Brown Attachment A
Brown Attachment B
Brown Attachment C

ALJ/CAB/jva DRAFT Agenda ID #4073

Ratesetting

12/16/2004 Item 44

Decision PROPOSED DECISION OF ALJ BROWN (Mailed 11/16/2004)

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)

OPINION ADOPTING PACIFIC GAS AND ELECTRIC COMPANY,
SOUTHERN CALIFORNIA EDISON COMPANY
AND SAN DIEGO GAS & ELECTRIC COMPANY'S
LONG-TERM PROCUREMENT PLANS

Table of Contents

Title Page

OPINION ADOPTING PACIFIC GAS AND ELECTRIC COMPANY, SOUTHERN CALIFORNIA EDISON COMPANY AND SAN DIEGO GAS & ELECTRIC COMPANY'S LONG-TERM PROCUREMENT PLANS 2 2

I. Summary 2 2

II. Background 4 4

A. Background To Rulemaking (R.) 04-04-003 4 4

B. Procedural History 9 9

C. Motions 11 11

D. Summary of Parties' Positions 13 13

1. IOUs 13 13

2. Consumer/Ratepayer Advocates 14 14

3. Environmental Groups 16 16

4. Potential CCA/Municipalization/Direct Access 17 17

5. Co-Generation Facilities 19 19

6. Energy Marketers and Independent Energy Producers 20 20

7. The CAISO 23 23

8. Other Intervenors 23 23

III. Analysis Of Long-Term Procurement Plans 24 24

A. Do The LTPPs Integrate The Commission's Direction From
Other Related Proceedings And Meet The Criteria Established
In The ACR/Scoping Memo? 24 24

1. General Assessment 24 24

2. Directions for Load Forecasts and Resource Scenarios 24 24

B. Load Forecasts 26 26

1. Position of IOUs 26 26

2. Position of Parties on Load Forecasts 27 27

3. Discussion of Load Forecasts 29 29

C. Implementing the Energy Action Plan 31 31

D. Net Open Positions 31 31

1. Position of IOUs on Net Open Positions 33 33

2. Discussion of Net Open Positions 34 34

E. Resource Scenario Compliance 35 35

1. Resource Scenarios and Resource Adequacy 36 36

2. Position of IOUs on Implications of Resource Scenarios 37 37

3. Position of Parties on Implications of Resource Scenarios 41 41

4. Discussion on Implications of Resource Scenarios 41 41

F. Natural Gas Price Forecasts 45 45

1. Regulatory Background 45 45

2. Utilities And Party Positions 46 46

Table of Contents

Title Page

IV. How the Utilities' Long-Term Plans Reflect Policies, Goals,
And Outcomes From Other Umbrella Proceedings and Comport
with the Energy Action Plan 51 51

A. Umbrella Proceedings 51 51

1. Resource Adequacy 52 52

2. CCA 52 52

a) Potential Stranded Costs Due To Customer Load Uncertainty 54 54

3. Demand Response (DR) 63 63

4. Distributed Generation (DG) 68 68

5. Energy Efficiency (EE) 71 71

6. Qualifying Facilities: Long-Term Policy For Expiring QF Contracts 73 73

7. Renewable Energy Resources 75 75

V. Party Comment on Renewables in the Proposed Decision 78 78

a) IOU Positions on Renewable Energy in the LTPPs 80 80

b) Parties' Positions 83 83

2. Transmission Assessment Process 86 86

a) Transmission Planning under I.00-11-001 87 87

(1) Phase 5: Generic Economic Methodology for the
Evaluation of Transmission Projects 89 89

(2) Phase 6: Transmission needs in the Tehachapi
Wind Resource Area 90 90

(3) Phase 8: Transmission Costs for Renewable Portfolio
Standard Bid 91 91

b) Integrated Generation and Transmission System
Planning, Timing, Flexibility 92 92

