1. CPUC Resource Adequacy Program – LAO briefing May 25, 2009

2. Public Utilities Code Section 380 (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. (h) The commission shall determine and authorize the most efficient and equitable means of achieving…the objectives…

3. CPUC Jurisdiction The CPUC regulates privately owned electric companies operating in California. Currently there are 3 major Investor Owned Utilities (IOUs) and 9 Energy Service Providers (ESPs) providing retail service in the CAISO control area; there are currently 0 operating Community Choice Aggregators CPUC regulated entities represent about 90% of the CAISO peak load and energy use.

4. Procedural History Rulemaking 04-04-003 and 05-12-013 –D.05-10-042 refined rules for counting generation capacity and established System Resource Adequacy program (year ahead and month ahead filings) –D.06-06-064 and D.07-06-029 established the Local Resource Adequacy program and adopted Local RA for 2007 and 2008 RA year. Rulemaking R.08-01-025 –D.08-06-031 adopted Local RA obligations for 2009 RA compliance –PD on agenda for June meeting refines counting rules for intermittent resources and adopts Local RA for 2010 year

5. System Resource Adequacy Requirement (RAR) RAR is calculated using an LSE’s forecast load by month, plus a reserve margin of 15%, for a total of 115% of forecast load. LSE forecast load is based on a 1 in 2 (50% probability) year and baselined against the CEC forecast. LSEs file their historical actual and forecast load and the CEC performs plausibility and coincidence adjustment. LSEs must demonstrate procurement of 90% RAR year ahead and 100% RAR month ahead

6. Local Resource Adequacy CAISO annually performs a Local Capacity Technical Analysis (also called the LCR study) that identifies and determines capacity obligations for 10 Local Areas in California that require in-area generation to meet peak loads reliably. Study is performed on extreme high peak (10% probability) load event Study provides Commission with 2 reliability options – NERC level B or NERC level C based on minimum operating criteria

7. What is the Resource Adequacy Obligation Contractual Obligation on Suppliers to: –Be scheduled into MRTU by the LSE –Bid into day-ahead market if not scheduled –Be subject to CAISO Residual Unit Commitment process at a $0 bid –Be available to real-time to the extent able –Abide by CAISO RA tariff section 40. –Performance and availability penalties discussed in PD

8. What counts toward RAR Generating plants listed on CAISO list by ID, name, Net Qualifying Capacity (NQC) and location Generating plants are purchased by LSEs in California RAR is a capacity requirement, not energy. Import resources our of the CAISO count based on an allocation of import capacity into CAISO. Dispatchable Demand Response programs paid by the public use charge are allocated to all LSEs RMR and CAM capacity allocated to LSEs pursuant to CPUC counting rules. DWR contracts count for their life. Intermittent (e.g. wind, solar, cogeneration) and energy limited resources using PUC adopted counting rules.

9. System Resource Adequacy Implementation D.05-10-042 established System RA program in 2006 for 2006 compliance year, program has been in place since. Year Ahead showing for May-Sept due around Oct 31 each year Year-ahead system showing is 90% of RAR (peak load plus 15% reserves). Month ahead system showing 100% of RAR due 1 month and 1 day ahead (e.g. June showing due April 30) CPUC and CAISO staff cooperate to record and validate compliance by each LSE individually each month

10. Local RAR Implementation Decision 06-06-064 established Local RAR, adding it to the RA program for 2007 RA year. LSEs must procure resources in 5 Local areas: LA Basin, Big Creek-Ventura, San Diego, Greater Bay Area, Other PG&E areas (combination of 6 local areas identified in CAISO study) LSE's Local RAR based on load shares in the IOUs service territories Reliability level adopted for 2007 – 2009 is NERC Category C (Two network elements forced out of service) level recommended by CAISO Currently no monthly Local RA filings (PD discusses this)

11. Rulemaking 05-12-013, Phase 2 – Capacity Markets Commission is deliberating establishment of a centralized capacity market based on markets from Eastern US states (i.e. NEISO and NYISO). Current system is a bilateral capacity market (each LSE contracts with each generator individually). Centralized market means one buyer, many generator sellers. Issue has been under deliberation since January 2008. Proceeding targets a mid 2009 decision.

12. Current PD posted May 15, 2009 Adopts exceedence with diversity benefit approach for wind/solar resources (significantly modified from CAISO-IOUs joint proposal) Decides to implement Monthly Local RA filings starting next year. Tentatively adopts CAISO performance and availability obligations. Reconsiders basis for LSE load forecast.