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HomeMy WebLinkAboutStaff Report 222-06City of Palo Alto City Manager’s Report 6 TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE: SUBJECT: MAY 1, 2006 CMR:222:06 ADOPTION OF RESOLUTION APPROVING THE CITY OF PALO ALTO INTERIM ELECTRIC UTILITY RESOURCE ADEQUACY PROGRAM AND DELEGATING THE AUTHORITY TO THE CITY MANAGER TO MAKE CHANGES TO THE ELEMENTS OF THE PROGRAM TO CONFORM TO CHANGES IN STATE LAW AND POLICY THAT IMPLEMENT PRUDENT UTILITY PRACTICES RECOMMENDATION Staff recommends that City Council adopt the resolution approving the City of Palo Alto Interim Electric Utility Resource Adequacy Program described in Attachment 2 and delegating the authority to the City Manager to make changes to the elements of the Interim Electric Utility Resource Adequacy Program to conform to changes in state law and policy that implement prudent utility practices. BACKGROUND This CMR transmits the Utility Advisory Commission’s recommendation that Council approve the City of Palo Alto Interim Electric Utility Resource Adequacy Program described in Attachment 2 and delegate to the City Manager the authority to make changes to the elements of the Interim Electric Utility Resource Adequacy Program to conform to changing utility practices and State policy. On March 13, 2006, the California Independent System Operator (CAISO) filed an Interim Reliability Requirements Program Amendment to the CAISO Tariff with the Federal Energy Regulatory Commission (FERC) that imposes certain resource adequacy requirements on Palo Alto and other Load Serving Entities (LSEs). This filing, if approved by FERC, will require the City to adopt a resource adequacy program prior to May 12, 2006 or be subject to a FERC- enforced backstop tariff. Resource adequacy is the term describing the quantitative requirement CMR:222:06 Page 1 of 3 on LSEs to procure ample electric generation anywhere deliverable to load in its control area to meet the LSE’s peak !oad and reserve requirements. At its March 27, 2006 meeting of the Northern California Power Agency (NCPA) Commission, the NCPA Commission approved a resource adequacy program and recommended that each of its member governing boards or Councils adopt the same or similar reliability requirements program. Attachment B is the recommended Interim Electric Utility Resource Adequacy Program (ERAP) for the City of Palo Alto Electric Fund. It incorporates the approved NCPA resource adequacy program with modifications in italics as proposed by staff. To avoid having FERC impose backstop tariffs, LSE’s are adopting their own well thought out locally developed resource adequacy plans to continue the tradition of maintaining reliability for their customer-owners. BOARD/COMMISSION REVIEW AND RECOMS~NDATIONS The attached Interim ERAP was presented to the Utilities Advisory Commission (UAC) at its April 19, 2006 meeting. The full UAC packet on this topic is in Attachment 3. The UAC had some questions to clarify certain technical aspects of the program. Excerpts of the UAC meeting minutes approving this program is in Attachment 4. The UAC voted unanimously to approve staff request. RESOURCE IMPACT The cost of meeting reliability requirements is included in the proposed budget. Given current hydro conditions there is no incremental cost in the coming fiscal year associated with adopting this policy because the current load and resource balance forecast predicts a California system capacity surplus above the proposed planning reserve marNn. Though not the subject of this CMR, additional regulations related to resource adequacy calculated at the local level are also being developed right now. These regulations may require LSE’s to procure a large portion of their required resources from generators in their local levels - for Palo Alto within the Bay Area. Current assumptions indicate that these rules may cost the City $4.3 million per year in the long run and a portion of these costs could be imposed on the City this summer, depending on final regulations. The current and upcoming budget contains provisions to cover such a contingency. POLICY IMPLICATIONS Adoption of the Interim ERAP is consistent with Council approved policy to follow regulatory mandates, maintain local control over utility services and provide reliable electric power. Not adopting an Interim ERAP before May 12, will result in the City being subject to a Federal Energy Regulatory Commission enforced tariff for resource adequacy. Additionally, the LEAP Implementation Plan that was approved by Council on April 17, 2006, included a statement to, "Establish a policy to address mandatory resource adequacy requirements." CMR:222:06 Page 2 of 3 ATTACHMENTS 1. Resolution Approving City of Palo Alto Interim Electric Utility Resource Adequacy Program 2. City of Palo Alto’s Interim Electric Utility Resource Adequacy Program 3. UAC Report of April 19, 2006 with Attachments B, C. and D 4. Excerpts of the UAC Meeting Minutes of April 19, 2006 - Draft PREPARED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: ~Debra Lloyd, ResoUrce Planner Director fistrative Services EMILY’~I--ARRIS ON \ Assistant City Manager CMR:222:06 Page 3 of 3 NOT YET APPROVED A~achmen~ RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO APPROVING THE CITY OF PALO ALTO INTERIM ELECTRIC UTILITY RESOURCE ADEQUACY PROGRAM AND DELEGATING THE AUTHORITY TO THE CITY MANAGER TO MAKE CHANGES TO THE ELF/VfENTS OF THE PROGRAM TO CONFORM TO CHANGES IN STATE LAW AND POLICY THAT IMPLEMENT PRUDENT UTILITY PRACTICES WHEREAS, the City of Palo Alto ("City"), a municipal utility and a chartered city, is an electricity load serving entity transacting business within the California electric transmission grid, operated by the California Independent Service Operator (~CAISO"); WHEREAS, the CAISO in order to serve electrical load in a reliable manner coordinates the development of coherent resource adequacy standards that conform to state law and policy that implement prudent utility practices; WHEREAS, on March 13, 2006, the CAISO filed its Interim Reliability Requirements Program (~IRRP") with the Federal Energy Regulatory Commission ("FERC"), which will require scheduling coordinators, such as the Northern California Power Agency (~NCPA"), representing load serving entities required to submit monthly and annual resource adequacy plans, to provide the CASI0 with confirmatory supply plans; WHEREAS, the FERC is not expected to issue its decision on the IRRP until May 13, 2006, but the CAISO has requested scheduling coordinators to voluntarily submit such plans by Apri! 28, 2006 in order that the CAISO can implement the IRRP on June i, 2006; WHEREAS, if the FERC approves of the IRRP, then publicly owned utilities, including the City of Palo Alto ("City"), will be required to demonstrate or otherwise verify sufficient electrical capacity to meet forecasts of their own electric demands and planning reserve margins; WHEREAS, the IRRP contemplates that the Council, as th~ local regulatory authority for the City’s Electric Utility, will adopt electric resource adequacy rules and regulations for the Electric Utility, and the failure to adopt such rules and regulations by default would cause the FERC-approved IRRP to apply to the Electric Utility; WHEREAS, on March 27, 2006, the NCPA Commission approved an electric resource adequacy reliability requirements program and it has recommended that each of its members adopt the same or a substantially similar requirements program; 060411 cs 0072699 NOT ~ET APPROVED NOW, THEREFORE, the Council of the City of Palo Alto hereby RESOLVES as follows: SECTION i. The Council acting as the local regulatory authority for the City of Palo Alto Electric Utility hereby approves of the City of Palo Alto Interim Electric Utility Resource Adequacy Program ("Program"), and hereby authorizes the City Manager to make any and all modifications to any element of the Program in order to conform to applicable changes in state law and policy that implement prudent utility practices. SECTION 2. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act and no environmental assessment is required. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Director of Administrative Services 060411 cs 0072699 2 Attachment 2 City of Palo Alto Interim Electric Utility Resource Adequacy Program ATTACHMENT 2 CITY OF PALO ALTO INTERIM ELECTRIC UTILITY RESOURCE ADEQUACY PROGRAM This document contains the City of Palo Alto (City) Interim Electric Utility Resource Adequacy Program (Interim ERAP) for the City’s Electric Utility. Capitalized terms not otherwise defined herein shall be defined as set forth in the Master Definitions Supplement of the California Independent System Operator Corporation ("CAISO"). This Resource Adequacy Program shall remain in effect, subject to modification by the City Council, until the adoption of subsequent Tariff Amendments by the CAISO or the implementation of the CAISO’s Market Redesign and Technology Upgrade ("MRTU") Tariff. 1.RESOURCE ADEQUACY 1.1 Submission of Annual Resource Adequacy Plan Northern California Power Agency ("NCPA"), as the Scheduling Coordinator, will submit an annual Resource Adequacy Plan to the CAISO on behalf of the NCPAB members by September 30~t’ of each year and in the format developed by NCPA and the NCPAB members. For the purpose of this Section 1, NCPAB members are those MSS Operator entities (including City) identified in Schedule 18 of the Metered Subsystem Aggregator Agreement. The annual Resource Adequacy Plan will include the NCPAB members’ pooled Demand Forecast for each of the five summer months (May - September), established in Section 1.5, and identify the Resource Adequacy Qualified Capacity, established under Section 1.9, that the NCPAB members will rely upon to 4/11/06 Page 1 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program satisfy 90% of each of the five summer months Demand Forecasts plus the monthly Planning Reserve Margin, established under Section 1.6, for the relevant reporting year. 1.2 Submission of Monthly Resource Adequacy Plan NCPA, as the Scheduling Coordinator, will submit a monthly Resource Adequacy Plan to the CAISO on behalf of the NCPAB members by the last business day of the second month prior to the compliance month and in the format developed by NCPA and the NCPAB members. The monthly Resource Adequacy Plan will include the NCPAB members’ pooled monthly Demand Forecast, established in Section 1.5, and identify the Resource Adequacy Qualified Capacity, established under Section 1.9, that the NCPAB members will rely upon to satisfy the monthly Demand Forecast plus the monthly Planning Reserve Margin, established under Section 1.6, for the relevant reporting month. 1.3 Submission of Supply Plan Scheduling Coordinators representing Resource Adequacy Resources supplying Resource Adequacy Qualified Capacity are required, pursuant to the CAISO Tariff, to provide the CAISO with annual and monthly Supply Plans. NCPA will submit an atmual Supply Plan to the CAISO on behalf of the NCPAB members and Silicon Valley Power ("SVP") on a schedule and in the format developed by NCPA and the NCPAB members, and SVP’s Local Regulatory Authority (LRA). NCPA will submit a monthly Supply Plan to the CAISO on behalf of the NCPAB members and SVP by the last business day of the second month prior to the compliance month and in the format developed by NCPA and the NCPAB members, and SVP’s LRA. Both the annual and monthly Supply Plans shall 4/11/06 Page 2 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program include a listing of the NCPAB member’s and SVP’s commitments to provide Resource Adequacy Qualified Capacity to any Load Serving Entity for the applicable reporting period. 