HomeWorld RegionsNorth AmericaNew procurement procedures enable California utilities to resume buying power for customers

New procurement procedures enable California utilities to resume buying power for customers

Nov. 1, 2002 — The California Public Utilities Commission (PUC) have adopted procedures for the state’s three investor-owned utilities – Southern California Edison Company (Edison), Pacific Gas and Electric Company (PG&E) and San Diego Gas & Electric Company (SDG&E) – to resume full energy procurement responsibilities on Jan. 1, 2003, removing the State from the power-buying business.

The Oct. 24 decision includes requirements for utility procurement plans, expedited review procedures, a commitment to developing California’s renewable generation, and timely cost recovery mechanisms that conform to Assembly Bill (AB) 57’s proposed statutory requirements.

The decision adopts procedures that give the utilities flexibility in procuring energy to meet their obligation to serve their customers, so that the utilities can take advantage of market opportunities that result in the lowest stable prices to customers.

The commission is reestablishing a long-term planning process to assure that sufficient new resources are developed to provide a low-cost and reliable electric system for California. In order to develop and procure new resources, the utilities must be able to evaluate potential transactions in terms of the costs of the transaction against the elimination of potential price risk.

Given the lack of record, the utilities must provide a level of consumer risk tolerance; along with a justification for the level they propose in their procurement plan application. In approving the utility procurement plans, the commission will accept or modify their proposed consumer risk level. The utilities will use the approved risk level in preparing their updated procurement plan for the following quarter.

The decision calls for up-front Commission approval of the utilities procurement process and plans to minimize the need for any after-the-fact review of the resulting purchases. By regularly revisiting and updating the utilities’ procurement plans, the commission will incorporate the knowledge gained when the utilities resume procurement on Jan. 1, 2003, into the adopted procurement plans, making the plans the working blueprints envisioned by the legislature in AB 57.

Currently, in excess of 90 percent of bundled service energy requirements are provided by existing Department of Water Resources (DWR) and utility contracts as well as utility retained generation (URG). In anticipation of Edison, PG&E, and SDG&E resuming full procurement on Jan. 1, the commission recently granted the utilities permission to use more of the state’s credit, interest free, to cover their projected procurement needs in 2003 – 2008. The commission determined that Edison’s and PG&E’s procurement needs in 2003 are well within their ability to finance.

The remaining residual net short requirements of Edison and PG&E for 2003 can be met through a combination of directly contracting with wholesale energy suppliers and purchases in the real-time energy markets administered by the Independent System Operator (ISO).

Collateral, in the form of bank letters of credit or other financial instruments are currently available to both companies.

At this time, the commission will not adopt a process to establish procurement rates by January 2003, as there are many factors that must first be considered and not all of these are determined at this time. Until the commission determines whether existing rates and surcharges contain enough “headroom,” to absorb the expected residual net short costs, the DWR charges, and any other provisions established by the commission, the commission cannot determine the current allocated specific components of present rates for fuel and purchased power rates for Edison, PG&E, and SDG&E.

Therefore, the commission calls for the establishment of a balancing account for Edison, PG&E, and SDG&E to track energy costs. A semiannual schedule for procurement rate adjustments and a 4 percent balancing account trigger mechanism properly balance the utilities need for timely cost recovery and the consequences of frequent rate adjustments on consumer behavior. Beginning Jan. 1, 2003, the utilities must track 2002 URG fuel and purchased power authorized revenue requirements against actual recorded costs in the balancing account. On Feb. 15, 2003, the utilities must file applications that true-up 2002 actual URG fuel and purchased power costs with authorized revenue requirements.

To promote renewables in the near term, and in pursuit of the new Renewable Portfolio Standard (RPS) program, the commission will ensure that the utilities procure 1 percent incremental renewable energy in partnership with DWR.

Since the RPS program will be constrained until Edison and PG&E receive investment grade credit ratings, the commission will assess other options for 2003, and asks parties to identify what, if any, existing renewable resources were not contracted for under transitional procurement and what actions the commission and/or the California Energy Commission can and should take in 2003.

The commission also seeks comments on specific aspects of RPS implementation and recommendations on a procedural schedule for the coming year that will allow it to begin RPS procurement in the context of the utilities’ full procurement plans.