Word Document
PDF Document

STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3298

November 18, 2003 Agenda ID #3005

Ratesetting

TO: PARTIES OF RECORD IN RULEMAKING 01-10-024

RE: NOTICE OF AVAILABILITY OF PROPOSED DECISION AND ALTERNATE DECISION OF COMMISSIONER PEEVEY

Consistent with Rule 2.3(b) of the Commission's Rules of Practice and Procedure, I am issuing this Notice of Availability of the above-referenced proposed decision. The proposed decision was issued by Administrative Law Judge (ALJ) Walwyn and the alternate decision by Commissioner Peevey on November 18, 2003. An Internet link to these documents were sent via e-mail to all the parties on the service list who provided an e-mail address to the Commission. An electronic copy of these documents can be viewed and downloaded at the Commission's Website (www.cpuc.ca.gov). A hard copy of these documents can be obtained by contacting the Commission's Central Files Office [(415) 703-2045].

This is the proposed decision of ALJ Walwyn, previously designated as the principal hearing officer in this proceeding and the alternate decision of Commissioner Peevey, the Assigned Commissioner. They will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180, a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days before hand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.

When the Commission acts on the proposed decision and alternate decision, it may adopt all or part of them as written, amend or modify them, or set them aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the draft decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages.

Consistent with the service procedures in this proceeding, parties should send comments in electronic form to those appearances and the state service list that provided an electronic mail address to the Commission, including ALJ Christine M. Walwyn at cmw@cpuc.ca.gov. Service by U.S. mail is optional, except that hard copies should be served separately on ALJ Walwyn, and for that purpose I suggest hand delivery, overnight mail or other expeditious methods of service. In addition, if there is no electronic address available, the electronic mail is returned to the sender, or the recipient informs the sender of an inability to open the document, the sender shall immediately arrange for alternate service (regular U.S. mail shall be the default, unless another means - such as overnight delivery is mutually agreed upon). The current service list for this proceeding is available on the Commission's Web page, www.cpuc.ca.gov.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:tcg

Attachment

ALJ/CMW/tcg DRAFT Agenda ID #3005

Ratesetting

Decision PROPOSED DECISION OF ALJ WALWYN (Mailed 11/18/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development.
 

Rulemaking 01-10-024

(Filed October 25, 2001)

