LAW-#1815184-v10-B Opening Brief of SCE on Track II · 2013-05-02 · of procuring preferred resources that reduce greenhouse gas (GHG) emissions. As for SCE’s natural gas hedging

1814184

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE

STATE OF CALIFORNIA

Order Instituting Rulemaking to Integrate and Refine Procurement Policies and Consider Long-Term Procurement Plans.

)))

Rulemaking 10-05-006

OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK II

MICHAEL D. MONTOYA CAROL A. SCHMID-FRAZEE MELISSA HOVSEPIAN

Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626) 302-1337 Facsimile: (626) 302-1935 E-mail:Carol [email protected]

Dated: June 17, 2011

Opening Brief Of Southern California Edison Company (U 338-E) on Track II TABLE OF CONTENTS

Section Page

-i-

I. EXECUTIVE SUMMARY ......................................................................................................................1

II. THE COMMISSION SHOULD ADOPT SCE’S PROPOSED AB 57 BUNDLED PP WITHOUT MODIFICATION...............................................................................5

A. There Was No Opposition To Most Elements of the AB 57 Bundled PP...........................................................................................................................5

1. SCE’s AB 57 Bundled PP Is In Compliance With the Preferred Loading Order ..........................................................................................6

2. DRA’s Concerns Regarding SCE’s Natural Gas Hedging Activities Are Misguided As They Are Designed To Cost-Effectively Reduce Customer Price Risk.................................................................8

B. The Commission Should Adopt SCE’s Unopposed Request To Contract For A Term Of Five Years Or Less ....................................................................10

C. The Commission Should Adopt SCE’s Unopposed Change To Its Congestion Revenue Rights (CRRs) Procurement Plan ....................................................10

D. The Commission Should Adopt SCE’s Unopposed Additional Non-Standard Products ......................................................................................................11

E. The Commission Should Adopt SCE’s Unopposed Changes To Its Authorized Brokers And Exchanges Table........................................................................11

III. THE COMMISSION SHOULD ADOPT SCE’S REMAINING PROPOSED CHANGES TO THE 2006 LTPP PROCUREMENT PLAN........................................................12

A. The Commission Should Adopt SCE’s New Hedging Proposals......................................12

1. SCE’s Proposed CRT Appropriately Changes As Customer Rates Change .........................................................................................................12

2. The Commission Should Adopt SCE’s Proposed Procurement Limits and Ratable Rates Without Any Further Limitations ................................................................................................13

B. The Commission Should Adopt SCE’s New Renewable Procurement Proposals and Corresponding Renewables Products....................................15

Opening Brief Of Southern California Edison Company (U 338-E) on Track II

TABLE OF CONTENTS (CONTINUED)

Section Page

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1. SCE’s Proposed Short-Term Renewable Procurement Authority Is An Appropriate Mechanism To Assist In Meeting The State’s Renewable Energy Goals .....................................................15

2. The Commission Should Adopt SCE’s Proposed Renewable Integration Products ............................................................................18

3. SCE’s Proposed Fixed Price For Short Run Avoided Cost Floating Swap Is Necessary And Appropriate.......................................................19

C. The Commission Should Adopt SCE’s Proposals For Modification Of Convergence Bidding ...................................................................................................20

1. Track II Of The LTPP Is The Appropriate Forum For Considering Changes To Convergence Bidding....................................................20

2. SCE’s Proposed Revisions To Its Convergence Bidding Have Sufficient Protections For Bundled Customers ............................................21

IV. THE COMMISSION SHOULD ADOPT SCE’S PREFERRED PLANNING ANALYSIS FOR PURPOSES OF SETTING PROCUREMENT LIMITS .................................23

A. For the Most Part, SCE Used CPUC Standardized Planning Assumptions And Methodology ........................................................................................24

B. To The Extent That SCE’s Preferred Assumptions Deviated From the CPUC Standardized Planning Assumptions, SCE’s Preferred Assumptions Were More Reasonable Than The CPUC Standardized Planning Assumptions For Purposes Of Establishing SCE’s Position Limits For Forward Procurement Activity ...............................................26

1. SCE Used Appropriate Assumptions About the Demand Forecast ..................................................................................................................26

a) SCE Fully Supported Its EE Assumption ..................................................26

(1) SCE Preferred Assumptions Are Consistent With Commission Decisions and A CEC Forecast That Will Require An Aggressive Approach........................................................................................27

(2) SCE Preferred Assumptions Appropriately Implicitly Include Energy Savings From Building Codes and Appliance Standards......................................28


TABLE OF CONTENTS (CONTINUED)

Section Page

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b) SCE Used Appropriate DR Assumptions ..................................................29

2. SCE Used Appropriate Assumptions About DA...................................................30

3. SCE Used Appropriate Flexible Compliance Assumptions for Renewables.......................................................................................................31

a) Passage Of Recently Enacted SB x 1 2 Does Not Call Into Question The Use of Flexible Compliance for Renewables In SCE’s Preferred Analysis ............................................32

b) SCE Used Appropriate RES Compliance Assumptions...............................................................................................33

C. SCE Used Appropriate CHP Assumptions ........................................................................33

D. The GHG Emissions Results In SCE’s Preferred Analysis Are Appropriate ........................................................................................................................35

V. CONCLUSION.....................................................................................................................................36

APPENDIX A............................................................................................................................................37


TABLE OF AUTHORITIES

Title Page

-i-

California Statutes California Public Utilities Code

§365.1(b)......................................................................................................................30

§399.11(a) ....................................................................................................................15

§454.4...........................................................................................................................17

§454.5.........................................................................................................................1, 6

§454.5 (b)(7) ..................................................................................................................2

Health & Safety Code §38500............................................................................................................................2

California Public Utilities Commission Decisions D.07-09-040.................................................................................................................19

D.07-12-052...................................................................................................................2

D.08-07-047...........................................................................................................26, 27

D.10-03-022...........................................................................................................30, 31

D.10-12-034.................................................................................................4, 20, 21, 22

D.10-12-035.....................................................................................................19, 33, 34

D.11-03-051...........................................................................................................19, 34

California Public Utilities Commission Rulemaking R.10-05-006 ...............................................................................................................1, 6

R.08-08-009 .................................................................................................................32

California Public Utilities Commission Rules and Procedures

Rule 13.11 ......................................................................................................................1

California Legislation AB 32 .................................................................................................................2, 6, 7, 9

AB 57 .............................................................................................................................1

SB x 1 2............................................................................................................15, 18, 32

SB 695..........................................................................................................................30


LIST OF TABLES

Table Page

-ii-

Table III-1 Key Input Assumptions .......................................................................................................... 25 1

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BEFORE THE PUBLIC UTILITIES COMMISSION OF THE

STATE OF CALIFORNIA

Order Instituting Rulemaking to Integrate and Refine Procurement Policies and Consider Long-Term Procurement Plans.

)))

Rulemaking 10-05-006

OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK II

I.

EXECUTIVE SUMMARY

Pursuant to Rule 13.11 of the California Public Utilities Commission’s (Commission or

CPUC) Rules of Practice and Procedure and the Administrative Law Judge’s Ruling, dated

February 18, 2011, Southern California Edison Company (SCE) hereby submits its Opening

Brief on Track II of the 2010 Long Term Procurement Plan (LTPP) proceeding. The purpose of

Track II of the 2010 LTPP is for the Commission to consider individual investor-owned utility

(IOU) procurement plans for their bundled customers, as required by Assembly Bill (AB) 57

which is codified at Public Utilities Code Section 454.5.1 In this Track II of the 2010 LTPP,

SCE presents in Exhibits 200, 201, and 201-C its proposed AB 57 Bundled Procurement Plan

(AB 57 Bundled PP). The Commission should adopt SCE’s proposed AB 57 Bundled PP

without modification.

1 Rulemaking (R.) 10-05-006, Assigned Commissioner and Administrative Law Judge’s Joint Scoping Memo and Ruling, dated December 3, 2010 (December 3, 2010 Scoping Memo), pp.39-40.

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There was no opposition to most elements of SCE’s proposed AB 57 Bundled PP,

including the proposed changes from SCE’s 2006 Conformed LTPP. Parties’ concerns with

SCE’s AB 57 Bundled PP were generally, but not completely, limited to SCE’s compliance with

the Preferred Loading Order2 and AB 32,3 and with SCE’s natural gas hedging plan.

The first concern regarding the Preferred Loading Order and AB 32 is unwarranted, as

SCE clearly documented its adherence to the Preferred Loading Order throughout its AB 57

Bundled PP.4 Additionally, in other procurement-related proceedings and venues, the

Commission addresses the objectives and procurement requirements for preferred resources.

SCE fully complies with all procurement requirements in those proceedings before considering

its potential residual energy requirement in this forum through its AB 57 Bundled PP. The focus

of an AB 57 procurement plan is the establishment of “[t]he upfront standards and criteria by

which the acceptability and eligibility for rate recovery of a proposed procurement transaction

will be known by the electrical corporation prior to execution of the transaction.”5 SCE’s

proposed AB 57 Bundled PP appropriately focuses on this issue, while demonstrating full

adherence to the Preferred Loading Order. Moreover, SCE’s AB 57 Bundled PP is committed to

not only meeting renewable energy goals set by the Commission and the legislature, but also

proposes new renewable procurement methods and products so that SCE can enhance its means

of procuring preferred resources that reduce greenhouse gas (GHG) emissions.

As for SCE’s natural gas hedging plan, it is unchanged from the 2006 Conformed LTPP

adopted in D.07-12-052, except that SCE proposes to calculate ratable rates on a rolling 12-

month basis instead of the current monthly approach. Natural gas is the single largest market-

sensitive exposure SCE’s customers currently face.6 SCE has appropriately used and proposes to

continue appropriately using financial gas hedging to manage its customers’ market price risk

2 Energy Action Plan II, http://cpuc.ca.gov/published/report/51604.html. 3 Health and Safety Code, §38500 et al. 4 SCE, Exhibit 207, pp.4-6. 5 Pub. Util. Code § 454.5(b)(7). 6 SCE, Exhibit 207, p.11.

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exposure.7 The purpose of a hedge is to reduce customer exposure to market price fluctuations.

These natural gas hedges act as an insurance policy to avoid higher future natural gas prices.8 If

those prices do not materialize, the hedges, like an insurance policy, will still have mitigated

customer price risk.9 DRA’s generalized concerns about SCE’s natural gas hedging activities do

not take a long-term perspective on the value of a hedge program for bundled customers,10 and

should be rejected.

