COM/MP1/jf2/acb DRAFT Agenda ID #3009
Ratesetting
Decision PROPOSED ALTERNATE DECISION OF COMR PEEVEY
(Mailed 11/18/2003)
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development. |
Rulemaking 01-10-024 (Filed October 25, 2001)) |
Title Page
INTERIM OPINION 1
TABLE OF CONTENTS i
INTERIM OPINION 4
I. Summary 4
II. Procedural History 6
III. Regulatory Goals and Interagency Collaboration 9
IV. Threshold Policy Issues 12
A. Reserves and Resource Adequacy 12
1. Summary 12
B. Policy Issues 14
C. Current and Forecasted Market Conditions 15
D. Appropriate Reserve Levels and Phase-in Period 16
E. Appropriate balance between forward contracting and spot purchases 19
F. Utility Obligation to Procure for all load and customers within their service territory 27
G. Deliverability 29
H. Penalties and Reporting 32
I. Issues to be Addressed in Workshops 34
J. Market Structure for Longer Term Resource Commitments 36
1. Determining the Need for Resource Commitments 36
2. Today's Hybrid Market Structure 37
3. Benefits of Utility Ownership v. Benefits of Third-party Contracts 39
4. Competitive Solicitations 45
5. Length and Type of Contracts 46
6. Affiliate Transactions 48
a) Existing Moratorium and Standard of Behavior 1 48
b) This Year's Hearing Record 50
c) Discussion 52
d) SDG&E and SoCalGas 53
e) PG&E and Affiliates 56
K. Financial Capabilities of the Utilities 60
1. Debt Equivalency 62
a) SCE's Concerns for Long-Term Power Contracts 63
b) Implications for Market Structure 64
c) Commission Procurement Policy and Treatment of Debt Equivalency 64
2. Cost of Collateral 66
V. Long-Term Planning Assumptions and Policy Guidance 69
A. Utilities' Current Filings 69
1. Parties Positions 69
2. Discussion 72
B. Integrated Approach 77
1. Energy Efficiency 78
a) Procurement Energy Efficiency Funding Levels for 2004-05 78
b) Program Selection Criteria 81
c) Procurement EE Program Submissions, Evaluation and Selection 83
(1) Projected Utility Energy Efficiency Procurement and PGC Funded Cost, Energy Savings &Demand Reductions for Procurement and PGC Funded Programs 84
d) Cost-Recovery Mechanism for Procurement EE Activities 85
e) Procedural Issues Related to Efficiency Rulemaking 01-08-028 91
(1) Program Duration and Cycles 91
(2) Program Specific Evaluation 92
(3) Energy Efficiency Goals for the Commission's Portfolio of Programs 92
(4) Future Administration of Energy Efficiency Programs 93
f) Other Issues 94
2. Demand Response 96
3. Renewables 100
a) RPS Requirements 100
(1) Renewable Procurement Plan 101
(2) Full RPS Solicitation 102
(3) Market Price Referent and Interim Benchmarks 102
(4) Contract Lengths 103
(5) Eligibility for Supplemental Energy Payments 103
(6) Creditworthiness 104
(7) Standard Terms and Conditions 104
b) Short-Term Plan Issues 105
c) Long-Term Plan Issues 106
4. Distributed Generation 110
5. Transmission 115
6. Fuel Diversity in Non-Renewables 120
7. QFs 123
a) Parties' Positions 125
b) Discussion 131
(1) The PURPA Purchase Obligation Requirement 132
(2) Existing QFs With Existing Utility Contracts 140
(3) Existing QFs With Expired, or Soon-to-be Expired, Utility Contracts 140
(4) New QFs With Possible Future Utility Contracts 145
(5) PG&E's Proposed 1,000 Hours Curtailment Proposal 146
(6) Revision of SRAC Prices 147
8. Performance Incentives for Procurement Activities 150
C. Risk Management 153
1. Consumer Risk Tolerance (CRT) 154
2. Incentive Mechanism 155
D. Other Proposals 157
1. CPA Peaker Initiative 157
2. City of San Diego's Proposal 161
3. CAC/EPUC's Request for Clarification of Net v. Gross Load Calculation 163
VI. Short-Term Plans 165
A. Overview 165
Output and Action 166
B. Review of Risk Management and Reporting Proposals 167
1. Consistent Measurement of Degree of Portfolio Risk 168
C. Limits on Length and Volume of Contracts Authorized 172
D. Fuel and Power Forecasts 176
E. Role of PRG 177
F. Modification and Approval of Short-Term Plans 182
VII. Procedural Process and Schedule for Future Filings 183
VIII. Next Steps 186
IX. Oral Argument and Comments on the Proposed Decision 187
X. Assignment of Proceeding 188
Findings of Fact 188
Conclusions of Law 198
INTERIM ORDER 208
I. Summary
This decision adopts the long-term regulatory framework under which California's three largest investor-owned utilities, Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE), will plan for and procure the energy resources and demand-side investments necessary to ensure their customers receive reliable service at low and stable prices. As part of this framework, we promote environmentally sensitive resource choices, set reserve margin standards to protect California's electricity grid, and provide cost-recovery mechanisms that promote the creditworthiness of each utility.