1.4 Resource Adequacy Plan Compliance and Enforcement Once the CAISO has received the monthly Resource Adequacy Plan submitted by NCPA on behalf of its NCPAB members, the CAISO will verify that the NCPAB members have procured sufficient Net Qualified Capacity to comply with the Planning Reserve Margin, established in Section 1.6. To the extent the annual or monthly Resource Adequacy Plan does not include sufficient Net Qualified Capacity to satisfy the Planning Reserve Margin, established in Section 1.6, or in the case of a mismatch between information included in the annual or monthly Resource Adequacy Plan and a Supply Plan submitted by the Scheduling Coordinator of a resource identified in the annual or monthly Resource Adequacy Plan, the CAISO will notify NCPA and attempt to resolve the issue. To the extent that NCPA is unable to resolve the identified issue, the CAISO will notify the NCPAB member LRA of the potential deficiency. Once the NCPAB member LRA is informed of the deficiency and confirms that the NCPAB member’s annual or monthly Resource Adequacy Plan is deficient, the NCPAB member LRA may determine if and how the deficiency will be resolved. If the CAISO identifies a mismatch between information included in the annual or monthly Resource Adequacy Plan and a Supply Plan submitted by the Scheduling Coordinator of a resource identified in the annual or monthly Resource Adequacy Plan, and the identified mismatch is not resolved prior to the 10th day before the effective month, the CAISO will accept the 4/11/06 Page 3 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program value contained in the Supply Plan to set the Net Qualified Capacity value for the applicable reporting month. To the extent that a NCPAB member LRA requires its NCPAB member to resolve an identified deficiency in the annual or monthly Resource Adequacy Plan, and the NCPAB member has not resolved the identified deficiency, the NCPAB member must explain why the identified deficiency has not been resolved to its LRA, and possibly incur penalties or other sanctions adopted by the LRA. NCPA is required to report to the CAISO within thirty (30) days of any action taken by the appropriate LRA in response to the deficiency notification if the LRA does not provide public access to records or information regarding action taken for violations of its Resource Adequacy policies or rules. Demand Forecasts The monthly Demand Forecast included in the annual and monthly Resource Adequacy Plan shall be based on the monthly peak Demand responsibility of the NCPAB members that is consistent with the forecasts provided to the CAISO under Section 6.1 of the Metered Subsystem Aggregator Agreement. For the purposes of Section 1, Demand shall be equal to Load plus firm Exports plus any NCPAB member on-demand obligation to third parties, measured in megawatts. For the purposes of this Section 1, the peak Demand responsibility shall be equal to the aggregated NCPAB member coincident peak Demand Forecast for the relevant month irrespective of the CAISO system coincident peak. 4/11/06 Page 4 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program The City of Palo Alto’s Electric Utility shall prepare monthly electric load forecasts for the prompt 13-month planning horizon and shall send the forecast to NCPA by the last business day of August each year. NCPA shall calculate the City’s monthly peak Demand responsibility within the MSSA Pool and report the City’s NCPA MSSA Pool coincident peak Demand responsibility to the City’s Electric Utility. Ten business days prior to the monthly reporting deadlines to the CA[SO, the City’s Electric Utility may submit updated monthly load forecasts to NCPA for incorporation in the Monthly Resource Adequacy Plans. The City of Palo Alto Electric Utility’s energy and demand forecasts are based on a monthly econometric model. independent variables such Using a multivariate regression model, which includes as weather, seasons and past energy consumption, the expected monthly energy consumption and demand levels are computed. In addition to the econometric model described above, the impact of exogenous variables, such as medium and long term trends in vacancy rate among commercial and industrial customers, energy efficiency measures, expected new connections and disconnection, etc., are also quantified. The output of the econometric model is then adjusted to account for the estimated impacts of these exogenous variables. 1.6 Planning Reserve Margin The annual and monthly Resource Adequacy Plan will include a Planning Reserve Margin equal to no less that 15% of the monthly peak Demand responsibility set forth in Section 1.5. 4/11/06 Page 5 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program 1.7 ISO Authority to Dispatch NCPA Resources The CAISO’s authority to Dispatch any portion of the capacity of any Generating Unit of NCPA, other than in accordance with a bid submitted to the CAISO by NCPA as the Scheduling Coordinator, is set forth in and subject to Section 7.1 of the Metered Subsystem Aggregation Agreement. 1.8 Resource Adequacy Quafified Capacity Resource Adequacy Qualified Capacity shall be the quantity of capacity from a resource, stated in megawatts, which is listed in the annual and!or the monthly Resource Adequacy Plan. Qualified Capacity is the capacity from a resource prior to the application of the Net Capacity determination that shall be made pursuant to the provisions of the CAISO Tariff. The criteria for determining the types of resources that may be eligible to provide Qualified Capacity and for calculating Qualified Capacity from eligible resource types is provided in Section 1.9. 1.9 Qualified Capacity Criteria 1.9.1 Net Dependable Capacity Net Dependable Capacity ("NDC") defined by North American Electric Reliability Council ("NERC") Generating Availability Data System ("GADS") information will be used to determine the Qualified Capacity of some of the resource types identified in Section 1.9. For the purpose of Section 1.9, NDC is equal to Gross Dependable Capacity ("GDC") less the unit capacity utilized for the unit station service or auxiliaries. GDC is equal to Gross Maximum Capacity ("GMC") modified for seasonal limitations over a 4/11/06 Page 6 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program specified period of time. GMC is the maximum capacity a unit can sustain over a specified period of time when not restricted by seasonal or other deratings. 1.9.2 NCPA System As defined in the Metered Subsystem Aggregator Agreement, the NCPA System means all transmission and distribution facilities owned or controlled by the NCPA MSS members, and all Generating Units within the ISO Control Area owned or controlled by NCPA members. 1.9.3 Jointly-Owned Facilities A jointly-owned facility must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity for the entire facility will be determined based on the type of resource as described elsewhere in Section 1.9. The NCPAB member’s entitlement to the Qualified Capacity of the facility may encompass the entire Qualified Capacity of the facility, or may be limited to a portion of the Qualified Capacity of the facility. The total amount of Qualified Capacity that may be identified in the annual and or either the monthly Resource Adequacy Plan is limited to the total jointly-owned facility Qualified Capacity determined in Section 1.9. 1.9.4 Thermal Thermal generating facilities must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. Thermal 4/11/06 Page 7 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program generating facilities that are not required to sign a Participating Generator Agreement pursuant to Section 2.2.1 of the CAISO Participating Generator Agreement are also eligible to be identified as Qualified Capacity. 1 The Qualified Capacity of thermal facility will be based on Net Dependable Capacity as defined in Section 1.9.1. 1.9.5 Hydro Hydro generating facilities must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity of a pond or pumped storage hydro facility will be based on Net Dependable Capacity as defined in Section 1.9.1, minus variable head de-rate based on current reservoir levels with dry year (1-in-5 dry year) forecasted inflows. The Qualified Capacity of a run-of-river hydro facility will be based on Net Dependable Capacity as defined in Section 1.9.1, minus actual or forecasted conveyance flow, stream flow, or canal head de-rate. 1.9.6 Unit-Specific Contracts Unit-specific contracts will fully qualify as Resource Adequacy Qualified Capacity. The generating facility identified in the contract must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The generating facilities identified in the contract that are not required to sign a Language developed by Alameda, Palo Alto, and NCPA staffto include landfill projects that may opt out ofa PGA. 4/11/06 Page 8 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program Participating Generator Agreement pursuant to Section 2.2.1 of the CAISO Participating Generator Agreement are also eligible to be identified as Qualified Capacity. 1.9.7 Firm Physical Contracts Firm energy contracts that contain provisions to ensure reliable physical delivery and that contemplate suspension of performance for non-delivery, or that contain provisions that identify non-delivery as a default condition subject to contract termination, will fully qualify as Resource Adequacy Qualified Capacity. 1.9.8 Industry Standard Contracts with Liquidated Damages Provisions N/A - City does not purchase industry standard LD Contracts for its portfolio. City ’s firm energy contracts fall under the definition of Section 1.9. 7. 1.9.9 Wind and Solar The Qualified Capacity of firm wind and solar generating facilities, with backup sources of generation, will be based on Net Dependable Capacity as defined in Section 1.9.1. Wind and solar generating facilities without backup sources of generation and larger than five MW must be participants in the CAISO’s Participating Intermittent Resource Program ("PIRP"). The Qualified Capacity of wind and solar facilities without backup sources of generation will be based on their monthly historic noon to 6:00 p.m. capacity factor, using a three-year rolling average. 4/11/06 Page 9 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program New wind and solar generating facilities without backup sources of generation which do not have three years of historic performance data will be assigned a default Qualified Capacity for each year of missing historical performance as follows: the Qualified Capacity of another solar or wind generator with historic data with similar technology adjusted for the nameplate capacity ratio of a new generator and the similarly situated proxy generator, and adjusted by wind speed or other meteorological data for the location of the new generator. Alternatively, the Qualified Capacity could be based on modeled pe~formance. The default Qualified Capacity values will be replaced on a year by year basis with actual performance data as the data becomes available to form a three year rolling average. 1.9.10 Geothermal Geothermal generating facilities must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity of a geothermal facility will be based on Net Dependable Capacity as defined in Section 1.9.1, adjusted for steam field degradation. 1.9.11 Treatment of Qualified Capacity of QFs The NCPAB members do not currently have any Qualifying Facilities ("QFs") with effective contracts under the Public Utility Regulatory Policies Act as of the draffing of this document. Therefore, the NCPAB members LRA have not identified Qualified Capacity Criteria in Section 1.9 for Qualifying Facilities. If in the future the NCPAB members decide to acquire and identify Qualified Capacity in either the annual or 4/11/06 Page 10 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program monthly Resource Adequacy Plan sourced from Qualifying Facilities, the NCPAB members LRA reserves the right to establish Qualified Capacity Criteria in Section 1.9. 1.9.12 Dispatchable Demand Resource and Participating Loads Dispatchable Demand resources and Non-Dispatchable Demand resources must either be identified in Schedule 10B of the Metered Subsystem Aggregation Agreement or located within the NCPA System to be considered Qualified Capacity. Participating Loads must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement or located within the NCPA System to be considered Qualified Capacity. Dispatchable Demand resources, Non-Dispatchable Demand resources, and Participating Loads must be available at least 48 hours during the five summer months (May - September) to be counted in either the annual or monthly Resource Adequacy Plan as Qualified Capacity. If a Dispatchable Demand resource or Participating Load is available for the minimum requirement, the megawatt quantity reduction stipulated in the contract or program will be treated as supply and be eligible to be listed as Qualified Capacity. If a Non- Dispatchable Demand resource is available for the minimum requirement, the megawatt quantity reduction stipulated in the contract or program, adjusted to reflect the contract or programs average historical performance, will be treated as supply and be eligible to be listed as Qualified Capacity. 1.9.13 Facilities Under Construction The Qualified Capacity for facilities under construction will be determined based on the type of resource as described elsewhere in Section 1.9. The facility will be eligible to be 4/11/06 Page 11 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program identified as Qualified Capacity in the annual or monthly Resource Adequacy Plan of the NCPAB members pursuant to the anticipated operational date of the facility. 1.9.14 Dynamically Scheduled System Resources The Qualified Capacity of a Dynamically Scheduled System Resource to which the NCPAB member has an entitlement shall be the amount of the NCPAB member’s entitlement, subject to the deliverability screen pursuant to the provisions of the CAISO Tariff and to, and or, the applicable provisions of the Metered Subsystem Aggregator Agreement. Eligibility as Qualified Capacity is contingent upon the NCPAB members securing transmission through any intervening Control Areas for the resource entitlement that cannot be curtailed for economic reasons or bumped by higher priority transmission. The Qualified Capacity provided by a Dynamically Scheduled System Resource will be limited by the NCPAB member’s allocated import capacity at the import Scheduling Points, which is determined pursuant to the provisions of the CAISO Tariff. 