1. Laura Doll Deputy Executive Director, CPUC October 18, 2006 Platt’s CA Power Market Forum C ALIFORNIA P UBLIC U TILITIES C OMMISSION Fulfilling Resource Adequacy Requirements: A Regulatory Perspective

2. 2 How did we get here? 2000-01Market meltdown, DWR procurement 2000-01Market meltdown, DWR procurement 2002AB57 put IOUs back in procurement, ensured cost recovery with pre- approved procurement plan 2002AB57 put IOUs back in procurement, ensured cost recovery with pre- approved procurement plan SB 1078 Renewables by 2017 SB 1078 Renewables by 2017 2003Utilities responsible for procurement 2003Utilities responsible for procurement 2004Adopted long-term procurement framework, approved first 10-yr plans 2004Adopted long-term procurement framework, approved first 10-yr plans 2005AB 380: PUC must establish RA 2005AB 380: PUC must establish RA

3. 3 What’s up today? 2006 Umbrella proceeding on Long term procurement plan (LTPP) 2006 Umbrella proceeding on Long term procurement plan (LTPP) – Supersedes all others: one combined procurement plan that includes information from prior iterations of short-term and long-term plans –Provides loading order “check-in” –Scoping memo issued September 25 –November 20: IOUs file plans for 2007-2016 and we’ll know what is under contract for the next 10 years, including RPS

4. 4 What’s up today? (continued) Ongoing Resource Adequacy Proceeding Ongoing Resource Adequacy Proceeding –August ruling kicked off identification of major issues for Phase 2 (20+!) –Scoping memo expected soon, no schedule yet –Scope will include: (1) Refinement of existing RA program, plus (2) consideration of capacity markets and multi-year requirements to further enhance policy framework supporting contracting

5. 5 Why are you here? n California is a Huge Market for Energy n $11 billion and growing, for the investor-owned utilities alone

6. 6 CA Procurement Costs 2003-05 ($Millions) PG&ESCESDG&ETotal 2003 DWR 2,2412,0155634,819 2003 ERRA 1,5152,7405314,787 2003 Total 3,7564,7551,0949,605 2004 DWR 2,1102,3027575,169 2004 ERRA 2,2192,9633295,511 2004 Total 4,3285,2651,08610,680 2005 DWR 1,9992,1687204,887 2005 ERRA 2,2043,4053705,979 2005 Total 4,2035,5731,090$10,866

7. 7 California Policy Foundation Energy Action Plans I and II (2003, 2005) Energy Action Plans I and II (2003, 2005) CEC’s biennial Integrated Energy Policy Report is the statewide energy plan CEC’s biennial Integrated Energy Policy Report is the statewide energy plan Loading Order: Loading Order: –Energy efficiency –Demand response –Renewables –Electricity adequacy and infrastructure

8. 8 Resource Adequacy Implements the State Integrated Energy Policy Report November 2005 IEPR identified 9000 MW of contractual procurement need in 2009 November 2005 IEPR identified 9000 MW of contractual procurement need in 2009 Need to be met through contracts with new and existing capacity resources, plus energy efficiency, demand response, distributed generation and RPS resources above targeted levels Need to be met through contracts with new and existing capacity resources, plus energy efficiency, demand response, distributed generation and RPS resources above targeted levels CPUC has approved IOU program plans, contracts and/or solicitation processes to meet the need CPUC has approved IOU program plans, contracts and/or solicitation processes to meet the need

9. 9 New CA Capacity Additions 8000+ MW Approved or in Process PG&E PG&E –Signed Contracts for 2,250 MW, online 2009-2010 –Contra Costa 8 - 500 MW, online 2009 SCE SCE –Launched an RFO in July 2006 for 1500 MW of new capacity, online 2007-2009 –Announced intention to seek 500 MW more through current RFO –Peakers for 2007 -- 245 MW, online 2007 SDG&E SDG&E –Announced new RFO for ~250 MW in 2008 –Announced another RFO will be released ~December 2006 for later online dates –Otay Mesa approved for completion - 583 MW, online 2009 Renewables (all 3 IOUs) Renewables (all 3 IOUs) –CPUC has approved RPS contracts 1,400 – 2,700 MW from pre-2005 RFOs –More MW coming as a result of ongoing 2005 and 2006 RPS solicitations Not Yet Announced RFOs for New Generation Not Yet Announced RFOs for New Generation –Each IOU’s LTPP must identify timeframe and MW of future New Gen RFOs –CPUC will make need determination, likely targeting 2010-2012 timeframes

10. 10 Contracts in PG&E Application Tierra Energy Hayward

11. 11 CA’s Aggressive Energy Savings Goals $2 billion funding for 2006-2008; 4000 MW goal

12. 12 Long Term Procurement Plans and Resource Adequacy CPUC gets resource adequacy in the short term through the 1 year RA requirement/RA program CPUC gets resource adequacy in the short term through the 1 year RA requirement/RA program Longer term, RA comes through an intricate web of long-term procurement policies Longer term, RA comes through an intricate web of long-term procurement policies The two proceedings work in tandem to achieve the big picture goal of RA The two proceedings work in tandem to achieve the big picture goal of RA

13. 13 Long Term Procurement Plan Goals Approve one set of plans, merging short and long term Approve one set of plans, merging short and long term Integrate loading order goals Integrate loading order goals Review practices and procedures Review practices and procedures Review 10-year resource plans Review 10-year resource plans Review select procurement policy issues Review select procurement policy issues Identify need for new resources (2007-16) Identify need for new resources (2007-16)

14. 14 LTPP Need Determination We’re asking for specifics: We’re asking for specifics: –Range of need, on a system and a bundled customer basis –Timeframe –Location –Type of resource –Timeframe of RFO

15. 15 Next Steps in LTPP November 20: LTPP Filings due November 20: LTPP Filings due By 12/8: IOU workshops on LTPP filings By 12/8: IOU workshops on LTPP filings 1/17/07: Intervenor Testimony Due 1/17/07: Intervenor Testimony Due

16. 16 Some Good News CA ISO’s Reliability Must-Run (RMR) designations for 2007 are way down CA ISO’s Reliability Must-Run (RMR) designations for 2007 are way down –4000 MW vs. 10,000 anticipated –Reduction based on 2007 Local RA capacity submittals adopted by CPUC; 3 IOUs and 12 ESPs demonstrated local procurement in CAISO areas (LA Basin, San Diego, Bay Area, Aggregation of 6 Areas in PG&E service territory) –Major step forward for LSE-based procurement

17. 17 Other Good News: RA filings for 2006 LSEs reported more resources than required LSEs reported more resources than required July resources 10% more than RAR July resources 10% more than RAR Liquidated Damage contracts are 11- 13% of provided resources Liquidated Damage contracts are 11- 13% of provided resources Imports are about 6% Imports are about 6%

18. 18 Where are we now? Basic building blocks of Resource Adequacy are in place; will be useful going forward if capacity markets are adopted Basic building blocks of Resource Adequacy are in place; will be useful going forward if capacity markets are adopted –Load forecast, thanks to CEC –Reserve margin –Contract process –Local resource adequacy –Rules for qualifying capacity, i.e., we have defined the RA product

19. 19 Challenges? Absolutely. We need to hold to the loading order and focus on long term objectives We need to hold to the loading order and focus on long term objectives We need ways to encourage new investment and deal with market power (especially in the forward capacity market) We need ways to encourage new investment and deal with market power (especially in the forward capacity market) We need to get transmission built We need to get transmission built We need to address ongoing tensions: transparency, financeability, tracking progress We need to address ongoing tensions: transparency, financeability, tracking progress