STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor
PUBLIC UTILITIES COMMISSION
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3298
January 26, 2004
TO: ALL PARTIES OF RECORD IN RULEMAKING 01-10-024
Decision 04-01-050 is being mailed without the written Concurrence of President Peevey. The Concurrence will be mailed separately.
Very truly yours,
/s/ ANGELA K. MINKIN (by psw)
Angela K. Minkin, Chief
Administrative Law Judge
ANG:acb
Attachment
ALJ/CMW/tcg** Mailed 1/26/04
Decision 04-01-050 January 22, 2004
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)) |
INTERIM OPINION 1
I. Summary 2
II. Procedural History 4
III. Regulatory Goals and Interagency Collaboration 7
IV. Threshold Policy Issues 10
A. Reserves and Resource Adequacy 10
1. Summary 10
2. California Should be Responsible for Determining its Energy Future 12
3. Policy Issues 15
4. Current and Forecasted Market Conditions 17
5. Appropriate Reserve Levels and Phase-in Period 20
6. Appropriate Balance Between Forward Contracting and Spot Purchases 28
7. LSE Obligation to Procure Reserves for all Load and Customers that it Serves 34
8. Issues to be Addressed in Workshops 43
9. Deliverability 51
B. Market Structure for Longer Term Resource Commitments 53
1. Determining the Need for Resource Commitments 53
2. Today's Hybrid Market Structure 55
3. Benefits of Utility Ownership v. Benefits of Third-party Contracts 56
4. Competitive Solicitations 63
5. Length and Type of Contracts 65
6. Affiliate Transactions 67
a) Existing Moratorium and Standard of Behavior 1 67
b) The 2003 Hearing Record 69
c) Discussion 70
d) SDG&E and SoCalGas 72
e) PG&E and Affiliates 75
C. Financial Capabilities of the Utilities 79
1. Debt Equivalency 81
a) SCE's Concerns for Long-Term Power Contracts 81
b) Implications for Market Structure 82
c) Commission Procurement Policy and Treatment of Debt Equivalency 83
2. Cost of Collateral 84
V. Long-Term Planning Assumptions and Policy Guidance 87
A. Utilities' Current Filings 87
1. Parties Positions 87
2. Discussion 90
B. Integrated Approach 100
1. Energy Efficiency 101
a) Procedural Issues Related to Efficiency Rulemaking 01-08-028 103
(1) Program Duration and Cycles 103
(2) Program Specific Evaluation 104
(3) Energy Efficiency Goals for the Commission's Portfolio of Programs 104
(4) Future Administration of Energy Efficiency Programs 105
(5) Utility and Non-Utility Filings for Procurement Related Energy Efficiency Programs 106
b) Other Issues 107
(1) Valuing Non-Utility Energy Savings in Procurement Forecasts 107
(2) Valuing Potential Penalty Cost for CO2 Emissions 108
(3) Requirement that Savings Equal to or Greater than those projected in utility forecasts be present in Utility Programmatic Savings Projections 109
(4) Alignment of Forecast Level Measure Values for Energy Efficiency Savings with Program Level Measure Values for Energy Efficiency Savings 109
(5) Direct Access Customer Eligibility for Procurement Energy Efficiency Programs 110
2. Demand Response 110
3. Renewables 116
4. Distributed Generation 121
5. Transmission 125
6. Fuel Diversity in Non-Renewables 131
7. QFs 134
a) Parties' Comments on the Proposed Decisions 136
b) Parties' Recommendations Not Yet Discussed 140
c) Discussion 145
(1) The PURPA Purchase Obligation Requirement 145
(2) Existing QFs With Existing Utility Contracts 153
(3) Existing QFs With Expired, or Soon-to-be Expired, Utility Contracts 154
(4) New or Modified QFs With Possible Future Utility Contracts 158
(5) PG&E's Curtailment and True-Up Proposals 161
C. Performance Incentives for Procurement Activities 162
1. Parties' Positions 162
2. Discussion 163
D. Other Proposals 165
1. CPA Peaker Initiative 165
2. City of San Diego's Proposal 170
3. CAC/EPUC's Request for Clarification of Net v. Gross Load Calculation 172
VI. Procedural Process and Schedule for Future Filings 173
VII. Confidentiality 177
VIII. Next Steps 180
IX. Oral Argument and Comments on the Proposed Decision 181
X. Assignment of Proceeding 182
Findings of Fact 182
Conclusions of Law 192
INTERIM ORDER 199
I. Summary
This decision adopts the long-term regulatory framework under which California's three largest investor-owned utilities, Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE), will plan for and procure the energy resources and demand-side investments necessary to ensure their customers receive reliable service at low and stable prices. As part of this framework, we promote environmentally sensitive resource choices, set reserve margin standards to protect California's electricity grid, and adopt a process to provide the public and all interested parties more open access to the Commission's decision-making.