As for SCE’s proposed changes to its 2006 Conformed LTPP authority, there was no

opposition to many of the changes, including:

• SCE’s change to allow contracts for a term of five years or less, instead of less than 5 years;

• SCE’s change to its Congestion Revenue Rights (CRRs) Procurement Plan to limit its monthly reporting requirement to a single month-end report;

• Addition of certain items on SCE’s list of additional non-standard products, including electricity transmission products for non-California Independent System Operator (CAISO) transmission and sales of forward energy from resources located outside the CAISO; and

• SCE’s changes to its authorized brokers and exchanges table to remove the column “Products Traded and/or Information Provided” allowing SCE to transact any product on its list of authorized procurement products through any broker or exchange on its list of authorized brokers and exchanges.

The Commission should adopt these unopposed changes to SCE’s 2006 Conformed LTPP

without modification.

SCE’s AB 57 Bundled PP also contained a few changes to its 2006 Conformed LTPP that

were opposed. The Commission should reject the opposition to these important proposals and

adopt SCE’s AB 57 Bundled PP without change as summarized below:

• SCE’s proposed Customer Risk Tolerance (CRT) methodology appropriately changes as customer rates change, but provide a more stable approach than DRA’s proposed indexed CRT.

7 Id. 8 Id. at p.12. 9 Id. 10 DRA, Exhibit 400, pp.24-25.

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• SCE’s proposed changes to the 2006 Conformed LTPP’s electric capacity procurement limits and ratable rates to eliminate load forecast error and generation outage contingencies and the three-times ratable rate design from its ratable rate procurement limit methodology are more restrictive on SCE’s hedging activities, but still allow sufficient hedging.

• SCE’s proposed short-term renewable procurement authority, including its proposed Forward Renewable Energy/Renewable Energy Credits (REC) products, appropriately assists in meeting the State’s renewable energy goals using methods allowed for conventional resources.

• SCE’s proposed renewable integration products assist in cost-effectively meeting the State’s renewable energy goals by clearly allowing SCE to enter into transactions to manage the delivery of intermittent Preferred Loading Order resources.

• SCE’s proposed fixed price for Short Run Avoided Cost (SRAC) floating swap is an appropriate addition to SCE’s natural gas hedge toolset. SRAC prices are based on natural gas prices and therefore fluctuate with natural gas prices. Substituting a fixed price for an SRAC price appropriately hedges customers’ exposure to natural gas price fluctuations.

• SCE’s proposals to modify convergence bidding are timely. These proposals limit customer exposure by retaining the existing Commission-imposed protections in Decision (D.) 10-12-034, including the $20 million stop-loss limit, but allow SCE to pursue additional convergence bidding strategies that will benefit its bundled customers.

The Commission should adopt these changes without modification.

Finally, SCE requests that the Commission adopt its proposed position and ratable rates,

which were based on SCE’s Preferred Assumptions. SCE’s position limits serve as maximum

limits on SCE’s procurement of resources after accounting for SCE’s existing and planned

Preferred Loading Order resources and utility-owned generation. Because SCE’s position limits

provide an upper-bound on SCE’s residual procurement authority, SCE used planning

assumptions that were not as optimistic and aggressive as the CPUC’s Standardized Planning

Assumptions, as the CPUC’s Standardize Planning Assumptions would yield procurement

position limits that significantly limit SCE’s forward procurement activity. For the purpose of

establishing position limits, it is not reasonable to use the most aggressive and optimistic

assumptions on Preferred Loading Order resources, because “failure to realize those assumptions

1815184 - 5 -

could result in a costly procurement deficiency.”11 However, SCE actively considers the status

of all Preferred Loading Order resources before committing to conventional resources. The

adoption of SCE’s Preferred Assumptions to establish SCE’s position limits has no bearing or

relevancy to the Commission’s consideration of planning assumptions in Track I. The Track I

analysis looks at all three utilities’ service areas as one and determines what new generation

resources need to be built to meet system-wide need and assesses the impact of various

procurement-related policies.12 The Track I analysis is not dependent on SCE’s Track II

preferred planning assumptions, which are only used to establish SCE’s position limits and

resulting ratable rates.

II.

THE COMMISSION SHOULD ADOPT SCE’S PROPOSED AB 57 BUNDLED PP

WITHOUT MODIFICATION

A. There Was No Opposition To Most Elements of the AB 57 Bundled PP

With the exception of a very narrow set of issues, the vast majority of SCE’s AB 57

Bundled PP was not opposed by parties. SCE’s proposed AB 57 Bundled PP contains only a few

elements that were modified from the 2006 Conformed LTPP. Within SCE’s limited set of

changes, only a few were contested, as further discussed in Section III below. The rest of the

proposed changes were unopposed, as described further in this section below. Additionally,

there were two concerns raised by DRA and a few other parties related to SCE’s compliance

with the Preferred Loading Order and SCE’s natural gas hedging activities that appear to be the

result of a fundamental misunderstanding of the purpose of SCE’s AB 57 Bundled PP and

hedging activities. As such, these concerns are unwarranted and should be disregarded by the

Commission, as SCE explains immediately below.

11 SCE, Exhibit 207, p.7, line 12. 12 December 3, 2010 Scoping Memo, p.3.

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1. SCE’s AB 57 Bundled PP Is In Compliance With the Preferred Loading

Order

Several parties, DRA in particular, indicated concern that SCE’s AB 57 Bundled PP is

not consistent with the State’s Preferred Loading Order and AB 32,13 but these concerns appear

to be based on a fundamental misunderstanding of the purpose of SCE’s AB 57 Bundled PP. As

required by AB 57, SCE’s AB 57 Bundled PP sets forth the upfront, achievable standards and

criteria by which SCE’s procurement activity will be deemed per se reasonable and therefore

eligible for cost recovery.14 In this Track II LTPP proceeding, the Commission directed the

parties not to litigate the objectives and procurement requirements of preferred resources that are

already addressed in separate proceedings.15 Therefore, SCE’s AB 57 Bundled PP addresses the

procurement required to serve the residual energy requirements of SCE’s bundled customers,

after first fully accounting for all of SCE’s committed and forecasted preferred resources (i.e.,

Energy Efficiency (EE), Demand Response (DR), renewables, Qualifying Facility (QF)

contracts, Combined Heat and Power (CHP), and Distributed Generation (DG)) and utility-

owned generation (UOG).16 SCE fully considers all cost-effective preferred resources before

committing to conventional resources. Indeed, SCE’s residual procurement is open to all

resource technologies that can meet SCE’s procurement requirements, including preferred

resources. SCE provided a comprehensive description of its adherence to the Preferred Loading

Order in its AB 57 Bundled PP.17

Additionally, to facilitate the procurement of preferred resources, as explained in Section

III below, SCE has proposed to expand its Renewables Portfolio Standard (RPS) procurement

capabilities to allow short-term RPS procurement pursuant to its AB 57 procurement plan.

13 DRA, Exhibit 400, pp.12-19; CBE, Exhibit 1000, p.7; and WEM, Exhibit 800, pp.16-21. 14 Cal. Pub. Util. Code § 454.5. 15 See, e.g., R.10-05-006, Order Instituting Rulemaking, dated May 12, 2010, p.12 n.22; see also Administrative

Law Judge’s Ruling on Resource Planned Assumptions – Part 3 (Energy Efficiency) – Track I, dated June 22, 2010, p.4.

16 SCE, Exhibit 207, pp.4-5. 17 See SCE, Exhibit 207, pp.4-6, for a summary.

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SCE’s proposal would allow for the increased flexibility to procure products consistent with the

Preferred Loading Order and GHG emissions reduction policies. However, DRA opposed this

proposal even though it would address DRA’s concern that SCE should do more to incorporate

the Preferred Loading Order in SCE’s AB 57 procurement activity.

Since SCE’s resource acquisition strategy prioritizes preferred resources that reduce

GHG emissions from SCE’s bundled customer portfolio, SCE’s AB 57 Bundled PP is also

consistent with the GHG reduction goals of AB 32.18 Indeed, SCE has already reduced its GHG

emissions to below its 1990 levels and forecasts to have an average GHG emission rate of less

than 500 lbs./MWh by 201519 due to SCE’s early GHG-reducing actions20 and SCE’s

compliance with the Preferred Loading Order. Moreover, SCE accounts for the GHG emissions

reduction benefits prior to selecting supply offers in its competitive procurement processes.

SCE thus fully complies with the Preferred Loading Order and AB 32 by accounting for

preferred resources in its procurement planning and transaction activity covered by SCE’s

proposed transaction position limits and ratable rates.21 As a result, the Commission should

approve SCE’s AB 57 Bundled PP without modification. Parties’ specific concerns regarding

procurement of preferred resources should be addressed in the proceedings dealing with such

preferred resources.22

18 Id. at p.6. 19 SCE, Exhibit 203-C, Figure A-11, p. A-11. 20 For example, the closure of the coal-burning Mohave Generation Station on December 31, 2005, and the

announced sale of SCE’s ownership rights to the coal-burning Four Corner Generation Station in late 2012. 21 SCE addresses its commitment and compliance with the Preferred Loading Order throughout its 2010 AB 57

Bundled PP. See, e.g., SCE, Exhibit 200, pp.7-8, pp.10-15, and pp.57-61; SCE, Exhibit 202, pp.14-27. 22 SCE, Exhibit 207, p.4.

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2. DRA’s Concerns Regarding SCE’s Natural Gas Hedging Activities Are

Misguided As They Are Designed To Cost-Effectively Reduce Customer

Price Risk

DRA’s testimony23 raises concerns about the IOUs “over hedging” arguing that it is too

expensive relative to its benefits (reduced price volatility) to customers. Based on DRA’s

testimony, SCE assumes DRA is primarily concerned with the IOUs’ financial natural gas

hedging activities. Although financial natural gas hedging is just one component of a large

hedging program (i.e., essentially of SCE’s procurement activities), it is a valuable tool to

mitigate rate volatility. This is because natural gas is the single largest market-sensitive cost

exposure SCE’s customers face and as a most mature and liquid commodity market in which

SCE transacts, the natural gas market offers the most competitive hedging options.24

DRA’s conclusions are based on the 20-20 hindsight of the actual hedging results. These,

of course, cannot be known at the time the hedges were executed.25 Since hedges are akin to

insurance policies, the fact that the hedged risk did not occur (i.e., higher natural gas prices did

not result) does not mean that such hedges were not prudent and cost effective at the time they

were placed. As SCE has repeatedly communicated, SCE hedges a limited portion of its

customers’ future natural gas price exposure, on a regular basis, and with products that give the

best forecasted risk reduction per forecasted dollar spent. Because SCE does not hedge its entire

future natural gas requirement, the unhedged portion will be exposed to fluctuating natural gas

prices and therefore be higher or lower-priced than the hedged portion. DRA is focused on

periods of time when the hedged portion of the portfolio was higher-priced than the unhedged

portion of the portfolio, and questioned the value proposition of SCE’s hedging activity. Had the

hedged portion of the portfolio been lower-priced than the unhedged portion of the portfolio, it is

doubtful that DRA would raise these concerns.

