TESTIMONY OF MATTHEW FREEDMAN ON BEHALF OF THE UTILITY REFORM NETWORK (TURN)
TO THE SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
Overview of Utility Procurement Activities Informational Hearing
November 19, 2003
I. INTEGRATED RESOURCE PLANNING
In principle, the Commission is committed to real integrated resource planning (IRP). In fact, everyone participating in the process gives unwavering lip service to this concept. But the reality is far more problematic. In order for IRP to work, the utilities need to be forced to contemplate the costs, benefits and risks of various supply and demand options. Instead of undertaking this approach, the Commission seems more interested in simply adopting a "do everything" strategy under which the utilities are encouraged to make commitments to any supply or demand-side resource they can find. The new mantra of "action" has led Commissioners to believe that producing results is paramount, regardless of whether they are good or bad.
The result is an approach to resource planning that is less analytical and more like "lets make a deal." It appears that some proposals are being developed by the utilities and Commission staff in advance of any formal action or public announcement. For example, we know that Commissioners were aware of, and offered support for two pending proposals before the deals were even completed -- SCE’s acquisition of the Mountainview plant, and SDG&E’s proposal to acquire the Palomar plant from its own affiliate along with entering into a long-term contract with Calpine’s Otay Mesa. It is beginning to feel like every major procurement announcement by a utility has been preordained by the Commission majority and that evidentiary proceedings may become a mere formality.
The Commission is making up for years of inaction by acting like someone who has been deprived of food for weeks and then ends up in front of a sumptuous buffet – the resulting gluttony and bloating are inevitable. With the Commission’s eyes bigger than the ratepayer stomach, we are on the edge of pursuing everything -- New long-term resource commitments, accelerated deployment of distributed generation, transmission covering every corner of California, dramatic increases in energy efficiency and demand-side programs, more aggressive renewable energy targets, and cutting loose large customers to leave the utilities for competitive suppliers through a core/non-core retail market structure. For this Commission, there appear to be no hard choices. But it’s a myth, and we fear current policies may lead to a train wreck.
The bottom line is that the Commission doesn’t have its arms around IRP, and doesn’t have the staff or resources to really sink its teeth into these complicated problems. Instead, they are forced to defer to whatever the utilities provide, which is why the ongoing budget cuts affecting Commission staff are penny-wise and pound-foolish. To cut staff when the Commission is being asked to do more, and make long-term decisions with huge impacts on the California economy, only inviting incomplete policymaking that will drive up costs.
II. PROCUREMENT REVIEW GROUPS
In response to a request last year by SCE to pursue some expedited resource commitments in the months leading up to the December 31 handoff of procurement responsibility from DWR to the utilities, the Commission directed each utility to create a procurement review group (PRG). These groups, which continue today, are composed of non-market participants like TURN, UCAN, the Farm Bureau, environmental groups (NRDC), CPUC staff, government agencies (CEC, DWR) and representatives of organized labor. The review groups have no independent authority, do not take positions on behalf of the constituent groups and are not a substitute for CPUC review or comments by other parties. PRG members make their views known to the Commission through the filing of formal protests.
The primary reason for creating the PRGs was the switch to up-front approval of utility procurement decisions required by AB 57 / SB 1976. If the Commission gets only one bite at the apple, and cannot revisit any decision made by a utility after initial approval is granted, then there is a far greater need to put resources into the up-front reviews. Since many procurement transactions require Commission action on an expedited basis, it is critical to bring non-market participants into the process as early as possible to allow advance access to the data along with opportunities to raise concerns, ask questions, or offer suggestions before transactions are executed and submitted for Commission approval.
TURN has actively participated in the PRG process and found it to be an extremely useful experience. The PRGs have allowed intervenors to become acquainted with the nuances of utility procurement practices, and frankly educated about the realities of today’s market, through a collaborative and informal process. Many of TURN’s suggestions have been incorporated into procurement activities without the need for time-consuming and combative litigation.
In the event that the PRGs do not continue, the entire structure for reviewing and approving procurement transactions will require substantial modifications and extended review schedules. Without a PRG structure, TURN and other non-market participants would be denied the opportunity to learn about ongoing activities and challenges in real-time and instead would be forced to review materials underlying utility Advice Letter filings for the first time after the decisions had been made and submitted for Commission approval. This lack of advance notice would, in turn, make expedited approvals impossible. Given the time-sensitive nature of many utility procurement filings, the switch to less compressed schedules would create substantial problems for utilities seeking quick Commission approvals of routine transactions.
For better or worse, the Commission must ensure the presence of a robust structure of comprehensive review prior to granting transaction approvals. Eliminating the PRGs would therefore require the creation of another structure that has yet to be proposed by any party.
