8. Other Least Cost Dispatch Issues

In its testimony on least cost dispatch, ORA noted the following:

1. The net short/long forecast conducted for the short-term procurement plan had large deviations as compared to forecasts done within a few days of the dispatch day.

2. It appears that SCE's resources exceeded loads by a factor significantly greater than the 7% reserve amount required by the Commission.

3. During the 2003 Record Period, SCE considered termination of a transition capacity contract but decided against termination. SCE did not provide justification for this decision.

For each of these items, ORA stated that the Commission should require SCE to justify its actions. Also, to facilitate compliance reviews of least-cost dispatch, ORA recommended that, for future filings, SCE should be required to include certain information, as listed in ORA's testimony.

In its April 2, 2004 rebuttal testimony, SCE addressed each of ORA's concerns. During evidentiary hearings, SCE agreed to provide further information on the justification for not terminating the transition capacity contract and a comparison of SCE available supply with SCE load during on-peak hours. This information was provided in late-filed Exhibits 23 and 24. Further explanations were included in SCE's opening and reply briefs.

For the net short/long forecast issue, SCE explained that forecast deviations must be considered in the context of SCE's load for any meaningful comparisons. That is, differences in net short/long amounts may be large on a percentage basis when compared between forecasts but as a percent of load requirements, the net short/long amount may be very small. Also the forecast in the procurement plan was prepared many months in advance of the operating day and SCE had to relay on average assumptions for economic, weather, load and supply conditions.

For the 7% reserve issue, SCE explained that a comparison of SCE's load and resources has nothing to do with operating reserves, which are the spinning and non-spinning reserves necessary to maintain grid stability in real time during the forecast annual peak hour. If a utility maintains a 7% operating reserve during the forecast annual peak hour, then during periods of average load, or even average on-peak load, its contracted capacity will exceed its load by much more than 7%. The utility then sells excess energy in the market, when it is economical to do so. Additionally, SCE asserts that this issue is beyond the scope of least-cost dispatch review, since review of compliance with the supply and capacity limits of its procurement plan takes place in the quarterly compliance advice letter process.

For the transition capacity contract, SCE explained that the reason for evaluating the contract's termination option was because the contract included such a provision if certain contractual deadlines were not met. SCE states that its evaluation indicated that the contract was still in the customers' interest, and therefore SCE decided not to terminate it. In late-filed exhibit 23, SCE provided a cost/benefit analysis to justify its decision.

In its opening brief, ORA indicated that it needed to review information presented in Application 04-04-005 (SCE's ERRA application for the record period July 1 through December 31, 2003) before making recommendations on the decision not to terminate the transition capacity contract and the supply reserves. ORA was apparently satisfied with SCE's explanation for deviations in the net short/long forecasts. In its reply brief, ORA stated that it is making no recommendation on reasonableness for the record period in this proceeding, indicating that it could only conclude that SCE has adequately managed most of the purchase contracts and that it did not find any deviations from the least cost dispatch requirements in its review of hourly data. While ORA has not recommended any disallowances for the record period, it requests that SCE and ORA be directed to establish a process where relevant data and information for future ERRA filings can be developed and provided in a timely manner.

SCE has substantially justified its least cost dispatch decisions during the record period, through its initial testimony, rebuttal testimony and late-filed exhibits. ORA has no specific least-cost dispatch disallowance recommendations in this proceeding. We therefore find SCE's actions to be reasonable, including the decision not to terminate the transition capacity contract. Regarding the reserve margin issue, we agree with SCE's position that it is beyond the scope of least-cost dispatch review and should be reviewed in the quarterly compliance advice letter process.

While finding SCE's actions to be reasonable, we are concerned that SCE, due to its position on the scope of least-cost dispatch review, did not provide certain information to ORA during the discovery process. Since we have clarified the scope of review in this decision, this discovery conflict should not occur in the future. Also, ORA should bring discovery problems to the attention of the Commission prior to the issuance of its testimony. Early resolution of such disputes will ensure the development of a complete and relevant record.

ORA's recommendation, regarding the provision of information to facilitate future reasonableness reviews, is discussed later in this decision.