3. Local RA for 2009

3.1. 2009 LCR Study

D.06-06-064 determined that a study of local capacity requirements performed by the CAISO would form the basis for this Commission's Local RA program. The CAISO conducts its LCR study annually, and this Commission resets local procurement obligations each year based on the CAISO's LCR determinations. As noted above, on May 1, 2008 the CAISO issued its final LCR report and study results for 2009.

The CAISO states that the assumptions, processes, and criteria used for the 2009 LCR study were discussed and recommended in a stakeholder meeting held on October 11, 2007, and that, on balance, they mirror those used in the 2007 and 2008 LCR studies. The CAISO identified and studied capacity needs for the same ten local areas as in the previous study: Humboldt, North Coast/North Bay, Sierra, Greater Bay, Greater Fresno, Big Creek/Ventura, LA Basin, Stockton, Kern, and San Diego.

The 2008 and 2009 summary tables in the 2009 LCR report, copied below, show that for all ten areas combined, the total LCR associated with reliability Category C declined slightly, from 28,106 MW in 2008 to 27,915 MW in 2009. This reduction occurred even though the peak load is expected to increase in nine of the ten areas. The LCRs for four areas (Big Creek/Ventura, LA Basin, Stockton, and Kern) declined, while the LCRs for the other six areas increased. The CAISO notes that projects such as the installation of the new Antelope Transmission Project Sections 1, 2, and 3 and various substation projects led to the LCR reductions. It attributes the LCR reduction for the Kern local area to a downward load trend.

2009 Local Capacity Requirements

	Qualifying Capacity			2009 LCR Need Based on Category B			2009 LCR Need Based on Category C with operating procedure
Local Area Name	QF/ Muni (MW)	Market (MW)	Total (MW)	Existing Capacity Needed	Deficiency	Total (MW)	Existing Capacity Needed	Deficiency	Total (MW)
Humboldt	48	135	183	177	0	177	177	0	177
North Coast / North Bay	217	728	945	766	0	766	766	0	766
Sierra	1012	768	1780	1453	226	1679	1617	703	2320
Stockton	276	265	541	491	34	525	541	185	726
Greater Bay	1111	5662	6773	4791	0	4791	4791	0	4791
Greater Fresno	510	2319	2829	2414	0	2414	2680	0	2680
Kern	646	31	677	208	0	208	417	5	422
LA Basin	3942	8222	12164	9728	0	9728	9728	0	9728
Big Creek/ Ventura	931	4201	5132	3178	0	3178	3178	0	3178
San Diego	201	3442	3663	3113	0	3113	3113	14	3127
Total	8894	25773	34687	26319	260	26579	27008	907	27915

2008 Local Capacity Requirements

	Qualifying Capacity			2008 LCR Need Based on Category B			2008 LCR Need Based on Category C with operating procedure
Local Area Name	QF/ Muni (MW)	Market (MW)	Total (MW)	Existing Capacity Needed	Deficiency	Total (MW)	Existing Capacity Needed	Deficiency	Total (MW)
Humboldt	45	135	180	175	0	175	175	0	175
North Coast / North Bay	262	621	883	676	0	676	676	0	676
Sierra	1014	766	1780	1780	89	1869	1780	312	2092
Stockton	272	264	536	460	15	475	536	250	786
Greater Bay	1116	5098	6214	4688	0	4688	4688	0	4688
Greater Fresno	496	2495	2991	2212	0	2212	2274	108	2382
Kern	615	31	646	259	0	259	463	23	486
LA Basin	3545	8545	12093	10130	0	10130	10130	0	10130
Big Creek/ Ventura	1463	3933	5396	3562	0	3562	3658	0	3658
San Diego	201	2718	2919	2919	114	3033	2919	114	3033
Total	9029	24606	33638	26861	218	27079	27299	807	28106

The comments reveal no disagreement with CAISO's LCR determinations for 2009. We are pleased to note that the past efforts towards greater transparency and opportunity for participation in the LCR study process appear to have paid off in significant part, as reflected in the comments. We determine that the CAISO's final 2009 LCR study should be approved as the basis for establishing local procurement obligations for 2009 applicable to Commission-jurisdictional LSEs.

SCE notes that the 2009 LCR study identified and analyzed new sub-areas within the Big Creek/Ventura and LA Basin local areas. SCE recommends that these sub-area determinations be used only for planning purposes, and that the local areas for which LSEs have local procurement obligations remain the same for 2009 as they were in 2008. It is our understanding that the CAISO does not propose that we use its sub-area determinations to establish local procurement obligations. We concur with SCE's recommendation.

SCE recommends that two operating solutions approved by the CAISO should be incorporated in the local procurement obligations that we establish: Santiago N-2 Special Protections System and La Cienega/El Nido N-2 Special Protection System. The first of these operating solutions would mitigate the LA Basin LCR by about 500 MW. We have approved the use of CAISO-approved operating solutions to mitigate LCRs in previous decisions, and we do so here.

PG&E and SCE offered and discussed recommendations for improving future LCR studies. As noted in the Phase 1 Scoping Memo, Phase 2 will address LCR study improvements, including consideration of a more detailed LCR study schedule that will address such recommendations. We encourage all parties to bring forward such ideas in Phase 2.

3.2. Local Procurement Obligations for 2009

3.2.1. Continuation of the Local RA Program

D.06-06-064 adopted a framework for Local RA and established local procurement obligations for 2007 only. D.07-06-029 established local procurement obligations for 2008 only. We intend that Local RA program and associated regulatory requirements adopted in D.06-06-064 and D.07-06-029 shall be continued in effect for 2009, subject to the 2009 LCRs and procurement obligations adopted by this decision.