23 DRA, Exhibit 400, pp.24-25. 24 SCE, Exhibit 207, pp.10-11. 25 Id. at p.11.

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Additionally, DRA only examines a very small window in time within a long history of

volatile natural gas prices.26 Events over the past few years have caused a downward trend in

natural gas prices, including the recession’s impact on demand and advances in shale gas

extraction. These factors have contributed to more than a 60% reduction in price since the

summer of 2008, yet SCE does not know of any consultant (or intervenor in this proceeding)

who forecast this price decline. The size of SCE customers’ exposure coupled with such large

price swings demonstrates the need for hedging to protect customers against such volatility.

Hedging activities do have a cost associated with them, as with any form of insurance. It

is clearly within the Commission’s exercise of judgment in representing the interests of utility

bundled customers to decide, such as by establishing a consumer risk tolerance (CRT) factor,

how much rate volatility customers are able to accept. However, such a decision should be based

on longer-term expectations of price volatility, not whether recent hedges have been “in the

money” or not in any particular period. Again, since SCE does not hedge 100% of forecasted

natural gas requirement, when hedges are out of the money, customers benefit from lower costs

on the unhedged portion. Conversely, when hedges are in the money, they provide price

protection for the portion of the forecasted requirement that was hedged, thus moderating the

volatility of energy procurement costs for customers. SCE urges the Commission to take a long-

term view on hedging, and continue to support cost-effective hedging programs for a portion of

the bundled customer portfolio. To do otherwise would be to subject a substantial portion of the

bundled customer portfolio to unmanaged price outcomes. DRA’s testimony regarding hedging

should have no bearing on the Commission’s approval of SCE’s AB 57 Bundled PP.

Other than the unfounded concerns regarding natural gas hedging and compliance with

the Preferred Loading Order and AB 32, no other concerns were raised by parties regarding the

relatively unchanged portions of SCE’s AB 57 Bundled PP. For SCE’s proposed changes, most

26 Id. at p.12.

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of these were unopposed by parties, as described further below, and should thus be approved by

the Commission without modification.

B. The Commission Should Adopt SCE’s Unopposed Request To Contract For A Term

Of Five Years Or Less

In this AB 57 Bundled PP, SCE proposed to procure contracts of “5 years or less” in

duration, instead of contracts limited to “less than 5 years” as authorized in SCE’s 2006

Conformed LTPP.27 As explained in further detail in SCE’s testimony,28 the “less than five-

year” contract limitation causes unnecessary and inefficient procurement constraints to the

detriment of its bundled customers. Under the current “less than five-year” term limitation, if

SCE wants to maximize its allowable procurement term, it must solicit contracts with partial year

effective periods contrary to standard industry practice. Otherwise, SCE must seek shorter-term

contracts that entail more transaction activity and less opportunity for suppliers to offer stable

pricing. Market liquidity for longer-term products is also often limited to annual terms. Since no

party objected to SCE’s proposal to contract for terms of “five years or less” and this is

effectively a one-day (or even arguably a one-hour) increase to SCE’s current procurement

authority, the Commission should approve this request.

C. The Commission Should Adopt SCE’s Unopposed Change To Its Congestion

Revenue Rights (CRRs) Procurement Plan

SCE’s proposal to submit to SCE’s Procurement Review Group (PRG) a single monthly

Congestion Revenue Rights (CRR) allocation and auction results report within five (5) business

days after completion of the last monthly CRR process, instead of within three (3) business days

of each monthly allocation and auction tier result,29 was also uncontested by other parties.

SCE’s proposed change to its current CRR reporting requirement, which requires SCE to submit

27 SCE, Exhibit 200, p.49. 28 SCE, Exhibit 202, pp.53-55. 29 SCE, Exhibit 200, p.56; SCE, Exhibit 201, pp. G-4 through G-5.

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three (3) separate monthly CRR reports for each month’s CRR activity, will simplify the

reporting process and provide PRG participants with a complete summary of each month’s CRR

results.30 The Commission should grant SCE’s unopposed request to provide a more streamlined

approach to CRR reporting for the benefit of SCE’s PRG participants.

D. The Commission Should Adopt SCE’s Unopposed Additional Non-Standard

Products

The following new additions proposed by SCE to the list of authorized non-standard

products in Appendix O in Exhibit 201 were also unopposed by other parties: (1) Electricity

Transmission Products for non-CAISO transmission, and (2) Sales of Forward Energy from

Resources Located Outside the CAISO.31 By designating certain products as non-standard, SCE

can procure these products bilaterally, subject to adequate price support, for terms longer than

one calendar quarter and/or with delivery beginning longer than one calendar quarter forward.

Since SCE has contracted for significant amounts of renewable energy since the 2006

Conformed LTPP, these proposed products will enable SCE to more cost effectively mitigate

delivery cost risks associated with such renewable energy and therefore should be approved by

the Commission.

E. The Commission Should Adopt SCE’s Unopposed Changes To Its Authorized

Brokers And Exchanges Table

There was no opposition to SCE’s removal of the column, “Products Traded and/or

Information Provided,” from its list of “Authorized Brokers and Exchanges” in the 2006

Conformed LTPP to produce Appendix E in Exhibit 201, the Appendices to SCE’s proposed AB

57 Bundled PP, effectively de-linking a given authorized broker or exchange from a given

authorized product. This maximizes flexibility and efficiency in SCE’s procurement of products

30 SCE, Exhibit 202, p.65. 31 Id. at p.67; SCE, Exhibit 201, p. O-1; see also SCE, Exhibit 200, pp.47-48.

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so that SCE can reach as many counterparties as possible for any authorized product. Thus, the

Commission should grant SCE authority to transact any product on SCE’s list of Authorized

Procurement Products for Energy and Energy Related Products (Appendix C of Exhibit 201)

through any broker or exchange on its list of Authorized Brokers and Exchanges (Appendix E of

Exhibit 201).32

III.

THE COMMISSION SHOULD ADOPT SCE’S REMAINING PROPOSED CHANGES

TO THE 2006 LTPP PROCUREMENT PLAN

Although most of SCE’s AB 57 Bundled PP was unopposed by other parties, a few

proposed changes were contested. As detailed below, these changes should nonetheless be

adopted by the Commission.

A. The Commission Should Adopt SCE’s New Hedging Proposals

There was no opposition to SCE’s new hedging proposals to calculate the Consumer Risk

Tolerance (CRT) based on system average rates and implement a revised methodology for SCE’s

procurement limits and ratable rates. However, DRA suggested revisions to these proposals and

the Commission should reject these revisions since they could result in higher costs for

ratepayers.

1. SCE’s Proposed CRT Appropriately Changes As Customer Rates Change

SCE’s proposed periodic calculation of the CRT using a fixed percentage risk factor

multiplied by SCE’s system average rate would be beneficial to SCE’s customers because it

would ensure that customer risk is managed proportionally as rates increase or decrease.33 In its

testimony, DRA recommended a similar proposal, except that DRA proposed that the CRT be

32 SCE, Exhibit 201, pp. C-1 to C-5, E-1 to E-2. 33 SCE, Exhibit 202, p.69.

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indexed to 10 percent of the current system average rate for the IOU.34 SCE proposed that the

CRT should be updated at each biennial LTPP filing using the then-existing system average rate,

and remain fixed until the next LTPP filing.35 Continuously indexing the CRT to an IOU’s ever-

changing system average rate, as proposed by DRA, could destabilize SCE’s hedging program

and lead to perverse outcomes from a contemporaneous feedback loop between system average

rates, procurement costs, and hedging.36 For example, if power and gas prices increase, average

rates will increase, which, in turn, would raise a contemporaneously-indexed CRT and indicate

that less hedging is required. Thus, the Commission should adopt SCE’s more stable periodic

update approach which considers adjustments to the CRT only at each LTPP filing. SCE also

notes that DRA’s proposal to use a 10% CRT index will result in a CRT value that is almost 50%

higher than the current one-cent per kWh CRT and SCE’s proposed 7.04% index. Adoption of

DRA’s 10% CRT index will probably lead to significantly less hedging of the bundled customer

portfolio, which would result in more market exposure.

2. The Commission Should Adopt SCE’s Proposed Procurement Limits and

Ratable Rates Without Any Further Limitations

DRA supported SCE’s more restrictive approach to setting its electrical capacity annual

position limits and ratable rate limits than what is in SCE’s 2006 Conformed LTPP.37 SCE’s

revisions eliminated the load forecast error and generation outage contingencies, resulting in a

total reduction of 1,950 MW per year in SCE’s existing electric capacity annual position limits.38

SCE also proposed to eliminate the three-time ratable rate procurement construct altogether.39

However, DRA proposed to further restrict SCE’s proposed two-time ratable rate for forward

procurement in years two through five to only apply to year two (i.e., the maximum possible

34 DRA, Exhibit 400, p.27. 35 SCE, Exhibit 202, p.69. 36 SCE, Exhibit 207, p.13. 37 DRA, Exhibit 400, pp.44-45. 38 SCE, Exhibit 207, p.14. 39 Id.

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procurement that SCE can engage in is a one-time ratable rate for year three and beyond).40

DRA’s further restriction may lead to higher costs for bundled customers because SCE may be

required to purchase significant quantities of scarce (and therefore pricier) Resource Adequacy

(RA) capacity on a “just-in-time” basis in year two to meet its year-ahead RA requirements,

rather than in years three through five which should have more competitive market conditions.41

Procuring more than a one-time ratable rate over a multiple year procurement window would

allow SCE to create more competition between the limited sellers of RA capacity. Accordingly,

DRA’s suggestion to further limit SCE to a two-time ratable rate for only year two should be

rejected.