1.9.15 Non-Dynamically Scheduled System Resources The Qualified Capacity of a Non-Dynamically Scheduled System Resources to which the NCPAB member has an entitlement shall be the amount of the NCPAB member’s entitlement, subject to the deliverability screen pursuant to the provisions of the CAISO Tariff and to, and or, the applicable provisions of the Metered Subsystem Aggregator Agreement. The Qualified Capacity provided by a Non-Dynamically Scheduled System Resource will be limited by the NCPAB member’s allocated import capacity at the import Scheduling Points, which is determined pursuant to the provisions of the CAISO Tariff. 4/11/06 Page 12 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program 1.9.16 NCPA System Transmission Ownership Rights in the ISO Control Area at Control Area Scheduling Points The capacity entitlement, measured in megawatts, of the NCPA system transmission ownership rights in the CAISO Control Area at the Control Area Scheduling Points will be eligible to be identified as Qualified Capacity in the annual and monthly Resource Adequacy Plans. The capacity entitlement of the NCPA system transmission ownership rights in the CAISO Control Area at the Control Area Scheduling Points are listed in Schedule 13 of the Metered Subsystem Aggregator Agreement, and include but are not limited to the COTP Terminus (as described in the ISO-SMUD Interconnected Control Area Operating Agreement) and the Plumas-Sierra Rural Electric Cooperative transmission ownership rights up to the Marble Substation Scheduling Point (as described in the ISO’s Interconnected Control Area Operating Agreement with Sierra Pacific Power Co. for the Marble Substation intertie). 1.9.17 CAISO’s Backstop RCST Procurement AHocated to the City of Palo Alto In the event that the CAISO uses its backstop procurement authority to purchase capacity under the proposed Reliability Capacity Services Tariff (RCST) and allocates the cost of such capacity to the NCPAB members on the basis of the CA[SO-defined local capacity shortfall of the NCPAB members, then the MW value of the City ’S share of the capacity procurement shall fully count towards meeting the City’s monthly Demand Forecast plus the monthly Planning Reserve Margin in the monthly Resource Adequacy Plan for all months that the RCST product is purchased and the cost allocated to the 4/11/06 Page 13 of 14 City of Palo Alto Interim Electric Utility Resource Adequacy Program 1.9.18 Other Resources At such time that the City purchases, or enters into a contract for, a resource not listed in Section 1.9, the City’s LRA reserves the right to establish Qualified Capacity Criteria in Section 1.9for the new resource. Future resources could include, but are not limited to: customer-owned distributed generation; ocean/tidal generation; small solar projects (<5MW); local Resource Adequacy (capacity only) products; and system Resource Adequacy (capacity only)products. 4/11/06 Page 14 of 14 Attachment 3 MEMORANDUM TO:UTILITIES ADVISORY COMMISSION FROM:UTILITIES DEPARTMENT DATE: SUBJECT: APRIL 19, 2006 CITY OF PALO ALTO INTERIM ELECTRIC UTILITY RESOURCE ADEQUACY PROGRAM REQUEST Staff requests that the UAC recommend that City Council approve the City of Palo Alto Interim Electric Utility Resource Adequacy Program described in Attachment A and delegate to the City Manager the authority to make changes to the elements of the Interim Electric Utility Resource Adequacy Program to conform to changing utility practices and State policy. BACKGROUND To keep the lights on and ensure that all electric demand is met, electric transmission grid operators adopt resource adequacy programs. Such programs are designed to ensure that sufficient electric generation capacity is available to serve demand even under stressful system conditions - conditions such as weather-induced high demand conditions and unforeseen outages to generation units and transmission lines. As part of state law passed in 1996 (AB1890) deregulating electricity markets, the State of California created the California Independent System Operator (CAISO). Transmission grid operations were transferred from the Investor Owed Utilities (IOUs) to the CAISO. Since the end of the energy crisis of 2000-01, the CAISO has embarked on an ambitious effort to completely redesign California energy markets. As part of this redesign effort, the CAISO plans on passing on the responsibility of maintaining adequate electric generation resources to so-called "load serving entities" (LSE), such as Palo Alto and PG&E and others. However, in an unexpected move on March 13, 2006, the CAISO filed an Interim Reliability Requirements Program Amendment to the California ISO Tariff (Interim Tariff Amendment) with the Federal Energy Regulatory Commission (FERC) that imposes certain resource adequacy requirements on Palo Alto and other LSEs. This was unexpected because the CAISO had for the last several years exempted entities such as Page 1 of 4 Palo Alto from these requirements and had indicated that no further requirements would be imposed on Publicly Owned Utilities (POUs) unti! the end of 2007. At its March 27, 2006 Northern California Power Agency (NCPA) Commission meeting, the NCPA Commission approved a resource adequacy program and recommended that each of its member-city governing boards or Councils adopt the same or similar reliability requirements program. DISCUSSION This Interim Tariff Amendment will implement a reliability requirement program that will be in place until the CAISO’s full restructuring program is implemented in November 2007. The Interim Tariff Amendment will require POUs such as the City of Palo Alto to show that they have sufficient electric capacity to serve their forecasted electric demand plus a "planning reserve margin". This filing, if approved by FERC, will require the City to adopt a resource adequacy program prior to May 12, 2006 or be subject to a FERC enforced backstop tariff. Attachment A is the recommended Interim Electric Utility Resource Adequacy Program (Interim ERAP) that incorporates the approved NCPA resource adequacy program with modifications in italics as proposed by staff. The major elements of the Interim ERAP are Demand Forecasts and Protocols (Section 1.5), Planning Reserve Margin (Section 1.6) and Resource Counting Conventions (Sections 1.8 and 1.9). The Interim ERAP establishes the monthly demand forecast to be submitted to the CAISO. It also establishes a 15% planning reserve margin. This reserve requirement is consistent with industry standards. The resource counting conventions outline the amount of "qualifying capacity" that the City’s electric utility can claim towards meeting the overall Interim ERAP requirements. Qualifying capacity is the amount of capacity (stated in megawatts) of generation and demand resources, such as imports, firm energy contracts, wind, solar, hydro and dispatchable demand, that will count towards meeting the City’s peak demand and planning reserve margin requirements. There are several other elements included in the Interim ERAP such as submission of Resource Adequacy and Supply Plans (Sections 1.1 - 1.3), Compliance and Enforcement (Section 1.4), and CAISO Authority to Dispatch NCPA Resources (Section 1.7). Given the proposed implementation dates for the Interim Tariff Amendment, it is necessary for the City to move expeditiously and present an approved program to the CAISO by the beginning of May 2006. In the event that the Council does not formally adopt a resource adequacy program, default provisions under the FERC-enforced Interim Tariff Amendment will govern the electric utility. This outcome would remove aspects of local control over the City’s resource planning and asset utilization, as well as expose the electric utility to the uncertainties associated with the developing CAISO requirements. Page 2 of 4 Attachment B shows the City’s current planning reserve margin under the resource adequacy program stipulated in Attachment A, and indicates that, under current hydro conditions, there is no expected incremental cost in the coming fiscal year associated with adopting the Interim ERAP, because the current load and resource balance forecast predicts a system capacity surplus. POLICY IMPLICATIONS Adoption of the Interim Electric Resource Adequacy Program (ERAP) is consistent with Council approved policy to follow regulatory mandates, maintain local control over utility services and provide reliable electric power. Not adopting the Interim ERAP will result in the City being subject to a Federal Energy Regulatory Commission enforced tariff for resource adequacy. This proposed ERAP is interim in nature, as resource adequacy policy is still developing in the State and resolution of current proceedings at the CAISO, CPUC and FERC could change the requirements imposed on the electric utility and the City Council. As these rules are updated, staff will bring back future updates and recommendations to the Council. Additionally, the LEAP Implementation Plan that will be considered by Council on April 17, 2006, states, "Establish a policy to address mandatory resource adequacy requirements". RESOURCE IMPACTS The cost of meeting reliability requirements is included in the proposed budget. Given current hydro conditions there is no incremental cogt in the coming fiscal year associated with adopting this policy because the current load and.resource balance forecast predicts a system capacity surplus above the proposed planning reserve margin. Though not the subject of this CMR, regulations related to resource adequacy at the local level are being developed right now. Current assumptions indicate that these rules may cost the City $4.3 million per year in the long run and a portion of these costs could be imposed on the City this summer, depending on final regulations. The current and upcoming budget contains provisions to cover such a contingency. ATTACHMENTS: A:Resource Adequacy Program B:Palo Alto’s Capacity Balance C:NCPA Commission Report D:Interim Reliability Requirements Program Amendment to the California ISO Tariff (CAISO Cover Letter) Page 3 of 4 PREPARED BY: Debra Lloyd, Shiva Swaminathan REVIEWED BY: ~H BALACHANDRAN, T DIRECTOR RESOURCE MANAGEMENT APPROVED BY: CARL DIRECTOR OF DMINISTRATIVE SERVICES Page 4 of 4 ATTACHMENT C: NCPA COMMISSION APPROVED RESOURCE ADEQUACY PROGRAM RESOURCE ADEQUACY PROGtL4xM FOR THE CITY OF The City Council or Governing Board for the City of , California herby adopts the following Resource Adequacy Pro~am for the City’s [Title of Utilities Department]. Capitalized terms not otherwise defined herein shall be defined as set forth in the Master Definitions Supplement of the California Independent System Operator Corporation ("CAISO"). This Resource Adequacy Program shall remain in effect, subject to modification by the City Council or Governing Board, until the implementation of the CAISO’s Market Redesign and Technology Upgrade ("MRTU") Tariff. RESOURCE ADEQUACY 1.1 Submission of Annual Resource Adequacy Plan Northern California Power Agency ("NCPA") will submit an annual Resource Adequacy Resource Plan to the CAISO, as the Scheduling Coordinator, on behalf of the NCPAB members on a schedule and in the format set forth by the NCPAB member Local Regulatory Authority ("LRA"). For the purpose of this Section 1, NCPAB members include those MSS Operator entities identified in Schedule 18 of the Metered Subsystem Ag~egator A~eement. The annual Resource Adequacy Plan should include the NCPAB members Demand Forecasts for each of the five summer months (May- September), established in Section 1.5, and identify the Resource Adequacy Qualified Capacity, established under Section 1.9, that the NCPAB members will rely upon to satisfy 90% of each of the five summer months Demand Forecasts plus the monthly Planning Reserve Margin, established under Section 1.6, for the relevant reporting year. 1.2 Submission of Monthly Resource Adequacy Plan NCPA will submit a monthly Resource Adequacy Plan to the CAISO, as the Scheduling Coordinator, on behalf of the NCPAB members by the last business day of the second month prior to the compliance month and in the form set forth by the NCPAB member LRA. The monthly Resource Adequacy Plan should include the NCPA~ members monthly Demand Forecast, established in Section 1.5, and identify the Resource Adequacy Qualified Capacity, established under Section 1.9, that the NCPAB members will rely upon to satisfy the monthly Demand Forecast plus the monthly Planning Reserve MarNn, established under Section 1.6, for the relevant reporting month. 