5. Position of CPSD Prior to Settlement
Notwithstanding CPA's eventual correction of these deficiencies, it is CPSD's position that CPA's failure to comply with the year-ahead filings by October 31, 2007 is subject to penalties pursuant to D.05-10-042 and D.06-06-064. CPSD notes that CPA's non-compliance is serious, because it could have led to the California Independent System Operator (CAISO) taking costly remedial measures.
5.1. System Resource Deficiency
According to CPSD, CPA's October 31, 2007, Year-Ahead Compliance Filing failed to account for a contract expiring in June of 2008 resulting in system-wide deficiencies. Calpine's RA Compliance Filing- Worksheet A. Certification Form dated February 16, 2006 shows contract CPA-2.10.1-8874 expiring on June 30, 2008. The contract in question is a liquidated damages (LD) contract.2 CPSD notes that in D.05-10-042, the Commission addressed phasing out LD contracts, and any renegotiation of an LD contract subsequent to D.05-10-042 renders that LD contract ineligible to satisfy RA obligations subject to the phase out provisions in D.05-10-042. It is CPSD's positions that CPA wrongly included resources from this expired contract in meeting their RAR obligations for the months of July, August, and September 2008, causing a total system deficiency of 70.37 megawatt (MW)-month.
CPSD calculates that CPA's 70.37 MW-month deficiency would be subject to a penalty of $703,700 using the prescribed amount for capacity ($40) and penalty multiplier (300%).3
5.2. Local Area Resource Deficiency
CPSD asserts that Calpine's 2008 Year-Ahead Local Compliance Filing included local procurement obligation deficiencies as well. According to CPSD, CPA failed to use the correct number in its demand response (DR) calculations creating a deficiency totaling 10.76 MW-month for 2008. This was due to CPA including DR resource allocations, with values applicable to each month, rather than including the August value for each of the months, as required. CPSD indicates that the Commission created a penalty equal to 100% of the cost of new capacity for failure to meet local procurement obligations in D.06-06-064,4 and the associated penalty for the 10.76MW-month deficiency, calculated with the prescribed amount and multiplier, is $35,867.
5.3. Penalty Assessments
The CPSD recommended combined penalties for system and local RAR deficiencies total $739,567. In D.06-06-064 the Commission addressed situations where penalties overlap and clarified that when two penalties overlap for both system and local procurement obligations elements, only the larger RAR penalty would apply.5
CPSD explains that the identified deficiencies in the system and local RAR compliance filings overlapped for July, August, and September 2008. Therefore, the local RAR deficiency penalty would not be added for these three months. The amount of local capacity deficiency during the overlap period is 1.21 MW-month, which computes to a penalty of $4,033. Deducting this amount from the yearly total reduces the local area penalty from $35,867 to $31,834. Therefore, CPSD's recommended penalties are $703,700 for system deficiencies and $31,834 for local deficiencies, totaling $735,534.
2 As used by the Commission previously, the term "LD contract" refers to contracts with unspecified resources that provide for liquidated damages in the event of a breach. Here, the importance is not whether contracts between LSEs and resource suppliers have liquidated damages clauses, but that they do not identify specific, committed assets or units (i.e., physical resources) that back up the contractual obligations.
3 See D.05-10-042, Conclusions of Law (COL) 26, and D.06-06-064, COL 25.
4 See D.06-06-064, COLs 25 and 26.
5 D.06-06-064 at 68.