c) Enhanced Supply to Load Pockets 95 95

VI. Implementing the EAP Loading Order 97 97

A. Energy Efficiency 98 98

1. Cost Recovery for IOUs to Meet EE Savings Goals 98 98

2. Energy Efficiency Data in Future LTPPs 101 101

B. Distributed Generation 102 102

VII. Procurement contracting authority: AB 57, upfront standards,
cost recovery and ratemaking 104 104

A. Contracting Authority 104 104

1. Parties' Positions 105 105

2. Discussion 106 106

B. Cost Recovery for Utility Ownership and Turnkey Projects 107 107

1. Parties' Positions 107 107

2. Discussion 109 109

C. ERRA Trigger Mechanism 110 110

D. ERRA Disallowance Cap 112 112

E. Upfront Standards for Utility Procurement Products and Transactions 114 114

F. SCE'S AB 57 Plan 116 116

Table of Contents

Title Page

VIII. Policy Issues Related To Long-Term Plans 118 118

A. Proposals Regarding Open And Transparent Competitive Bidding Process 119 119

1. Discussion and Determinations 124 124

2. Requirements for All-Source Solicitations 126 126

B. Affiliate Transactions 127 127

C. Procedures, Rules And Protocols, Including Independent
Third-Party Evaluators 130 130

D. Comparing PPAs to Utility Ownership 137 137

1. Parties' Positions 137 137

E. Debt Equivalence (DE) 142 142

F. Climate Change Issues in the Long-Term Procurement Plans 146 146

1. Background 146 146

2. Party Comments on GHG Issues in the Proposed Decision 150 150

3. Range of values for the GHG Adder 152 152

G. Repowering 154 154

1. Discussion 157 157

IX. Other Procurement Issues 160 160

A. Resource Adequacy Issues Not Addressed in the Resource
Adequacy Decision 160 160

B. Local Reliability as Part of the Procurement Process 161 161

C. Bottom-up Planning 162 162

D. DWR contract allocation and reallocation (Sunrise) 165 165

E. Long-Term Planning in the Next Procurement Cycle 166 166

F. Utility filings demonstrating compliance 168 168

G. Collateral Requirements 171 171

H. New Accounting Rules 173 173

I. Standard Offer Service 175 175

J. Confidentiality 176 176

X. Comments on the Proposed Decision 181 181

XI. Assignment of Proceeding 195 195

Findings of Fact 196 196

Conclusions of Law 225 225

ORDER 235 235

OPINION ADOPTING PACIFIC GAS AND ELECTRIC COMPANY,
SOUTHERN CALIFORNIA EDISON COMPANY
AND SAN DIEGO GAS & ELECTRIC COMPANY'S
LONG-TERM PROCUREMENT PLANS

I. Summary

This decision adopts, with modifications, Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE) and San Diego Gas & Electric Company's (SDG&E) Long-Term Procurement Plans (LTPP) and provides direction to the utilities on the procurement of the resources identified in the LTPPs. Summaries of the LTPPs are provided as Attachment A.

In our direction to the Investor-Owned Utilities (IOUs) [PG&E, SCE and SDG&E] regarding the procurement of resources to meet identified needs, and in recognition of the substantial amount of procurement to be undertaken as a result of our resource adequacy decisions, we make a number of significant findings. First, following the "loading order" contained in the Joint Agency Energy Action Plan (EAP) is the highest priority, meaning that energy efficiency and demand-side resources should be employed first. When these opportunities are captured, renewable generation is to be procured to the fullest extent possible - whenever an IOU issues a Request for Offer/Proposal (RFO/RFP) for generation resources, it must justify its selection of fossil generation over renewable generation offers. In other words, selection of renewable generation is the rebuttable presumption guiding IOU generation procurement.

We have extended the IOUs' procurement on a rolling 10-year basis. We will diligently oversee how the utilities are using this authority. We authorize the utilities to enter into short-term, mid-term, and long-term contracts, with contract delivery start dates through 2014, provided that the IOUs submit the necessary compliance filings. Furthermore, we have determined that it is time to allow greater head-to-head competition and hereby lift the affiliate ban on long-term power products. Accordingly, we adopt certain guidelines and safeguards, including an independent third party evaluator (IE) requirement. We will allow the consideration of debt equivalence in the bid evaluation process as specified herein, and we will also require the use of a greenhouse gas (GHG) adder as a bid evaluation component. With these policies we continue to shape and define the hybrid power market in California so as to advance the positive benefits of competition and deliver California's energy services according to the priorities of state policy.

In general, IOUs are directed to procure the maximum feasible amount of renewable energy in the general solicitations authorized by this decision, and we will allow them to credit this procurement towards their Renewables Portfolio Standards (RPS) targets. This is in keeping with the Legislature's clear intent, in creating the RPS program, that renewable procurement be integrated as closely as possible with general IOU procurement practices. To further this effort, we will be working over the course of the next LTPP cycle to fully imbed the RPS into long-term planning, placing renewable energy development where it belongs - central to the IOUs' resource planning efforts. Development of the RPS program will continue in the interim as a high priority for this Commission, and the IOUs will be prepared to issue RPS solicitations in 2005.

To further the state's clear goal of promoting environmentally responsible energy generation, we also adopt a policy that reflects and attempts to mitigate the impact of GHG emissions in influencing global climate patterns. As described in this decision, the IOUs are to employ a "GHG adder" when evaluating fossil and renewable generation bids. This method, which will be refined in future proceedings, will serve to internalize the significant and under-recognized cost of GHG emissions, help protect customers from the financial risk of future climate regulation, and continue California's leadership in addressing this important problem. Staff will also begin to explore the concept of a carbon content requirement for the IOUs, in coordination with other governmental and non-governmental entities that are addressing the climate change issue.