INTERIM OPINION

TABLE OF CONTENTS

Title Page

INTERIM OPINION 1

I. Summary 2

II. Procedural History 4

III. Regulatory Goals and Interagency Collaboration 7

IV. Threshold Policy Issues 10

A. Reserves and Resource Adequacy 10

1. Summary 10
    
2. California Should be Responsible for Determining its Energy Future 12
    
3. Policy Issues 15
    
4. Current and Forecasted Market Conditions 17
    
5. Appropriate Reserve Levels and Phase-in Period 19
    
6. Appropriate Balance Between Forward Contracting and Spot Purchases 25
    
7. Utility Obligation to Procure for all Load and Customers Within their Service Territory 29
    
8. Issues to be Addressed in Workshops 39
    
9. Deliverability 46

B. Market Structure for Longer Term Resource Commitments 48

1. Determining the Need for Resource Commitments 48
    
2. Today's Hybrid Market Structure 49
    
3. Benefits of Utility Ownership v. Benefits of Third-party Contracts 51
    
4. Competitive Solicitations 57
    
5. Length and Type of Contracts 59
    
6. Affiliate Transactions 60

• a) Existing Moratorium and Standard of Behavior 1 60
   
• b) This Year's Hearing Record 62
   
• c) Discussion 64
   
• d) SDG&E and SoCalGas 65
   
• e) PG&E and Affiliates 68

C. Financial Capabilities of the Utilities 72

1. Debt Equivalency 75
   
   
   a) SCE's Concerns for Long-Term Power Contracts 76
   
   b) Implications for Market Structure 77
   
   c) Commission Procurement Policy and Treatment of Debt Equivalency 77
    
2. Cost of Collateral 79

V. Long-Term Planning Assumptions and Policy Guidance 82

A. Utilities' Current Filings 82

1. Parties Positions 82
    
2. Discussion 85

B. Integrated Approach 90

1. Energy Efficiency 91
   
   
   a) Procurement Energy Efficiency Funding Levels for 2004-05 91
   
   (1) Parties' Positions 92
   
   (2) Discussion 93
   
   b) Program Selection Criteria 95
   
   (1) Parties' Positions 95
   
   (2) Discussion 95
   
   c) Procurement EE Program Submissions, Evaluation and Selection 96
   
   (1) Projected Utility Energy Efficiency Procurement and PGC Funded Cost, Energy Savings & Demand Reductions for Procurement and PGC Funded Programs 97
   
   d) Cost-Recovery Mechanism for Procurement EE Activities 98
   
   (1) Parties' Positions 98
   
   (2) Discussion 99
   
   e) Performance Incentives for Procurement Efficiency Activities 101
   
   (1) Parties' Positions 101
   
   (2) Discussion 102
   
   f) Procedural Issues Related to Efficiency Rulemaking 01-08-028 104
   
   (1) Program Duration and Cycles 104
   
   (2) Program Specific Evaluation 105
   
   (3) Energy Efficiency Goals for the Commission's Portfolio of Programs 105
   
   (4) Future Administration of Energy Efficiency Programs 106
   
   g) Other Issues 107
   
   (1) Utility and Non-Utility Filings for Procurement Related Energy Efficiency Programs 107
   
   (2) Valuing Potential Penalty Cost for CO2 Emissions 107
   
   (3) Valuing Non-Utility Energy Savings in Procurement Forecasts 108
    
2. Demand Response 109
    
3. Renewables 113
   
   a) RPS Requirements 113
   
   (1) Renewable Procurement Plan 114
   
   (2) Full RPS Solicitation 115
   
   (3) Market Price Referent and Interim Benchmarks 115
   
   (4) Contract Lengths 116
   
   (5) Eligibility for Supplemental Energy Payments 116
   
   (6) Creditworthiness 117
   
   (7) Standard Terms and Conditions 117
   
   b) Short-Term Plan Issues 118
   
   c) Long-Term Plan Issues 119
    
4. Distributed Generation 124
    
5. Transmission 128
    
6. Fuel Diversity in Non-Renewables 132
    
7. QFs 135
   
   
   a) Parties' Positions 137
   
   b) Discussion 144
   
   (1) The PURPA Purchase Obligation Requirement 144
   
   (2) Existing QFs With Existing Utility Contracts 152
   
   (3) Existing QFs With Expired, or Soon-to-be Expired, Utility Contracts 153
   
   (4) New QFs With Possible Future Utility Contracts 158
   
   (5) PG&E's Proposed 1,000 Hours Curtailment Proposal 159
   
   (6) Revision of SRAC Prices 160

C. Risk Management 161

1. Consumer Risk Tolerance (CRT) 162
    
2. Incentive Mechanism 164

D. Other Proposals 165

1. CPA Peaker Initiative 165
    
2. City of San Diego's Proposal 170
    
3. CAC/EPUC's Request for Clarification of Net v. Gross Load Calculation 171

VI. Short-Term Plans 173

A. Overview 173

B. Review of Risk Management and Reporting Proposals 176

1. Consistent Measurement of Degree of Portfolio Risk 176

C. Limits on Length and Volume of Contracts Authorized 180

D. Upfront Standards for Utility Procurement Products and Transactions (was Consideration of 2004/5 Policies/Programs) 184

1. Authorized Products 185
    
2. Transactional Processes 191
    
3. Cost-Effectiveness Testing for Transactions & Benchmarks 196
   
   
   a) ORA's Proposal 196
   
   b) PG&E's Proposal 197
   
   c) SCE's Proposal 200
   
   d) SDG&E's 200
    
4. Discussion 201

E. Fuel and Power Forecasts 204

F. Role of PRG 206

G. Modification and Approval of Short-Term Plans 210

VII. Procedural Process and Schedule for Future Filings 211

A. Quarterly Compliance Filings 211

B. Long-term Procurement Plan Filings 212

C. ERRA Filings 213

VIII. Next Steps 214

IX. Oral Argument and Comments on the Proposed Decision 215

X. Assignment of Proceeding 216

Findings of Fact .................................................................................... 216