1.3 Submission of Supply Plan Scheduling Coordinators representing Resource Adequacy Resources supplying Resource Adequacy Qualified Capacity are required, pursuant to the CAISO Tariff, to provide the CAISO with annual and monthly Supply Plans. NCPA will submit an annual Supply Plan to the CAISO on behalf of the NCPAB members and Silicon Valley Power ("SVP") 3/27/2006 Page 1 of 7 NCPA on a schedule and in the format set forth by the NCPA member LRA. NCPA will submit a monthly Supply Plan to the CAISO on behalf of the NCPAB members and SVP by the last business day of the second month prior to the compliance month and in the form set forth by the NCPAB member LRA and SVP LRA. Both the annual and monthly Supply Plans sha!l include a listing of the NCPAB member’s and SVP’s commitments to provide Resource Adequacy Qualified Capacity to any Load Serving Entity for the applicable reporting period. 1.4 Resource Adequacy Plan Compliance and Enforcement Once the CAISO has received the monthly Resource Adequacy Plan submitted by NCPA on behalf of its NCPAB members, the CAISO will verify that the NCPAB members have procured sufficient Net Qualified Capacity to comply with the Plahning Reserve Margin, established in Section 1.6. To the extent the annual or monthly Resource Adequacy Plan does not include sufficient Net Qualified Capacity to satisfy the Planning Reserve Margin, established in Section 1.6, or in the case of a mismatch between information included in the annual or monthly Resource Adequacy Plan and a Supply Plan submitted by the Scheduling Coordinator of a resource identified in the annual or monthly Resource Adequacy Plan, the CAISO will notify NCPA and attempt to resolve the issue. To the extent that NCPA is unable to resolve the identified issue, the CAISO will notify the NCPAB member LRA of the potential deficiency. Once the NCPAB member LRA is informed of the deficiency and confirms that the NCPAB member’s annual or monthly Resource Adequacy Plan is deficient, the NCPAB member LRA may determine if and how the deficiency will be resolved. If the CAISO identifies a mismatch between information included in the annual or monthly Resource Adequacy Plan and a Supply Plan submitted by the Scheduling Coordinator of a resource identified in the annual or monthly Resource Adequacy Plan, and the identified mismatch is not resolved prior to the 10th day before the effective month, the CAISO will accept the value contained in the Supply Plan to set the Net Qualified Capacity value for the applicable reporting month. To the extent that a NCPAB member LRA requires its NCPAB member to resolve an identified deficiency in the annual or monthly Resource Adequacy Plan, and the NCPAB member has not resolved the identified deficiency, the NCPAB member must explain why the identified deficiency has not been resolved to its LRA, and possibly incur penalties or other sanctions adopted by the LRA. NCPA is required to report to the CAISO within thirty (30) days of any action taken by the appropriate LRA in response to the deficiency notification if the LRA does not provide public access to records or information regarding action taken for violations of its Resource Adequacy policies or rules. 1.5 Demand Forecasts The monthly Demand Forecast included in the annual and monthly Resource Adequacy Plan shall be based on the monthly peak Demand responsibility of the NCPAB members 3/27/2006 Page 2 of 7 NCPA that is consistent with the forecasts provided to the CAISO under Section 6.1 of the Metered Subsystem Aggregator Agreement. For the purposes of Section 1, Demand shall be equal to Load plus finn Exports plus any NCPAB member on-demand obligation to third parties, measured in megawatts. For the purposes of this Section 1.5, the peak Demand responsibility shall be equal to the aggregated NCPAB member coincident peak Demand Forecast for the relevant month irrespective of the CAISO system coincident peak. 1.6 Planning Reserve Margin The annual and monthly Resource Adequacy Plan will include a Planning Reserve MarNn equal to no less that 15% of the monthly peak Demand responsibility set forth in Section 1.5. 1.7 ISO Authority to Dispatch NCPA Resources The CAISO’s authority to Dispatch any portion of the capacity of any Generating Unit of NCPA, other than in accordance with a bid submitted to the CAISO by NCPA’s Scheduling Coordinator, is set forth in and subject to Section 7.1 of the Metered Subsystem Aggregation Agreement. 1.8 Resource Adequacy Qualified Capacity Resource Adequacy Qualified Capacity shall be the quantity of capacity from a resource stated in megawatts which is listed in the annual and or either the monthly Resource Adequacy Plan. Qualified Capacity is the capacity from a resource prior to the application of the Net Capacity determination that shall be made pursuant to the provisions of the CAISO Tariff. The criteria for determining the types of resources that may be eligible to provide Qualified Capacity and for calculating Qualified Capacity from eligible resource types is provided in Section 1.9. 1.9 Qualified Capacity Criteria 1.9.1 Net Dependable Capacity Net Dependable Capacity ("NDC") defined by North American Electric Reliability Council ("~NERC") Generating Availability Data System ("GADS") information will be used to determine the Qualified Capacity of some of the resource types identified in Section 1.9. For the purpose of Section 1.9, NDC is equal to Gross Dependable Capacity ("GDC") less the unit capacity utilized for the unit station service or auxiliaries. GDC is equal to Gross Maximum Capacity ("GMC") modified for seasonal limitations over a specified period of time. GMC is the maximum capacity a unit can sustain over a specified period of time when not restricted by seasonal or other deratings. 1.9.2 NCPA System 3/27/2006 Page 3 of 7 NCPA As defined in the Metered Subsystem Aggregator Agreement, the NCPA System means all transmission and distribution facilities owned or controlled by the NCPA MSS members, and all Generating Units within the ISO Control Area owned or controlled by NCPA members. 1.9.3 Jointly-Owned Facilities A jointly-owned facility must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity for the entire facility will be determined based on the type of resource as described elsewhere in Section 1.9. The NCPAB member’s entitlement to the Qualified Capacity of the facility may encompass the entire Qualified Capacity of the facility, or may be limited to a portion of the Qualified Capacity of the facility. The total amount of Qualified Capacity that may be identified in the annual and or either the monthly Resource Adequacy Plan is limited to the total jointly-owned facility Qualified Capacity determined in Section 1.9. 1.9.4 Thermal Thermal generating facilities must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity of thermal facility will be based on Net Dependable Capacity as defined in Section 1.9. !. 1.9.5 Hydro Hydro generating facilities must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a PartiGipating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity of a pond or pumped storage hydro facility will be based on Net Dependable Capacity as defined in Section 1.9.1, minus variable head de-rate based on current reservoir levels with dry year (1-in-5 dry year) forecasted inflows. The Qualified Capacity of a run-of-river hydro facility will be based on Net Dependable Capacity as defined in Section 1.9.1, minus actual or forecasted conveyance flow, stream flow, or canal head de-rate. 1.9.6 Unit-Specific Contracts Unit-specific contracts will fully qualify as Resource Adequacy Qualified Capacity. The generating facility identified in the contract must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. 3/27/2006 Page 4 of 7 NCPA 1.9.7 Firm Physical Contracts Firm energy contracts which contain provisions to ensure reliable physical delivery mad that do not contemplate frequent financial settlement for non-delivery, or that contain provisions that identify non-delivery as a default condition subject to contract termination, will fully qualify as Resource Adequacy Qualified Capacity. 1.9.8 Industry Standard Contracts with Liquidated Damages Provisions Firm energy contacts with liquidated damages provisions as generally reflected in Service Schedule C of the Western Systems Power Pool Agreement or the Firm LD product of the Edison Electric Institute pro forma agreement, or any other similar firm energy contract that provides the seller an option not to deliver based on economic reasons will count as Qualified Capacity until a commercially available industry standardized capacity based product is readily available, and which is provided under an agreement similar to the Western Systems Power Pool Agreement or the Edison Electric Institute pro forma ageement. 1.9.9 Wind and Solar The Qualified Capacity of firm wind and solar generating facilities, with backup sources of generation, will be based on Net Dependable Capacity as defined in Section 1.9.1. Wind and solar generating facilities without backup sources of generation must be participants in the CAISO’s Participating Intermittent Resource Program ("PIRP"). The Qualified Capacity of wind and solar facilities without backup sources of generation will be based on their monthly historic noon to 6:00 p.m. capacity factor, using a three-year rolling average. New wind and solar generating facilities without backup sources of generation which do not have three years of historic performance data will be assigned a default Qualified Capacity for each year of missing historical performance as follows: (i)the Qualified Capacity of another solar or wind generator with historic data located in the same weather regime with similar technology adjusted for the nameplate capacity ratio of a new generator and the similarly situated proxy generator. The default Qualified Capacity values will be replaced on a year by year basis with actual performance data as the data becomes available to form a three year rolling average. 1.9.10 Geothermal 3/27/2006 Page 5 of 7 NCPa Geothermal generating facilities must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement, located within the NCPA System, a Participating Generator, or a Qualified Facility to be considered Qualified Capacity. The Qualified Capacity of a geothermal facility will be based on Net Dependable Capacity as defined in Section 1.9.1, adjusted for steam field degradation. 1.9.11 Treatment of Qualified Capacity of QFs The NCPAB members do not currently have any Qualifying Facilities ("QFs") with effective contracts under the Public Utility Regulatory Policies Act as of the drafting of this document. Therefore, the NCPAB members LRA have not identified Qualified Capacity Criteria in Section 1.9 for Qualifying Facilities. If in the future the NCPAB members decide to acquire and identify Qualified Capacity in either the annual or monthly Resource Adequacy Plan sourced from Qualifying Facilities, the NCPAB members LRA reserves the right to establish Qualified Capacity Criteria in Section 1.9. 1.9.12 Dispatchable Demand Resource and Participating Loads Dispatchable Demand resources and Non-Dispatchable Demand resources must either be identified in Schedule 10B of the Metered Subsystem Aggregation Agreement or located within the NCPA System to be considered Qualified Capacity. Participating Loads must either be identified in Schedule 14 of the Metered Subsystem Aggregation Agreement or located within the NCPA System to be considered Qualified Capacity. Dispatchable Demand resources, Non-Dispatchable Demand resources, and Participating Loads must be available at least 48 hours during the five summer months (May - September) to be counted in either the annual or monthly Resource Adequacy Plan as Qualified Capacity. If a Dispatchable Demand resource or Participating Load is available for the minimum requirement, the megawatt quantity reduction stipulated in the contract or program will be treated as supply and be eligible to be listed as Qualified Capacity. If a Non- Dispatchable Demand resource is available for the minimum requirement, the megawatt quantity reduction stipulated in the contract or program, adjusted to reflect the contract or programs average historical performance, will be treated as supply and be eligible to be listed as Qualified Capacity. 1.9.13 Facilities Under Construction The Qualified Capacity for facilities under construction will be determined based on the type of resource as described elsewhere in Section 1.9. The facility will be eligible to be identified as Qualified Capacity in the annual or monthly Resource Adequacy Plan of the NCPAB members pursuant to the anticipated operational date of the facility. 1.9.14 Dynamically Scheduled System Resources The Qualified Capacity of a Dynamically Scheduled System Resource to which the NCPAB member has an entitlement shall be the amount of the NCPAB member:s entitlement, subject to the deliverability screen pursuant to the provisions of the CAISO 3/27/2006 Page 6 of 7 NCPA Tariff and to, and or, the applicable provisions of the Metered Subsystem Aggregator A~eement. Eligibility as Qualified Capacity is contingent upon the NCPAB members securing transmission through any intervening Control Areas for the resource entitlement that cannot be curtailed for economic reasons or bumped by higher priority transmission. The Qualified Capacity provided by a Dynamically Scheduled System Resource will be limited by the NCPAB member’s allocated import capacity at the import Scheduling Points, which is determined pursuant to the provisions of the CAISO Tariff. 