IV. Procurement Plan Elements

The procurement plans filed on May 1, 2002 by PG&E, Edison, and SDG&E vary in depth of detail and comprehensiveness. However, as required by Section 454.5(a), we adopt herein each of the utilities' plans, as modified by this decision and the utilities' more recent filings. We also specify the detail and accuracy of information that shall be needed in order to quickly process and approve transactions to be effective beginning January 1, 2003. While we recognize the urgency of having a procurement plan in place by January, we also understand the importance of beginning longer-term (up to 20-year) resource planning now. Therefore, we adopt an ongoing two-part procurement planning process to cover short-term and long-term needs, as detailed further in this decision. Both short-term and long-term procurement plans should include the same elements, as described in detail below and except as otherwise indicated.

When the utilities filed their procurement plans on May 1, 2002, the Commission had yet to resolve the allocation of DWR contracts among the three utilities. The allocation of DWR contract is one of the key factors underlying the derivation of each utility's residual net short position. On September 19, 2002, the Commission adopted D.02-09-053 specifying the allocation of the DWR long-term contracts among the three respondent utilities. That decision ordered PG&E, Edison, and SDG&E to submit revised estimates of their respective net short position based on the final adopted allocation of the DWR contracts.¹¹

While D.02-09-053 removes a large measure of uncertainty in the calculation of each utility's residual net short position, a second variable emerged during the course of the proceeding which impacts the procurement needs of the utilities in 2003: the adoption of transitional procurement authority with DWR's credit support. D.02-08-071 authorizes the three utilities to enter into multi-year procurement contracts based on a conservative estimate of on-peak hourly residual net short needs. We anticipate that proposed contracts brought forward under the authority granted in D.02-08-071 will be filed by early November 2002 with a Commission resolution on the contracts issued before the end of the year. To the extent the utilities enter into contracts under the transitional procurement authority granted in D.02-08-071, the utilities' residual net short requirements will diminish, thereby reducing the need for additional procurement authorized in this decision. We expect that these reduced requirement will be reflected in future procurement plan updates.

AB 57 (codified of Pub. Util. Code Section 454.5(b) enumerates the following elements of a utility procurement plan:

· An assessment of price risks across the utility portfolio.

· Definitions of the various products to be procured, including support and justification for the types and amounts of products to be procured.

· Defined duration of the plan.

· Duration, timing, and amount of each product to be procured.

· Use of a competitive bid system.

· An incentive mechanism, if one is proposed.

· Upfront standards and criteria to guide procurement transaction cost recovery.

· Procedures for updating procurement plans.

· A demonstration that the plan will meet residual net short needs and utilize demand side reduction programs.

· A showing that the utility will procure renewables and pursue demand reduction programs in accordance with the legislation.

· The utility's risk management policy and strategy.

· A plan for achieving increased diversity in supplier representation and fuel sources.

· A mechanism for recovering the utility's procurement-related administrative costs.

While we adopt the May 1, 2002 procurement plan filings, as modified by this decision and the utilities' more recent filings, we seek updates and modifications to those plans as set forth herein and as provided in Section 454(e). The utilities shall file modified short-term procurement plans on November 12, 2002 to include D.02-09-053 contract allocation and transitional procurement, as well as plans on April 1, 2003. In particular, the utilities shall provide more information on:

· A specific risk management strategy;

· Types of products to be procured over specific time-frames; and

· A target range of quantities to be procured for each product type.