D0412048 Attachment A-C

STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

December 20, 2004

TO: ALL PARTIES OF RECORD IN RULEMAKING 04-04-003

Decision 04-12-048 is being mailed without the Dissents of
Commissioner Carl W. Wood and Loretta M. Lynch. The Dissents will be
mailed separately.

Very truly yours,

/s/ ANGELA K. MINKIN

ANGELA K. MINKIN, Chief

Administrative Law Judge

ANG/jva

Attachment

ALJ/CAB/jva Mailed 12/20/2004

Decision 04-12-048 December 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 42 42

F. Natural Gas Price Forecasts 46 46

1. Regulatory Background 46 46

2. Utilities And Party Positions 47 47

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 52 52

A. Umbrella Proceedings 52 52

1. Resource Adequacy 53 53

2. CCA 53 53

a) Potential Stranded Costs Due To Customer Load Uncertainty 55 55

3. Demand Response (DR) 64 64

4. Distributed Generation (DG) 69 69

5. Energy Efficiency (EE) 72 72

6. Qualifying Facilities: Long-Term Policy For Expiring QF Contracts 74 74

7. Renewable Energy Resources 76 76

V. Party Comment on Renewables in the Proposed Decision 79 79

a) IOU Positions on Renewable Energy in the LTPPs 82 82

8. Transmission Assessment Process 79

a) Transmission Planning under I.00-11-001 89 89

(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 91 91

(3) Phase 8: Transmission Costs for Renewable Portfolio
Standard Bid 92 92

b) Integrated Generation and Transmission System
Planning, Timing, Flexibility 93 93

c) Enhanced Supply to Load Pockets 96 96

VI. Implementing the EAP Loading Order 98 98

A. Energy Efficiency 99 99

1. Cost Recovery for IOUs to Meet EE Savings Goals 99 99

2. Energy Efficiency Data in Future LTPPs 102 102

B. Distributed Generation 103 103

VII. Procurement contracting authority: AB 57, upfront standards,
cost recovery and ratemaking 105 105

A. Contracting Authority 105 105

1. Parties' Positions 106 106

2. Discussion 107 107

B. Cost Recovery for Utility Ownership and Turnkey Projects 108 108

1. Parties' Positions 108 108

2. Discussion 110 110

C. ERRA Trigger Mechanism 111 111

D. ERRA Disallowance Cap 113 113

E. Upfront Standards for Utility Procurement Products and Transactions 115 115

F. SCE'S AB 57 Plan 118 118

Table of Contents

Title Page

VIII. Policy Issues Related To Long-Term Plans 119 119

A. Proposals Regarding Open And Transparent Competitive Bidding Process 120 120

1. Discussion and Determinations 125 125

2. Requirements for All-Source Solicitations 126 126

B. Affiliate Transactions 127 127

C. Procedures, Rules And Protocols, Including Independent
Third-Party Evaluators 129 129

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 159 159

A. Resource Adequacy Issues Not Addressed in the Resource
Adequacy Decision 159 159

B. Local Reliability as Part of the Procurement Process 160 160

C. Bottom-up Planning 162 162

D. DWR contract allocation and reallocation (Sunrise) 164 164

E. Long-Term Planning in the Next Procurement Cycle 165 165

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 194 194

Findings of Fact 194 194

Conclusions of Law 226 226

ORDER 236 236

Attachment A PG&E, SCE and SDG&E's Summary of Long-Term Plan
Attachment B President Peevey's ACR Dated September 16, 2004

Attachment C List of Appearances

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.