1.9.15 Non-Dynamically Scheduled System Resources The Qualified Capacity of a Non-Dynamically Scheduled System Resources to which the NCPAB member has an entitlement shatl be the amount of the NCPAB member’s entitlement, subject to the deliverability screen pursuant to the provisions of the CAISO Tariff and to, and or, the provisions of the Metered Subsystem Aggregator Agreement. The Qualified Capacity provided by a Non-Dynamically Scheduled System Resource will be limited by the NCPAB member’s allocated import capacity at the import Scheduling Points, which is determined pursuant to the provisions of the CAISO Tariff. 3/27/2006 Page 7 of 7 NCPA Attachment D Cali%mia Independent System Operator’s Filing Letter Interim Reliability Requirements Program March 13, 2006 -^--;--- ~ FE~C-Generated PDF of 20060315-001’ ~ece/ved by FERC OS~’C 03/13/2006 ~n Docketi: EF<06-723-000 CALIFORNIA ISO ORIGINAL MARCH 13, 2006 The Honorable Magalie R. Satas Secretary Federal Energy Regulatory Commission 888 First S~’eet, N.E. Washington, D.C. 20426 RE:CALIFORNIA INDEPENDENT SYSTEM OPE!::LATOR CORPOP,.ATION DOCKET NO. THE INTERIM RELIABILITY REQUIREMENTS PROGRAM Dear Secretary Salas Pursuant to Section 205 of the Federal Power Act (’FPA’), 16 U.S.C. § 824d and Part 35 of the Federal Energy Regulatory Commission’s (’FERC" or the "Commission’) regula~Jons, 18 C.F.R. § 35 et seq. the California Independent System Operator, inc. (’CAiSO’) respectful~j submits for filing an original and frve copies of an amendment to the ISO Tariff, to establish the Interim Reliability Requirements Program.~ The Interim Reliability Requirements Program implement~ the Resource Adequacy pnograms being established by State authorities, including the California Public Utilities Commission (’CPUC’) and other Local Regulatory Authorities (’LRAs’). The Interim Reliability Requirements Program is intended to remain effective until implementation of the Market Redesign and Technok>gy Upgrade program (’MRTU’) scheduled fo~ Fall 2007. I.E.XEC UTP4’E SUMMARY The Commission has found that a Resource Adequacy program is a "critical element of any market design" that serves t~, inter alia, meet reliability requirements, alleviate pressure on the spot market, establish approl:~-iate price signals, and encourage infrastructure investment ~ support grid reliability and produce just and reasonable rates.2 In California, the Commission is acutely aware of the importance of Resource Adequacy in ensudng a stable electricity market and reliable powe~ system operations. To prevent a failure such as the California Energy Crisis of 2000-01, the provisions of C-ape~alLzed tecrr~ rot ottt.erw~’se def~r.~d herein are u84~ i~ We ~ given in ~he Master DefinP~ons SuF.~ement Append~ A to ~e ISO Tarfff. See Fur’~her Order on ~e Caiffomia Corn, prehens;~e Market Oes;gn Proposal, 1C5 FERC ¶ 61 .!40 (2003) at PP 205.214 (Octobe," 28. 2003). Unofficial FERC-C-enerated PDF of 20060315-00!1 Received by ~-EBC OSEC 03/13/2006 In the ISO Tariff ensuring system reliability must work in conjunction with the Resource Adequacy requirements established by the CPUC and other LRAs to provide a seamless process that ensures sufficient capacity will be available when and w-here it is needed to meet reliability requirements and to ensure stable operations of the power system at reasonable pdces with less volatility. On September 8, 2005, the California Legislature enacted Assembly Bill (’A.B.’) 380, which required the CPUC, in consultation with the CA]SO, to establish Resource Adequacy requirements for all Load Serving Entities within the CPUC’s jurisdiction. In addition, A.B. 380 required local p, ublicly owned utilities, as well as Load Serving Entities subject to the jurisdic_.tJon of the CPUC, to procure adequate resources to meet their peak clemands and planning and operating reserves. On October 27, 2005, the CPUC issued Decision (D.) 05-10-42 reaffirming and clarifying that entities under i~s jurisdiction would be required, by June 2006, to demonstrate that they have acquired capacity sufficient to serve their forecast retail" customer k:~ad and a 15-17% Reserve Margin. On February 9, 200,6, the CAISO filed its comprehensive market redesign - the MRTU Tarfff. With MRTU, the CA]SO is proposing to end the current Commission- imposed "must-offer" obligation and transition to a capacity-based system in which the CPUC and other LEAs establish procurement requirements that require all Load Serving Entities within their jurisdiction to obtain sufficient resources to meet their Load with an adequate Reserve Margin and to ensure appropriate resources will be made available to the CAtSO in the Day-Ahead Market, including the Residual Unit Commi!.rnent (’RUC’) process, and in the Hour Ahead Scheduling Process (’HASP’) and Real-Time Market based on a unit’s operating characteristics. In addition to the CPUC’s more developed Resource Adequacy Program, the CAISO expects that each LEA wilt establish a Resource Adequacy program that includes the following elements: (1) a Demand forecast;, (2) Resource Adequacy standards, including appropriate Reserve Margins; (3) criteria for defining the resources that will qualify for, and how much capacity will count toward, meeting Reserve Margin requirements; (4) plans - Annual and Monthly - of how mat Demand will be served; (5) requlrement~ on how the resources will be available to the CAISO that are consistent with MRTU Tariff requirements; and (6) a program to ensure compliance so that the CAISO system Demand can be met and that no Load Serving Entity inappropriately leans on other Load Serving Ent~es. MRTU, however, is not expected to be implemented before November 2007. The Interim Reliability Requirements Program adjusts the CAISO’s existing systems to incorporate the Resource Adequacy programs adopted by the CPUC and other LRAs in accordance with AB 380 for the period between June 2006 and implementation of MRTU. To the extent feasible, the CAISO will operate the grid relying on resources pro, cured to meet Resource Adequacy requirements. The FERC must- offer obligation is retained only as a backstop to ensure system reliability and prevent economic or physical withholding of resources. Importantly, the fundamental operation 2 Unofflcial ~-ERC-Generated POF of 20060315-0011 Kecelved by FERC OSEC 03/13/2006 Ln Do~Xet~: ER06-723-000 of the FERC must-~rffer requirement - who it applies to, what is paid, and by whom - does not change under the Interim Reliability Requirements Program. Because the CAJSO seeks to conform to the new Resourc~ Adequacy policies adopted by the CPUC on a timely basis and also because the modif’~ations proposed herein have already been subject to substantial stakeholder input, the CAtSO requests an effective date of May 12, 2006, sixty days from the date of this filing, for the provisions regarding submission of Resource Adequacy Plans and Supply Plans and May 31, 2006 for tl,e remainder of the proposed tariff sheets, coincident with the CPUC requirements. !1.STATEMENT OF ISSUE Whether the Interim Reliability Requirements Program proposed by the CAISO is just and reasonable. BACKGROUND AND STATEMENT OF REASONS FOR FILING A. The CAISO’s Role in Resource Adequacy A.B, 3803 directed the CPUC to establish, in consultation with the CAISO, new Resource Adequacy requirements for Load Serving Entities that are under the jurisdicg, on of the CPUC. As described in A.B. 380, the CPUC’s Resource Adequacy program must, Ensure that adequate physical generating capacity dedicated to serving all load requirements is available to meet peak demand and planning and operating reserves, at or deliverable to Iocatbns and at times as may be necessary to ensure local area reliability and system reliability, at just and reasonable rates.4 In addition, A.B. 380 required each of California’s local publ~y owned elect~c utilities to "procure resources that are adequate to meet its planning reserve margin and peak demand and operating reserves, suff’~cient to provide reliable electric service to its customers."~ At the November 21,2002 meeting of the CAISO Board of Governors, the Board directed CAJSO management to defer to State efforts to address the broader issue of Resource Adequacy. in addition, the Board directed management to actively engage in the CPUC proceeding regarding the establishment of pmoJrement rules for the State’s Investor Owned Utilities (’lOUs’). At that meeting, the Board acknowledged the State’s legitimate and pdmary role in addressing matters related to Resource Adequacy or, 3 C~. Pus. LrnL COO£ § 380 Id. Cal. Pub. Util. Cooe § 9620 Unofflcial FE_RC-C-enerated ~DF of 20060315-0011 Received Dy ~-ERC OSEC 03/!3/2006 rn Dc~zket~: ER06-725-000 more specifically, the obligations of Load Serving Entities to procure enough resources 1o serve their Load plus reserves. In the recent MRTU filing, CAISO witness Mark Rothfeder testified with respect to the CAISO’s responsibility: the CAISO’s role can be divided into three components: (1) assisting in the implementation of rules adopted by the CPUC and Local Regulatory Authorities, including providing technical input, (2) implementing rules over suppliers outside Me jurisdiction of the Local Regulatory Authorities, and (3) ensuring the objective of Resource Adequacy to have resources available when and where needed is realized by providing for coordination of the rules adopted by the CPUC and other Local Regulatory Authorities with the design of the CAISO Markets and Bidding practices and the physical realities of the CAISO’s system through appropriate MRTU Tariff provisions applicable to Scheduling Coordinators.8 As described below, the Interim Reliability Requirements Program achieves these objectives by deferring to the criteria established by the CPUC and other LEAs in key areas such as establishment of the Reserve Margin, development of Demand Forecasts, and determination of Qualifying Capacity. The resources procured under the programs developed by State and Local authorities are then made available to the CAISO though the CAISO’s bidding and scheduling practices. Only in the event that insuffic.~ent supply at the system or local level is procured and made available under the State and Local programs does the CAISO utilize lhe existing FERC must-offer obligation or engage in backstop procurement to maintain grid reliability. B. CPUC Resource Adequacy Proceeding As a result of the California Energy Crisis, the CPUC opened a proceeding in October 200! tg establish the means by which the IOUs could resume fulJ resource procurement responsibilities. In subsequent decisions, the CPUC allocated the contracts entered into by the California Department of Water Resources during the crisis and addressed short-term procurement. In January 2004, the CPUC issued D.04-01-050, which adopted key polities for Resource Adequacy requirements applicable to the IOUs as well as to Energy Service Providers (’ESPs"~ and Community Choice Aggregations opera,rig within the IOUs’ service territories.- These polities included, among other thing=s, a requirement that each Load Serving Entity meet Demand plus a Planning Reserve Margin of 15-17% for each "summer" month, defined as May through September. Each Load Serving Entity was required to meet this obF~ga6on no later than January 1,2008 through a gradual phaseqn, with intedm benchmarks that became effective in 2005. In addition, each Load Serving Entity was required to forward contract 90% of its summer (May through Direct TestJmcny of Mark RothieCer in Docket No. ERC,6-615.-0C0 at p. g. California Pub. U~. Comm’n Decision 04431-050 (january 22. 2004). 4 Unofficia! FERC-C.enerated POF of 20060315-0011 Received by E’ERC O%EC 03/13/2006 In DoCKe%i: ER06-~23-000 September) peaking needs (loads plus p~anning reserves) a year in advance, subject to adjustment i’f implementation would result in significantly increased costs or foster collusion and]or the exercLse of market power in the We.stem energy markets; and (4) the 5% target limitation on ub]ities’ reliance on the spot market (Le., Day-Ahead, Hour- Ahead, and Real-Time Energy) to meet their Energy needs was continued in effect. Following D.04-01-050, the CPUC instituted a sedes of workshops beginning in March 2004 to address various technical, methodological, definitional, and procedural issues, including Load forecasting protocols, resource counting conventions, and delNerability. The Workshop Report on Resource Adequacy Issues (Workshop Report) was issued on June 15, 2004.8 On July 8, 2004, an Administrative Law Judgels Ruling Requesting Additional Comments on Resource Adequacy Issues ("July 8 Ruiing")Was issued focusing on the reserve deadlines for the reserve and forward contracting requirements in D.04-01-050. The July 8 Ruling also noted that in an April 28, 2004 letter to CPUC President Michael Peevey, Governor Schwar-zenegger indicated that the "[CPUC’s] phase-in date [for Resource Adequacy] of 2008 is too slow" and described President Peevey’s concurrence with the Governor’s assessment, and indicated that the phase-in "needs to be accelerated to ensure system reliability."