With respect to all other proposed changes by SCE related to its procurement limits and

ratable rates, no further opposition was presented in parties’ testimony, and therefore all SCE’s

revisions should be adopted by the Commission. These proposed changes include those changes

to (1) SCE’s ratable rate limits methodology for electrical energy and natural gas to implement a

rolling 12-month ratable rate instead of a monthly ratable rate construct;42 (2) SCE’s

methodology for electrical energy monthly position limits to use the simulated net short

positions to set the monthly purchase position limit, use the simulated monthly net long positions

to set the monthly sales position limit, and calculate such limits separately for on-peak and off-

peak periods and on a gross volume basis;43 (3) allow SCE to file an annual (or more frequent, if

necessary) update to its position limits and ratable rate limits via a Tier 1 advice letter during

years in which SCE does not file an updated AB 57 Bundled PP;44 (4) allow SCE to sell any and

all of its sulfur dioxide (SO2) Title IV allowance portfolio, including rights to the 31-year

forward vintage allowances that the United States Environmental Protection Agency (EPA)

continues to issue on an annual basis;45 and (5) clarify for limits compliance purposes that SCE’s

40 DRA, Exhibit 400, p.46. 41 SCE, Exhibit 207, p.15. 42 SCE, Exhibit 202, pp.57-58. 43 Id. at pp.58-60. 44 Id. at p.60. 45 Id. at p.61.

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position limits and ratable rate limits shall not apply to SCE’s transactions for preferred

resources46 or transactions that do not provide a hedge value (e.g., an index-priced contract), and

that “linked” transactions are considered to be one transaction.47

B. The Commission Should Adopt SCE’s New Renewable Procurement Proposals and

Corresponding Renewables Products

1. SCE’s Proposed Short-Term Renewable Procurement Authority Is An

Appropriate Mechanism To Assist In Meeting The State’s Renewable Energy

Goals

On April 12, 2011, Governor Jerry Brown signed into law Senate Bill (SB) x 1 2 which

established a goal whereby 33% of California’s electricity would come from Renewables

Portfolio Standard (RPS)-eligible renewable resources:48

In order to attain a target of generating 20 percent of total retail sales of electricity in California from eligible renewable energy resources by December 31, 2013, and 33 percent by December 31, 2020, it is the intent of the Legislature that the commission and the Energy Commission implement the California Renewables Portfolio, described in this article.49

The details of how the state will implement SB x 1 2 are yet to be determined. SCE’s

proposed AB 57 Bundled PP includes authorization to enter into a limited quantity of short-term

renewable energy transactions (for either bundled or Renewable Energy Credit (REC) only

products) using a pre-approval framework. This would give SCE flexibility for the procurement

of renewable energy products similar to that of all non-renewable energy products, covered by

the AB 57 Bundled PP.50 Center for Energy Efficiency and Renewable Technologies (CEERT)

supports SCE’s request, with one minor modification, and asserts that this type of flexibility is

46 Preferred resources include EE, DR, Renewable Projects, CHP, QFs, and DG. 47 SCE, Exhibit 202, p.61. 48 Senate Bill (SB) x 1 2 (2011); Renewables Portfolio Standard Program (RPS). 49 SB x 1 2, chaptered April 12, 2011, Pub. Util. Code § 399.11(a). 50 SCE, Exhibit 202, p.48, line 3-4.

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necessary to “make renewable procurement a fully integrated part of long term procurement

planning.”51 SCE agrees that it needs this type of flexibility to ensure that it has the tools

necessary to procure enough renewable energy to meet the State’s 33% goal by December 31,

2020.

As SCE discussed in Exhibit 202, there are five primary factors that challenge

achievement of a 33% goal:

a) “permitting, sitting, approval, and construction of transmission and

renewable generation projects;

b) integrating intermittent renewables;

c) a heavily subscribed interconnection queue;

d) developer performance; and

e) lack of flexibility in the regulatory process governing procurement.”52

SCE’s proposal in this docket specifically addresses the challenge associated with “lack

of flexibility in the regulatory process” governing the procurement of renewable resources. In

SCE’s view, addressing the other four challenges listed above is beyond the scope of this Track

II proceeding.

Exhibit 1100, CEERT’s testimony, noted that “[t]he segregated review and approval of

RPS procurement plans and solicitations and the additional, separate advice letter filing for each

RPS contract, clearly add a level of regulatory process that is not required for conventional

fossil-fired procurement.”53 SCE agrees, as it stated in Exhibit 207: “Because of the need to

increase the flexibility of procurement of higher Preferred Loading Order resources, SCE

requests approval of upfront and achievable standards in this LTPP which can govern its

procurement of certain renewable resources.”54 SCE’s AB 57 Bundled PP included two new

51 CEERT, Exhibit 1100, p. II-4 (citing CEERT Comments on Preliminary Scoping Memo (March 16, 2006) in R.06-02-012, p.7).

52 SCE, Exhibit 202, pp.49-50, lines 15-2. 53 CEERT, Exhibit 1100, p. II-4. 54 SCE, Exhibit 207, pp.16-17, lines 22-1.

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products: Forward Renewable Energy and RECs. The identification of these products and

establishment of a methodology to determine a confidential pre-approval cost limit is consistent

with the treatment of other non-renewable resources in the AB 57 Bundled PP. Granting SCE

this authority would remove barriers to procurement of renewables that do not exist for

procurement of non-renewable resources.

DRA opposed SCE’s proposal to increase flexibility of SCE’s procurement of renewables

while at the same time expressing concern that renewables are not sufficiently prioritized in

SCE’s compliance with the Preferred Loading Order.55 DRA’s objection is primarily procedural

that the issue is outside of the scope of the 2010 LTPP and that the Commission rejected

proposals like this one, in RPS proceedings. 56 “DRA’s procedural objection ignores the

recognized need for a pre-approval process for renewable resources in SCE’s AB 57 Bundled

PP, which requires upfront and achievable standards.”57 Moreover, it is inconsistent with DRA’s

own testimony that recommends the Commission “require the IOUs to develop analytically

rigorous strategies to incorporate the loading order into their day-to-day procurement operations,

per the EPA and Public Utilities Code 454.4”58

Women’s Energy Matters (WEM) and Californians for Renewable Energy (CARE) also

expressed concern that the IOUs were not sufficiently prioritizing purchases from renewables.59

That being said, WEM and CARE did not voice support for SCE’s proposal to increase

flexibility of SCE’s procurement of renewables even though it would facilitate their goals of

providing more flexibility for the IOUs to increase their purchases of renewable power.

SCE urges the Commission to adopt its proposed short-term renewable procurement

authority in this docket. That being said, as SCE notes in its rebuttal testimony, Exhibit 207, if

the Commission wants to make the necessary policy decisions in another proceeding, the

55 DRA, Exhibit 400, pp.18-19. 56 Id. at pp.41-44. 57 SCE, Exhibit 207, p.16, lines 9-11. 58 DRA, Exhibit 400, p.2, lines 25-27. 59 WEM, Exhibit 800, p.6; CARE, Exhibit 700-A, pp.5-6.

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Commission should, at a minimum, approve the methodology SCE has proposed for use in this

docket, and then allow the policy issue of whether to implement the methodology to be

determined in another venue deemed more appropriate.60

2. The Commission Should Adopt SCE’s Proposed Renewable Integration

Products

The Commission should also add Renewable Integration Products to the AB 57 Bundled

PP list of approved procurement products. As discussed in the section above, SB x 1 2

established a 33% renewable energy goal by December 31, 2020. Most renewable resources are

intermittent resources which provide variable energy. SCE anticipates that the delivery of out-

of-state wind generation projects will significantly increase over the next few years.61 SCE will

need Renewable Integration Products to mitigate the operational and financial risks associated

primarily with these out-of-state wind contracts. These products may be highly structured and

result from negotiations between SCE as buyer and the generator as seller of the renewable

power to clarify whether the buyer or the seller of the renewable resource is responsible for

firming up the resource and related charges and/or operational orders by the balancing

authority.62 Alternatively, “these transactions could include products offered directly from the

balancing authority, such as Bonneville Power Administration’s proposed supplemental wind

balancing service.”63

60 SCE, Exhibit 207, p.18, lines 5-9. 61 As noted in Exhibit 207, p.21, footnote 47, “[t]he Shephards Flat project is located in the Columbia Gorge in

Northern Oregon and will increase SCE’s out-of-state wind generation portfolio from 125 MW (Goshen in Southeast Idaho) to 971 MW. The 104 MW Echanix project located in Central Oregon is scheduled to go online in September 2012.”

62 SCE, Exhibit 202, p.66, lines 2-4. 63 Id. at lines 6-8.

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3. SCE’s Proposed Fixed Price For Short Run Avoided Cost Floating Swap Is

Useful And Appropriate

SCE’s proposed Fixed Price for SRAC floating swap was unopposed by other parties.

This product will provide SCE with another option to hedge customer “risk to volatile natural

gas prices resulting from the SRAC payment obligation.”64 This is because most QFs are paid

the CPUC-adopted SRAC price. At the present time, the CPUC-adopted SRAC price is the

Market Index Formula, which, in essence, multiplies a heat rate based 50% on market heat rates

and 50% on an administratively set heat rates by the price of natural gas.65 Thus, the Market

Index Formula fluctuates with the price of natural gas.

In D.10-12-035, the CPUC approved the QF/CHP Settlement Agreement which provides

for implementation of a new SRAC price upon the Settlement Effective Date, which occurs

when certain conditions are met. 66 SCE anticipates that the Settlement Effective Date may occur

as early as this summer.67 This new SRAC price will also fluctuate with the price of natural gas.

The Fixed Price for SRAC floating swap is a voluntary mechanism for QFs desiring the

certainty of a fixed price instead of a price which changes with the price of natural gas. SCE will

use this product solely within its proposed natural gas hedging plan.68 In the past, SCE

established a single fixed price through negotiations with market participants, and, then, offered

that price to all eligible QFs. SCE then submitted these agreements to the CPUC for its

approval, upon which they were contingent.69 The QFs who did not accept the offer or who were

64 SCE, Exhibit 202, p.66, line 21. 65 D.07-09-040. 66 The Settlement Effective Date is the date that the following conditions are met: (1) a final and non-appealable

Federal Energy Regulatory Commission (FERC) order approval the IOUs’ application to terminate their Public Utility Regulatory Policies Act (PURPA) purchase obligation (Section 16.2.1); (2) a final and non-appealable Commission decision approving the Settlement; and (3) CARB support for the Settlement.

