Decision 06-04-040 April 13, 2006
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning. |
Rulemaking 04-04-003 (Filed April 1, 2004) |
AND DENYING REHEARING OF DECISION, AS MODIFIED
I. INTRODUCTION
In this Order we modify Decision (D.) 05-10-042 ("Decision") to clarify two points about the resource adequacy requirement ("RAR") it imposes. First, we emphasize that the resource adequacy ("RA") program in place for 2006-2008 is transitional, and a fully implemented RAR program will be in place in 2009. Second, we modify the Decision to clarify that the must-offer obligation ("MOO") to be included in RA contracts is an independent, RA-based requirement that does not attempt to change or alter the current FERC-imposed MOO. Rehearing of the Decision, as modified, is denied, as being without merit.
RAR will succeed the procurement regime that came into place following the 2000-2001 energy crisis. The RAR program applies to those who provide electricity to retail customers in California, referred to as "Load Serving Entities" or LSEs.1 Under RAR, LSEs must prove that they have obtained an amount of resources that matches their forecasted demand, plus reserves. RAR is designed to ensure that those resources are reliable and obtained at the least cost. (D.05-10-042, at p. 7.)
The Decision is the third in a series of Commission orders on RAR. Prior to issuing this decision, the Commission adopted Policies and Cost Recovery Mechanisms for Generation Procurement (Interim Opinion) [D.04-01-050] (2004) ___ Cal.P.U.C.3d ___, and Policy and Program Coordination in Electric Utility Resource Planning (Resource Adequacy Opinion) [D.04-10-035] (2004) ___ Cal.P.U.C.3d ___. Those two decisions outlined and clarified the overall policy goals of RAR, (see, D.05-10-042, at pp. 7-8), and established certain broad requirements, such as the requirement that so-called "LD contracts" not be disallowed when the RA program began and that DWR contracts count towards RAR. (Resource Adequacy [D.04-10-035], supra, at pp. 23, 64 (slip. op.).)
To implement this previously-adopted policy framework, the Decision establishes specific requirements for all LSEs in the service territories of California's three largest IOUs. To comply with RAR, LSEs must acquire "the resources needed for their individual forecasted load and a reserve margin." (D.05-10-042, at p. 11.) LSEs will demonstrate that they have met this requirement by making a series of compliance filings demonstrating "that they have acquired the capacity needed to serve their forecast retail customer load and a 15-17% reserve margin beginning in June 2006." (D.05-10-042, at p. 1.) In order to "count" towards meeting RA obligations, the LSEs' resources must have certain characteristics, which the Decision describes. (D.05-10-042, at pp. 42-82.) Suppliers are not subject to RA obligations, but because LSEs are expected to obtain resources that satisfy RAR, we anticipate that suppliers will undertake obligations to comply with RAR "indirectly through their contracts with LSEs." (D.05-10-042, at p. 14.)
The Decision explains that the development of the current RAR framework is simply one step towards an "end state for California's electric industry design." (D.05-10-042, at p. 12.) The Commission stated it would address several issues in subsequent proceedings, and noted that the CAISO's system redesign ("MRTU") is not yet complete. (D.05-10-042, at pp. 12-13, 23.) The Decision further acknowledged that the RAR framework was, at this point, a work in progress that could well have "implementation issues." (D.05-10-042, at p. 24.) As a result, certain elements of the RA framework should be considered "transitional." (D.05-10-042, at p. 23.)
On November 30, 2004 three parties-Independent Energy Producers Association (IEP), Calpine Corporation (Calpine), and FPL Energy, LLC (FPL)-applied for rehearing of the Decision. The three rehearing applications challenge two aspects of the Decision. First, IEP and Calpine claim that the decision to phase out so-called "LD contracts"2 is error. According to Calpine and IEP, LSEs must be prohibited from using such contracts in conjunction with RAR immediately. Second, Calpine and FPL claim that the RAR program is improper because it requires LSEs to procure resources that are subject to MOO requirements designed to ensure that those resources are available when and where needed. According to these parties, because a different MOO is currently imposed through FERC-approved tariffs, the Commission may not impose its own obligation as part of the RA framework.
Below, we carefully consider all the claims in the rehearing applications and conclude that the claims do not demonstrate error. However, for purposes of clarification of our determinations, we will modify the Decision, and deny rehearing of the Decision, as modified.3
1 LSEs include investor owned utilities ("IOUs"), electric service providers ("ESPs") and community choice aggregators ("CCAs"). (See Pub. Util. Code, § 380, subd. (j).).)
2 LD contracts are named after their liquidated damages ("LD") provisions, which cover non-performance. Their name is used in several past decisions and is used here for the sake of clarity. However, LD contracts are relevant here because they are "non-unit-specific," i.e., they guarantee a supply of electricity but do not state its source. The RAR program requires identified sources of power (i.e., unit-specific contracts) to create reliability.
3 Four parties filed responses to the applications for rehearing: Sempra Global ("Sempra"), Southern California Edison Company ("Edison"), Constellation Energy Commodities Group, Inc. ("Constellation") and The Western Power Trading Forum "(WPTF). In addition, the California Energy Resources Scheduling division of the Department of Water Resources ("DWR") transmitted a memorandum, dated December 14, 2005, to the Commission President.
