CPUC Gives Nod to Procurement Framework

In a rare show of cooperation, the California Public Utilities Commission on January 22 unanimously approved a blueprint for how much, how often, and what kind of power utilities must procure. Overall, regulators are aiming at anchoring resource adequacy needs. The plan represents a number of compromises on key issues. In addition, commissioners went out of their way to give assurances that community aggregation for power purchases should not be quashed. ?You may all be surprised to hear that, despite recent trade reports to the contrary, commissioner [Loretta] Lynch and I have worked out our differences in this order and are both withdrawing our alternates,? said commission president Mike Peevey. Utilities were told to make energy efficiency, demand response, and renewables their top three strategies before considering buying more power to add to their conventional supply mix or investing in boosting transmission. On resource adequacy, reserve requirements of 15 percent to 17 percent were set. The levels are to be phased in by 2008. Peevey earlier had called for reserves?more than twice the current ?slush? fund of power?to be in place by 2005. He said the phase-in approach strikes a balance of allowing utilities to meet reserve levels early if they get good prices, while avoiding a ?sellers? market,? to keep prices in check. Utilities will need to contract 90 percent of load plus reserves a year in advance for the summer months. Officials at the California Independent System Operator appeared relieved at the CPUC approval of the 15 percent to 17 percent operating reserve margin but expressed disappointment that the requirement won?t be phased in until 2008. In addition, CAISO had pressed the commission to set a monthly, not yearly, obligation. ?I feel like Sisyphus,? said Steve Greenleaf, CAISO director of regulatory policy. The grid operator, he said, pushed the boulder up the hill last month, with the last version of the CPUC?s plan promoted by Peevey, but it came back down this month. ?And it ran us over, too,? he added. Peevey had called for CAISO to implement reserve requirements for these entities, noting his uncertainties about the extent of CPUC clout over non-investor-owned utilities. But yielding to a majority of panelists, Peevey backed off from this push, and the CPUC will retain this authority. CAISO runs most of the state?s transmission grid and has authority to demand that additional supplies rev up when operating reserves drop dangerously low. However, CAISO cannot require utilities to build capacity to keep a certain percentage of reserves available?that has been left to the market postderegulation. Another part of the procurement decision addressed community aggregation. Many community groups have argued that CPUC procurement plans ignored nascent moves to get community aggregation off the ground. In line with an approach favored by commissioner Lynch, investor-owned utilities will need to file revised long-term plans. These plans must factor in load forecasts for community aggregation. These efforts will help ?ensure that there is enough power available to not squeeze out the potential for community aggregators to acquire their own sources of power,? said commissioner Geoffrey Brown. Paul Fenn, director of Local Power, said the directive on load forecasts is important because community aggregators will be recognized as part of overall load instead of ignored. Fenn said the commission?s reworked plan ?buys time for community aggregators to submit plans so the CPUC knows who wants to leave utility procurement and how much power this group could represent.? A ban on affiliate transactions?with a few exceptions ?was made permanent. These exceptions include transactions for natural gas services between Pacific Gas & Electric and affiliates and operating divisions that are found to benefit ratepayers. Qualifying facilities (QFs)?power plants with prederegulation contracts with utilities?that have existing contracts expiring by 2005 will be allowed to extend their terms by five years. A new procurement proceeding is expected to start this year, looking at utility long-term procurement plans, treatment of confidential information, developing procurement incentive mechanisms, and policies for expiring QF contracts.

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CPUC Gives Nod to Procurement Framework

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