V. Comments on Proposed Decision

The proposed decision (PD) of ALJ Simon in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(g)(1) and Rule 14.3 of the Rules of Practice and Procedure. After the ALJ granted an extension to file comments and reply comments, comments were received on September 15, 2006 from Aglet, AReM, CEERT, CCSF (joined by the City of Chula Vista and the City of Moreno Valley), DRA, GPI, PG&E, SDG&E, SCE, Sustainable Conservation, TURN, and UCS. Reply comments were filed on September 20, 2006 by Aglet, AReM, CEERT, CCSF (joined by the City of Chula Vista and the City of Moreno Valley), DRA, GPI, PG&E, SDG&E, SCE, and UCS.

Because a number of parties suggested that the recent passage of SB 107 would make a number of changes to the legislative framework for the RPS program, the ALJ's grant of an extension of time for filing comments included authorization for the parties to address not only the usual topics within the scope of Rule 14.3, but also the potential impact of SB 107-which had not yet become law-on the topics in the PD.⁶⁴ We have taken the parties' contributions in both aspects of their comments into account in our decision today.

ESPs

AReM seeks several revisions to the PD. It urges two positions it took in its prior submissions: that an ESP's IPT should be calculated on the basis of its current year's retail sales, rather than the retail sales for the prior year; and that ESP customers are entitled to access to SEPs-a point that has been subsumed in the changes to the administration of SEP awards made by SB 107.

SCE objects to AReM's proposal that IPT be figured on the current year's sales, rather than the prior year's, on the basis that this would create inconsistent definitions of the IPT among RPS-obligated LSEs. We agree, and do not change this calculation method.

AReM seeks two smaller changes to the PD: that ESPs should be able to enter into RPS contracts that do not contain the standard terms and conditions approved in D.04-06-014; and that ESPs' RPS procurement contracts should be submitted to Energy Division only if requested by Energy Division for compliance purposes. In response to concerns of both AReM and CCSF, the section on contract terms and conditions has been revised to reduce the number of required terms and note the imminence of another opportunity to look at the standard terms and conditions. The PD also now clarifies that ESP and CCA contracts should be submitted at the request of the Director of Energy Division.

AReM also makes the new argument that payment of a penalty for an unexcused shortfall in RPS procurement "clears" the underlying shortfall. DRA and Aglet oppose this proposal. DRA notes that this is "alternative compliance payments" by another name, which the Commission has not considered in this proceeding. SCE also notes that AReM's proposal is not properly in the scope of this proceeding, pointing out that R.06-05-027 is considering this very point in a PD out for comment now. We do not change the PD on this subject.

TURN and UCS, with DRA's support, urge that the PD be changed to reduce the procurement flexibility it allows ESPs. ESPs should be required to procure an increasing percentage of their APT from new resources, and the IPTs for ESPs should increase by an increasing percentage each year, rather than the 1 % of retail sales now required. We remain unpersuaded that these stringent and complex interim goals will do more to promote ESPs' attainment of the 20% by 2010 goal than they will to create additional controversy over compliance, and decline to require them.

UCS requests that the PD clarify that the option for ESPs to obtain complete deferral of 2006 RPS obligations without explanation does not apply to any year after 2006; the PD has been revised to make that point clearer.

Finally, AReM notes the important change made by SB 107, in fixing all ESPs' RPS compliance obligations to begin January 1, 2006. This would change the PD's treatment of the phase-in of ESP obligations under SB 1078. The PD has been revised to take this change into account in both the text and the sample calculation in Appendix B.⁶⁵

CCAs

Aglet and SCE continue to urge that annual procurement plans be required for CCAs (as well as ESPs). This view is inconsistent with the analysis in D.05-11-025, and the PD has been revised to make this analysis more explicit. CCSF⁶⁶ proposes that the PD make a more explicit commitment to developing a process whereby CCA contracts would be eligible for SEPs, a request that is subsumed in the changes to the SEP process made by SB 107.

CCSF's objection to the PD's conclusion that CCAs' RPS contracts must include all nonmodifiable terms and conditions approved in D.04-06-014 is discussed and resolved in the discussion of comments on ESPs, above. CCSF's opposition to he positions of TURN and UCS that CCAs should meet a procurement ramp-up target that exceeds 1% of retail sales per year and should increase the use of new resources, is similarly discussed above.

CCSF also identified several areas in which it believes that SB 107 will affect the topics covered by the PD. These include the use of RECs for RPS compliance and the criteria for short-term contracts used for RPS compliance.

Contracting Issues

DRA objects to the PD's conclusion that utilities may accept short-term contracts that generators counteroffer in solicitations, stating that this conclusion is not supported by the record or by prior decisions. DRA notes that SB 107 would change the requirements for the use of short-term contracts for RPS compliance. PG&E and SCE note, correctly, that DRA misinterprets D.03-06-071 and D.06-03-016 in arguing that the PD has impermissibly expanded the scope of utility short-term contracts.