67 D.11-03-051 resolved the Applications for Rehearing of D.10-12-035 and, therefore, met the requirement for the final and non-appealable Commission decision. CARB expressed support for the Settlement through an ex parte communication, and, therefore the requirement of CARB support for the Settlement has been met. The parties are awaiting issuance of a final and non-appealable FERC order approving thee IOUs’ application to terminate their PURPA purchase obligation.

68 SCE, Exhibit 207, p.19, lines 10-11. 69 Id. at p.19.

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ineligible for it remained on the SRAC price.70 SCE then managed the natural gas price risk

associated with payments to those QFs “within the context of SCE’s total supply portfolio and

hedging program.”71 The Fixed Price for SRAC floating swap will work in much the same way

as the older single fixed price agreement, but “will allow SCE to hedge the SRAC price exposure

in a more effective manner and will allow market participants, that have the opposite financial

exposure and may find this product beneficial, to participate in these transactions.”72

Thus, the Commission should authorize the Fixed Price for SRAC floating swap as

providing an important hedge to SCE’s customers’ natural gas price exposure.

C. The Commission Should Adopt SCE’s Proposals For Modification Of Convergence

Bidding

With the exception of DRA, no other party opposed SCE’s proposals to modify its

convergence bidding authority to achieve potential benefits for ratepayers. DRA’s concerns

regarding SCE’s convergence bidding proposals should also be rejected, as explained in further

detail below, because SCE’s proposals can provide more benefit for bundled customers, while

still imposing sufficient protections.

1. Track II Of The LTPP Is The Appropriate Forum For Considering Changes

To Convergence Bidding

DRA argued that it is too soon to consider changes to SCE’s AB 57 convergence bidding

upfront standards and the Commission should wait one full year after the convergence bidding

market commenced (i.e., after February 1, 2012) before considering such revisions.73 This

recommendation by DRA has already been rejected by the Commission’s decision in D.10-12-

034 granting the IOUs the authority to engage in convergence bidding, as acknowledged in

70 Id. 71 Id. at lines 20-21. 72 Id. at p.20, lines 5-6. 73 DRA, Exhibit 400, p.47.

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DRA’s own testimony.74 Since the Commission did not accept DRA’s recommendation for a

one-year waiting period and D.10-12-034 specifically stated that “subsequent review of the

[convergence bidding] interim authority . . . will be addressed in the normal course of the

underlying proceeding,”75 modifications to that interim authority should be addressed in Track II

of the underlying LTPP proceeding. Thus, SCE’s proposed revisions are appropriately brought

in Track II of this proceeding.

2. SCE’s Proposed Revisions To Its Convergence Bidding Have Sufficient

Protections For Bundled Customers

For its AB 57 Bundled PP, SCE proposed three revisions to the convergence bidding

authority provided under D.10-12-034:76 (1) remove the Commission-authorized strategy-

specific limitation on SCE’s participation in convergence bidding, but still subject SCE’s

strategies to PRG review prior to implementation; (2) revise the eligible locations for submission

of convergence bids to comport with SCE’s physical supply, physical load, transmission assets

(including CRRs), or transmission usage; and (3) limit SCE’s reporting requirements to

information associated with its cleared (as opposed to all submitted) convergence bidding

transactions.77

Alternatively, if the Commission rejects the first proposed revision and limits SCE to

only Commission-approved strategies, SCE requested that the Commission authorize a fourth

“diversification” strategy to more effectively reduce risk.78 Examples of the diversification

strategy include managing a day-ahead long position by submitting a convergence bid so that a

portion of the long position is settled at the Real-Time Market price, or submitting convergence

bids at CRR source/sink locations so that the CRR settles at Real-Time Market prices rather than

74 SCE, Exhibit 207, p.34 (citing D.10-12-034, pp.11-12; DRA, Exhibit 400, p.47, lines 16-18.). 75 D.10-12-034, p.44. 76 All other upfront standards adopted in D.10-12-034 would become a part of SCE’s AB 57 Bundled PP, except

those proposed to be revised in this filing. 77 See SCE, Exhibit 200, p.56; SCE, Exhibit 201, p. H-1; SCE, Exhibit 202, pp.63-64. 78 SCE, Exhibit 202, pp.64-65.

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the Day-Ahead Market prices. This alternate recommendation also includes the revisions to

convergence bidding locations and reporting requirements. Under a strategy-specific standard,

SCE also proposed to be authorized to file a Tier 3 Advice Letter to request additional strategies,

similar to what SCE uses to modify other elements of its AB 57 Bundled PP.

DRA argued that SCE’s “proposed revisions would effectively remove all limitations

imposed by the upfront standards developed in the decision, except for the $20 million stop-loss

limit.”79 DRA also asserted that “without a strategy specific authorization, there is no ratepayer

protection from an IOU engaging in speculative convergence bidding behavior.”80 DRA’s

arguments are without merit. As SCE stated in its testimony, since “[a]ll other upfront standards

adopted in D.10-12-034 would become a part of SCE’s AB 57 Bundled PP, except those

proposed to be revised in this filing,”81 all protections are still in place under SCE’s proposed

revisions.82 For example, SCE’s proposal to submit convergence bids at locations that comport

with its physical supply, physical load, transmission assets (including CRRs), or transmission

usage83 is a similar standard to the “physical use of the grid” standard for CRRs, and does not

permit any “speculative behavior.” More importantly, the unrevised $20 million stop-loss limit

provides a very high level of cost protection for bundled customers, which is why adoption of

strategy-specific authorizations for the IOUs is unnecessary.84 Nothing in SCE’s proposals

prevents the Commission from restricting the IOUs from engaging in a particular convergence

bidding practice if it determines that is necessary. Moreover, as reflected in a confidential data

request response provided to DRA, experience with the convergence bidding market has already

shown that the very limited set of authorized strategies have not allowed SCE customers to

receive certain benefits of convergence bidding.85 In that response, SCE identified several

79 DRA, Exhibit 400, p.49, lines 4-6. 80 Id. at p.49, lines 13-15. 81 SCE, Exhibit 202, p.63, n.108. 82 SCE, Exhibit 207, p.36. 83 SCE, Exhibit 202, p.63. 84 SCE, Exhibit 207, p.36. 85 Id. at p.35.

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examples of how convergence bidding outside of the current three authorized strategies could

have been used by SCE to benefit its bundled customers if SCE had been authorized to submit

such convergence bids.86

DRA also objected to SCE’s alternate recommendation to approve a fourth

“diversification” strategy if the Commission is not willing to eliminate the strategy-specific

limitations.87 However, DRA has not provided any arguments against the diversification strategy

based on merit, and therefore its objection should be afforded no weight.88 Accordingly, the

Commission should reject DRA’s arguments and approve SCE’s proposed changes to its

convergence bidding upfront standards for the benefit of bundled customers.

IV.

THE COMMISSION SHOULD ADOPT SCE’S PREFERRED PLANNING ANALYSIS

FOR PURPOSES OF SETTING PROCUREMENT LIMITS

Many parties raised concerns about SCE’s Preferred Assumptions used in its Track II

planning analysis. The purpose of the Track II planning analysis for SCE was to set position

limits and ratable rates (i.e., maximum rates of transaction) to provide an upper boundary on the

amount of procurement SCE can engage in without prior Commission approval. The forecast

forming the basis for the position limits should be reasonable, but should not use the most

optimistic and aggressive assumptions possible. SCE’s Preferred Assumptions were largely

based on the CPUC Standardized Planning Assumptions. No party challenged SCE’s use of the

CPUC Standardized Planning Assumptions.

However, SCE made a few changes from the CPUC Standardized Planning Assumptions

to provide a more realistic basis for its position limits, which are based on the results of SCE’s

86 SCE Responses, Questions 5 and 6 of DRA Data Request R.10-05-006-SCE-002, confidential and public versions in Attachment E to SCE, Exhibits 208 and 208-C. SCE’s response to Question 5 provides examples of convergence bidding outside of the current three authorized strategies. SCE’s response to Question 6 provides examples of SCE’s alternative “diversification” strategy.

87 DRA, Exhibit 400, p.50, lines 8-10. 88 See id. at p.50, lines 8-20; SCE, Exhibit 207, p.37.

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Preferred Analysis. Certain CPUC Standardized Planning Assumptions were too optimistic and

aggressive for purposes of setting maximum forward procurement limits, and could lead to a

situation where SCE has too much market exposure because its position limits for forward

procurement activity could be too low. Thus, the changes to the input assumptions in SCE’s

Preferred Analysis make it a more realistic basis for the establishment of SCE’s position limits.

The reasonableness of SCE’s Preferred Analysis is described in more detail below.

SCE also explains below why its assumptions about the implementation of the QF/CHP

Settlement Agreement, which was not addressed in the CPUC Standardized Planning

Assumptions, were reasonable. In addition, SCE discusses the reasonableness of its GHG

emissions results.

A. For the Most Part, SCE Used CPUC Standardized Planning Assumptions And

Methodology

Table III-189 from Exhibit 202 below summarizes the major assumptions used to perform

both the CPUC Standardized Planning Analysis and the SCE Preferred Analysis.

89 SCE, Exhibit 202, p.15.

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Table III-1 Key Input Assumptions

CPUC Standardized

Planning Analysis

SCE Preferred Analysis

Demand Forecast Updated 2009 IEPR90 SCE Current Forecast Load Migration 2009 IEPR Assumption SCE DA Reopening Renewables Compliance

33% Physical Delivery Flexible Compliance

Natural Gas Prices Forward prices averaged using Market Price Referent (MPR) methodology

GHG Prices Synapse Mid-Case Forecast CO2 Emission Rates As specified in proposed CARB regulations Capacity Price Capacity Procurement Mechanism (CPM) Power Prices Power price forecast developed using a production cost

simulation of the Western Electricity Coordinating Council (WECC) region

Cost Assumptions General Rate Case (GRC) Revenue Requirement (RR), existing portfolio costs and market prices

As can be seen from Table III-1, SCE used the same assumption in its SCE Preferred

Analysis as in the CPUC Standardized Planning Analysis for: (1) natural gas prices, (2) GHG

prices, (3) CO2 emission rates; (4) capacity price; (5) power prices, and (6) cost assumptions.

No party objected to SCE’s use of these assumptions. Therefore, the Commission should find

that SCE’s use of these assumptions was reasonable.

90 In the ALJ’s Ruling, dated December 23, 2010, Appendix B, the IOUs are required to adjust the 2009 IEPR forecast using updated information from the California Energy Commission (CEC). See pp.3-5.

