3. Record Issues

Calpine claims that the phase-out of LD contracts is a "deviation from established RAR policies" that is not supported by the record. As explained above, the phase-out of LD contracts is consistent with previous Commission decisions, and in fact implements the mandate of Resource Adequacy Decision [D.04-10-035], supra. All three of our RA decisions balance numerous competing policy interests, and the interests cited by Calpine (providing financial incentives to generators) are just one of the considerations reviewed in reaching our decisions. There is no inconsistency in recognizing competing policy objectives and then balancing those objectives when making determinations.

In addition, the record provides support for the Commission's decision to phase out LD contracts over a three year period. The Workshop Report, at p. 80, summarizes the consensus on this issue:

Parties generally agree the existing LD contracts should have a sunset period, after which they would no longer count towards RAR. Most parties advocated that because there is no urgent need for physical capacity until the 2008/2009 timeframe, existing LD contracts should continue to count for capacity only until 2008.

Parties' comments on the Workshop report also add to the record supporting a three-year phase-out ending in 2009. For example, in their comments on the Workshop report, numerous parties-including PG&E, TURN, Constellation, ORA, and SCE-supported a three year phase-out. The Decision shows that it was cognizant of the record, noting that terminating LD contracts' eligibility for RAR immediately would be "disruptive and costly." (See, e.g., Comments of AReM on Phase 2 Workshop Report at p. 23, Comments of Constellation on June 10, 2005 Workshop Report, at p. 15 (capacity needed).) In addition, the result Calpine appears to suggest-that LSEs with sufficient resources should buy more power from in-state generators, such as Calpine, simply to meet a regulatory RA mandate-is contrary to the public interest. Calpine's result would have LSEs enter into duplicative contracts simply to meet the requirements of the RAR program-with no increase in reliability.¹³ The record makes clear that such a result is not in the public interest, and the RAR policy framework explicitly rejects "reliability at any cost." (D.05-10-042, at p. 8.)

B. The RAR Framework Properly Requires LSEs to Procure Resources That Will Be Available to the CAISO When And Where Needed.

The Decision implements "a key purpose of ... RAR" that is "set forth throughout our decisions on Resource Adequacy, including this one ...." Resources must be "available to the CAISO when and where needed." (D.05-10-042, at p. 15.) To do this, the Decision incorporates a must-offer obligation into California's RAR program, as required by the broad policy outline established in D.04-10-035. (D.05-10-042, at pp. 14-22 (section 4.1), 26-27 (contract language).) In addition, the Decision discusses the CAISO's FERC-approved tariff, which currently imposes a different MOO (the "FERC-MOO") by requiring certain generation units not otherwise scheduled to operate and bid into the CAISO's real time market, with a provision allowing for waivers. (D.05-10-042, at pp. 21-25 (section 4.3).)

Specifically, the Decision requires LSEs to procure resources that are "available to the CAISO on a real-time basis to the extent they are able to perform." In practical terms, this means LSEs must obtain resources that participate in the "RUC" process,¹⁴ and make unscheduled RA capacity "available to the CAISO on a real-time basis to the extent they are available to perform." (D.05-10-042, at p. 15.) In summary, LSEs are required to procure resources that have obligated themselves to comply with the terms of a Resource Adequacy-based MOO. (D.05-10-042 at pp. 14-19 (section 4.1).)

In its rehearing application, FPL asserts that because a MOO is currently contained in the CAISO's FERC-approved tariffs, the Decision may not implement any

similar obligation as part of the RA framework. FPL also criticizes the Decision because the RA-based must-offer obligation is different from the FERC-MOO. (FPL's Rehearing Application, at pp. 4-5.)¹⁵ Calpine asserts that D.05-10-042 and section 380 require the Commission to avoid using a MOO as part of the RA framework. Calpine further asserts that the Decision is internally inconsistent because it implements a MOO despite making statements supporting adequate compensation for generators. (Calpine's Rehearing Application, at pp. 7-8.) As discussed below, none of these claims demonstrates error.

¹³ The Comments of Powerex explain that LD contracts can, in fact, be far more reliable than unit specific contracts. Powerex points out that the financial wherewithal of a generator has a far greater impact on its ability to deliver on the contract than the legal structure of the contract itself. For example a generator that offers unit specific contracts but cannot, at times, afford fuel for its facilities, is less reliable than a financially secure generator that offers non-unit specific contracts enforced by an LD provision. (Comments of Powerex on Workshop Report, at p. 10.)

¹⁴ The acronym "RUC" stands for Residual Unit Commitment and is a process by which capacity is made available to the CAISO after the day-ahead market has closed if the CAISO anticipates that it will need more resources than those scheduled in the day-ahead market.

¹⁵ Two responses to the Applications for Rehearing agree and expand upon this point. Constellation asserts that the Commission lacks jurisdiction to extend the FERC-imposed MOO and that the Decision is not record-based. WPTF asserts that the Decision is federally preempted because it impinges on the FERC's responsibility for wholesale rates. (WPTF's Response, at p. 3.) Constellation asks the Commission to clarify that it lacks jurisdiction over the FERC-MOO and that the Decision does not prohibit "reforms" with respect to MOO compensation. Constellation also claims that the record does not support the "Commission's assertion that the [FERC-]MOO should continue." (Constellation's Response, at p. 5.) While we explain below that these points do not demonstrate error, we note that these arguments were not timely made in an application for rehearing and therefore cannot be made in "any court." (Pub. Util. Code, § 1731, subd. (b).)