CPUC Procurement Policies Robert L. Strauss California Public Utilities Commission Energy Division - Procurement Section

California Investment Guidelines Energy Action Plan I, adopted 2003 Energy Action Plan II, adopted Oct Investment guided by the Loading Order –Energy Efficiency –Demand Response –Renewables –Electric Adequacy and Infrastructure

Long Term Procurement Plans and Resource Adequacy State focus on Load Serving Entities (LSE) Two Pronged approach: –IOUs develop and follow procurement plans –LSEs make Resource Adequacy showings Programs vary with regulatory authority and need. Initial focus on CAISO network. IOU vs. Electric Service Providers, vs. MUNI

AB57 (PU Code 454.5) –Put IOUs back into the procurement business as of Jan. 1, 2003 –Ensured that CPUC would establish policies and cost recovery mechanisms for procurement –Ensured IOUs cost recovery if procurement done in accordance with a pre-approved procurement plan PUC Implementation of AB57 began in 2002 – – Numerous decisions authorized PG&E, SCE, SDG&E to resume procurement –Jan-2004 Adopted procurement policy framework, including biennial LTPP Proceedings that follow the biennial IEPR proceeding schedule –Dec-2004 Approved first cycle of 10-year of Long-Term Plans –Feb-2006 Start second cycle of 10-year of Long-Term Plans Key Developments in CPUC Procurement Policy

Long Term Procurement Plans (LTPP) LTPP are a form of integrated resource plans IOUs forecast demand and identify how they will meet needs Plans detail procurement rulebook

Procurement Rules Short Term (less than 90 days) buy and sell through markets Intermediate term (90 days-less than 5 years) markets, RFOs, bilateral contracts Long Term (5 or more years) RFOs, bilateral contracts.

Resource Adequacy Resource Adequacy is ordered by Public Utilities Code Section 380, signed by Governor Schwarzenegger Sept 29, (a) The commission, in consultation with the Independent System Operator, shall establish resource adequacy requirements for all load-serving entities. (b) …objectives: (1) Facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed. (2) Equitably allocate the cost of generating capacity and prevent the shifting of costs between customer classes. (3) minimize enforcement requirements and costs.

Oversight LTPP and rulebook approval Procurement Review Group oversight of all procurement activities Independent Evaluator review of all RFOs Formal applications for long term contracts Commission approval for changes in rulebook, activities not in rulebook.

Resource Adequacy Procedural History Rulemaking –D established policy framework and developed initial rules for counting generation capacity –D established System Resource Adequacy program including summer ahead (year-ahead) filings and monthly filings D in R resolved implementation issues including defining a tradable capacity product

Resource Adequacy Requirement (RAR) LSE must procure qualifying resources to meet their RAR RAR is calculated using an LSE’s forecast load by month, plus a reserve margin of 15-18%, for a total of 115% of forecast load. LSE forecast load is based on a 1 in 2 year and is baselined against the CEC forecast. LSEs file their forecast load and the CEC performs a plausibility adjustment.

What counts toward RAR RAR is a capacity requirement, not energy. Units must be in CAISO database and are subject to a must offer obligation. Imports based on an allocation of import capacity. Dispatchable Demand Response programs, if paid by the public use charge are allocated to all LSEs. RMR units under condition 2 are allocated to LSEs paying the RMR charges. LD contracts are being phased out. DWR contracts count for their life. Intermittent (e.g. Wind) and energy limited resources using PUC adopted counting rules.

System Resource Adequacy Implementation Showing for June-Sept 2006 filed Feb (year–ahead) Year-ahead system showing is 90% of RAR, or 103% of an LSEs’ forecast load. Monthly showing 100% of RAR due 1 month ahead (June showing due May 1) Showing for May-Sept 2007 due Oct 31

Local Resource Adequacy Development Rulemaking : Phase 1 to develop Local RAR CAISO performed a Local Capacity Technical Analysis that identified 9 local area that require in area generation to meet peak loads. Study is performed on a 1 in 10 basis Study provided Commission with 2 reliability options

Local RAR Implementation Decision adopted Local RAR LSEs must procure resources in 4 Local areas: LA Basin, San Diego, SF Bay Area, Other PG&E areas (combination of 6 local areas identified in CAISO study) CAISO publishes a list of the qualifying capacity (generation units) located in each local area. Local generation must be subject to CAISO must offer obligation LSEs’ Local RAR based on load shares in the IOUs service territories Reliability level for 2007 set at Category C (N-1-1/N-2) level recommended by CAISO Local RAR filing for 2007 in Oct, no monthly filings

Next Steps R Phase 2 –Updated LTPP –Updated Need Determinations R Phase 2 –Centralized Capacity Market for RA –Revisions to the Planning Reserve margin –Multi-year RA obligations