~ Finally, the July 8 Ruling noted that the Joint Opening Statement of President Peevey and Commissioner John Geesman of the California Energy Commission at the Apdl 30 prehearing conference indicated that "we will look closely not only at refinement of the existing requirements, but also their a~’_.eteration as requested by the Governor."~° The ruling invited comments and replies on: (1) accelerating the phase-in of the full planning reserve margin from January 1, 2008 to June 1, 2006 and (2) how the year-round 15%-17% reserve requirement and the seasonal 90% for’ward contracting requirement adopted in D.O4-01-050 interact.~1 The CPUC issued D.04-10-O35 on October 28, 2004.12 That derision provided clarification wfth respect to the Resource Adequacy po;icy framework adopted in D.04- 01-50, identified issues to be resolved in further proceedings, and established certain procedural processes to be under~aken in a "Phase 2" proceeding.13 D.04-10-035 also, Jnter alJa, (1) adopted the accelerated June 1, 2006 implementation schedule aclvocaled by Governor Schwar’zenegger;, (2) clarified that the Planning Reserve Margin must be satisfied for all months, not just summer months; (3) imposed a requirement on each Load Serving Entity to demonstrate 100% procurement of its Demand and Planning C~t,’focnia Pub. ~ Comm’n, Work~hc~p Report on Re~,curce Adequacy Prepare~ by AL.J M~,.heP, e Cooke, Rulernatdr~ Docke~. Nos. 04m,.,4-C~3.01-10-4324 (June 15, 2004~.~April 28, 2004 ~’te~ ~ G.o~emc~ At’no~ Sch~arzene~ge~ to CPUC Pre=~ident Michael Peevey. ’0 Catifo."nia Im..’b. b~. ~rn’n. Admir~strative ~ Judge’s Rufing R~questing Additioaal Comments on Res~,~urce Adequacy Iz~sue~ (July 8, ~Cal~fo~mia Pub. LttJl. Com4"n’n E),ec~io~l 04-10-035 (Oclobe~" 28, 2004). :~Apl:x’oximat.s4y 1~ v,-c, tl~ho~ w~e he4d between No’~embe~ 2064 and April 2005. The CPUC s*.~ i~ued ;-~ repoct on June 10, 2005 which can be found at ht~o://v,’,~,w.cpuc.ca.~ov/F~UBL]SHED~ REPORT/46914.FDF. A~er co,’-r, men~, an~ repty comment~, A.,dministral?ve Jud~2e Wetz.8~ ~..~ued an opinion on September 27, 2005. Unoff~c:a! FERC-G~nerate~ PDF of 200603!5-0011 Recelved by ~-~RC OSEC 03/13/2006 Zn Docket#: ER06-723-000 Reserve Margin on a month-ahead basis; and (4) imposed an.availabil~y obligation of resources procured to meet the Resource Adequacy requirements. The CPUC issued D.05-10-042 on October 27, 2005,~4 which affirmed and c~arffied the I~licy framework established in Decisions 04--01-050 and 04-10-035. The CPUC noted the following key detenminations: (1) the adoption of a monthly system peak approach to defining the Resource Adequacy obligation; (2) adoption of deliverability tests and allocation of import capacity;, (3) the recogniSon of the need for a localized capacity requirement but the post43onement of ~ imptementatk~n to the 2007 procurement, year so that it can be fully considered; and (4) the affirmation that sanctions for Load Serving Entity non-compliance with Resource Adequacy requirement3 are required. The CPUC also concluded that an extension of the FERC must-offer obligation and associated waiver denial process should continue to be advocated as necessary for commitment of Resource Adequacy Resources until the implementation of CAISO’s MRTU process.~ The CPUC was concerned that if the must-offer obligation and associated waK, er denial process are eliminated eadier, the CAISO will not have sb~dent means to commit resources for the next day. The CPUC noted that, as with any major new program, unanticipated inff.ial ~nplementatbn issues are possible, and thus, ~t is prudent to proceed with caution.~6 Proceedir,.g number R05-12-013 was opened at the beginning of 2006 and will cond:~ct workshops or otherwise address: (1) local capacity obligation, (2) multi-year procurement requirement, and (3) consideration of Capacity Markets.17 C. CAJSO Stakeholder The stakeholder process regarding the MRTU Resource Adequacy requirements was extensive and covered many of the areas included in the Interim Re~iabi|ity Requirements Program. The CAISO has sought to expand on the pdor input and maintain meaningful stakeholder consultation into the Interim Reliability Requirements Procj, ram v,4thin the expedited timeframe in which this issue must be considered. On February 3, 2006, the CAISO posted its proposed revisions to the ISO Tariff to incorporate the interim program. This draft was reviewed at a meeting with stakeholders on February 14, 2006. Following the meeting. 16 entities provided written Cal~c,m[a Pub. UtiL Com, m’n De~Jsion 05-10-042 (October 27, 2005). ld. Calif~n~a Pub. LttiL ~Ccmm’n, Docket No. R05--12-013. Unoffzc~! EERC-Genera%ed PDE of 20060315-0011 ~ecelved by EERC OSEC 03/!3/2006 I~ Do<:~e~: comments on the proposals.18 The CA]SO considered the submissions and published a table summarizing its substantial revisions in response to the issues raised by stakeholders. The table served as a focus of a teleconference on March 2, 2006. The CAISO prepared revised tariff language, which was posted on March 8, 2008. The CAISO presented the Interim Reliability Requirements Program to the GovemD’,g Board at lhe meeting on March 9, 2006. A copy of the package of materials proposed to the CA]SO Board of Governors is attached as Attachment G hereto. The Board voted to authorize this filing. D. Independent Energy Producers Complaint Concurrent w~ the implementation of the Interim Reliability Requirements Program, the CA]SO is in the process of setlJement negotiations with parties regarding a complaint filed by the Independent Energy Producers (’IEP") in Docket No. EL05-14rp 000 on the existing FERC must.offer obligation and a recommended replacement of the FERC must-offer obligation with a tariff-based Reliability Capacity Services Tariff (’RCST"). While the ultimate outcome of the IEP-RCST proceeding may impact the nature of the existing FERC must-offer obligation for resources not under supply contracts in accordance with the Resource Adequacy programs or ReliabiFrty Must Run contracts, the CAISO must proceed based on what is currently in effect. Given the tight implementation timetable, the CAISO must go forward with implementation of the Interi~n Reliability Requirements ProGram based on an assumption that the current form of the FERC must-offer obik:jation will exist within the construct for Resource Adequacy to be implemented by the CPUC and other Local Regulatory Authorities in accordance with AB 380. To the extent that the outcome of Docket No. EL05-1464300 dictates changes to the tSO’s Tariff, those changes would be implemented in that proceeding. However, the CA]SO emphasizes that the Interim ReliabiR’y Requirement.s Program as set forth herein can meet the CAISO’s operational needs regardless of the outcome of the RCST proceeding and therefore is largely independent of any potentia! future tariff changes. DESCRIPTION OF TARIFF CHANGES The provisions of this ISO Tariff amendment are intended to support the implementation of the interim Resource Adequacy programs developed by the CPUC and other LRAs for Load Sewing Entities under their respective jurisdiction. As noted in the memorandum to the CA1SO Board of Governors, four interdependent, practica! considerations guided the development of this amendment: Entitie=s subm, itting comments incJuded: Alliance fo~ Re~ Ee~y Ma~e~, ~ ~Ka~ ~cn ~ C~ and ~e Ene~ ~on, ~em Ca~ P~ Ag~, P~ G~ & E~ ~ny. P~ex C~., PPM En~gy, ~b~ Cal~ Eden, Refo~ Ne~. W~m ~ P~er the California Oe~ent of Wat~ R~o~ S~te Wa~r Pr~. UnoZflc!ai FEKC-c~enerate~ PDF of 20060315-001! Received by FE£C OSEC 03/13/2C06 Zn Dc~zket#: ER06-723-G00 while respecting the primary role of the CPUC and other LRAs, the CAISO remains statutorily obligated to operate the ISO Controlled Grid in accordance with Applicable Re~iability Criteda and Good Utility Practice. To accomplish this requirement, the CAISO must have su’ff’~ent resources, in appropriate locations, to meet Demand. Moreover, the efforts of State regulatory an#ties to ensure that Load Serving Entities secure sufficient resources can only achieve the intended reliability benefits if the procurement rules are integrated with the design of the tSO Markets and bidding practices as well as the physical realities of the ISO Controlled Grid. (2)the design features must be implementable on an expedited schedule to meet the CPUC’s June 1, 2006 deadline. (3)the design features would be temporary, intended only to be effective until implementation of MRTU in November 2007. (4)while much work has been done, certain aspects of the California Resource Adequacy program are still evolving. These four considerations led to the general principle that the Inter~m Reliability Requirements Program tariff provisions should be designed w~th an intent to minimize system changes at the CAISO, which requires reliance upon exLs~ng processes, procedures, and tarfff authority to the .maximum extent possibte, while stitt looking ahead to the program under MRTU. Thus, a primary change in the Interim Reliability Requirements Program is the manner in which the existing FERC must-offer obligation will transition to a backstop rote. The CAISO proposes to revise the current "Must-Offer Waiver Denial Process" (’MOWD’) to deny waivers first to those resources that have received a Resource Adequacy Capacity payment. In other words, the CAISO w~ll, to the extent operationally practical, run the system without calling on units under the FERC must-offer obligation. Instead, the CAISO will issue a MOWD to Resource Adequacy Resources prior to issuing MOWD to non-Resource Adequacy Resources under the FERC must-offer obligation.1~ The tariff has also been modified to reflect the understanding that a re,source designated by a Load Serving Entity as a Resource Adequacy Resource shouk:J be compensated under the bilateral arrangement to make its capacity available to the CAISO. To implement this understanding, the CAISO proposes to revises the Minimum Load Cost Compensation (’MLCC’) to recognize that Resource Adequacy Resources have received an explicit capacity payment and therefo~’e no longer require the implicit caparJty payment embodied in the current MLCC provisions.~° While utilizing Resource Adequacy Resources first, the Interim Reliability Requirements P,"c~:jram continues to rely for an intedm pedod on the FERC must-offer oblkjatSon, t.he associated MOWD process and procedures, and the MLCC provLsbns to make resources available for commitment to meet CAISO reliability needs. When catling on resources under the FERC must-offer obiigat~n, the CAISO does not Resource o£.,erating constraints must be taken into consideration. See C~ffc~nia Independent Sy~em Operator Coq~., 111 FERC ¶ 61,207 unofflcla~ ~ERC-Generated PD~ of 20060315-0011 Received by ~ERC OSEC 03/13/2006 propose to modify the existing scope of resources covered under the must-offer obligation or the cost oompensaSon end cost allocation methodologies currently m place or subject to the outcome of ongoing proceedings (namely Amendment No. 60). The proposed changes to Sectbn 40 of the leO Tariff are as follows: A. Applicability The Interim Reliability Requirements Program applies the ISO Tarfff’s reliability requirements to all Schedu[ing Coordinators representing Load Serving Entities within the ISO Control Area. Load Serving Entities do not include customer generation located on the customer’s site or providing service through arrangements authorized by Section 218 of the California Public Utilities Code under defined conditions. This is consistent with the provisions of A_B. 380. The jurisdictional status of each Load Serving Entity is accounted for in the ISO Tariff by deferring certain elements to the CPUC or the other relevant LIRA, as described in more detail below. The Resource Adequacy availability obligation can be viewed in three tiers. The first tier covers all resources listed in a Load Serving Entity’s Resource Adequacy Plan and requires that the Load Serving Entity optimize the resource as it sees fit. The second tier applies to those listed resources that are under an aff’mmatJve offer obligaSon and included in the MOWD process. This tier would apply to those resources, other than hydro-electric, MSS resources, QF, and, if exempted by the CPUC or LEA, System Resources, listed in a Load Serving Entity’s Resource Adequacy Plan. The third tier, also subject the MOWD process, includes that subset of Resource Adequacy Resources for whk:h the CAISO will submit a proxy bid. This subset is the same as that under the current FERC must-offer obligation. The Interim Reliability