ALJ/CMW/jva Mailed 10/25/2002

Decision 02-10-062 October 24, 2002

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)

(See Appendix A for List of Appearances)

INTERIM OPINION

Table of Contents

Pages

INTERIM OPINION 2 2

I. Summary 2 2

II. Procedural Background 5 5

III. Returning the Respondent Utilities To Full Procurement 7 7

IV. Procurement Plan Elements 14 14

V. Resource Options 17 17

A. Conventional Generation 19 19

B. Renewable Resources 19 19

1. Renewable Procurement Prior to Full RPS Implementation 21 21

2. Implementing the Renewable Portfolio Standard Program 24 24

C. Distributed and Self-Generation 27 27

D. Demand-Side Resources 27 27

1. Energy Efficiency 27 27

2. Demand Response 28 28

E. Transmission 29 29

F. Reserves 29 29

VI. Utility Options for Procurement Transactions 30 30

A. Competitive Solicitations 31 31

B. Transparent Exchanges 32 32

C. ISO Markets: Hour-Ahead, Day-Ahead (when available), and Imbalance Energy and Ancillary Services 32 32

D. Inter-Utility Exchanges 32 32

E. Utilities may Provide Showing for Direct Bilateral Contracting for Short-Term Products As an Additional Alternative Procurement Method 34 34

F. Utility Ownership 35 35

VII. Specific Types of Transactions 35 35

VIII. Price Benchmarking and the Development of an Incentive Mechanism 39 39

A. TURN's Proposed Price Benchmark Strategy 39 39

B. ORA's Proposed Benchmark Strategy for Portfolio Management 40 40

C. Discussion 40 40

IX. Risk Management 42 42

1. Timing Risks - Exercising Caution and Allowing the Market to Develop 42 42

2. Supply Risks - Diversifying the Supplier Portfolio 43 43

3. Price Risks - Establishing Consumer Risk Tolerance Level For Overall Portfolio 43 43

4. Reliability Risks 45 45

X. Procurement Plan Process 46 46

A. Short-term Procurement Plans 46 46

B. Long-term Procurement Plans 48 48

Table of Contents