5. Preliminary Scoping Memo and Schedule

In this preliminary Scoping Memo, we describe the issues to be considered in this proceeding and the timetable for resolving this proceeding. As discussed above, in this rulemaking we will develop a common methodology, consistent input assumptions, and updating procedures for avoided costs across our various Commission proceedings, and adopt avoided costs calculations and forecasts that conform to those determinations. This rulemaking is the forum for considering similarities as well as appropriate differences in methods and inputs for specific applications of avoided costs, including QF avoided cost pricing.

We will build on the avoided cost issues and workshop process discussed in the Assigned Commissioner Ruling dated February 6, 2004 in our energy efficiency rulemaking, R.01-08-028. As discussed in that ruling (and in Section 2 above), a report on avoided cost updating, entitled "A Forecast of Cost Effectiveness Avoided Costs and Externality Adders," has been prepared by Energy and Environmental Economics, Inc. We note that Energy Division has been directed to schedule a workshop on the report and serve a notice of the workshop on the same parties receiving notice of this rulemaking.²⁷

We incorporate into this docket the schedule established by the February 6, 2004 ruling in R.01-08-028:

Energy Division Workshop Notice by May 21, 2004

Pre-Workshop Opening Comments on

Avoided Costs Report June 4, 2004

Pre-Workshop Reply Comments June 18, 2004

Energy Division Workshop June 23, 24, and 25, 2004

Post-Workshop Comments July 16, 2004

Post-Workshop Reply Comments July 30, 2004

At the workshop, Energy and Environmental Economics, Inc. will present an overview of its proposed approach to forecasting avoided costs and externality adders, and will be available to answer questions concerning its approach and respond to concerns raised in pre-workshop comments. The workshop will serve as a forum for parties to discuss their views on the proposed methodology and resulting forecasts with respect to energy efficiency, as well as other applications of avoided costs. Specifically, the workshop discussion and subsequent post-workshop comments will address the following issues:

1. Should the Commission adopt the methodology for updating avoided costs presented in the consultant's report for the purposes of evaluating the resource value of energy efficiency programs? If not, what aspects of that methodology should be refined or modified?

2. Which components of the proposed methodology could be applicable to other avoided cost applications, such as SRACs for QF pricing, evaluation of RPS bid proposals,²⁸ cost-effectiveness evaluation of demand-response programs, distributed generation, renewables, and other supply-side resources? Which components do not appear to be applicable, and why not?

3. With regard to QF pricing, parties are encouraged to carefully review existing avoided cost pricing methodologies applicable to QFs which determine (1) SRAC energy payments, and (2) As-Delivered Capacity Prices. Parties should comment on the need for, and difference between, short-run and long-run methodologies or considerations thereof, as well as any appropriate methodological (and thus appropriate pricing) differences between firm and as-available power. Parties should also concisely address any practical constraints that arise from any associated legal requirements and the degree of latitude and discretion available to the Commission under the circumstances, as well as prior Commission direction provided in D.03-12-062 and D.04-01-050. Parties should also be prepared to address whether the formula mandated by Section 390 either inhibits or prevents us from assuring just and reasonable rates for the power provided by QFs, such that Section 390 should be modified or rescinded.

4. What should be the next procedural steps in this proceeding (including a proposed schedule) for:

a) Developing consistent methods, inputs, and updating procedures for avoided costs across the various avoided cost applications at the Commission?




b) Adopting specific calculations and forecasts of avoided costs, based on the determinations made in a) above, for avoided cost applications at the Commission, including QF pricing?

As soon as practicable after the workshop, the assigned ALJ will schedule a PHC in this rulemaking to finalize the scoping memo, prioritize the scheduling of avoided-cost issues across the various avoided cost applications, including QF pricing and RPS bid evaluation, and address other procedural issues. We anticipate that evidentiary hearings may be needed in those instances where factual disputes cannot be resolved outside of the hearing room. However, we intend to fully utilize the workshop/comment process to address as many issues in this proceeding as possible.

In R.04-03-017, we stated that our effort to develop a common methodology for avoided costs would primarily be conducted during 2005, which is an "off year" in the two-year procurement planning cycle we have implemented for the IOUs.²⁹ That still being our intent, we anticipate that this proceeding will extend beyond 18 months. However in all respects, this proceeding will conform to statutory case management deadlines set forth in Pub. Util. Code § 1701.5, and the Assigned Commissioner will provide more guidance on this point in the Scoping Memo to be issued following the PHC.