III. Draft Activities to Accomplish Proceeding Goals

For each goal outlined above, staff has prepared a tentative timeline and list of activities required to accomplish the goal. Questions that need to be answered by this proceeding are included to illustrate the type of facts that need to be established.

1. Review the Need for New Generation

Given rising concerns about the state's electricity supply outlook, the lead time required of new generation, and IOU concerns about contracting for new long-term resources, it appears that the review of the need for new generation should be the first issue addressed in the proceeding. In the D.04-12-048, the Commission found that it may be necessary for PG&E and Southern California Edison (SCE) to add some new generation.13 Since that time, IOUs (SCE in particular via A.05-06-003) have expressed concerns that adding the specified new generation amounts when only bundled customers pay for new generation may be problematic. It is far from ideal to separate this issue from the full integrated resource planning process we envision for 2006, but it may be necessary to address this question first.

a. Establishing Factual Need for New Generation

The purpose for addressing this issue first would be to confirm whether there is a factual need for new generation in the state (not just the IOU bundled customers), and if so, identify where is the need. Questions that may be considered in this part of the proceeding include:

· Does the CEC Transmittal Report, or the Transmittal Report in concert with other IEPR documents, establish the timeline on which there is a need for new generation? Do any of the CEC IEPR documents (if so which?) need to be updated in order to identify when there is a need for new generation, and if so, on what timeline should such documents be updated?

· At what level does the need for new generation need to be established-statewide, IOU planning level, zonal, local, or other-in order for the Commission to effectively authorize the construction of new generation? Is this information already readily available in the public record?

· Do OPs 4 & 5 in D.04-12-048 suffice to establish the need for new generation? (If so, it there any further need to review this in an early phase of this proceeding?) Is it possible to separate off cost-allocation treatment of new generation need already acknowledged for Pacific Gas & Electric Company (PG&E) and Southern California Edison Company (SCE) in D.04-12-048, and treat that separately than any additional need for new generation that may be established by the integrated resource planning process later in this proceeding?

· Should the need for new generation be distinguished between generation needed for "reliability," versus generation needed for "aging plant replacement," versus generation needed for "compliance with renewable portfolio standards"? Should new generation be divided into different categories so that cost allocation can be apportioned relative to the purpose served by the new generation?

· Is it possible for an early phase of this proceeding to set the need for new generation at a number (e.g., X MW, or a range of X-Y MW) in a set location (e.g., in NP15 or the Greater Bay Area or the Oakland sub-area) in this phase of proceeding, and have the later phase of this proceeding examine the resource supply plans used to meet the need for new generation? Given that the integrated resource planning process described below may reveal that transmission investments obviate the need for some new power plants, how can the State adopt a need determination prior to conducting a full review of the integrated resource plans?

Activity Proposed: Staff proposes a workshop be held in late January to identify the facts already available in the public record to support the need for new generation. The workshop will consider whether additional facts need to be developed as inputs into the Commission's procurement proceeding. Parties are invited to comment whether this issue requires testimony and hearings, or whether workshops can be used to establish a record. The Assigned Commissioner has already stated that the Commission's procurement proceeding will not be the forum to relitigate the IEPR proceeding, and parties should identify how the facts available in the public record are insufficient to meet the goals established above if they argue testimony and hearings are required.

b. Temporary and/or Permanent Mechanism (e.g., Cost Allocation and
Benefit Sharing or Other Alternative)

After establishing the need for new generation, the Commission will need to establish the range of options for cost and benefit allocation for new generation. It has been assumed that IOUs will build new generation on behalf of IOU bundled customers. If there is a need to reconsider this issue to ensure additional investments in new generation, then this question may be addressed here.

Questions that may be considered in this part of the proceeding include:

· Does the state immediately require an interim and/or permanent mechanism that allows the costs and benefits of new generation to be allocated across all load-serving entities, or all load-serving entities in a defined geographic location?

· Is it possible or desirable to establish a "new portfolio standard" for all LSEs, so that all LSEs would share in the costs and benefits of new generation?

· Should the cost and benefit allocation mechanism apply to all new generation in IOU planning areas, only new generation identified to meet system reliability needs, or some other specified subset of new generation?

· What are the options for cost and benefit allocation of new generation? (For example, IOUs invest in all new generation in support of IOU bundled customers only, IOUs invest in all new generation in support of all customers in IOU planning areas, a third party invests in new generation in IOU planning areas, or others, etc.) In addition, how should the cost/benefit allocation be integrated into integrated resource planning?

· The Commission has already issued a White Paper that contemplates the creation of a capacity market; however, it is not expected that an independent capacity market will be in place in 2006. Furthermore, it is not expected that, initially, a capacity market alone will support the development of new generation. Is it possible to choose an interim cost and benefit allocation mechanism (or some other alternative) that does not foreclose the possibility of capacity markets?

Activity Proposed: Staff proposes that this issue be the subject of briefs and reply briefs submitted by parties in February 2006.14 The Commission could jointly consider the need for new generation, and the cost allocation issue, and issue a draft decision on an interim cost allocation mechanism in April 2006. Issuing a decision by April 2006 would allow IOUs to move forward with any new generation Request for Offers (RFOs) in an expeditious manner. Any decision on this issue would be limited, and it would not cover (a) approval of specific contracts; or (b) approval of specific resources to fill resource needs.

