COM/CXW/mnt Mailed 11/27/02

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Rulemaking to implement the provisions of Public Utilities Code § 761.3 enacted by Chapter 19 of the 2001-02 Second Extraordinary Legislative Session.

Filed Public Utilities Commission November 21, 2002 SAN FRANCISCO, CALIFORNIA RULEMAKING 02-11-039

ORDER INSTITUTING RULEMAKING

TO IMPLEMENT THE PROVISIONS OF PUBLIC UTILITIES CODE

§ 761.3 ENACTED BY CHAPTER 19 OF THE 2001-02 SECOND EXTRAORDINARY LEGISLATIVE SESSION.

This proceeding is opened to implement Pub.Util. Code section 761.3, which confirms the authority of the Commission to address electric generation facility issues. This provision was enacted into law by Chapter 19 of the Second Extraordinary Session of 2000-01, Senate Bill 39 (Burton and Speier.) Chapter 19 is attached to this Order as Appendix A. The purpose of this proceeding is to develop rules to (1) enforce California Independent System Operator outage scheduling protocols and (2) implement and enforce the generator operation and maintenance standards that will be adopted by the California Electric Generation Facilities Standards Committee established by the statute.

I. Background

This rulemaking implements a statute enacted by the Legislature to resolve issues related to the ability of the State of California to assure the reliable operation of the powerplants on which our state's economy

depends. SBX2 39 of the Second Extraordinary Session, signed by the Governor on May 9, 2002 as Chapter 19, declares that;

"(a) Electric generating facilities and powerplants in California are essential facilities for maintaining and protecting the public health and safety of California residents and business.

(b) It is in the public interest to ensure that electric generating facilities and powerplants located in California are effectively and appropriately maintained and efficiently operated." (Chapter 19, Section 1, (a) and (b))...

The mechanism for ensuring appropriate operating and maintenance regimes for the powerplants is a joint effort among state agencies and instrumentalities having different but complementary roles: the California Independent System Operator (CAISO) and this Commission. The Legislature declares its intention that:

"(d) To protect the public health and safety and to ensure electrical service reliability and adequacy, the Public Utilities Commission and the Independent System Operator shall work collaboratively to develop clearly articulated, uniform operating practices and procedures. The commission shall enforce compliance with those practices and procedures." (Chapter 19, Section 1(d)).

To the extent feasible, the Legislature also expresses its intention that the Commission acquire rights under Participating Generator Agreements (PGAs) between the CAISO and generators who supply energy transmitted over the grid managed by the CAISO.¹

Section 4 of Chapter 19 adds Section 761.3 to the Public Utilities Code. In this rulemaking we will be acting to implement its provisions. As a new section of the Public Utilities Act, this section operates together with the other provisions of the Public Utilities Act, including specifically the investigative and enforcement powers that the Commission traditionally utilizes to carry out its responsibilities. C.f., Public Utilities Code sections 2100 through 2113.

In this rulemaking we will establish the procedures under which the Commission will carry out its responsibilities to work in collaboration with the CAISO² as the enforcement authority for the State of California in assuring reliable operation and availability of the powerplants on which California's economy depends.

Acting pursuant to an order of this Commission, the California investor-owned utilities have transferred operational control of certain transmission facilities to the CAISO. Re Proposed Policies Governing Restructuring California's Electric services Industry, D. 95-12-063, Ordering Paragraph 3; 64 PUC2d 1, 195 (1996); In re Pacific Gas & Electric, 77 FERC P. 61204, 61822 (1997). During 1998 and 1999 the utilities divested themselves of nearly 17,000 megawatts of generation dedicated to serving the native load of the divesting utilities, again pursuant to orders of this Commission. The operation and maintenance of these divested plants is of particular concern to the Legislature and to the Commission.

Preserving a high degree of reliability of service was an explicit objective of the California deregulation plan, first proposed by this Commission in D.95-12-063, modified by by D.96-01-009. 64 PUC 2d 1, 26. The Legislative response to the CPUC deregulation plan, Stats. 1996 Chapter 854, Assembly Bill 1890 (Brulte), specifically emphasized the importance of maintaining reliable service. C.f., Public Utilities Code sections 330(g) and (h); 334, and 362. Section 362 specifically directed the CPUC to assure the continued availability of divested powerplants for purposes of reliability and prevention of market power. Section 362 was amended and re-affirmed by Section 3 of Chapter 19, which added a new subdivision (b) which provides:

The commission shall require that generation facilities located in the state that have been disposed of in proceedings pursuant to Section 851, are operated by the persons or corporations who own or control them in a manner that ensures their availability to maintain the reliability of the electric supply system.

Owners and operators of divested plants will be respondents in this rulemaking.

In August 2000, almost at the outset of the California energy crisis, the CPUC began to investigate anomalies in the operation and maintenance of the powerplants in California. Beginning in September 2000, the CPUC began seeking information from generator-owners concerning anomalies in powerplant operation, both in the context of a CPUC investigation³ and in the context of the investigation by the Federal Energy Regulatory Commission (FERC).⁴ In February 2001, the Governor promulgated Executive Order (EO) D-01-23 directing the CAISO to promulgate operating and maintenance procedure for generators receiving transmission services for deliveries of electric energy in California, in consultation with the CPUC and Electricity Oversight Board. Acting pursuant to that directive, the CAISO developed and promulgated Outage Scheduling Protocols. The CAISO also developed a set of draft generator maintenance standards, which it circulated in December 2001 but did not adopt. The CAISO Draft Standards represent an important starting point for the work of the Commission and the California Electric Generation Facilities Standards Committee.

The question of effective enforcement was left unresolved by the Executive order and CAISO actions.⁵ The Legislature addressed this issue in SBX2 39 by enacting Public Utilities Code Section 761.3 providing for implementation and enforcement by the Commission.

¹ Section 1(c) provides: "Owners and operators of electric generating facilities and powerplants provide a critical and essential good to California residents. It is in the public interest that the Public Utilities Commission seek enforcement capability from the Federal Energy Regulatory Commission regarding the private generator agreement to provide for broader state control of operational activities of generation facilities in the state."