11. Future RA Proceedings

With this decision we complete the first track of Phase 2 of this proceeding. Major questions about the future of the RA program will be addressed in Track 2 of Phase 2, and Track 3 will address full implementation of Public Utilities Code Section 380 by considering RA obligations for small and multi-jurisdictional LSEs. Track 2 and Track 3 are currently targeted for completion early in 2008. When those tracks are completed it will be appropriate to close this proceeding.

While the nature of the future RA program and the associated procedural requirements cannot be fixed at this time, it is clear that there is an ongoing need for a procedural vehicle to address both modifications and improvements to the RA program as well as routine administrative (but not ministerial) matters that are not delegable to staff. Among other things, the Local RA program component requires annual approval of LCRs based on by the CAISO's LCR studies. For the near and intermediate term, we see a need for annual proceedings for these purposes.

We generally concur with PG&E's recommendation that an annual RA program assessment focused on summer program performance, coordinated by the Energy Division in consultation with the CEC and the CAISO, will be of significant value in the early years of the RA program. As we do not intend to establish reporting requirements that outlive their usefulness, we will revisit this determination upon recommendation of the Energy Division at an appropriate time.

12. Comments on Proposed Decision

The proposed decision of the ALJ in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and Rule 14.2(a) of the Commission's Rules of Practice and Procedure. Comments were filed by 16 parties or party coalitions. Replies were filed by 10 parties or party coalitions.

AReM proposes that we direct the Energy Division to publish, within one week of today's decision, proposed filing templates and related guidance for the 2008 RA compliance period that reflect the new requirements of the Path 26 Counting Constraint. AReM also proposes that staff be directed to hold an implementation workshop and to issue final compliance documents for 2008 by July 17, 2007. AReM further urges that we prescribe a schedule for the supplemental LCR review described earlier in this decision.

We recognize the importance to market participants of full and timely information regarding RA compliance requirements and filing procedures, and it appears that AReM has presented useful, concrete suggestions for our staff to consider as it moves forward to implement the RA program for 2008. We are not persuaded, however, that we should prescribe particular implementation actions that our Energy Division must follow. In D.06-07-031 we determined that the Energy Division should be authorized to modify the filing templates and instructions and promulgate additional filing procedures and instructions as necessary for the orderly implementation of the RA program and the changing needs of the program. (D.06-07-031, Conclusion of Law 8, p. 44.) We affirm that determination here.

In response to various concerns about scheduling matters that were raised by several commenting parties, and in consultation with the CAISO staff, the Energy Division has prepared a schedule of RA-related events for the coming year that includes the supplemental LCR review process, the CAISO's import allocation process, the coordinated backstop process for 2008, compliance filing dates, and the LCR study process for 2009. We approve and endorse this schedule, which is attached to this decision as Appendix A.

We note that the assigned Commissioner and the ALJ are authorized to implement changes to the schedule as may be necessary and appropriate. We also note that events and dates for the 2009 LCR process are subject to change pursuant to discussions at the summer 2007 workshop on the LCR study process. The Energy Division is authorized to implement changes to the schedule as may be necessary and appropriate with respect to events for which it is responsible, including workshop dates and minor changes to compliance filing dates that may be necessary for the orderly implementation of the RA program.

13. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Mark S. Wetzell is the assigned ALJ in this proceeding.

Findings of Fact

1. Existing transmission constraints preclude the CAISO's reliance solely on imported energy to serve load and comply with desired reliability performance standards in NP 26 and SP 26.

2. Under the current RA counting rules, even if system, local, and import RA requirements are collectively satisfied by LSEs, the portfolio of RA resources procured by LSEs could result in a zone relying on transfer capacity across Path 26 that exceeds the path's rated capacity.

3. Adding a third set of regulatory requirements to the existing system and local components of the RA program would add regulatory complexity to the program.

4. The proposed Path 26 Counting Constraint, which would limit the amount of capacity LSEs may count crossing Path 26 in connection with their System RA compliance filings, treats Path 26 analogously to an RA import path for RA counting purposes.

5. The proposed Path 26 Counting Constraint as well as the proposed Minimum Percentage Requirement both represent relatively minor modifications to the existing System RA program that should operate to achieve the same objectives of a stand-alone Zonal RA capacity requirement.

6. The Path 26 Counting Constraint provides for netting of resources across that path, which would allow LSEs to access economic resources at times when no physical limitation exists that would preclude such access.

7. The proposed Minimum Percentage Requirement may not be significantly less complex to administer and comply with than the proposed Path 26 Counting Constraint, and it does not consider counter-flows across Path 26 that would allow netting of resources across the path.

