5. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Anne E. Simon and Burton W. Mattson are the assigned Administrative Law Judges in this proceeding.
1. The majority of utilities' short-term contracts to acquire RPS-eligible bundled energy are likely to be from RPS-eligible generation facilities that are already in commercial operation at the time the contract is signed.
2. Many older RPS-eligible generation facilities could make use of short-term contracts after their current long-term contracts with California utilities expire.
3. Most of the RPS-eligible generation from older RPS-eligible facilities is already part of the RPS baseline amount for California utilities.
4. California utilities may have opportunities to obtain short-term contracts with RPS-eligible facilities that are being built but are not yet in commercial operation.
5. In order to provide relevant information about short-term contracts with RPS-eligible facilities that are within six months of commencing commercial operation at the time the contract is signed, it is reasonable to require utilities to provide in their advice letters the basis of their judgment that the facility will be in commercial operation within six months of the date of the contract.
6. In order to protect ratepayers from unnecessarily high prices for RPS-eligible energy procured through short-term contracts with generation facilities that are in commercial operation or will commence commercial operation not later than six months from the date the contract is signed, it is reasonable to establish price reasonableness benchmarks for short-term contract prices.
7. In view of the structure of the current energy market, it is reasonable to identify two groups of short-term RPS contracts, based on duration: contracts of one month to four years (very short-term contracts), and contracts of four to ten years (moderately short-term contracts).
8. For purposes of the fast-track procedure, forward prices for conventional energy contracts of similar duration provide a reasonable component of a price reasonableness benchmark for very short-term contracts.
9. For purposes of the fast-track procedure for very short-term contracts, a premium to reflect the value of RPS-eligible energy to utility customers is a reasonable component of the price benchmark.
10. Taking into account the forward prices for conventional energy contracts of comparable length and the value to ratepayers of obtaining RPS-eligible energy, a premium of 50% over the forward market price for non-renewable energy contracts of comparable length is a reasonable component of the very short-term price benchmark.
11. Because of the expedited nature of the fast-track procedure, it is reasonable to protect ratepayers from prices for very short-term RPS contracts that are out of proportion to their value to ratepayers by imposing an absolute, but temporary, limit of 90% of the MPR for 10-year contracts on the price of any very short-term contract that is submitted for fast-track consideration.
12. For purposes of the fast-track procedure, a modification of the MPR can be the basis of a price reasonableness benchmark for moderately short-term contracts, since there are no analogous forward energy prices for contracts of such duration and the MPR methodology is well-known and publicly available.
13. In view of the public importance of the RPS program, it is reasonable to develop a method of providing publicly available information about short-term price benchmarks while protecting actual prices of individual contracts from disclosure.
14. In order to promote consistency of evaluation of short-term contracts using the fast track process, it is reasonable to require utilities to submit such contracts for PRG review and to provide short-form IE reports for very short-term contracts and long-form IE reports for moderately short-term contracts with their Tier 2 advice letters.
15. In order to promote consistency of evaluation of all RPS procurement contracts, it is reasonable to authorize Energy Division staff to review bilateral RPS contracts using the same methods and criteria, including those for reviewing price reasonableness, as are used to review contracts that result from the utilities' annual RPS solicitation, using the MPR as a price reasonableness benchmark for long-term bilateral contracts.
1. In order to facilitate short-term RPS contracts while maintaining the safeguards of Commission oversight, fast-track procedures for short-term contracts that do not exceed price benchmarks and meet certain additional standards should be developed.
2. Fast-track procedures should be limited to short-term contracts with RPS-eligible generation facilities that are near or already in commercial operation.
3. Separate price reasonableness benchmarks should be established as part of the fast-track procedures for contracts for RPS-eligible energy products that are one month to four years in duration (very short-term contracts) and for contracts for RPS-eligible bundled energy products that are four years to ten years in duration (moderately short-term contracts).
4. A price reasonableness benchmark for very short-term contracts for purposes of the fast-track procedure should include both forward prices for contracts for conventional energy of similar duration and a premium to reflect the value of RPS-eligible energy to utility customers.