2. A Review of Long-Term Procurement Plans, Including an Integrated
Resource Planning Process for All IOU Planning Areas

A main driver of the procurement proceeding is to ensure that long-term procurement planning is happening consistent with the laws and policies of the State. To that end, we expect that all load serving entities (including IOUs, ESPs, and CCAs) will submit long-term procurement plans so that resource planning can be conducted in an integrated fashion.

All respondents to the proceeding will file resource plans, covering 10 years, with additional detail on the near term (defined as the next two years). Parties will be expected to update the resource plans every two years. As noted in D.04-12-048, the Commission prioritizes resources in a loading order that emphasizes energy efficiency and demand response on the demand side, and favors renewables over fossil-fueled resources on the supply side. Where plans anticipate the need for conventional resources, it will not be acceptable to simply assume that new generation occurs in the anticipated amount, but rather each respondent must describe in detail its plans to acquire or otherwise ensure the investment in such new generation. Resource plans will meet the requirements set forth by the Renewable Portfolio Standard long-term planning decision, D.05-10-014. Filed resource plans should incorporate the ISO's Transmission Plan (as discussed further below) and explain why alternative resources (such as generation or demand response) are preferred to the transmission projects proposed by the ISO.

Questions that may be considered in this part of the proceeding include:

· How can the Commission establish a process for implementing integrated resource planning as part of the long-term procurement planning proceeding?

· Should electric service providers and/or small IOUs be required to file long-term resource plans? Can they file a subset of information required by the three large IOUs?

· Does the Commission need to establish or adopt an Integrated Resource Planning (IRP) methodology prior to having parties file plans? How much guidance should the Commission provide respondents in filing their resource plans? Given that the development of an IRP methodology is expected to be iterative (i.e., 2006 plans will not be perfect), what can the Commission expect to do in 2006 vs. reserve for future year iterations?

· Can parties use the Supply Plans submitted to the CEC in February 2005 as the basis (or framework) for submitting supply plans to the Commission?

· How should the parties represent local area needs in their resource plans? What are the local areas that need to be considered on a stand alone basis?

· What should be the content (and organizational structure) of the resource plans?

· How should CEC 2005 IEPR (including Transmittal Report, policy recommendations, and other documents, as appropriate) and CAISO Transmission planning study be incorporated into the IRP methodology?

· What should the basis be for the review of plans submitted to the Commission? What should the evaluation metrics be and how should they be established?

· How should parties treat risks and uncertainties in their resource plans?

· What assumptions need to be established prior to parties filing resource plans? (For reference, the Commission provided IOUs with a lengthy set of planning assumptions in a June 4, 2004 ruling.)

· What should be the method for validating predicted performance to determine whether integrated resource planning objectives of the Commission are met?

· What response should the Commission take if plans are inadequate, or approved plans are not implemented?

Proposed Activities: Staff proposes that integrated resource planning be the subject of a two-day workshop in late February 2006. Staff would like to provide a IRP straw proposal prior to the workshop and ask parties to file pre-workshop comments.15 Parties are invited to comment on how that workshop can be structured to facilitate the development of robust resource plans. Parties are encouraged to identify other integrated planning resources that will help the Commission establish an integrated resources planning methodology or framework.16 Prior to the February workshop, parties will be invited to submit proposals on how to refine the IRP issues identified here. In addition, staff proposes that a second set of workshops be held in March 2006 so that each respondent can present its proposed/draft resource plan for discussion prior to filing. Each IOU would host a half-day workshop to present their plans and get feedback. The workshop comments would help the IOUs refine their plans, as well as establish the contents of a ruling (if necessary) in April 2006 directing parties on how to file plans in May 2006. After filing the final plans in May 2006, additional presentations on the final plans may be held. If necessary, hearings may be held in July 2006 and a draft decision issued by November 2006.

3. Updates to IOU Procurement Policies and Practices;
Including Review and Approval of New 10-year Procurement Plans

Consistent with AB 57 (Pub. Util. Code § 454.4), the IOUs are required to file procurement plans every two years. In addition to the resource plans discussed in Number 2 above, the IOUs are required to file updates to any of their procurement policies and practices.

Questions that may be considered in this part of the proceeding include:

Activities Proposed: Staff proposes a workshop in late February 2006 to identify the procurement policies and practices that need to be review in coordination with the long-term resource plans. IOUs would file updates to their procurement plans in May 2006. After filing the final plans in May 2006, hearing may be held in July 2006 and a draft decision issued in November 2006.

4. Any Procurement Policy Issues not Handled in R.04-04-003
or Other Procurement Related Dockets

Numerous other policy issues not handled in R.04-04-003 may be shifted into this successor proceeding. Potential issues for consideration here are review of management audits and others to be identified.

Proposed Activities: Staff proposes no specific activities at this time.

13 See D.04-12-048, Ordering Paragraphs (OPs) 4 and 5.

14 An alternative is for hearings to be held on these issues. Hearings may be required because of the fact that this issue deals with treatment of costs. Parties are welcome to comment here on the process proposed.

15 Staff is interested to know whether parties could cooperate to prepare such a proposal in advance of the workshop.

16 In D.04-01-050 (p. 178), we directed parties to look at the PacifiCorp 2003 Integrated Resource Plan (see http://www.pacificorp.com/File/File47422.pdf) as a sample for integrated resource planning. Some other Integrated Resource Planning Resources identified by staff include:

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