8. Long-term resource commitments are consistent with the objectives of the RA program.

9. The 2007 to 2008 LCR increase for the LA Basin Area is explained by a combination of load growth and an up-to-date evaluation of the effect of transmission upgrades on the South-of-Lugo operational path rating.

10. Establishing the Big Creek/Ventura Area based on the contingency of an intertie outage is consistent with methodology used in prior LCR studies.

11. The Option 1 reliability level implicitly relies on load interruption as the only means of meeting any Applicable Reliability Criteria beyond the loss of a single transmission element, whereas Option 2 is the local capacity level that the CAISO needs to reliably operate the grid per NERC, WECC, and CAISO standards.

12. It may be possible for the CAISO to identify, in a supplemental LCR study review, 2008 LCR study refinements and corrections as well as operational solutions that might result in reduced LCRs without jeopardizing reliability.

13. Improvements to the LCR study process for 2009 and beyond are both needed and achievable.

14. A probabilistic LCR study can be completed for consideration for implementation in the RA program within two years from the date it commences.

15. There are technical hurdles, operational impacts, and programmatic issues that would be associated with a seasonal LCR study, and it cannot be determined at this time that the potential benefits of a seasonal LCR approach outweigh these issues.

16. The latest proposal for a monthly true-up mechanism for Local RAR could result in a shortfall in LSEs meeting the total LCR requirement.

17. The CAISO determined on the basis of last year's experience that aggregation of the six PG&E local areas is acceptable for 2008, subject to continued monitoring.

18. Generation located in each of the two local areas in the SCE service territory will not mitigate overloads on transmission elements that are driving the other area's local capacity needs, and aggregating those areas could result in inefficient generation mix and additional CAISO backstop procurement.

19. SCE and PG&E determined that DR allocations can be completed in time for data to be evaluated as part of the DR allocation process for the 2008 RA compliance year.

20. Emergency and interruptible DR programs have proven reliable and have considerable operational value that allows the CAISO to avoid shedding load.

21. If emergency and interruptible DR programs do not count for RA purposes, IOUs and customers may have less interest in pursuing them.

22. Current emergency and interruptible DR programs do not mesh well with the CAISO's day-ahead market processes.

23. The timing of two-month-ahead load forecasts can make it difficult to account for new customers or actual retention rates of existing customers when significant changes occur, yet LSEs frequently have load migration that is stable from month-to-month.

24. ESPs generally forecast their load by accounting for known and expected load retention, but not new accounts.

25. Changing the RA program year to May through April could potentially provide for better coordination of the RA compliance cycle with the annual load forecasting process by the CEC.

26. Costly and unnecessary over-procurement could occur if this Commission's Local RA program and the CAISO's backstop procurement activities are not coordinated.

27. The Proposal 8 approach addresses the concern that preliminary capacity showings by LSEs might effectively become final showings with the result that LSEs have no opportunity for supplemental procurement to minimize RMR designations, and it works to minimize RMR unit designations.

28. Current RA resource counting conventions are fully consistent with AB 1969's requirements.

Conclusions of Law

1. LSE-based procurement obligations to address the reliability problem caused by the Path 26 transmission constraint should be established to minimize CAISO-based procurement in SP 26 and NP 26.

2. The Path 26 Counting Constraint proposal should be adopted beginning with the 2008 compliance period, with March 22, 2007 set as the cutoff date after which new RA resource agreements would not be grandfathered for Path 26 allocation purposes.

3. The CAISO's 2008 LCR study should be approved as the basis for establishing local procurement obligations for 2008 applicable to Commission-jurisdictional LSEs.

4. Because there is no compelling information that would justify a departure from the Option 2/Category C local area reliability standard approved for 2007, that reliability standard should be adopted for setting local procurement obligations for 2008.

5. Because the current Local RA program establishes procurement obligations for the following year, LSEs should only be responsible for procurement in a local area to the level of resources that exist in the area.

6. To implement our policy that dispatchable DR programs should be counted as Local RA resources to the extent feasible, SCE and PG&E should continue working with the CEC, the CAISO, and the Energy Division so that the policy can be carried out to completion for 2008.

7. Pending a decision in R.07-01-041 that resolves questions pertaining to the coordination of emergency and interruptible DR programs and the CAISO's market design protocols, it would be premature to reverse our decision that the capacity of such DR programs should count for RA compliance filings.

8. Because over-reliance on CAISO backstop procurement is fundamentally at odds with the LSE-based procurement objective of the RA program, the 2008 Local RAR processes should be coordinated with the CAISO's backstop procurement processes in accordance with Proposal 8 as set forth in the foregoing discussion.

9. The uncontested Energy Division proposals for clarification of the RA rounding convention for determining the QC of wind units with less than three years of performance data should be adopted.

