The California Public Utilities Commission (the “PUC”) recently voted to accelerate the deadline for full implementation of a 15% – 17% planning reserve margin requirement from January 1, 2008, to June 1, 2006. “Interim Opinion Regarding Resource Adequacy,” Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning (Rulemaking 04-04-003, filed April 1, 2004) (draft ALJ decision approved October 28, 2004) (the “Interim Opinion”).

In the wake of the electricity crisis of 2000-2001, the PUC undertook to develop reserve adequacy requirements for load-serving entities (“LSE”), including investor-owned utilities, energy service providers, and community choice aggregators. Among other things, the PUC adopted a requirement that all LSEs maintain a reserve planning margin of between 15% and 17% above and beyond peak loads for every month of the year, and required forward contracting for 90% of this total “resource adequacy requirement” (i.e., peak load plus the planning reserve margin) for the peak “summer” months of May through September. These requirements were to be phased in until full implementation on or before January 1, 2008.

According to the Interim Opinion, Governor Schwarzenegger expressed the view that the phase-in schedule was “too slow.” Pointing to its own concern that “retirements of aging power plants without long-term contracts is a continuing threat,” the PUC stated that it agreed with the governor that accelerating the January 1, 2008, date was “of overriding importance.”

In addition to accelerating the date for full compliance to June 1, 2006, the PUC clarified its earlier orders to specify that 90% of the summer resource adequacy requirement must be under contract by September of the prior year. The PUC also adopted a new 100% month-ahead forward commitment requirement for all months of the year.

The PUC stated that “[i]ncreasing supply will cost money, and ensuring reliability does not come cheap,” but cautioned that “we will not ‘pay any price’ or require utilities to sign contracts that meet these requirements at any cost.  In Phase 2 of the resource adequacy track of the rulemaking proceeding, the PUC will, among other things, adopt reporting requirements to enable it to “monitor the terms and prices of contracts . . . to ensure that they are reasonable and that the extra capacity and reliability provided by [the] reserve requirement is available at reasonable cost to ratepayers.”

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716