Aglet asserts that the PD's conclusion that short-term RPS contracts may be allowed requires a finding that such contracts actually contribute to the construction of new renewable generation facilities in California, one of the legislative goals expressed in § 399.11. AReM believes that the record supports the PD's conclusions about short-term contracting and that an express finding that such contracts would encourage new construction of renewable generation is not necessary. Aglet cites no authority for its position that we must make findings that are in accord with a legislative statement of purpose, and we decline to adopt this view.

CEERT, GPI, PG&E and SCE object to the PD's requirement that a short-term MPR must be developed in order for the Commission to be able to approve short-term RPS contracts. We agree with UCS that an MPR or some method of similar rigor is needed in order to avoid ad hoc determinations on short-term contracts. This section of the PD has been substantially revised and expanded to clarify the issues.

CEERT, PG&E, and SDG&E note that SB 107's prohibition on the award of SEPs for contracts less than 10 years in duration undermines the provision of the PD that allows utilities to execute contracts for the minimum term the CEC will award SEPs (currently, three years). PG&E urges that the PD be revised to carry forward its intent to allow short-term contracting. PG&E suggests that this issue be resolved by allowing all RPS contracts to have the same minimum term of one month. We agree with this analysis, and adopt PG&E's suggestion.

Aglet, CEERT, and UCS may disagree about the implications of SB 107 for determining what kinds of contracts are eligible for SEPs. The PD's discussion of this issue has been expanded, but the resolution must be deferred to later proceedings.

Looking forward to the implementation of SB 107, PG&E suggests that the Commission adopt an interim minimum percentage for procurement using long-term contracts or new resources now, in order to comply with what will be the amended § 399.14(b). CCSF conditionally supports PG&E's proposal of 50% of contracts from long-term contracts or new facilities, only if the Commission decides to impose such an interim requirement. Aglet and AReM argue that PG&E's recommended interim minimum percentage of 50% was not advanced in testimony or briefs and is arbitrary. We agree that the record in this proceeding does not now support PG&E's suggestion, though the text of the PD notes that this is one of the tasks set by SB 107 that must be taken up soon.

SCE claims that the PD is seeking an excessive level of review of utilities' bilateral RPS contracts in its call for development of more rigorous standards for determining the reasonableness of those contracts. The PD's discussion has been expanded to clarify the issues.

RECs

A number of parties note that SB 107 would clarify the Commission's authority to develop a REC-based RPS compliance system and urge the Commission to move to that subject expeditiously.

CEERT and AReM assert that the PD should follow the desires of a large majority of the parties and permit the current use of unbundled RECs. Aglet contends that AReM understates the risks of using unbundled REC transactions by failing to analyze how the commodity energy left after the sale of unbundled RECs would be sold by the generator. The PD's discussion of unbundled RECs has been revised to clarify the basis for its conclusion that unbundled REC transactions should not be allowed for RPS compliance at this time.

Firmed and Shaped Transactions

CEERT believes that the PD improperly fails to give the Commission's imprimatur to the use of firming and shaping arrangements for meeting RPS requirements. DRA counters that allowing shaped and firmed products, as presented by CEERT, is in effect allowing tradable RECs, and thus CEERT's position should be rejected. PG&E asks the Commission to make an express endorsement of the use of firmed and shaped products from out-of-state generators for RPS compliance and to urge the CEC to implement what will be new Pub. Res. Code § 25741(a) in the manner PG&E seeks. The PD has been revised to clarify the status of firmed and shaped transactions, as well as the division of labor between the CEC and this Commission.

Other Proceedings

In its comments, Sustainable Conservation urges that this decision include a discussion of the impact of AB 32 (Nuñez), the Global Warming Solutions Act. We have allocated implementation of AB 32 to our greenhouse gas proceeding, R. 06-04-009, in the first instance. Sustainable Conservation's contention that LSEs need more explicit direction to make their procurement processes more open to small biogas generators is more properly raised in R.06-05-027, which is reviewing the role of biofuels resources in RPS procurement.

The PD has also been revised to identify areas where implementation of provisions of SB 107 may be needed; to eliminate inconsistencies; and to correct minor errors.

⁶⁴ The ALJ's e-mail granting the extension stated that "[c]omments and reply comments would be most helpful to the Commission if they discussed the PD in light of current RPS law (the SB 1078 framework), CPUC decisions, and CEC guidance; and then separately and clearly indicated the party's view of the impact of SB 107 (were it to be signed into law) on each element of the PD addressed in the comments or reply comments."

⁶⁵ SCE's suggestions about the sample calculation have also been incorporated into Appendix B.

⁶⁶ Our references to CCSF include the City of Chula Vista and the City of Moreno Valley, which joined in the comments and reply comments.