II. DISCUSSION

A. The Law Does Not Prevent The Commission From Phasing Out LD Contracts.

LD contracts are "bilateral agreements that provide energy, capacity, or ancillary service products without reference to a specific unit or resource backing the obligation." (D.05-10-042, at p. 60.) The Decision notes that while these contracts have always been reliable, in-area LD contracts are not compatible with the RAR framework because they are not unit-specific. (Import LD contracts have different characteristics and are compatible with RAR, while DWR contracts are governed by separate requirements.) As a result, the Decision concludes that, "ultimately," in-area LD contracts should not be part of the RAR program. The Decision holds: "the eligibility of in-area LD contracts to qualify for the LSE's RAR showings should be phased out in a manner that fairly balances the needs of the RAR program and the interests of the LSEs that rely on LD contracts." (D.05-10-042, at p. 61.)

The phase-out balances the needs of RAR with the fact that "California's IOUs and ESPs have relied and continue to this day to rely extensively on the use of these contracts...." (D.05-10-042, at p. 61.) According to the Decision, "[t]erminating [LD contracts'] ... eligibility to count for RAR ... too rapidly would be unnecessarily disruptive and costly to LSEs." (Ibid.)

The applications for rehearing challenge the Decision's determination to allow LD contracts to count towards LSEs' RA obligations during the phase-out period. As explained below, the Decision's implementation of D.04-10-035's requirement to retain at least some LD contracts is legally proper and consistent with Public Utilities Code section 380.⁴

⁴ Section references indicate the Public Utilities Code unless otherwise specified.