Requirements Program also keeps in place the FERC must-offer obligation that applies to all current FERC Must-Offer Generators as defined in the ISO Tariff. If a hydro-electric facility, a MSS System Unit, a System Resource, a QF, or any other ent~ is not subject to the FERC must-offer obligation today - it will continue to be exempt from such obligation under this amendment. B. Deference to the CPUC and Other Local Regulatory Authodtie~ The CAISO has ackno~Aedged the primary role of Me CPUC and LIRAs in determining long-term procurement policies for Load Serving Entities under their juri,~iction. This deference is demonstrated in the proposed Section 40 by incorporating the following Resource Adequacy rules developed by the CPUC or other applicable LIRAs: ¯Demand forecast and protocols (Section 40.3) ¯Planning Reserve Margin (Section 40.4), and ¯Resource counting conventk)ns (SeCJon 40.5) 9 Unoffzczal FERC-(3enera:ed PDF of 20060315-0011 Received by FERC OSEC 03/13/2006 zn Docketl: E~06-723-000 With respect to bhe Demand forecast and protocols, Planning Reserve Margin, and resource counting conventions, the CAISO proposes default criteria to be applied only in the event that the Local Regutatory Authorfty does not establish its own criteria. Moreover. the default criteria are based on the standards already adopted by the CPUC. C. Qualifying Capacity Under the Interim Reliability Requirements Program, only Net Qualifying Capacity may be used to meet the Planning Reserve Margin and other elements of the program. Net Qualifying Capacity is the Qualifying Capacity as determined by the Local Regulatory Authority reduced, if necessary, by the CAISO’s testing and verification and by deliverability restd.p.,tions described in Section D below. Again, what will constitute Qualifying Capacity will be de[ermined, as appropriate, by the CPUC or, in the case of an entity not under the CPUC’s jurisdiction, the applicable LEA. The default standard for Qualifying Capacity in Section 40.13 will apply only where a LIRA has not determined what constitutes Qualifying Capacity. D. Deliverability In order to effectively meet system needs, capadty must be deliverable. Deliverability generally means that the output of generating unit can reach load under peak conditions_ The concept of deliverability under this amendment extends to- generation inside the ISO Control Area to reach the aggregate of its load and the capability of imporL~ for serving load inside the ISO Control Area.21 The CAISO will determine whether the capacity of a physical Generating Unit is available to serve the aggregate of Load by means of a deliverability analysis. The deliverability analysis will focus on peak Demand conditions. The CAISO will update the deliverability analysis on an annual basis. To the extent the deliverability analysis shows that the Qualifying Capacity of a Generating Unit or System Unit is not detiverable to the aggregate of Load under the condP, Jon.s studied, the Qualifying Capacity of the resource will be reduced on a MW basis for bhe capacity that is underwerabte. The CAISO will utilizeits Large Generator tnterconnection Procedures and process so that future generator interconnections do not degrade the deliverability of existing resources. With respect to Imports, the CAISO shall establish for 2006 for each branch group the total import capacity values to be allocated to Load Serving Entities serving Load in the ISO Control Area for Resource Adequacy planning purposes, and will update those values for 2007. Import capacity assodated with Existing Rights and Encumbrances and Transmission Ownership Rights shall be reserved for holders of such commitments as part of the deliverability study and will not be subject to allocation. 2~’ The CAISO pre,,4ous’,y poste~l overviews of its analy~ fo~ cle{N, erabilfty. It can be found on the CAISO Website at h t’,.p:Jt,~,,,~.cai~o.comJdoc~’2004/10/04/200410041035451165.9.hl~nl. 10 Unofflclal ~-ERC-C~enerated PDF of 200603!5-001! Received by FERC OSEC 03/13/2006 In DoCKet~: ER06-725-000 The import capability of the system wilt be allocated to non-CPUC Load Serving Entities individually and to the CPUC Load Serving Entities as an a£gregaled allocation, which will be subject to the allocation rules of the CPUC. For 2006, the allocation will be as follows: Non-CPUC Load Serving Entities will receive an allocation on a particular branch group equal to each entity’s resource commitments outside the ISO Control Area, as of October 27, 2005 that utilizes the particular branch group through calendar year 2006. CPUC Load Serving Entities will receive an aggregate import value by branch group that is equal to the maximum value for each branch group minus import capacity associated with (i) Existing Transmission Contracts, (ii) Encumbrances and Transmission Ownership Rights, and (iii) resource commitments outside the ISO Control Area of non-CPUC Load Serving Entities, as of October 27.2005 Similar rutes will apply for 2007 except the cut off date shall be March 10, 2006 instead of October 2005. The CAISO selected the March 10~ date for several reasons. Most significantly this approach provides certainty in procurement. As such, all exLsting commitments of non-CPUC jurisdictional entities will be respected and allocated first. Given that the CPUC entities will get the remainder, the CAISO believes the selection of the March 10, 2006 date strikes an appropriate balance between the two categories of Load Serving Entities. The CPUC entities need to know their allocation values with sufficient lead-time that they may engage in new contracts for the 2007 period. Moreover, the CAISO must receive the contracts data from the non-CPUC jurisdictional entities, conduct an analysis, and determine the remaining available capacity. The CAISO will need a few weeks to perform these activities. The CPUC-jurisdictional entities have consistently requested at least 90 days to conduct their procurement activities before they must make the next required reporting. The significant reporting pedod is the year ahead report that is due September 30. 20,06 for t~e summer months of 2007. This process responds to stakeholder concerns for certainty by allocating inter’de capacity on a forward basis so as to encourage contracting. In this regard, certain stakeholders noted the importance of being able to make long-term procurement decisions with respect to resources outside bhe ISO Control Area with the assurance that these resources would be deliverable and count toward fulfillment of a Resource Adequacy obligation. The CAISO understands and agrees that security of long-term supply arrangements is crfttcal. Nevertheless, this amendment is a temporary, transitional program. The issue of a long-term allocation of import capacity for Resource Adequacy purposes should be addressed on a comprehensive basis with the other elements of the MRTU market design. This allocation does not guarantee or result in any actual t~ansmission ser,,ice being allocated and is only used for determining the maximum Resource Adequacy Capacity that can be credited towards satisfying a Scheduling Coordinator’s Resource Adequacy obligation. Upon the request of the CAISO, Scheduling Coordinators must provide the CA]SO with information on exLsting import contracts and any trades or sales of their toad share alk:~atJon. Such information will be subject to the conf’~entiality provisions of the ISO Tariff. The CAISO will inform the CPUC or other Local Regulatory Authority of Resource Adequacy Plan submitted by a Scheduling Coordinator for a Load Serving Entity under their respective jurisdiction that exceeds its allocation of import capacity. E. Reporting Requirements Reports from Scheduling Coordin6tors Representin,q Lc.ad Servinq The Interim Reliability Requirements Program contains several reporting requirements that will enable the CAISO to ensure overall adequacy of resources by verifying the Resource Adequacy program of each Load Serving Entity. Scheduling Coordinators for Load Serving Entities are required to submit annual and monthly Resource Adequacy Plans. The annual and monthly Resource Adequacy Plan provided to the CAISO by Schedu|ing Coordinators for the CPUC Load Serving EntFdes are to be subm~ed on the schedule and in the form approved by the CPUC. The annual and monthly Resource Adequacy Plans provk:led to the CAISO by Scheduling Coordinators for the non-CPUC Load Serving Entity or Entities for whom they schedule Demand within the ISO Control Area are to be submitted on the dates set forth in the tariff and in the form set forth on the CAISO website. To minimize the difficulty imposed on the CAISO personnel and process for integrating the irrformatJon in the Resource Adequacy Plans, other than for good cause, the form of the Resource Adequacy Plan and the date for submission for the CPUC Load Serving Entities and the Non-CPUC Load Serving Entities is to be identical. The annual and monthly Resource Adequacy Plan must identify the Resource Adequacy Resources that will be relied upon to satisfy the Planning Reserve Margin and must apply the Net Qualifying Capacity requirements. If a Scheduling Coordinator for a Load Serving Entity submits a Resource Adequacy Plan that the CAISO identiSes as not dernons~ating compliance with Resource Adequacy rules adopted by the CPUC or other LIRA, the CAISO will first notify the relevant Scheduling Coordinator, or in the case of a mismatch between a Resource Adequacy PLan and a Supply Plan, the relevant Schedulir~ Coordinators, and attempt to resolve the issue. If this process does not resotve the CAISO’s concern, the CA]SO will notify the CPUC or o~er appropriate LIRA of the potential deficiency. To the extent that the CPUC or other appropriate LRA allows Load Serving Entities under its jurisdiction to cure the identified deficiency or determines that no deficiency exists, the Scheduling Coordinator(s) are to inform the ]2 Unof~iclal FERC-~enerated PDF of 20060315-0011 ReceLved by F~RC O~EC 03/13/2006 CAISO at least 10 days before the effective month of the outcome of any resolution. If the deficiency is not resolved, the CAISO will use the information contained in the Supply Plan to set Resource Adequacy Resources’ obligations. To the exlent that the CPUC or other Local Regulatory Authority has not adopted rules allowing public access t~ records or information regarding action taken for violations of its Resource Adequacy policies and rules, the Scheduling Coordinator for each Load Serving Entity serving load in the ISO Control Area notified of a potential failure to comply by the ISO and not resolved under Section 40.2.3 must report to the CAISO any action taken by the appropriate Local Regulatory Authority in response to the deficiency notfiication. 2. Reports by Suppliers In addition to the showing of reports from Load Serving Entities, the CAISO would require Scheduling Coordinators for all Generating Un~s, System Units, and System Resources that have capac’~/committed through Resource Adequacy contracts to submit Annual and Monthly Supply Plans to the CAISO confirming the existence of a contractual agreement to provide such capacity. These Supply Plans would show the amount of Resource Adequacy Capacity sold per unit to each Load Serving Entity and the total quantity of Resource Adequacy Capacity for each resource listed in the report. The form of the Supply Plan would be posted on the CAISO website. F. Availability The CA1SO proposes to build from the existing processes and procedures that support the FERC must-offer policy, including the MOWD process. In this regard, the CAISO intends to use the MOWD process to make commitment decisions for Resource Adequacy Resources that have long-start times that have otherwise not scheduled energy or ancillary s~rvices in the Day-Ahead Market. The CAISO shall make MOWD decisions such that Resource Adequacy Resources are utilized to the extent possible, considering transmission constraints, prior to dispatching a non-contracted reso’arce that ~s otherwise 8till subject to the FERC must-<~’fer obliga’don. G. Must4Dffer Obligation Overview and Waiver Process The Interim Reliability Requirements Program contains a three-prong offer obl~gat3on described in Section IVA above. By virtue of its inclusion in the Resource Adequacy Plan of a Load Serving Entity and its Supply Plan, a genet-ator becomes subject to the Resource Adequacy Capacity availabil~7 obligation under section 40.6A.4 of the Tariff. In addition, the amendment keeps in place the existing FERC must-offer obligation applied to all current FERC Must-Offer Generators. The CAISO’s unit commitment process wilt create a pdorfty order mat, if necessary, first denies the waiver requests of Resource Adequacy Resources and then, only if necessary, denies FERC must-offer obligation waiver requests. Capacity will be committed under revised Section 40 in the following priority order. 