Conclusions of Law ............................................................................... 226

INTERIM ORDER ..................................................................................230

INTERIM OPINION
I. Summary

This decision adopts the long-term regulatory framework under which California's three largest investor-owned utilities, Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE), will plan for and procure the energy resources and demand-side investments necessary to ensure their customers receive reliable service at low and stable prices. As part of this framework, we promote environmentally sensitive resource choices, set reserve margin standards to protect California's electricity grid, and provide cost-recovery mechanisms that promote the creditworthiness of each utility.

In our decisions last year, the Commission took the actions necessary for the three respondent utilities to resume full procurement on January 1, 2003. We allocated to the three utilities the contracts the California Department of Water Resources (DWR) entered into during the energy crisis when the utilities did not have the creditworthiness to continue to procure energy for their customers, approved short-term procurement plans and cost-recovery mechanisms under which the utilities would resume procurement, and gave the policy direction for long-term procurement plans to be filed in 2003.

Our focus now is on ensuring the respondent utilities make the longer term investments necessary to provide reliable service to all California customers over the coming decade. The California Independent System Operator (ISO) has deferred to the Commission to adopt and enforce adequate planning reserve requirements for the utilities and other electricity providers operating in their service territories. We do that here. We find that there is ample surplus of electric energy capacity available in the Western Electricity Coordinating Council (WECC) region that California can draw upon today and for the next few years. Therefore, we affirm an operating reserve requirement for 2004 and a phase-in of a planning reserve requirement over the next three years. Our approach is consistent with, but more aggressive than, the timetable and process recommended jointly by the three utilities, the California Energy Commission (CEC), the Office of Ratepayer Advocates (ORA), and The Utility Reform Network (TURN).

We address here the market structure rules the utilities should follow in making long-term resource acquisitions. We endorse a hybrid market structure, with the utilities able to compete through a competitive Request for Proposals (RFP) process to acquire ownership of new generation facilities. Having provided for direct utility ownership of new plant, we make permanent our ban on affiliate transactions as a direct and effective means of preventing potential conflicts of interest at a level where we have less oversight and control. The holding companies and affiliates of each utility should plan for future generation investment to be made outside of their utility's service territory and sold to other load serving entities. 1

In reviewing each utility's short-term and long-term resource plans, we look to the statutory requirements of Assembly Bill (AB) 57 and the goals of the Energy Action Plan, a joint product of the Commission, the CEC, and the California Power Authority (CPA). We also look to the utilities to pursue an integrated resource planning process that balances the need for additional generation, transmission, and demand-side investments and to do this in a public proceeding that allows all interested parties an opportunity to participate effectively. We require each utility to adhere to upfront standards in conducting their procurement and to be accountable for operating in a manner that mitigates the risks of high prices, ensures reliable service and delivers measurable value to their customers.

We modify and adopt short-term procurement plans for the utilities to operate under in 2004 and 2005. We adopt the recommendation of the three utilities, ORA, CEC, and TURN to have the utilities resubmit their long-term procurement plans in mid-2004, following the Commission's adoption of specific resource adequacy criteria to be addressed in upcoming workshops. We also adopt CEC's "no regrets" standard for the review of any long-term commitments the utilities propose prior to our adoption of final long-term plans.

Finally, we discuss the issues that should be addressed in the new Procurement OIR we expect to open in the second quarter of 2004. These issues are: (1) the need to develop procurement incentive mechanisms for each utility; (2) the need to develop a long-term policy for expiring QF contracts; (3) review of the management audits of SDG&E's and PG&E's electric procurement transactions with their regulated affiliates; (4) handling resource adequacy issues not addressed in the workshop process; and (5) review and adoption of revised 2004 long-term procurement plans for the three utilities. We expect to open this new procurement OIR in the second quarter of 2004.
1 SCE's Mountainview application and SDG&E's RFP are before us as separate matters and are not addressed here.

Top Of Page
Next Page
Go To First Page