4. Local True-Up White Paper and Revised White Paper

On August 15, 2010, Energy Division and CEC staff released a White Paper entitled "2011 Local True-Up Method White Paper." An Administrative Law Judge's (ALJ) Ruling dated July 27, 2010 sought comments on the White Paper. Comments and reply comments were filed by Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (SCE), Alliance for Retail Energy Markets (AReM) and The Utility Reform Network (TURN) on September 8, 2010 and September 22, 2010. Based on comments, the two staffs released a revised White Paper on September 28, 2010. A subsequent ALJ Ruling on September 30, 2010 sought comment on the Revised White Paper, and sought comment as to whether the Revised White Paper should be entered into the record of this proceeding. The same parties (except for TURN) filed comments and replies on October 6, 2010 and October 13, 2010.

In their comments and replies, SDG&E, SCE, PG&E and AReM objected to language in the Revised White Paper concerning planned outage replacement rules which they contended would increase procurement costs by potentially millions of dollars. SDG&E objected to placing the Revised White Paper into the record. AReM called for a transfer payment and the aggregation of local RA areas to mitigate market power concerns. Several parties commented on proposed timelines for compliance with local RA true-up requirements, with most opposing a proposal in the Revised White Paper for a third local RA true-up in each year, due to additional costs and minimal benefits.

The Revised White Paper summarized its purpose as follows:

The California Public Utilities Commission (CPUC) Energy Division and California Energy Commission staff (CEC) presents this paper to provide guidance on the Local true-up process and its implementation. The paper outlines key criteria for evaluating how well alternative Local true-up mechanisms support Resource Adequacy (RA) objectives. These criteria are used to analyze the current mechanism in place for the remainder of 2010 and the proposed 2011 mechanisms from the R.09-10-032 proceeding. Decision (D.)10-06-036 states, "We accept TURN and AReM's suggestion to re-evaluate the 2010 Local true-up during a decision phase later this year, once there is sufficient experience gathered with the Local RA true-up mechanism adopted in the DA proceeding. However, in light of our plans to revisit this issue later in 2010, once experience has been gathered with the true-up mechanism adopted by D.10-03-022, we encourage parties to give serious consideration to the Reallocation Method." This paper informs parties about implementation obstacles experienced in implementing the Local RA True-up process in 2010 and also provides guidance for selecting a process to implement for 2011.

In order to achieve the broad goals of the RA program and to implement the Commission's intent, the two staffs identified the following key criteria, which were discussed in detail in the Revised White Paper:

1. Equitable and transparent cost allocation according to cost responsibility - are capacity obligations and their associated costs allocated to LSEs consistent with their expected load?

2. Verifiability - can LSE's reported or forecasted estimates of load migration be verified and confirmed?

3. Administrative simplicity- can the process be done efficiently for LSEs and agency staff so that there is a minimized administrative burden?

4. Timeliness and clarity of compliance obligation and decreased potential for disputes - can the process be streamlined to minimize possibilities for inconsistent information between LSEs, and can LSEs determine their compliance obligation quickly?

On October 26, 2010, a Prehearing Conference (PHC)/workshop was held to discuss the comments on the Revised White Paper. At the PHC, Energy Division staff clarified certain aspects of the Revised White Paper. After a discussion, parties reached an agreement to change language in Section VI.2 of the Revised White Paper related to the process for showing a local resource and procedures for resource outages in order to ensure clarity. (Reporter's Transcript (RT) 92-94.) No party objected to the changes. This change resolves the main concerns of all parties concerning planned outage replacement rules. Based on this changed language, SDG&E withdrew its objection to placing the Revised White Paper into the record. (RT 95.)

We will adopt the local true-up methodology from the Revised White Paper, as revised at the October 26, 2010 PHC/workshop. Appendix A contains the adopted methodology. The adopted methodology is taken from Section VI of the Revised White Paper, with the following modifications.

· Showing a local resource and procedures for resource outages

We have clarified this section to incorporate language agreed to by parties at the October 26, 2010 PHC/Workshop.