5. Energy Division staff, in consultation with the parties, should develop a method to calculate the very short-term price benchmark, and should notify the service list of this proceeding or its successor of the calculation method chosen.
6. Energy Division staff, in consultation with the parties, should develop a method for public disclosure in the advice letter of a forward price range used in the very short-term benchmark calculation, while preserving confidentiality of the actual contract price.
7. A price reasonableness benchmark for moderately short-term contracts for purposes of the fast-track procedure should be based on the existing MPR methodology, and should be calculated by Energy Division staff annually at the same time as the MPR.
8. A very short-term contract between a utility and an RPS-eligible generator that is in commercial operation or will commence commercial operation within six months of the date the contract is signed, that has been presented to the utility's PRG, has been reviewed by the utility's Independent Evaluator, has a levelized price (including firming or shaping costs) equal to or below the price benchmark for very short-term contracts (and in any event not more than 90% of the market price referent for 10-year contracts), and contract terms that conform (with allowance for minor alterations) to the pro forma contract for very short-term contracts that is approved as part of a utility's annual RPS procurement plan meets the requirements for submission to the Commission using a Tier 2 advice letter.
9. The cap of 90% of the market price referent for 10-year contracts on the price for a very short-term contract to be eligible for fast-track review should expire on December 31, 2011, unless the Commission chooses to change, extend, or terminate the cap at an earlier date.
10. A moderately short-term contract between a utility and an RPS-eligible generator that is in commercial operation or will commence commercial operation within six months of the date the contract is signed, that has been presented to the utility's PRG, has been reviewed by the utility's Independent Evaluator, has a levelized price (including any firming or shaping costs) at or below the price benchmark for moderately short-term contracts, and has contract terms that conform (with allowance for minor alterations) to the pro forma contract for moderately short-term contracts that is approved as part of a utility's annual RPS procurement plan meets the requirements for submission to the Commission using a Tier 2 advice letter.
11. The fast-track procedures using a Tier 2 advice letter should also apply to any very short-term contract or moderately short-term contract to acquire RPS-eligible electricity exclusively for use to meet its California RPS obligations entered into by a multi-jurisdictional utility that meets all the requirements of the fast-track process.
12. Because this decision establishes a fast-track procedure for Commission approval of short-term contracts that meet certain requirements, PG&E's request for a pilot program using Tier 1 advice letters is unnecessary, and should be denied.
13. Because this decision establishes a fast-track procedure for Commission approval of short-term contracts that meet certain requirements, SCE's request for preapproval of short-term contracts of less than five years in duration is unnecessary, and should be denied.
14. In order to allow RPS contracting to proceed expeditiously, this order should be effective immediately.
IT IS ORDERED that:
1. Pacific Gas and Electric Company, San Diego Gas and Electric Company, and Southern California Edison Company may each use Tier 2 advice letters to submit procurement contracts for bundled energy products for compliance with the California renewables portfolio standard that meet the following criteria:
a. The contract has a duration of at least one month but less than 48 months;
b. The contract is made with a generation facility that is in commercial operation or will commence commercial operation not later than six months after the date the contract is signed;
c. The contract has a levelized price, including any firming or shaping costs, less than or equal to the price reasonableness benchmark for a contract of such duration signed on such date as determined by the Director of Energy Division in accordance with this decision;
d. Notwithstanding any provision of subparagraph c, no contract of one month to four years duration having a levelized price, including any firming or shaping costs, of more than 90% of the value of the market price referent established pursuant to Pub. Util. Code § 399.15(c) for contracts 10 years in duration calculated for the year in which the contract is signed may be submitted for Commission consideration using the procedure set out in this Ordering Paragraph;
e. The contract contains all the non-modifiable standard terms and conditions required in renewables portfolio standard contracts and such terms are not modified;
f. The contract in all other respects conforms to the pro forma contract for durations of one month to 48 months that was included with that utility's most recent annual renewables portfolio standard procurement plan and conditionally approved by the Commission; provided that minor modifications to modifiable terms of the approved pro forma contract that are clearly indicated (for example, by the use of redline format) may be allowed in the discretion of the Director of Energy Division;
g. The contract results either from negotiations undertaken as a result of that utility's annual solicitation for contracts for compliance with the renewables portfolio standard or from negotiations undertaken outside such a solicitation;
h. The contract has been presented to the utility's Procurement Review Group and has been reviewed by the utility's Independent Evaluator;
i. The contract is consistent with the utility's approved renewables portfolio standard procurement plan; and
j. Nothing in the contract is inconsistent with statutory requirements or prior Commission decisions with respect to the renewables portfolio standard program.
2. Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company may each use Tier 2 advice letters to submit procurement contracts for bundled energy products for compliance with the California renewables portfolio standard that meet the following criteria:
a. The contract has a duration of at least four years but less than 10 years;
b. The contract is made with a generation facility that is in commercial operation or will commence commercial operation not later than six months after the date the contract is signed;
c. The contract has a levelized price, including any firming or shaping costs, less than or equal to the price reasonableness benchmark for a contract of such duration as determined by the Director of Energy Division in accordance with this decision;
d. The contract contains all the non-modifiable standard terms and conditions required in renewables portfolio standard contracts and such terms are not modified;
e. The contract in all other respects conforms to the pro forma contract for durations of four years to 10 years that was included with that utility's most recent annual renewables portfolio standard procurement plan and conditionally approved by the Commission; provided that minor modifications to modifiable terms of the approved pro forma contract that are clearly indicated (for example, by the use of redline format) may be allowed in the discretion of the Director of Energy Division;
f. The contract results either from negotiations undertaken as a result of that utility's annual solicitation for contracts for compliance with the renewables portfolio standard or from negotiations undertaken outside such a solicitation;
g. The contract has been presented to the utility's Procurement Review Group and has been reviewed by the utility's Independent Evaluator;
h. The contract is consistent with the utility's approved renewables portfolio standard procurement plan; and
i. Nothing in the contract is inconsistent with statutory requirements or prior Commission decisions with respect to the renewables portfolio standard program.
3. PacifiCorp and Sierra Pacific Power Company may each use Tier 2 advice letters to submit contracts for bundled energy products acquired exclusively for compliance with the California renewables portfolio standard that meet the following criteria:
a. The contract has a duration of at least one month but less than 48 months;
b. The contract is made with a generation facility that is in commercial operation or will commence commercial operation not later than six months after the date the contract is signed;
c. The contract has a levelized price, including any firming or shaping costs, less than or equal to the price reasonableness benchmark for a contract of such duration signed on such date as determined by the Director of Energy Division in accordance with this decision;
d. Notwithstanding any provision of subparagraph c, no contract of one month to four years duration having a levelized price, including any firming or shaping costs, of more than 90% of the value of the market price referent established pursuant to Pub. Util. Code § 399.15(c) for contracts 10 years in duration calculated for the year in which the contract is signed may be submitted for Commission consideration using the procedure set out in this Ordering Paragraph;
e. The contract contains all the non-modifiable standard terms and conditions required in renewables portfolio standard contracts and such terms are not modified;
f. The contract in all other respects conforms to the pro forma contract for durations of one month to 48 months that was included with that utility's most recent integrated resource plan or supplement and conditionally approved by the Commission; provided that minor modifications to modifiable terms of the approved pro forma contract that are clearly indicated (for example, by the use of redline format) may be allowed in the discretion of the Director of Energy Division; and
g. Nothing in the contract is inconsistent with statutory requirements or prior Commission decisions with respect to the renewables portfolio standard program.
4. PacifiCorp and Sierra Pacific Power Company may each use Tier 2 advice letters to submit contracts for bundled energy products acquired exclusively for compliance with the California renewables portfolio standard that meet the following criteria:
a. The contract has a duration of at least four years but less than 10 years;
b. The contract is made with a generation facility that is in commercial operation or will commence commercial operation not later than six months after the date the contract is signed;
c. The contract has a levelized price, including any firming or shaping costs, less than or equal to the price reasonableness benchmark for a contract of such duration as determined by the Director of Energy Division in accordance with this decision;
d. The contract contains all the non-modifiable standard terms and conditions required in renewables portfolio standard contracts and such terms are not modified;
e. The contract in all other respects conforms to the pro forma contract for durations of four years to ten years that was included with that utility's most recent integrated resource plan or supplement and conditionally approved by the Commission; provided that minor modifications to modifiable terms of the approved pro forma contract that are clearly indicated (for example, by the use of redline format) may be allowed in the discretion of the Director of Energy Division; and
f. Nothing in the contract is inconsistent with statutory requirements or prior Commission decisions with respect to the renewables portfolio standard program.
