issue RPS solicitations in 2005.

To further the state's clear goal of promoting environmentally responsible energy generation, we also adopt a policy that reflects and attempts to mitigate the impact of GHG emissions in influencing global climate patterns. As described in this decision, the IOUs are to employ a "GHG adder" when evaluating fossil and renewable generation bids. This method, which will be refined in future proceedings, will serve to internalize the significant and under-recognized cost of GHG emissions, help protect customers from the financial risk of future climate regulation, and continue California's leadership in addressing this important problem. Staff will also begin to explore the concept of a carbon content requirement for the IOUs, in coordination with other governmental and non-governmental entities that are addressing the climate change issue.