In our decisions last year, the Commission took the actions necessary for the three respondent utilities to resume full procurement on January 1, 2003. We allocated to the three utilities the contracts the California Department of Water Resources (DWR) entered into during the energy crisis when the utilities did not have the creditworthiness to continue to procure energy for their customers, approved short-term procurement plans and cost-recovery mechanisms under which the utilities would resume procurement, and gave the policy direction for long-term procurement plans to be filed in 2003.
Our focus now is on ensuring the respondent utilities make the longer term investments necessary to provide reliable service to all California customers over the coming decade. The California Independent System Operator (ISO) has deferred to the Commission to adopt and enforce adequate planning reserve requirements for the utilities and other electricity providers operating in their service territories. We do that here. We find that there is ample surplus of electric energy capacity available in the Western Electricity Coordinating Council (WECC) region that California can draw upon today and for the next few years. Therefore, we affirm an operating reserve requirement for 2004 and a phase-in of a planning reserve requirement over the next year. Our approach is consistent with, but more aggressive than, the timetable and process recommended jointly by the three utilities, the California Energy Commission (CEC), the Office of Ratepayer Advocates (ORA), and The Utility Reform Network (TURN).
We address here the market structure rules the utilities should follow in making long-term resource acquisitions. We endorse a hybrid market structure, with the utilities able to compete through a competitive Request for Proposals (RFP) process to acquire ownership of new generation facilities. Having provided for direct utility ownership of new plant, we make permanent our ban on affiliate transactions as a direct and effective means of preventing potential conflicts of interest at a level where we have less oversight and control. The holding companies and affiliates of each utility should plan for future generation investment to be made outside of their utility's service territory and sold to other load serving entities.1
In reviewing each utility's short-term and long-term resource plans, we look to the statutory requirements of Assembly Bill (AB) 57 and the goals of the Energy Action Plan, a joint product of the Commission, the CEC, and the California Power Authority (CPA). We also look to the utilities to pursue an integrated resource planning process that balances the need for additional generation, transmission, and demand-side investments and to do this in a public proceeding that allows all interested parties an opportunity to participate effectively. We require each utility to adhere to upfront standards in conducting their procurement and to be accountable for operating in a manner that mitigates the risks of high prices, ensures reliable service and delivers measurable value to their customers.
We modify and adopt short-term procurement plans for the utilities to operate under in 2004 and 2005. We adopt the recommendation of the three utilities, ORA, CEC, and TURN to have the utilities resubmit their long-term procurement plans in mid-2004, following the Commission's adoption of specific resource adequacy criteria to be addressed in upcoming workshops. We also adopt CEC's "no regrets" standard for the review of any long-term commitments the utilities propose prior to our adoption of final long-term plans.
Finally, we discuss the issues that should be addressed in the new Procurement OIR we expect to open in the second quarter of 2004. These issues are: (1) the need to develop procurement incentive mechanisms for each utility; (2) the need to develop a long-term policy for expiring QF contracts; (3) review of the management audits of SDG&E's and PG&E's electric procurement transactions with their regulated affiliates; (4) handling resource adequacy issues not addressed in the workshop process; and (5) review and adoption of revised 2004 long-term procurement plans for the three utilities. We expect to open this new procurement OIR in the second quarter of 2004.
1 SCE's Mountainview application and SDG&E's RFP are before us as separate matters and are not addressed here.