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B. To The Extent That SCE’s Preferred Assumptions Deviated From the CPUC

Standardized Planning Assumptions, SCE’s Preferred Assumptions Were More

Reasonable Than The CPUC Standardized Planning Assumptions For Purposes Of

Establishing SCE’s Position Limits For Forward Procurement Activity

Table III-1 from Exhibit 202, reproduced above, shows that SCE used different

assumptions in the SCE Preferred Analysis about: (1) demand forecast; (2) load migration of

SCE customers to Direct Access (DA); and (3) renewables compliance. As discussed below,

these were all reasonable and appropriate changes to the CPUC Standardized Planning

Assumptions.

1. SCE Used Appropriate Assumptions About the Demand Forecast

a) SCE Fully Supported Its EE Assumption

SCE Preferred Assumptions on EE are more realistic than the CPUC Standardized

Planning Assumptions for two key reasons: (1) the EE savings are consistent with D.08-07-047

and the most realistic case identified in the California Energy Commission’s (CEC’s) 2009

Integrated Energy Policy Report (IEPR) Report on EE savings; and (2) the SCE Preferred

Assumptions appropriately implicitly include the energy savings from building codes and

appliance standards, rather then explicitly including them as the CPUC Standardized Planning

Assumptions do.91 As discussed above, the Commission should not adopt the most aggressive

and optimistic EE savings assumptions for purposes of setting position limits and ratable rates in

the AB 57 Bundled PP because of the increased risk to customers of market exposure if the

aggressive and optimistic assumptions are not realized.

91 Id. at pp.26-28.

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(1) SCE Preferred Assumptions Are Consistent With Commission

Decisions and A CEC Forecast That Will Require An

Aggressive Approach

As required in D.08-07-047,92 SCE utilized 100% of the Total Market Gross (TMG)

goals in its LTPP process. SCE’s Preferred Assumptions reflect SCE’s strong commitment to

develop cost effective and achievable EE, and SCE developed its EE forecast assuming that it

will meet or exceed the TMG interim EE goals.

Since the issuance of D.08-07-047, the CEC issued the 2009 IEPR Report which included

the Committee Report on the “Incremental Impacts of Energy Efficiency Initiatives Relative to

the 2009 Integrated Energy Policy Report Adopted Demand Forecast (CEC Report).”93 The

CEC Report identified low, mid, and high EE cases. “The mid and high cases forecast energy

savings from EE that are significantly higher than the TMG goals.”94 In the CEC Report, the

CEC warns that if significant EE savings do not materialize, there may not be sufficient

resources to meet customer demand resulting in reduced system reliability and increased

consumer costs.95 The CPUC Standardized Planning Assumptions assumed the EE savings

projected by the mid case, except that the low case was used for the Big Bold Energy Efficiency

Strategy (BBEES) component. As SCE noted in Exhibit 207, the EE savings in the mid-case

may not be cost effective and achievable in the present economic environment in which

consumers are less able and willing to make capital investments in EE.96 The Commission

should adopt the aggressive, but achievable, CEC Report low case based on achievement of the

TMG goals.

92 D.08-07-047, Ordering Paragraph 3. 93 CEC-200-2009-001-CTF available at http://www.energy.ca.gov/2010publications/CEC-200-2010-001/CEC-

200-2010-001-CTF.PDF. 94 SCE, Exhibit 207, p.27, lines 2-3 (emphasis added). 95 Id. at lines 4-6. 96 Id. at lines 7-10.

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(2) SCE Preferred Assumptions Appropriately Implicitly Include

Energy Savings From Building Codes and Appliance

Standards

The CPUC Standardized Planning Assumptions explicitly included anticipated energy

savings from the building codes and appliance standards that are not part of the TMG goals. The

SCE Preferred Analysis implicitly included the building codes and appliance standards by taking

them into account in its load forecast:97

. . . SCE’s econometric load forecast methodology implicitly captures the savings from building and appliance standards in the overall load forecast as those savings cannot be explicitly identified. This is because SCE’s overall load forecast is based on historical data and trends that include the effect of past improvements in building codes and appliance standards.98

SCE’s Preferred Assumptions forecasted that “the future implementation of building

codes and appliance standards will generally mirror improvements captured in the historical data

forming the basis of SCE’s load forecast.”99 The CPUC Standardized Planning Assumptions

explicitly capture variables with respect to the timing and magnitude of energy savings building

codes and appliance standards.100 As a result, the energy savings in SCE’s Preferred Analysis

are not readily comparable to the energy savings in the CPUC Standardized Planning

Assumptions. That being said, the CPUC Standardized Planning Assumptions may also be too

optimistic as they are not necessarily adjusted for how building codes and appliance standards

have historically resulted in energy savings. The CPUC should not adopt the most optimistic and

aggressive EE savings assumptions for purposes of setting position limits and ratable rates in

SCE’s AB 57 Bundled PP because of the increased risk to customers of market exposure if the

aggressive and optimistic assumptions are not realized.

97 Id. at p.26, lines 1-3. 98 Id. at p. 26, lines 1-4. 99 Id. at lines 5-6. 100 SCE, Exhibit 202, pp.22-23.

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b) SCE Used Appropriate DR Assumptions

For the demand forecast, the SCE Preferred Assumptions also differed from the CPUC

Standardized Planning Assumptions because they assumed that: (1) 280 MW of bilateral DR

contracts will expire by 2012 and should not count beyond that point in time; and (2) there will

be 653 MW less Advanced Metering Infrastructure (AMI)-enabled DR.101 It is not necessary to

use these very aggressive DR assumptions in the CPUC Standardized Planning Assumptions to

establish SCE’s maximum procurement limits.

With regard to the 280 MW of bilateral DR contracts, “[i]t is not appropriate for SCE to

assume that these existing DR programs will remain in SCE’s portfolio given the activity

underway to create third-party demand response providers.”102 SCE’s application for the 2012-

2014 DR program cycle, Application (A.) 11-03-003, assumes that it will not seek renewal of the

280 MW of bilateral DR contracts because of the creation of third-party DR providers. “SCE’s

forecast is more realistic about the level of DR that SCE can reasonably achieve because of the

opening up of direct participation of DR programs in the wholesale market with third party DR

providers capturing some DR savings.”103

With regard to the 653 MW reduction in AMI-enabled DR, there are considerable

uncertainties surrounding AMI-enabled DR at this time.104 The SCE Preferred Analysis

excluded capacity from the following AMI-enabled DR programs: “Programmable

Communicating Thermostat (PCT), Residential Time-Of-Use (TOU), medium C&I Critical Peak

Pricing (CPP), and medium C&I TOU programs.”105 SCE assumed that the only AMI-enabled

DR program remaining in place would be the Save Power Day (previously known as the Peak

Time Rebate program).106

101 SCE, Exhibit 207, p.28. 102 Id. at lines 11-13. 103 SCE, Exhibit 202, p.24, lines 6-8. 104 SCE, Exhibit 207, p.28, lines 20-21. 105 Id. at p.29, lines 1-2. 106 Id. at lines 3-4.

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The Commission should adopt the more realistic SCE Preferred Assumptions for

purposes of setting procurement limits and ratable rates. DR maintains a priority in SCE’s

procurement under the Preferred Loading Order.107 As a result, SCE will account for any DR

that materializes above the forecasted load impact in considering SCE’s incremental Resource

Adequacy (RA) requirements and net energy requirements. To the extent that increases in

realized DR relative to SCE’s forecast of DR occur, the increases in realized DR will reduce

SCE’s residual procurement.108

2. SCE Used Appropriate Assumptions About DA

The SCE Preferred Analysis assumptions about DA migration differed from the CPUC

Standardized Planning Assumptions. SCE’s “DA load forecast includes the maximum allowable

phase-in of new DA sales permitted under SB 695, and this is why it deviates from the DA

forecast underlying the CPUC Standardized Planning Assumptions.”109 The CPUC Standardized

Planning Assumptions assumed less DA penetration.

SB 695, at Public Utilities Code Section 365.1(b) states that:

The commission shall allow individual retail nonresidential end-use customers to acquire electric service from other providers in each electrical corporation’s distribution service territory, up to a maximum allowable total kilowatt hours annual limit.

SB 695, also in Public Utilities Code Section 365.1(b), established the maximum allowable total

kilowatt hours annual limit as “the maximum total kilowatt hours supplied by all other providers

to distribution customers of that electric corporation during any sequential 12-month period

between April 1, 1998 and the effective date of this section.” In D.10-03-022, dated March 11,

2010, the Commission phased in increased DA allowances over a four-year period beginning in

107 Id. at p.29, lines 4-5. 108 Id. at lines 7-8. 109 Id. at p.24, lines 18-20.

1815184 - 31 -

2011, “subject to annual caps in the maximum DA increase allowed each year.”110 By February

2011, the 2012 DA allowance for SCE was fully subscribed.111

The SCE Preferred Analysis assumed that the authorized increase for DA would be fully

subscribed in each year up until 2013. “Starting in 2014, SCE’s forecast of DA sales remains

constant at the 2013 level except for inclusion of a proportional share of the growth in electric

vehicle and electro-technology energy use.”112 SCE’s assumption of the maximum allowable

phase-in of new DA sales is consistent with state law, D.10-03-022, and recent experience in

implementation of both state law and D.10-03-022. Since the SCE Preferred Assumptions about

DA sales are more realistic than the CPUC Standardized Planning Assumptions, the SCE

Preferred Assumptions should be utilized for purposes of establishing position limits and ratable

rates for SCE’s Track II Bundled PP.

3. SCE Used Appropriate Flexible Compliance Assumptions for Renewables

Both the SCE Preferred Analysis and the CPUC Standardized Planning Analysis assumed

that 100% of SCE’s expiring renewable contracts are re-contracted.113 Both analyses also

assumed that all new renewable projects that SCE has signed and the Commission has approved

on or by December 31, 2010 are built with a project success rate of 100%.114 “Renewable

projects that SCE has signed, but the Commission has not yet approved, are not included in

either analysis.”115 The only difference between the two analyses is that “SCE’s Preferred

Analysis assumes RPS flexible compliance while the CPUC Standardized Planning Analysis

assumes physical compliance with a 33% renewables target.”116 The use of flexible compliance

110 D.10-03-022, p.2. 111 http://www.sce.com/b-db/esp/SB695.html SCE requests that the Commission take official notice, pursuant to

Rule 13.9 of the Rules of Practice and Procedure, of the full subscription of its 2012 DA allowance noted on the attached SCE website link.