In D.03-12-062, we adopted short-term procurement plans for PG&E, SDG&E, and SCE and decided procurement issues which needed to be resolved prior to January 1, 2004. We chose to address the remaining issues that were part of evidentiary hearings held during July and August 2003 in a forthcoming decision. We do that here.
Based on parties' comments, the proposed decision is substantially revised in several areas. The major areas of revision are in reserve requirements, Qualifying Facilities (QF) policy, 2005 operating authority, long term planning assumptions, affiliate transactions, and confidentiality.1
We address here the market structure rules the utilities should follow in making long-term resource acquisitions. We endorse a hybrid market structure for generation. Having provided for direct utility ownership of new plant, we make permanent our ban on affiliate transactions as a direct and effective means of preventing potential conflicts of interest at a level where we have less oversight and control.2 The holding companies and affiliates of each utility should plan for future generation investment to be made outside of their utility's service territory and sold to other load serving entities. 3
We look to the utilities to pursue an integrated resource planning process that balances the need for additional generation, transmission, and demand-side investments and to do this in a public proceeding that allows all interested parties an opportunity to participate effectively. We require each utility to adhere to upfront standards in conducting their procurement and to be accountable for operating in a manner that mitigates the risks of high prices, ensures reliable service, and delivers measurable value to their customers.
We adopt here short-term procurement authority for 2005 for the utilities in order to allow them to begin the normal cycle for procuring products required for 2005. We adopt the recommendation of the three utilities, ORA, CEC, and The Utility Reform Network (TURN) to have the utilities resubmit their long-term procurement plans in mid-2004, following the Commission's adoption of specific resource adequacy criteria to be addressed in upcoming workshops. In the long-term plans that the utilities will prepare, we require each utility to provide a low load forecast that includes Community Choice Aggregation (CCA) and core/noncore scenarios. We also adopt CEC's "no regrets" standard for the review of any long-term commitments the utilities propose prior to our adoption of final long-term plans.
This decision adopts a procedural schedule and process that should allow us to have better load forecast estimates for both CCA and possible core/noncore scenarios prior to the Commission adopting long-term plans at the end of 2004. Through this process, as well as the adoption of a phase-in of the reserve requirement, we address the concerns expressed by local communities and other interested parties that the Commission not take any action here that would preclude their effectively participating in our decision-making.
Finally, we discuss the issues that should be addressed in the new Procurement OIR we expect to open in the first quarter of 2004. These issues are: (1) the need to develop procurement incentive mechanisms for each utility; (2) the need to develop a long-term policy for expiring QF contracts; (3) review of the management audits of SDG&E's and PG&E's electric procurement transactions with their regulated affiliates; (4) handling resource adequacy issues not addressed in the workshop process; (5) review and adoption of revised 2004 long-term procurement plans for the three utilities. We expect to open this new procurement OIR in the first quarter of 2004; and (6) treatment of confidential information.