In previous decisions, we have delegated ministerial aspects of RA program administration to the Commission's Energy Division. The Energy Division should implement the local RA program for 2009 in accordance with the adopted policies and principles.

3.2.2. Reliability Options

The 2009 LCR report sets forth two sets of LCRs associated with reliability options based on North American Electricity Reliability Council (NERC) Performance Level B and Performance Level C criteria. As the CAISO's report explains:

1. Option 1 - Meet Performance Criteria Category B.

Option 1 is a service reliability level that reflects generation capacity that must be available to comply with reliability standards immediately after a NERC Category B given that load cannot be removed to meet this performance standard under Reliability Criteria. However, this capacity amount implicitly relies on load interruption as the only means of meeting any Reliability Criteria that is beyond the loss of a single transmission element (N-1). These situations will likely require substantial load interruptions in order to maintain system continuity and alleviate equipment overloads prior to the actual occurrence of the second contingency.

2. Option 2 - Meet Performance Criteria Category C and Incorporate Suitable Operational Solutions.

Option 2 is a service reliability level that reflects generation capacity that is needed to readjust the system to prepare for the loss of a second transmission element (N-1-1) using generation capacity after considering all reasonable and feasible operating solutions (including those involving customer load interruption) developed and approved by the CAISO, in consultation with the [Participating Transmission Owners (PTOs)]. Under this option, there is no expected load interruption to end-use customers under normal or single contingency conditions as the CAISO operators prepare for the second contingency. However, the customer load may be interrupted in the event the second contingency occurs.

As noted, Option 2 is the local capacity level that the CAISO requires to reliably operate the grid per NERC, [Western Electric Coordinating Council (WECC)], and CAISO standards. As such, the CAISO recommends adoption of this Option to guide resource adequacy procurement. (2009 LCR Report, p. 15; emphasis in original.)

D.06-06-064 determined that the reliability level associated with Option 2 as defined in the 2007 LCR study should be applied as the basis for local procurement obligations for that year. The Commission stated that "[w]hile we expect to apply Option 2 in future years in the absence of compelling information demonstrating that the risks of a lesser reliability level can reasonably be assumed, we nevertheless leave for further consideration in this proceeding the appropriate reliability level for Local RAR for 2008 and beyond." (D.06-06-064, p. 21.) D.07-06-029 adopted Option 2 as recommended by the CAISO for 2008 local procurement obligations. There is no evidence or recommendation before us suggesting that assumption of the reduced reliability associated with Option 1 is reasonable for 2009. We therefore affirm the continued application of Option 2 to establish local procurement obligations for 2009.

3.2.3. Aggregation of Local Areas

To address supplier market power concerns, D.06-06-064 established an approach for aggregation of certain local areas for 2007. After determining each LSE's allocation of Local RAR for each local area based on its share of load in the investor-owned utility (IOU) distribution service area, the Commission determined that six local areas within the PG&E territory (Humboldt, North Coast/North Bay, Sierra, Stockton, Greater Fresno, and Kern) should be aggregated as one for purposes of RA compliance. D.07-06-029 found that continuation of the aggregation approach for these six areas was reasonable for 2008, although it repeated the concern expressed in D.06-06-064 that aggregation might lead to over- or under-procurement in some areas.

AReM supports continuation of the local area aggregation approach for the six areas in PG&E's territory, and TURN notes that no reason has been offered to alter it. No party has raised a concern that reliability would be impaired by continuing the approach for 2009. We find it is reasonable to continue the previously adopted aggregation approach for 2009.

3.2.4. Local Area Resource Deficiencies

The LCR study identifies deficiencies in qualifying capacity resources in certain local areas. In the 2009 study the CAISO determined that such deficiencies exist in the Sierra, Stockton, Kern, and San Diego local areas that total to 907 MW.

Because it would not be "reasonable to require LSEs to procure capacity that, according to the LCR study, does not currently exist in an area," the Commission directed the Energy Division to calculate reduced LCRs for those areas. (D.06-06-064, pp. 21-22.) D.06-06-064 authorized this "blanket waiver" treatment of deficiencies for 2007 only, and D.07-06-029 approved similar treatment of local area deficiencies for 2008. We will again approve blanket waiver of the local procurement requirement in the resource-deficient areas identified by the CAISO.

3.2.5. Coordination With CAISO
Backstop Procurement

In the previous local RA decisions we have established local RA compliance filing procedures in coordination with the CAISO's Reliability Must Run (RMR) mechanism. To minimize unnecessary procurement, we established an iterative process whereby LSEs submitted preliminary showings in September that the CAISO would consider before making RMR commitments. The final compliance showings were made due on October 31, and the System RA compliance filing date was reset to October 31 as well. We are aware of no recommendation or other basis for changing this procedure for 2009. Accordingly, for the 2009 compliance cycle, preliminary local procurement showings shall be made on September 19, 2008 and final compliance showings for both local RA and System year-ahead RA shall be due on October 31, 2008.¹

D.07-06-029 approved a procedure (Proposal 8) for integrating the Commission's RA and the CAISO's procurement procedures. It would be reasonable and appropriate to implement Proposal 8 in 2009, adapting the 2008 schedule, and with the CAISO only designating units with 2008 RMR contracts that were not under RA contracts in the preliminary RA compliance filings.

¹ These dates may be altered as necessary by assigned Commissioner or assigned ALJ Ruling.