112 SCE, Exhibit 207, p.25, lines 4-6. 113 SCE, Exhibit 202, p.26, lines 7-9. 114 Id. at lines 10-12. 115 Id. at lines 12-13. 116 Id. at lines 14-15.

1815184 - 32 -

assumptions for renewables eliminates the need to assume acquisition of additional generic

renewable resources in 2020 and 2021 in the SCE Preferred Analysis as compared to the CPUC

Standardized Planning Analysis. The use of SCE Preferred Assumptions about renewable

development is appropriate to determine procurement limits and ratable rates for filling SCE’s

net open position. To the extent that SCE has underestimated the need to purchase renewable

resources to meet the 33% goal, it will enter into additional contracts for the purchase of

renewable resources.

a) Passage Of Recently Enacted SB x 1 2 Does Not Call Into Question

The Use of Flexible Compliance for Renewables In SCE’s Preferred

Analysis

Furthermore, the passage of the new legislation SB x 1 2 establishing a 33% renewables

goal should not call into question the results of the Track II planning analyses. Contrary to

Communities for a Better Environment’s (CBE’s) assertions, there is no need to update SCE’s

proposed plan to comply with the new renewables law enacted in SB x 1 2. The renewables goal

in both the CPUC Standardized Planning Analysis and the SCE Preferred Analysis was 33%.

Moreover, “[t]he implementation details for the new renewables legislation have yet to be

determined.”117 SB x 1 2 was signed by Governor Jerry Brown on April 12, 2011, long after the

Track II planning analyses began with the issuance of the December 3, 2010 Scoping Memo on

December 3, 2010. The Commission has opened a rulemaking for issues related to its

implementation, but has not yet issued any decisions in that docket. 118 It is premature to try to

determine the extent the final regulatory rules will change the current flexible compliance rules

in effect. To the extent that the flexible compliance rules result in significant changes to its AB

57 Bundled PP, SCE can update its AB 57 Bundled PP through an Advice Letter. For these

117 SCE, Exhibit 207, p.32, lines 8-9. 118 R.08-08-009.

1815184 - 33 -

reasons, the Commission should adopt the SCE Preferred Analysis for purposes of establishing

procurement limits and ratable rates in this Track II of the LTPP.

b) SCE Used Appropriate RES Compliance Assumptions

CBE raised a concern about SCE’s reported renewable energy being at 29% in 2021

based on SCE’s Figure B-9 of its testimony.119 The difference identified by CBE is the result of

differences in where the measurement of the delivery of energy occurs. Contrary to CBE’s

assertions, there is no basis for concern because the Exhibit SCE-4 pie chart labeled “Figure B-9

CPUC Standardized Planning Analysis – Energy Mix 2021” shows energy from renewable

energy at 29% and not 33%. The reason for this discrepancy is that Figure B-9 measures the

energy mix at the CAISO grid interface and, therefore, accounts for transmission losses for the

generated renewable energy and distribution losses for the retail sales. In contrast, the 33%

renewables goal is calculated as the renewable energy generated and measured at the generator

busbar divided by the total energy consumed measured at the retail customer meter. So, the

renewables goal of 33% does not take into account transmission and distribution losses.

“Therefore, the proportion of renewable generation in the portfolio energy mix will be less than

33% when measured at the CAISO grid interface,”120 even though the projected renewable

energy deliveries meet the 33% requirement when measured as percentage of busbar generation

relative to retail sales.

C. SCE Used Appropriate CHP Assumptions

SCE also made reasonable assumptions about procurement of CHP resources pursuant to

the QF/CHP Settlement Agreement in this 2010 LTPP planning analysis. In D.10-12-035, the

CPUC approved the QF/CHP Settlement Agreement which provides for implementation of a

new SRAC price upon the Settlement Effective Date, which occurs when certain conditions are

119 SCE, Exhibit 203, p.B-9. 120 SCE, Exhibit 207, p.33, lines 14-15.

1815184 - 34 -

met.121 SCE anticipates that the Settlement Effective Date may occur as early as this summer.122

The CPUC Standardized Planning Assumptions were first developed in the Commission’s

December 3, 2010 Scoping Memo which was issued before the Commission issued D.10-12-035

adopting the QF/CHP Settlement on December 16, 2010. Thus, the CPUC Standardized

Planning Assumptions did not specifically incorporate assumptions concerning the QF/CHP

Settlement Agreement, which is why SCE made reasonable assumptions about its

implementation to meet certain MW targets to purchase QF/CHP power.123

The QF/CHP Settlement Agreement has two program periods. The first program period

establishes MW targets for procurement of QF/CHP power for each IOU. SCE’s MW target for

the first program period is 1402 MW. SCE assumed that it would meet the MW target for

QF/CHP power of 1402 MW by 2015 in its Track II planning analyses. This is an appropriate

assumption, especially since it is consistent with the QF/CHP Settlement Agreement.

The second program period, which will likely begin in 2015, establishes GHG targets

which are subject to change for each IOU. The GHG targets can change: (1) as CARB

requirements for GHG reduction from CHP change, (2) as SCE’s share of retail sales of energy

change; and (3) as SCE acquires CHP resources during the first program period that reduce

GHG. SCE did not make any assumptions about what would be needed to meet the GHG targets

past December 31, 2020, through the purchase of QF/CHP power. The QF/CHP Settlement

Agreement has yet to become effective. If the settlement becomes effective, SCE will have an

opportunity to determine how much QF/CHP power it will likely need to meet the GHG targets

121 The Settlement Effective Date is the date that the following conditions are met: (1) a final and non-appealable FERC order approval the IOUs’ application to terminate their PURPA purchase obligation (Section 16.2.1); (2) a final and non-appealable Commission decision approving the Settlement; and (3) CARB support for the Settlement.

122 D.11-03-051 resolved the Applications for Rehearing of D.10-12-035 and, therefore, met the requirement for the final and non-appealable Commission decision. CARB expressed support for the Settlement through an ex parte communication, and, therefore the requirement of CARB support for the Settlement has been met. The parties are awaiting issuance of a final and non-appealable FERC order approving thee IOUs’ application to terminate their PURPA purchase obligation.

123 SCE, Exhibit 207, pp.29-31.

1815184 - 35 -

in the second program period. At that time, it will be appropriate to incorporate new

assumptions about how SCE will meet its GHG target.

D. The GHG Emissions Results In SCE’s Preferred Analysis Are Appropriate

Contrary to DRA’s assertions, “SCE does not assume that it will use GHG-emitting

resources to fill its net short position.”124 Instead, SCE assumes that it will fill its net short

position with market purchase and imports from GHG-compliance-obligated entities.125 So, as a

simplifying assumption, SCE assumes that the market price will be determined by a gas-fired

marginal unit. As a result, the cost of all market purchases includes the marginal resource’s cost

of GHG compliance. This assumption appropriately estimates SCE’s market exposure to the

cost of GHG which will be embedded in the cost of all power sold in California.126 SCE utilizes

a least cost, best fit approach to its actual procurement, and will procure whichever resources are

least cost, best fit for its system consistent with the Preferred Loading Order and other applicable

regulatory mandates.

124 SCE, Exhibit 207, p.31, lines 5-6. 125 Id. at lines 7-8. 126 Id. at lines 10-12.

1815184 - 36 -

V.

CONCLUSION

For all of these reasons, SCE respectfully requests the Commission to issue an Order:

1. Adopting SCE’s AB 57 Bundled PP, set forth in Exhibits 200, 201, and 201-C,

without change or modification, including the use of the SCE Preferred Analysis

for the purpose of setting procurement limits and ratable rates.

Respectfully submitted, MICHAEL D. MONTOYA CAROL A. SCHMID-FRAZEE MELISSA HOVSEPIAN

/s/ Carol A. Schmid-Frazee By: Carol A. Schmid-Frazee

Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626) 302-1337 Facsimile: (626) 302-1935 E-mail:Carol [email protected]

June 17, 2011

Appendix A

A-1

APPENDIX A

SCE’S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

PROPOSED FINDINGS OF FACT

1. SCE’s AB 57 Bundled PP addresses the procurement required to serve the residual energy

requirements of SCE’s bundled customers, after first fully accounting for all of SCE’s

committed and forecasted preferred resources (i.e., EE, DR, renewables, QF contracts, CHP,

and DG) and UOG.

2. Since SCE’s resource acquisition strategy prioritizes preferred resources that reduce GHG

emissions from SCE’s bundled customer portfolio, and SCE’s AB 57 Bundled PP is

consistent with the GHG reduction goals of AB 32.

3. SCE has already reduced its GHG emissions to below its 1990 levels and forecasts to have an

average GHG emission rate of less than 500 lbs/MWh by 2015 due to SCE’s early GHG-

reducing actions and SCE’s compliance with the Preferred Loading Order.

4. SCE accounts for the GHG emissions reduction benefits prior to selecting supply offers in its

competitive procurement processes.

5. SCE’s financial natural gas hedging is a valuable tool for SCE’s customers because natural

gas is the single largest market-sensitive exposure and the natural gas market is the most

mature and liquid, offering numerous cost-effective hedging options.

6. How much rate volatility customers are able to accept is a decision that should be based on

longer-term expectations of price volatility, not whether hedges have been “in the money” or

not in any particular period.

7. SCE’s proposal to procure contracts of “5 years or less” in duration, instead of contracts

limited to “less than 5 years,” is reasonable because the “less than five-year” contract

limitation causes unnecessary and inefficient procurement constraints to the detriment of its

bundled customers.

A-2

8. SCE’s proposal to submit to SCE’s PRG a single monthly CRR allocation and auction results

report within five (5) business days after completion of the last monthly CRR process,

instead of within three (3) business days of each monthly allocation and auction tier result, is

reasonable. SCE’s proposed change will simplify the reporting process and provide PRG

participants with a complete summary of each month’s CRR results.

9. All new additions proposed by SCE to the list of authorized non-standard products in

Appendix O in Exhibit 201 are reasonable.

10. SCE’s proposal to transact any product on SCE’s list of Authorized Procurement Products

for Energy and Energy Related Products (Appendix C of Exhibit 201) through any broker or

exchange on its list of Authorized Brokers and Exchanges (Appendix E of Exhibit 201) is

reasonable.

11. SCE’s proposed calculation of the CRT using a fixed percentage risk factor multiplied by

SCE’s system average rate would be beneficial to SCE’s customers because it would ensure

that customer risk is managed proportionally as rates increase or decrease.