III. CONFIDENTIALITY
TURN shares the concerns raised by many parties about excessive confidentiality. The trend towards increased confidentiality is problematic because it limits the scope of review by parties practicing regularly before this Commission. At present, the only parties able to meaningfully review procurement activities are members of the Procurement Review Groups. The ability of other parties to examine and comment on procurement policies will be greatly limited unless there is a freer flow of publicly available data.
Under current Commission policy, participants in all procurement proceedings are dividing into two groups – the haves and the have nots. Those with information are prohibited from consulting with any of the "have not" parties on most, if not all, of the material issues raised by utility-specific filings. This prohibition can be difficult for groups like TURN given the complexity of the issues raised and the need to clarify assumptions about certain market conditions. Moreover, TURN is precluded from discussing even the most basic details about procurement with legislative staff, CEC Commissioners, the media and even other utilities.
To be clear, TURN does not support turning over highly sensitive utility data to market participants like merchant generating companies. We’ve seen what they can do with access to near-perfect information about utility practices and needs. But there’s a wide range of dispute as to what types of information are truly sensitive and would jeopardize the protection of ratepayer interests.
As a party that has access to all the confidential materials submitted at the CPUC, we can confirm that a significant percentage of redactions are unnecessary. In some cases, we’ve seen debates over the meaning of state laws deemed confidential. In another case, PG&E filed materials under seal that were publicly available in its own General Rate Case and in filings made with FERC. Although TURN has repeatedly submitted filings seeking to strip excessive confidentiality in specific instances, it is not practical to place the burden on TURN and other non-market participants to argue the appropriateness of confidentiality in every proceeding. But that is the reality of the current system.
The basic problem stems from a lack of leadership at the Commission. Utilities submit their filings and, absent a protest from an intervenor who can make an informed argument for disclosure, the Commission doesn’t take any steps to assess the appropriateness of retaining materials under seal. But the only parties who can make this argument are those who have access to the materials.
Commissioners have not directed or empowered key staff – the General Counsel, Executive Director, of Chief ALJ – to establish standards, policies and guidelines for the types of materials that may be deemed confidential. Despite the fact that Commission staff routinely tell me, in off-the-record conversations, that confidentiality is excessive, there appears to be a "cover your rear" mentality at the staff level. I don’t blame the staff. They need official guidance. And establishing confidentiality policy is simply not a high priority for Commissioners these days.
IV. RENEWABLES PORTFOLIO STANDARD IMPLEMENTATION
The Commission issued a very strong implementation decision in June that represents a good first step at crafting the rules required to institutionalize the Renewables Portfolio Standard (RPS) program contained in SB 1078. The decision adopts many of the specific proposals contained in a set of joint principles supported by TURN and SDG&E. Support for the final decision was 5-0, and the Commissioners all expressed an interest in adopting the most aggressive possible stance on contested implementation issues.
In tandem with RPS implementation proceedings, all three utilities have begun to enter into long-term agreements with renewable sellers. During this interim period, the Commission has approved contracts resulting from solicitations conducted in the fall of 2002 by all three IOUs. In 2003, all three IOUs have moved forward with additional commitments – PG&E signed contracts with three biomass generators, SDG&E has proposed contracts with biomass and solar facilities, and SCE is currently conducting a solicitation that has attracted a robust response from the development community.
The Commission is currently responsible for finalizing several key features of the RPS – (1) standard contract terms and conditions, (2) quantifying expected transmission adjustments for ranking renewable resources that require system upgrades, (3) quantifying system integration costs (with the CEC and ISO), and (4) establishing market price benchmarks. Progress on some of these issues has been achieved, while others appear to be languishing and need additional attention.
The California Energy Commission has moved forward quickly to adopt decisions governing its role in RPS implementation and is currently focused on the design of a west-wide tracking and verification system. TURN has been pleased with the CEC’s work to date.
There are two other outstanding issues that need to be addressed and resolved. The first is the applicability of the RPS to direct access providers. Since these providers currently serve approximately 13% of utility loads, and are subject to the RPS, it is critical to begin the process of devising rules that will allow them to begin to procure renewables and meet their statutory obligations. The Commission has failed to take any action to bring these providers into compliance, although it is rumored that a rulemaking to address these issues is forthcoming.
The second issue involves the proper scope of confidentiality for utility renewable resource commitments. On April 4, 2003, the two ALJs in the Procurement rulemaking addressed some confidentiality issues surrounding certain types of utility procurement data. All confidentiality related to renewables was deferred for resolution in the first RPS implementation decision. That decision, adopted in June (03-06-071), deferred all confidentiality issues to a later ALJ ruling. No rulings have been issued in the five months following that decision, therefore confidentiality remains unresolved.
