arem_mlse_optout

							       Proposed LSE Opt-Out
            Mechanism

       Alliance for Retail Energy Markets
           CPUC Track 2 Workshop
                 April 25, 2007
               Presented by Sue Mara



AReM                                        1
 Purpose of Opt-Out Mechanism
• Allows option for LSEs to control their RA
  portfolio costs for their customers by
  avoiding allocation of backstop
  procurement costs
• Provides market signals for LSEs to invest
  in new generation, thereby minimizing
  need for backstop procurement


  AReM                                         2
               Opt-Out Design
• Two proposals based on project timing:
   Projects previously approved by CPUC
   Future projects

• Each opt-out project must meet four
  criteria:
   Quantity
   Quality
   Resource type
   Term

 AReM                                      3
      Opt-Out Design Features
• Assumes:
    Backstop projects are procured by a utility and costs allocated to LSEs
     with load within that utility’s service area
    Cost allocation similar to D.06-07-029
    Standard RA counting rules apply -- demand response qualifies equally
     along with other RA capacity

• Tied to customer contracts, so load migration is not an
  issue
• LSE may opt-out for any portion up to load-ratio cap
• Not applicable to the utility – to avoid anti-competitive
  outcomes

  AReM                                                                         4
 Projects Previously Approved
• Quantity -- capped at current load-ratio
  share at time of request
• Quality – equivalent RA value
   System for system
   Local for local – but in any LRA of the utility
      Addresses potential for over-procurement in one
       LRA
      Encourages creative options for LSEs

  AReM                                                   5
 Projects Previously Approved
• Resource Type – equivalent or better
   For backstop of existing project – LSE may contract
    with existing capacity not under current RA contract
   For backstop of new project – LSE must contract with
    new RA capacity resource

• Term of Opt-Out – for remaining contract
  term
   If project not yet operational, for term of contract
   If project operational, for remaining term

  AReM                                                     6
                       Example
• Previously-approved project:
   Quantity – 500 MW
   Quality – Local RA in Greater Bay Area
   Resource type – new construction
   Term – 3 years into 10-year term

• Acceptable opt-out project for LSE serving 5% of
  load in PG&E’s service area:
   Quantity – up to 25 MW
   Quality – Local RA capacity in North Bay
   Resource Type – new construction or new demand response
   Term – minimum 7-year contract
  AReM                                                        7
     Future Projects -- Design
• No projects identified or under contract,
  so more flexibility in approach
• Cost allocation mechanism should be used
  sparingly and only to address identified
  unmet reliability needs
• If successful, will reduce need or push it to
  future years by encouraging LSEs to meet
  the unmet need themselves
  AReM                                        8
                 Future Projects
• Quantity – up to current load-ratio share in
  utility service area where unmet need identified
• Quality – same as above, i.e. local for local, etc.
• Resource Type – equivalent or better, as
  determined by identified need
• Term – more flexibility because no existing
  contract
    At least 4 years if contracted in advance of project approval
    Or during contract term, for remainder of term

  AReM                                                               9
                       Example
• Designated future project:
   Quantity – 100 MW peaking plant
   Quality – Local RA capacity in LA Basin
   Resource Type – Re-powering of existing peaking
   Term – No contract approved

• Acceptable opt-out project for LSE serving 1% of
  load in SCE’s service area:
   Quantity – up to 1 MW
   Quality – Demand response in LA Basin
   Resource Type – New DR
   Term – minimum 4 year contract
  AReM                                                10
     Compliance and Customer
            Tracking
• Request for opt-out, demonstrating RA
  capacity meeting the 4 criteria, made
  though Energy Division – similar to
  waiver trigger requests
• If granted,
   ESP would designate customers receiving the opt-out
   Utility would remove cost allocation charges from
    those customers’ bills
   CPUC would reduce RA credits to the ESP
   ESP would internally adjust RA credits to customers
  AReM                                                    11