· Transfer Payment

Prior to D.10-03-022, the Commission had decided against adopting the transfer payment approach in D.06-06-064 on the grounds that LSEs would be required to procure capacity to meet their RA obligations, and that a transfer payment in essence creates a Local RA product and a System RA product, each independently provided by the same RA capacity. Due to changed conditions and the reopening of DA in SB 695, D.10-03-022 adopted a transfer payment mechanism.

The transfer payment mechanism is an optional payment that can alleviate the Local RA obligation for an LSE that receives migrating customers to purchase Local RA capacity. In short, the gaining LSE can contact the losing LSE and pay an administratively determined transfer payment (D.10-03-022 set it at $24 per kilowatt (kw)/year) instead of contracting with additional Local RA capacity and making it available to the CAISO. The transfer payment mechanism is based on the idea that an LSE that loses load may not be able to sell its capacity to the LSE gaining the load, and due to difficulties in transacting that sale in time, the gaining LSE might choose to simply make a payment. This means that the "Local RA" credit is then transferred to the gaining LSE to meet their Local RA obligation. Staff would monitor and enforce payment of these transfer payments as a means of enforcing compliance with the RA program.

The Revised White Paper recommends that there be no transfer payment mechanism adopted for 2011, as this mechanism creates several potential disputes and reporting/verification requirements both for LSEs and agency staff. The adopted local RA true-up methodology does not adopt a transfer payment, but provides for the aggregation of Local Areas as adopted in D.10-03-022. LSEs will be required to procure Local RA capacity to meet reallocated Local RA obligations.

· Reallocation cycles

Based on party comments and workshop discussion, we will adopt a process with two reallocation cycles, with the first cycle to occur earlier in 2011 so as to shorten the time that stranded costs are left.

· No additional filing

Based on comments, we adopt a process that does not require an additional filing made with the Month Ahead RA Filings, but instead uses the same compliance template and is delivered at the same time.

· Dispute Resolution

AReM calls for a dispute resolution process to be adopted to afford the LSEs the opportunity and time necessary to seek changes in local RA reallocations. AReM reasons that this is necessary because the reallocation process relies on CEC discretion in determining local RA reallocations and because LSEs do not know what their obligation is going to be until the CEC allocates it. AReM provides a specific process for resolving such disputes.

We will not adopt AReM's suggested dispute resolution process. While such a process might be useful if the CEC were making significant discretionary decisions, it is unclear that this is the case. The CEC's process involves receiving load forecasts from LSEs, then adding them up to compute a load share. LSEs could not realistically dispute their load share since they do not know the load forecasts of other LSEs. Further, per D.10-06-036, LSEs already can update their information if necessary within five days after the forecast due date. We find the current process to be sufficient to address substantial questions of reallocation of local RA.

· Penalty Structure and Citation Program

The same RA penalty structure adopted in D.10-06-036 will apply to local true-ups and their associated revised load forecasts. The citation program adopted in Resolution E-4195 will also apply to all aspects of the local true-up process.

· Procurement timeframe

Based on comments, we adopt a revised reallocation proposal that gives LSEs different amount of time to procure Local RA between reallocation of Local RA obligations and submission of Local RA Filings.

The process adopted today will remain in effect for future years as well. The adopted procurement timeframe for 2011 is shown below, and is consistent with the generic timeframe shown in the adopted process in Appendix A.

RA filing month	Load Forecast month	Due Date
2011 Preliminary Local	N/A	Sep 17, 2010
2011 Final Year Ahead	N/A	Nov 1, 2010
January, 2011	February, 2011	Nov 30, 2010
February, 2011	March, 2011	Dec 31, 2010
March, 2011	April, 2011 (with first 2011 Local RA August revised forecast)	January 31, 2011
April, 2011	May, 2011	February 28, 2011
May, 2011 (first cycle )	June, 2011 (with second 2011 Local RA August revised forecast)	April 1, 2011
June, 2011 (first cycle)	July, 2011	May 2, 2011
July, 2011 (second cycle)	August, 2011	June 1, 2011
August, 2011(second cycle)	September, 2011	June 30, 2011
September, 2011 (second cycle)	October, 2011	August 1, 2011
October, 2011 (second cycle)	November, 2011	August 31, 2011
November, 2011 (second cycle)	December, 2011	September 30, 2011
December, 2011 (second cycle)	January 2012	October 31, 2011