12. The CRT should be updated at each biennial LTPP filing using the then-existing system

average rate, and remain fixed until the next LTPP filing.

13. SCE’s more restrictive approach to setting its electrical capacity annual position limits and

ratable rate limits than what is in its 2006 Conformed LTPP is reasonable.

14. SCE’s revisions eliminate the load forecast error and generation outage contingencies,

resulting in a total reduction of 1,950 MW per year in SCE’s existing electric capacity annual

position limits.

15. SCE also proposed to eliminate the three-time ratable rate procurement construct altogether

and limit the two-time ratable rate for forward procurement to years two through five.

Procuring up to a two-time ratable rate over a multiple year procurement window will allow

SCE to create more competition between the limited sellers of RA capacity.

16. The following additional proposed changes by SCE are reasonable: (1) SCE’s ratable rate

limits methodology for electrical energy and natural gas to implement a rolling 12-month

A-3

ratable rate instead of a monthly ratable rate construct; (2) SCE’s methodology for electrical

energy monthly position limits to use the simulated net short positions to set the monthly

purchase position limit, use the simulated monthly net long positions to set the monthly sales

position limit, and calculate such limits separately for on-peak and off-peak periods and on a

gross volume basis; (3) clarification for limits compliance purposes that SCE’s position

limits and ratable rate limits shall not apply to SCE’s transactions for preferred resources or

transactions that do not provide a hedge value (e.g., an index-priced contract), and that

“linked” transactions are considered to be one transaction; (4) SCE is allowed to file an

annual (or more frequent, if necessary) update to its position limits and ratable rate limits via

a Tier 1 advice letter during years in which SCE does not file an updated AB 57 Bundled PP;

and (5) SCE is allowed to sell any and all of its SO2 Title IV allowance portfolio, including

rights to the 31-year forward vintage allowances that the EPA continues to issue on an annual

basis.

17. SCE’s request for authorization to enter into a limited quantity of short-term renewable

energy transactions (for either bundled or REC only products) using a pre-approval

framework is reasonable. This would give SCE flexibility for the procurement of renewable

energy products similar to that of all non-renewable energy products and to procure enough

renewable energy to meet the State’s 33% goal by December 31, 2020.

18. SCE’s proposed Renewable Integration Products are beneficial additions to the AB 57

Bundled PP list of approved procurement products.

19. SCE’s proposed Fixed Price for SRAC floating swap is a beneficial addition to the AB 57

Bundled PP list of approved procurement products as it would provide an important hedge to

SCE’s customers’ natural gas price exposure.

20. SCE’s proposed three revisions to the convergence bidding authority provided under D.10-

12-034 are reasonable and beneficial to SCE’s bundled customers while still providing a high

level of cost protection: (1) remove the Commission-authorized strategy-specific limitation

on SCE’s participation in convergence bidding, but still subject SCE’s strategies to PRG

A-4

review prior to implementation; (2) revise the eligible locations for submission of

convergence bids to comport with SCE’s physical supply, physical load, transmission assets



transactions. All other upfront standards adopted in D.10-12-034 will remain a part of SCE’s

AB 57 Bundled PP.

21. The SCE Preferred Assumptions, which were largely based on the CPUC Standardized

Planning Assumptions, are reasonable for the purpose of setting SCE’s position limits and

ratable rates.

22. SCE’s changes to the input assumptions in the SCE Preferred Analysis make it a more

realistic basis for the establishment of SCE’s position limits and ratable rates.

23. SCE used the same assumption in its SCE Preferred Analysis as in the CPUC Standardized

Planning Analysis for: (1) natural gas prices, (2) GHG prices, (3) CO2 emission rates; (4)

capacity price; (5) power prices, and (6) cost assumptions. Therefore, we find that SCE’s use

of these assumptions was reasonable.

24. SCE’s different assumptions in the SCE Preferred Analysis about: (1) demand forecast; (2)

load migration of SCE customers to DA; and (3) renewables compliance were all reasonable

and appropriate changes to the CPUC Standardized Planning Assumptions for the purpose of

setting procurement limits.

25. SCE made reasonable assumptions about procurement of CHP resources pursuant to the

QF/CHP Settlement Agreement in its 2010 LTPP planning analysis.

26. The GHG emissions results in SCE’s Preferred Analysis are reasonable and appropriate.

A-5

PROPOSED CONCLUSIONS OF LAW

1. As required by AB 57, SCE’s AB 57 Bundled PP sets forth the upfront, achievable standards

and criteria by which SCE’s procurement activity will be deemed per se reasonable and

therefore eligible for cost recovery.

2. SCE fully complies with the Preferred Loading Order and AB 32 by accounting for preferred

resources in its procurement planning and transaction activity covered by SCE’s proposed

transaction position limits and ratable rates.

3. Parties’ specific concerns regarding procurement of preferred resources should be addressed

in the proceedings dealing with such preferred resources.

4. SCE’s proposed revisions to its convergence bidding authority are appropriately considered

in Track II of this LTPP proceeding.

5. D.10-12-034 should be modified to: (1) remove the Commission-authorized strategy-specific

limitation on SCE’s participation in convergence bidding, but still subject SCE’s strategies to

PRG review prior to implementation; (2) revise the eligible locations for submission of

convergence bids to comport with SCE’s physical supply, physical load, transmission assets



transactions. All other upfront standards adopted in D.10-12-034 will remain a part of SCE’s

AB 57 Bundled PP.

CERTIFICATE OF SERVICE

I hereby certify that, pursuant to the Commissioner’s Rules of Practice and Procedure, I

have this day served a true copy of OPENING BRIEF OF SOUTHERN CALIFORNIA

EDISON COMPANY (U 338-E) ON TRACK II on all parties identified in the attached service

list(s).

Transmitting the copies via e-mail to all parties who have provided an e-mail address.

First class mail will be used if electronic service cannot be effectuated.

Executed this 17th day of June, 2011, at Rosemead, California.

/s/ Christina A. Sanchez Christina A. Sanchez Project Analyst SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Ave. Post Office Box 800 Rosemead, California 91770

PROCEEDING: R1005006 - CPUC - OIR TO INTEGR FILER: CPUC LIST NAME: LIST LAST CHANGED: JUNE 10, 2011

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ANNE GILLETTE CHERYL LEE CALIFORNIA PUBLIC UTILITIES COMMISSION CALIFORNIA PUBLIC UTILITIES COMMISSION EMAIL ONLY EMAIL ONLY EMAIL ONLY, CA 00000 EMAIL ONLY, CA 00000 SARA KAMINS CONNIE LENI CALIFORNIA PUBLIC UTILITIES COMMISSION CALIFORNIA ENERGY COMMISSION EMAIL ONLY EMAIL ONLY EMAIL ONLY, CA 00000 EMAIL ONLY, CA 00000-0000 JAMES ROSS ARAM SHUMAVON RCS INC. CALIF PUBLIC UTILITIES COMMISSION 500 CHESTERFIELD CENTER, SUITE 320 ENERGY DIVISION CHESTERFIELD, MO 63017 AREA 4-A 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 BISHU CHATTERJEE CHLOE LUKINS CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ELECTRICITY PLANNING & POLICY BRANCH AREA 4-A ROOM 4101 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 DAVID PECK DIANA L. LEE CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ELECTRICITY PLANNING & POLICY BRANCH LEGAL DIVISION ROOM 4103 ROOM 4107 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 FOR: DRA JASON SIMON JORDAN PARRILLO CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ELECTRICITY PLANNING & POLICY BRANCH AREA 4-A ROOM 4104 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 KARL MEEUSEN KE HAO OUYANG CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION EXECUTIVE DIVISION ELECTRICITY PRICING AND CUSTOMER PROGRAM ROOM 5217 ROOM 4104 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214

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LILY CHOW MARY JO STUEVE CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ELECTRICITY PLANNING & POLICY BRANCH AREA 4-A ROOM 4101 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 MEGHA LAKHCHAURA MICHAEL COHEN CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ELECTRICITY PLANNING & POLICY BRANCH AREA 4-A ROOM 4102 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 NATHANIEL SKINNER NIKA ROGERS CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ELECTRICITY PLANNING & POLICY BRANCH AREA 4-A ROOM 4101 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 PAUL DOUGLAS PETER SPENCER CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ELECTRICITY PLANNING & POLICY BRANCH AREA 4-A ROOM 4104 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 PETER V. ALLEN REBECCA TSAI-WEI LEE CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION LEGAL DIVISION ENERGY DIVISION ROOM 5031 AREA 4-A 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 ROBERT L. STRAUSS SEAN A. SIMON CALIF PUBLIC UTILITIES COMMISSION CALIF PUBLIC UTILITIES COMMISSION ENERGY DIVISION ENERGY DIVISION AREA 4-A AREA 4-A 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 SAN FRANCISCO, CA 94102-3214 WILLIAM DIETRICH YULIYA SHMIDT DRA-ELECTRICITY PRICING & CUST. PROGRAMS CALIF PUBLIC UTILITIES COMMISSION CPUC ELECTRICITY PLANNING & POLICY BRANCH 505 VAN NESS AVE., RM. 4101 ROOM 4104 SAN FRANCISCO, CA 94102-3214 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3214 CLARE LAUFENBER GALLARDO JIM WOODWARD STRATEGIC TRANSMISSION INVESTMNT PROGRAM CALIFORNIA ENERGY COMMISSION CALIFORNIA ENERGY COMMISSION 1516 NINTH STREET, MS 20 1516 NINTH STREET, MS 17 SACRAMENTO, CA 95814 SACRAMENTO, CA 95814 LISA DECARLO MICHAEL JASKE STAFF COUNSEL CALIFORNIA ENERGY COMMISSION CALIFORNIA ENERGY COMMISSION 1516 9TH STREET, MS-39 1516 9TH STREET MS-14 SACRAMENTO, CA 95814 SACRAMENTO, CA 95814 MICHAEL NYBERG IVIN RHYNE CALIFORNIA ENERGY COMMISSION CALIFORNIA ENERGY COMMISSION PROCUREMENT UNIT, ELECTRICITY ANALYSIS 1516 9TH STREET, MS 20



1516 NINTH STREET, MS-20 SACRAMENTO, CA 95814-5512 SACRAMENTO, CA 95814

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LAW-#1815184-v10-B Opening Brief of SCE on Track II · 2013-05-02 · of procuring preferred resources that reduce greenhouse gas (GHG) emissions. As for SCE’s natural gas hedging