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

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. 3

4 Reasons Why Revisions to CAF Are Needed 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 CAF benefits 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 currently prohibited 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: 1.LSE serving all customer types 2.LSEs serving C&I 3.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.

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. 7

8 Rationale for Revised Cure 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 Revised Cure 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 administrative penalty for late filings. If LSE does not eliminate RA deficiency within 5-day period, the applicable penalty adopted in D 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.