10. The Energy Division should be authorized and directed to do the following:

a. Notify LSEs of reduced local procurement obligations for 2008, if any, that reflect any LCR reductions from the 2008 LCR study that are determined by the CAISO to be warranted.

b. Calculate and establish reduced LCRs for those areas for which the CAISO has identified a deficiency in qualifying capacity resources.

ORDER

IT IS ORDERED that:

1. The Joint Proposal of the California Independent System Operator Corporation, Pacific Gas and Electric Company (U 39 E), San Diego Gas & Electric Company (U 902 E), Southern California Edison Company (U 338 E), and The Utility Reform Network to Implement a Path 26 Counting Constraint in the CPUC's Resource Adequacy Program (Joint Proposal), filed March 22, 2007, is adopted beginning with the 2008 Resource Adequacy (RA) compliance period, provided, however, that the cutoff date for "Grandfathered RA Commitments" as described in Step 2 of the Joint Proposal shall be March 22, 2007 rather than February 21, 2007.

2. The Local RA regulatory program and associated requirements adopted in Decision 06-06-064 for 2007 are continued in effect for 2008 subject to the modifications, refinements, and Local Capacity Requirements (LCRs) adopted by this decision for 2008.

3. The "Option 2/Category C" LCRs set forth in the California Independent System Operator's (CAISO) 2008 Local Capacity Technical Analysis, Report and Study Results, Updated April 3, 2007, filed April 4, 2007, are adopted as the basis for establishing Local RA procurement obligations for load-serving entities (LSEs) subject to this Commission's RA program and requirements, subject to the following:

a. The Energy Division may calculate and establish reduced local procurement obligations, if any, that may result from the supplemental LCR Study review process described in the foregoing opinion and as agreed to by the CAISO; and

b. The Energy Division may calculate and establish reduced local procurement obligations, if any, that may result from adjustments for resource deficiencies in particular local areas, as described in the foregoing opinion.

4. The Executive Director shall ensure that Commission staff undertakes the activities identified for staff in the foregoing discussion, findings, and conclusions.

5. This proceeding remains open for consideration of issues listed in the December 22, 2006 Phase 2 Scoping Memo that are not resolved by today's order.

This order is effective today.

Dated June 21, 2007, at San Francisco, California.

MICHAEL R. PEEVEY

President

DIAN M. GRUENEICH

JOHN A. BOHN

RACHELLE B. CHONG

TIMOTHY ALAN SIMON

Commissioners

APPENDIX A

RESOURCE ADEQUACY PROGRAM SCHEDULE FOR 2007-08

Date	Entity	Event	Process
06/21/07	CPUC	Commission adopts Track 1 Decision including 2008 Local RAR	RA
07/02/07	CAISO	CAISO begins Import Allocation Process	RA
07/06/07	CPUC/ CEC	Local RAR, System RAR, and Demand Response allocations sent to LSEs	RA
07/13/07	CPUC	CPUC issues 2008 Local and System RA guides and templates for both "year-ahead" and "month-ahead" compliance filings.	RA
07/19/07	CPUC	CPUC holds teach-in regarding 2008 guides and templates	RA
07/20/07	CPUC/ CAISO	CPUC and CAISO hold workshop to increase transparency in the LCR process, and locate possible areas for refinement and coordination.	LCR
08/23/07	CAISO	CAISO completes import allocation process	RA
09/19/07	LSEs	LSEs file Preliminary Local RAR showing to accommodate RMR	RA
10/01/07	CAISO	CAISO identifies the 2007 RMR contracts to be renewed	RMR
10/05/07	CPUC	Energy Division notifies LSEs of their 2007 RMR credit for Local and System RAR.	RA
10/26/07	CAISO	CAISO hosts meet and confer regarding LCR study assumptions	LCR
10/31/07	LSEs	LSEs file Final Local RAR showing and "year-ahead" System RAR	RA
11/01/07	CAISO	CAISO analyzes demonstrations for "residual needs" due to effectiveness factors and reports back to LSEs	RCST
11/02/07	PTO	PTOs submit base cases and load forecasts to the CAISO for 2009 LCR study	LCR
12/03/07	LSEs	Last date for LSE to file amended Local RAR or System "year ahead" RAR showing to reduce CAISO backstop for collective deficiency.	RCST
After 12/03/07	CAISO	CAISO backstop procurement to cure collective local deficiencies; Energy Division notified to reallocate system credit to LSEs for monthly showings.	RA/ RCST
01/04/08	CAISO	CAISO releases 2009 Draft LCR study	LCR
01/25/08	CAISO	CAISO hosts meeting on LCR study	LCR
02/01/08	various	Parties comment on 2009 LCR study	LCR
05/01/08	CPUC	Proposed Decision on 2009 LCR	RA
06/01/08	CPUC	Final Decision on 2009 LCR	RA

(END OF APPENDIX A)