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Procurement and Resource Adequacy Briefing

Procurement and Resource Adequacy Briefing. August 2, 2006 Molly Sterkel, mts@cpuc.ca.gov 415-703-1873 California Public Utilities Commission. Key Developments in CPUC Procurement Policy. AB57 (PU Code 454.5) Put IOUs back into the procurement business as of Jan. 1, 2003

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Procurement and Resource Adequacy Briefing

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  1. Procurement and Resource Adequacy Briefing August 2, 2006 Molly Sterkel, mts@cpuc.ca.gov 415-703-1873 California Public Utilities Commission

  2. Key Developments in CPUC Procurement Policy • 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 • 2002-2003 – 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 • Oct-2004 Adopted Resource Adequacy Requirements Framework • Dec-2004 Approved first cycle of 10-year of Long-Term Plans • Oct-2005 Adopted Resource Adequacy Rules for 2006+

  3. Feb 2006 – Opened Long-Term Procurement Proceeding (LTPP) • R.06-02-013 opened new LTPP cycle • Phase 1 • Goal was to review need for additional policies to support new generation and long-term contracts in California • Problem is that new generation is not being built by market because new gen is not cost-effective compared to existing generation and requires long-term contracts to get built • And new mechanisms that might support new generation have not yet been adopted by Commission (capacity markets, multi-year Resource Adequacy Requirements, etc.) • Phase 2 • Will kick off in Summer 2006 • Will review IOUs biennial 10 year resource plans and updated procurement plans

  4. Results of LTPP Phase 1Decision 06-07-029 • Adopted a cost-allocation proposal to share benefits and costs of new capacity among all benefiting customers for 10-years from online date • Includes direct access but excludes municipal utility loads • Excludes utility owned generation from cost allocation mechanism • Required energy from new contracts be auctioned to highest bidder • Shares the net cost of capacity (total contract cost-energy revenues) and resource adequacy credit

  5. Contracts in PG&E Application (A.06-04-012)

  6. Edison’s RFO Launched July 21, 2006

  7. Dec 2005 – Opened new Resource Adequacy Proceeding R.05-12-013 • “Resource Adequacy” Central Component of Commission’s Procurement Policy • All LSE’s must buy capacity (“Resource Adequacy”) in advance • LSE’s cannot just rely on Energy Markets, must contract for capacity • Opened New Proceeding in December 2005 • Phase 1 Issues • Highest Priority - Adoption of Local Resource Adequacy Requirement (Local RAR) • Other Issues re:- Tradable Capacity Product, Implementation, & Compliance • Phase 2 Issues • Capacity Markets & Multi-year forward RA Requirement • Other Issues • Local RA 2008 & Beyond • Zonal RA Requirement • Other RA Refinements and Implementation Issues • General Order

  8. Results of RA Phase 1a - Local Resource Adequacy (D. 06-06-064) • Adopted a Local RA program for 2007 • Requires one annual showing for local RA program compliance • Leaves issues open to be reconsidered for 2008 and beyond • Adopts a local capacity requirement (LCR) based on CAISO’s local area study • Adopts a local resource adequacy requirement for all Load-Serving Entities (LSE) • Allocates local requirement to each LSE based on a percentage of load served • Allows RMR resources to count for local, but requires preliminary filing process • Does not allow “unbundled” local attribute to count for compliance • Aggregation of local areas for compliance purposes • Requires local procurement, but allows CAISO Backstop • Allows Waivers from Local Procurement if no generation available, no bids are received in an RFO, or bids were above CAISO backstop price • Imposes Penalties if LSE does not procure locally, and no waiver allowed

  9. Results of RA Phase 1b – D.06-07-031 • Second Decision (based on same record) • Implementation Issues addressed issues to resolve risk uncertainty and facilitate trading of resource adequacy products related to: • Forced Outage • Maintenance Obligations • Import Requirements • Creditworthiness • Dealing with risk from future regulatory changes • Trading Capacity Issues addressed to further define a standardized RA capacity product that can be easily traded by parties

  10. Upcoming Procurement Issues • Avoided Cost/Qualifying Facilities Proceeding • Kickoff of Phase 2 for • Long-Term Procurement Proceeding • IOUs will file 10-year resource plans for CPUC consideration • Commission will consider auction mechanism (from Phase 1 decision) • Resource Adequacy Proceeding • Commission will consider capacity markets and multi-year resource adequacy • Commission will consider other implementation issues including: Local RAR for 2008 & beyond, Zonal RAR, System RAR program refinements, and other compliance/General Order issues

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