5. The Director of Energy Division is authorized to develop a methodology to calculate a price reasonableness benchmark for procurement contracts for energy products for compliance with the renewables portfolio standard that have a duration of at least one month but less than 48 months based on forward market prices for conventional energy contracts of similar duration signed at similar dates plus a premium not to exceed 50% of such forward market prices. Prices for such contracts that are equal to or less than the price reasonableness benchmark are per se reasonable and may be recovered in rates, provided that such prices do not exceed 90% of the market price referent for contracts 10 years in duration that is established pursuant to Pub. Util. Code § 399.15 and calculated for the same solicitation year as the year the contract is signed.
6. The Director of Energy Division is authorized to calculate a price reasonableness benchmark for procurement contracts for energy products for compliance with the renewables portfolio standard that have a duration of at least four years but less than 10 years based on the calculation of the market price referent established pursuant to Pub. Util. Code § 399.15 for the same solicitation year as the year the contract is signed. Prices for such contracts that are equal to or less than the price reasonableness benchmark are per se reasonable and may be recovered in rates.
7. The Director of Energy Division is authorized to review procurement contracts to meet the renewables portfolio standard that are negotiated outside a utility's annual solicitation (bilateral contracts) and are submitted for Commission approval by using the same methods and criteria as are used to review contracts that are negotiated as a result of a utility's annual solicitation for contracts to meet the renewables portfolio standard, provided that, in reviewing any bilateral contracts 10 years or longer in duration, the Director of Energy Division uses the market price referent calculated for the same solicitation year in which the contract is signed as a price reasonableness benchmark, and for no other purpose in the review of the contract.
8. The request of Pacific Gas and Electric Company to establish a pilot program in which Pacific Gas and Electric Company could submit up to 800 gigawatt-hours of contracts for renewable energy to meet procurement targets under the renewables portfolio standard using Tier 1 advice letters, so long as the contracts contain the standard terms and conditions required by the Commission and the price of the contract does not exceed the market price referent established pursuant to Pub. Util. Code § 399.15, is denied.
9. The request of Southern California Edison Company to authorize Southern California Edison Company to procure up to 10,000 gigawatt-hours of electricity to meet procurement targets under the renewables portfolio standard by entering into contracts with generation facilities that are less than five years in duration and reporting the contracts in Southern California Edison Company's procurement plan compliance report quarterly advice letter filing, is denied.
10. In order to make use of the Tier 2 advice letter process for approval of procurement contracts in the 2009 solicitation year to meet the renewables portfolio standard, Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company shall each submit their pro forma short-term contracts as amendments to their 2009 renewables portfolio standard procurement plans not later than 14 days from the date of this decision.
11. In order to make use of the Tier 2 advice letter process for approval of procurement contracts in the 2009 solicitation year to meet the renewables portfolio standard, PacifiCorp and Sierra Pacific Power Company shall each submit pro forma short-term contracts as amendments to their integrated resource plan supplements not later than 30 days from the date of this decision.
12. The restriction on eligibility for the fast-track process established in this decision that the price of a contract of one month to 48 months in duration may be no more than 90% of the market price referent for a contract 10 years in duration established pursuant to Pub. Util. Code § 399.15 and calculated for the same solicitation year as the year the short-term contract is signed, will expire on December 31, 2011, unless the Commission changes, extends, or terminates the restriction at an earlier date.
13. Notwithstanding any requirements or authorizations in this decision, Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company may each submit any procurement contracts for bundled energy products for compliance with the renewables portfolio standard for Commission approval using a Tier 3 advice letter.
This order is effective today.
Dated June 18, 2009, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
