Resource Adequacy (RA) Workshop

1. Resource Adequacy (RA) Workshop Presentation by: Sue Mara On Behalf of: Alliance for Retail Energy Markets (AReM) January 18, 2011

2. RA Proposals • Revisions to Coincident Adjustment Factor (CAF) • Cure Period for RA Filings

3. I. What is the Purpose of CAF? • The CPUC assigns RA requirements based on the CAISO system peak. • Each LSE has its own, individual peak load; if all LSEs procured based on their non-coincident peaks, they would significantly over-procure RA. • Therefore, the CAF is used to allocate the coincident system peak to each LSE.

4. Reasons Why Revisions to CAF AreNeeded • Today, a single, state-wide CAF is calculated for RA; CAF is based on a system-average load profile driven largely by residential load. • Use of a system average load profile for CAFbenefits LSEs whose peak is driven by residential load and discriminates against LSEs whose peak is driven by C&I customer load. • As a result, LSEs with a C&I customer base are competitively disadvantaged and costs are shifted to their customers. • ESPs primarily serve C&I customers and are currentlyprohibited from serving new residential load -- thus, their load profiles differ significantly from system average in load shape and time of peak.

5. Proposed Revisions to CAF • AReM proposes establishing 3 or more load profile categories (in lieu of LSE-specific load profiles), such as: • LSE serving all customer types • LSEs serving C&I • LSE serving residential and small commercial. • Each LSE would then be assigned to the load profile category that best matches its actual load profile. • The CEC receives annual reports of the date, hour and level of peak for each LSE and would: • Calculate an average CAF for each load profile category. • Determine the load profile category appropriate for each LSE. • Apply the applicable CAF for that load profile category to LSE.

6. Benefits of Adopting CAF Proposal • Ensures that RA requirements assigned to LSEs more closely track their actual contribution to system peak and load shape. • Follows cost causation principles and reduces current cost shifting that results from a single CAF.

7. II. Why Modify the RA Cure Provisions? • Current rules do not provide opportunity for an entity to correct a deficiency without penalty after it has been notified that a deficiency exists. • Exposure to penalties for inadvertent errors when corrections can be made prior to the delivery period is punitive and could become costly for customers. • A real cure period provides LSEs an incentive to correct a deficiency.

8. Rationale for RevisedCure Period for RA Filings • Other jurisdictions allow a real cure period for correcting errors in regulatory filings. • CPUC rules impose significant penalties for even nominal inadvertent errors that are corrected well before the delivery date. This is unduly punitive, unless there is a repeated pattern of “inadvertent errors.” • CPUC rules impose disparate treatment of LSEs compared to CAISO treatment of RA suppliers -- CAISO provides ample opportunity to correct RA Supply Plans without penalty.

9. Proposal for RevisedCure Period • Adopt cure period of 5 calendar days from date of error notice. • If LSE procures to eliminate RA deficiency within 5-day period, no deficiency penalty would apply -- only the administrativepenalty for late filings. • If LSE does not eliminate RA deficiency within 5-day period, the applicable penalty adopted in D.10-06-036 would apply from RA filing date. • If an LSE receives repeated notices of deficiencies, then further sanction may be warranted.

10. Benefits of Adopting Revised Cure Period • Makes CPUC RA policy for RA buyers more consistent with CAISO’s policy for RA suppliers. • Provides incentive for LSEs to take quick action to correct any identified error that created a deficiency. • Reduces current high level of regulatory uncertainty and risk for LSEs and, therefore, will lower costs.