1.Generators comm~ed through a balanced schedule; If unscheduled and there Ls need for capacity, the CAISO wilt deny Resource Adequacy Resources waiver requests; If Resource Adequacy Capac~y is insufficient, the CAIS© will deny FERC must-offer obligation waiver requests; and Uncommitted Resource Adequacy Capacity and FERC must-offer obfigation capacity should be offered in real-time as Supplemental Energy, or CAISO will a create proxy bid. A Resource Adequacy Resource that is physically capable and is not otherwise explicitly exempted from making its Resource Adequacy Capacity available in the Real-Time Market or has a MOWD accepted, must offer supplemental bids in the Real-Time Market. Thus, the primary difference between the current FERC must-offer obligation and the Resource Adequacy Capacity obligation is that the priority resources will be subject to denials of must-offer waivers. H. SettJement of Must-Offer Minimum Load Costs Under the current MLCC design, Scheduling Coordinators representing generating resources that are operating in compliance with the FERC must-offer obligat~n, and pursuant to a MOWD, receive an Instructed Imbalance Energy payment for each Settlement Interval within the relevant hour. Addi’donally, Scheduling Coordinators receive an MLCC payment based on generating unit heat-rate, fuel costs, and compensation for "operations and maintenance" at $6.001MWh. Generators that have not entered into Resource Adequacy agreements and are not counted toward meeting Load Serving EntYdes Qualifying Capacity obliger}on will continue to be subject to the FERC must-offer obligatk)n compensation system. The MLCC for non-Resource Adequacy Generators operating in compliance with the FERC must-<:~ffer obl;gation will remain unchanged. In the proposed tariff changes, the CAISO guarantees MLCC recovery for Resource Adequacy Rasource~ for each Settlement Interval during hours within a Waiver Denial Period. The minimum load Energy would be accounted as Instructed Imbalance Energy and wo~ld be se~ed at the Resource-Speci~ Settlement Interval Ex Post Price. To the extent the Instructed Imbalance Energy payments are not suffidenl to cover the generator’s Minimum Load Cost, the generator will receive an uplift payment to ensure that it receives full MLCC compensetk)n. If the generator is dispatched for real time imbalance Energy above its minimum load during the Wa~,er Denial Period, the generator will be eligible for bid cost recovery. Resource Adequacy 14 Unoff’-clal FERC-G~nera:ed PDF of 20060315-0011 Receiwed by FERC OSEC 03/13/2006 in !>c.cket~: ER06-723-C00 Un-Recovered Minimum Load Costs will be allocated the same as MLCC for FERC Must-Offer Generators denied waivers under the FERC must.offer obligation. The unrecovered portion of MLCC will be atlocated censistent with the methodology for allocating MLCC under the FERC must-offer obligation. Recovery of start-up and emissions costs for both Resource Adequacy Resources and FERC Must-Offer Generators would be based on the existing cost compensation methodologies for these charges. Enforcement As noted above, the CAISO would report any deficiencies, such as lack of Resource Adequacy Capacity or inaccuracies in Resource Adequacy Plans from CPUC jurisdictional entities to the CPUC for enforcement. Similarly, the CAISO w~uld report deficiencies to the applicable LIRA for non-CPUC jurisdictional entities. Other measures to ensure compliance with the Resource Adequacy requirements would include enforcement of the market ru)es spec~)ed in the ISO Tariff Enforcement Protoco~ (Section 37 of the ISO Tariff), or referrals to FERC as a potential violation of its market rules. Scheduling Coordinators would be subject to penalties of $500 for each day a report is late as pursuant to Section 37.6. In addition, all plans submitted as part of the Resource Adequacy program are subject to market rules regarding the factual accuracy of information, including Sections 37.5 and 37.7, and FERC’s market rules. A Resource Adequacy Generating Unit or System Unit that fails to comply wfth its must-offer obligation would be subject to a penalty pursuant to Section 37.2.4. J. Defined Terms In order to implement the proposed In|afire Reliability Requirements Program, the CAISO proposes to add a number of defined terms to the Master DefinilJon Supplement in Appendix A of the ISO Tariff including: FERC Must-Offer Generator, Load Serving Entity, Net Qualifying Capacity, Planning Reserve Margin, Qualifying Capacity, Resourc~ Adequacy, Resource Adequacy Capacity, Resource Adequacy Plan, Resource Adequacy Resource, Short Start, Supply Plan, Transmission Ownership Rights, and Un..Recovered Minimum Load CosL V.EFFECTIVE DATE AND PART 35 COMPLIANCE The CAISO respectfully requests that the revised mdff shee~ arttached hereto be approved, without modification, suspension, or hearing, to go into effect on May 31, 2006, with the exception of Sections 40.2 (and subse<:~.ions thereof) and 40.6 (and subsections thereof) regarding the annual and monthly Resource Adequacy Plan and Supply Plan reporting obligations, for which the CAISO requests an effective date of May 12, 2006, 60 days from this filing. Eadier acceptance of the reporting obBgations will allow Market ParticJpants and the CAISO to orderly transfer from the existing regime based on the FERC must-offer obligalJon to the Interim Reliability Requirements Program, implementing the Resource Adequacy requirements imposed by the CPUC and other Local Regulatory Authorities. By receiving the annual and monthly Resource Adequacy Plans and Supply Plans, the CAISO can better ensure that adequate resources will be available to meet system requirements when the remainder of the interim program goes into effect on May 31,2006. coinddent with the CPUC requ~ement.s. The attached ISO Tariff sheets are provided in a clean version and a version redlined against the CAISO’s Simplified and Reorganized Tariff (’S & R Tar’tiT’) that was recently approved by the Commission to be effective March 1, 2006.= VI.SUPPORTING DOCUMENTS This transmittal letler is intended to provide the Commission with an overview of the proposed revisions to the ISO Tariff. The attached tariff sheets contain each of the proposed ISO Tariff changes. The supporting documents submitted with this filing are as follows: Attachment A Clean Section 40 ISO Tariff Sheets Attachment B Section 40 ISO Tariff Redlined Against the CAISO S&R Tariff Atl.achment C Clean ISO Tariff and Appendix Sheets Reflecting New or Amended Definitions and Cross References Attachment D ISO Tariff and Appendix Reflecting New or Amended Definitions and Cross References Redlined Against the ISO S&R Tariff Attachment E Clean ISO Tariff Index Attachment F ISO Tariff Index Redlined Against the ISO S&R Tariff Attac~hment G Package of Materials Submitted to the CAISO Board of Governors and Resolution of CAISO Board of Governors Authorizing the Instant Filing The S & R Tariff, reflects all tariff amendrr, ents and ccrre<zlior~s accepted by We Co--ion as of 3!, 2C-35. wi*J~ language ’J",at was pending as of I~t date $haC-ed in gray. ]6 Unofflclal FERC-Genera~ed PD[ of 20060315-0011 ~ecelved by FERC OSEC 03/13/2006 In Docket#: ER06-723-000 SERVICE The CAISO has se~ed copies of this filing on the Public Utilities Commission of the State of California, the California Energy Commission, the California Electricity Oversight Board, and all pa~es with Scheduling Coordinator Agreements under the CAISO Tarfff. In addition, the CAISO has posted a copy of the filing on the CAISO Website and will provide courtesy copies of this filing to all parties in the MRTU proceeding, FERC Docket No. ER02-1656-O00. [7 Unofflci~i FERC-Generated PDF of 200603!5-0011 Received Dy FERC OSEC 03/13/2006 In Docket~ ER06-723-O00 VII.COMMUNICATIONS Communications regarding ,"his. filing should be addressed to the following individuals whose names should be placed on the official service list established by the Secretary with respect to this submittal:z~ Charles F. Robinson General Counsel Sidney M. Davies Assistant General" Counsel Grant Rosenblum Counsel California Independent System Operator Corporation 151 Blue Ravine Road Folsom, CA 95630 Tel: (916) 3514400 Fax: (916) 608-7296 E-mail: crobinson@caiso.com sdavies@caiso.corn grosenblum@caise.com Roger Smith David B. Rubin Christopher R. Jones Karen J. Kruse TROUTMA~ SANOERS LLP 401 9~’ Street, N.W., Suite 1000 Washington, D.C. 20004 Tel: (202) 274-2950 E-maih roger.smith@troutmansanders.com david.rubin@troutmansenders.com chds .jones@troutrnansan ders.com karen.kruse@troutmansa riders.corn n The CAISO respectfully requests waiver of Rule 203(b}(3), 18 C.F.R. § 385.203{b)(3), to permit each of the #ersons ;{steC above to be ;.,’~c!uded on the service list fo~- ~is proceeding. unofflcla! -vERC-Generated PDF of 20060315-0011 Received by FE-RC OSEC 0.3/13/2006 In Docket#: E~06-723-000 VIII.CONCLUSION Wherefore, for all the reasons stated above, the CAISO respectfulby requests that revised tariff sheets included in this filingbe approved, without modification, suspensbn, or hearing to go into effect on May 12, 2006 or May 31,2006 as requested herein. Respectfully Submitted, Is/ Grant Rosenblum Counsel for the California Independent System Operator Corporation ATTACHMENT 4 EXCERPTS FROM UTILITIES ADVISORY COMMISSION MEETING MINUTES OF MARCH 19, 2006: DRAFT City of Palo Alto Interim Electric Utility Resource Adequacy Program Debra Lloyd, Resource Planner; presented a handout presentation on the Electric Utility Resource Adequacy Program (ERAP). She gave an overview of how we got to this requirement. The restructured California electricity market of 1998 relied on markets for reliability but, since the 2000/2001 energy crisis, responsibility for those resource requirements has moved back to load serving entities (LSEs) and the Munis have supported this. CPAU had been told we would not be subject to the CAISO’s interim tariff but now we find we are going to be subject to the tariff. Lloyd went over some of the risks associated with the FERC-enforced tariff. Capacity requirements are driven by a few hours out of the year to ensure if we really need to have emergency power (ex: 4 hours on a hot summer day), the City could actually generate the needed energy. The counting in this charge refers to maximum output out of an electricity generator. The CAISO has asked us to do a ’showing’ of the different types of resources we have and also how our resources support our energy demand,, which will depend on how the units will be planned for use in the coming year. Lloyd said NCPA will submit the required reports to the CAISO. This ERAP is just about capacity counting, it’s not about the energy. We have the excess capacity as we plan to meet our energy need. The COBUG may also qualify as a resource. We do studies of different scenarios of capacity needs with simulations of the entire network. One of our problems is the way the CAISO’s resource adequacy requirement is being enforced through the ISO tariff. Public power has not been given adequate time to respond. We are not being treated as full stake-holders in the adequacy proceedings. Staff, in coordination with NCPA, developed an interim resource adequacy development program for the city which will incorporate elements required under the tariff. Financial impacts of adopting; Utilities Advisory Commission Draft Minutes of April 19, 2006 Page ! of 2 going through to 2008 - we don’t see any system capacity procurement being initiated by this program. There is a local capacity requirement that is looming and could have some financial impacts by the end of this year. Local meaning, within any of PG&E’s load pockets, doesn’t have to be within City limits or under our control. We are taking to Council on May 1st and asking them to approve. NCPA will submit the load balances for the city as required by the CAISO tariff. We could have local resource adequacy programs prior to the end of 2006. Balachandran said we have some indications of what the resource impacts would be and these are based on building a new peaking plant in California. Some of the local capacity requirements could be imposed on us very soon. The amount is based on capacity. The City would have to show up to 55% of our load - load pocket capacity is more expensive. Vice-Chair Melton asked if we have enough capacity to serve our load capacity. Lloyd said there is sufficient capacity in the Greater Bay Area. The issue is whether you can get a contract for it. You have to contract the capacity in order to secure the reliability. Vice-Chair Melton asked about delegating the authority to the City Manager to make changes. He asked what sods of changes are contemplated and is it an appropriate delegation. Is it just tweaking and not major policy? This will give us the flexibility to have the City Manager have the ability to respond to ’tweaks’ in adapting our program to reflect changes that have happened to the entire market. Motion:Commissioner Rosenbaum moved to approve staff request. seconded.Vote was unanimous. Vice-Chair Melton Utilities Advisory Commission Draft Minutes of April 19, 2006 Page 2 o£ 2