Decision 07-11-051 November 16, 2007 Mail Date
11/21/2007
Before The Public Utilities Commission Of The State Of California
Order Instituting Rulemaking to Integrate Procurement Policies and Consider Long-Term Procurement Plans. |
Rulemaking 06-02-013 (Filed February 16, 2006) |
ORDER MODIFYING DECISION (D.) 06-07-029 AND
DENYING REHEARING OF DECISION AS MODIFIED
I. BACKGROUND
This rulemaking was instituted by the Commission to "examine the need for additional policies that support new generation and long-term contracts for California, including consideration of ... mechanisms (e.g., cost allocation ...) which can ensure construction of and investment in new generation in a timely fashion." (D.06-07-029, at p. 6, quoting Rulemaking to Integrate Procurement Policies [R.06-02-013] (2006) __Cal.P.U.C.3d __ (slip op.).) After opening the rulemaking, the Commission received proposals, held a transcribed "workshop," and received comments and reply comments. (D.06-07-029, at p. 13.) The proposed decision ("PD") of the assigned Administrative Law Judge ("ALJ") was mailed to the parties for comment on June 20, 2006. Parties filed both comments and reply comments. (D.06-07-029, at p. 51.) After receipt of these comments and replies, the ALJ revised the PD. The revised PD was then adopted by the Commission, as Decision (D.) 06-07-029 ("Decision"). (D.06-07-029, at pp. 52-53, 63.)
The Decision found that the Commission needed to add 3,700 megawatts of new generation by 2009. (D.06-07-029, at pp. 3, 54.) The Decision also found that the Commission could not rely on the policies and rules it had already applied to "load serving entities"1 to produce an increase in the building of new generation.2
(D.06-07-029, at pp. 4, 23.) As a result, the Decision adopted a modified version of a proposal originally put forth by a group known as the "Joint Parties" and called the "joint proposal" ("JP"). (D.06-07-029, at pp. 26-33.)
The portion of the modified JP relevant here3 requires IOUs to enter into long-term contracts that will result in the development of new generation capacity. The Decision pointed out that this new generation is needed "to ensure grid reliability for the state as a whole [,]" and "not just [by] the three IOUs...." (D.06-07-029, at pp. 16, 25.) Nevertheless, the Commission gave the IOUs responsibility for obtaining the long-term contracts for new generation because "an IOU is an entity with the resources to make such a commitment." (Ibid.)
The Decision accounted for the fact that IOUs were being required to enter into long-term contracts on behalf of a group of customers broader than their own "bundled" customer base by allocating the net costs of the IOUs' long-term contracts broadly. (D.06-07-029, at pp. 16, 17, 41-42.) This allocation was designed to prevent these costs from being assumed by the IOUs' own customers alone. The broad group of customers subject to the Decision's cost-allocation mechanism consists of "bundled service customers, DA customers, and CCA customers." The Decision followed the previously establish policy of allocating the net costs of the long-term contracts to customers known as "departing customers."4 That is, "customers who are located within a utility distribution service territory but take service from a local POU" after a long-term contract has been obtained by an IOU and "the new generation goes into service" will be allocated a portion the net costs of that contract. (D.06-07-029, at p. 26, fn. 21.) The Decision used the defined term "benefiting customers" to refer collectively to all of the customers subject to the allocation mechanism, including departing customers.5
An application for rehearing of the Decision was filed jointly by two POUs: Merced Irrigation District and Modesto Irrigation District ("MID"). The application contains three allegations of error. First, the rehearing application makes a procedural claim. MID assert that the Decision falls within the definition of an "alternate" in Public Utilities Code section6 311, and former Rule 77.6 of the Commission's Rules of Practice and Procedure.7 MID make this claim because the ALJ revised the PD after comments were received. According to MID, when the PD was revised it became an "alternate" and was required to be circulated for comment a second time, and the Decision is in error because the PD was not re-circulated.
Second, the rehearing application claims that the Decision applies a "benefit test" to determine which customers will be allocated the costs and benefits of new generation. According to MID, such a test is not permitted under section 380, subdivision (g) ("section 380(g)"). (Rehg. App., at p. 5.) MID claim that using a "benefit test" is improper because they seek to avoid having costs allocated to "future departing load customers who... begin to take service from a POU...." (Rehg. App., at p. 7.) The rehearing application further claims that the record does not support the Decision's allocation mechanism, and that the Commission committed error by not holding an evidentiary hearing on "factual issues." (Rehg. App., at p. 8.)
Third, the rehearing application asserts that the Decision improperly designates IOUs as the companies that will procure power for POU customers. (Rehg. App., at p. 9.) MID argue that IOUs may not legally procure power for POU customers. Because the service territories of both irrigation districts overlap with the service territory of Pacific Gas and Electric Company ("PG&E"), MID assert that the Decision makes PG&E the "default purchaser of new resource adequacy generation" for MID's customers. (Rehg. App., at p. 11.)
Two responses to the rehearing application were filed. The Joint Parties (Southern California Edison Company, PG&E, The Utility Reform Network, Coalition of California Utility Employees, and the California Unions for Reliable Energy) filed a response, and PG&E filed a separate response. The Joint Parties response states that the Decision does not create a "benefit test." According to the Joint Parties, the Decision's cost allocation does not affect current POU customers. The Joint Parties also claim that the Decision treats potential future municipal departing load in a manner consistent with the authority granted the Commission in section 380. The Joint Parties' response also states that the Decision is not an alternate because the revisions made to the draft of the Decision were suggested in comments and did not make a substantive change.
PG&E's separate response claims that MID's customers will in fact benefit from new generation procured by PG&E, and that this fact is well-documented. In addition, PG&E claims the record in this proceeding is adequate, and that a trial-type hearing is not legally required when the Commission exercises its discretion on purely policy questions, or in ratesetting proceedings. According to PG&E the workshops, "voluminous comments" and publicly available government reports provided a sufficient record on which to base the Decision. PG&E also claims that the rehearing application is mistaken when it asserts that the Decision will result in PG&E procuring power for POU customers.
We have review each and every allegation raised in the application for rehearing, and believe the allegations have no merit. However, since MID may have misunderstood some of our holdings, we will modify the Decision, for purposes of clarification. Rehearing of D.06-07-029, as modified, will be denied.
1 A load serving entity ("LSE") is defined by statute to include electrical corporations (referred to in the Decision as investor-owned utilities ("IOUs")), independent "electric service providers" (referred to in the Decision as direct access ("DA") service providers) and community choice aggregators ("CCAs"). (Pub. Util. Code, § 380, subd. (j), see also, Pub. Util. Code, §§ 218 (electrical corporations), 218.3, 394 (electrical service providers), & 331.1 (community choice aggregators).) The Commission has authority to set resource adequacy ("RA") standards for load serving entities. (E.g., Pub. Util. Code, § 380, subd. (a).) LSEs are distinguished from certain other types of electricity providers, such as publicly owned utilities ("POUs"). (Pub. Util. Code, § 380, subd. (j)(1).)
2 Previously, in Generation Procurement [D.04-01-050] (2004) __ Cal.P.U.C.3d. __, the Commission required each LSE to procure sufficient reserves of power to provide reliable service based on its customers' load. In its next major decisions, Interim Opinion Regarding Resource Adequacy [D.04-10-035] (2004) __ Cal.P.U.C.3d __ and Resource Adequacy Requirements (2005) [D.05-10-042] __ Cal.P.U.C.3d __, the Commission adopted policies and rules that required each LSE to make an annual showing that it could meet the next year's RA requirements. In addition, the Commission has given IOUs procurement authority on a rolling 10-year basis, and established a mechanism through which IOUs can enter into short-, medium-, and long-term contracts. (Long Term Procurement [D.04-12-048] (2004) __ Cal.P.U.C.3d __.) IOUs can recover costs associated with this procurement for either the life of the contract or for 10 years, whichever is less. These costs can be recovered from "all customers, including departing customers." (Id. at p. 60 (slip op.).)
3 The other main feature of the JP is that it separates the management of energy and capacity components of newly acquired generation. The IOUs will not become the default managers of the new capacity acquired as a result of the JP. (D.06-07-029, at pp. 4-5.)
4 Departing customers to take POU service are sometimes referred to as municipal departing load ("MDL") customers because POUs were previously referred to as municipal utilities. Long Term Procurement, supra, adopted the policy concerning departing customers, as discussed in footnote 2.
5 The rehearing application refers to departing customers subject to the allocation mechanism as "future POU customers" and sometimes discusses the effect of the allocation mechanism on "POU customers" generally, or on "current ... POU customers [.]" (E.g., Rehg. App., at pp. 7, 8.) This language is not as precise as it could be because the Decision does not attempt to reach current POU customers, and it effects MDL customers only because of their status as departing customers, not because of their status as POU customers.
6 In this document section references indicate the Public Utilities Code, unless otherwise specified.
7 The Commission's Rules of Practice and Procedure are referred to in this document as "Rules." The Rules are contained in Title 20, Cal. Code Regs., where each Rule's section number is the same as its Rule number. The Commission revised its Rules after the Decision issued, and this document refers to each of the now superseded Rules as a "former Rule."
