2. Background
On June 9, 2004, Decision (D.) 04-06-011 approved five SDG&E proposals to meet short-term and long-term grid reliability needs. D.04-06-011 found that the Celerity Proposal (one of the five approved proposals) was directed at customers who could perform load reduction or who have existing diesel backup generators. We identified one of the key elements of the Celerity Proposal as the conversion of existing diesel units to dual-fuel units that primarily burn natural gas. D.04-06-011 concluded that the Celerity Proposal, with its operational characteristic of dual-fuel units and load-reduction arrangements, was consistent with the Demand Response Vision Statement set forth in D.03-06-032, and authorized SDG&E to complete contract negotiations with Celerity. Notably, Resolution E-3926, which approved SDG&E's demand reduction contract with Celerity, characterized the Celerity Proposal as a "dispatchable network of a variety of demand reduction resources, including load shedding or load transfer arrangements and customer-owned generation."
Our initial support for the designation of the Celerity Proposal as demand response was based in part on the assertion by SDG&E and Celerity that, under the program, existing diesel BUGs would be upgraded to dual-fuel diesel/natural gas BUGs "that primarily burn natural gas."1 (Resolution E-3926 at 1.) Indeed, the resolution approving the contract specifically states "Celerity's demand reduction proposal allows SDG&E to drop load on short notice, improving the reliability of the grid, while the customers' operations is not disrupted, using cleaner burning backup units that benefit the environment ... ." (Resolution E-3926 at 1.) Additionally, our decision authorizing contract negotiations to continue and the costs to be recoverable in rates (D.04-06-011) authorized the contract specifically as "a demand reduction proposal."2
However, we later explicitly rejected the use of BUGs as demand response in D.05-01-056. In particular, while we accepted SDG&E's BUGs in Resolution E-3926 because they would be used only in emergencies, we rejected Pacific Gas and Electric Company's (PG&E's) diesel/natural gas BUGs because they would be used 150 hours annually.3 Similarly, in D.06-11-049 we rejected a PG&E BUGs demand response request and specifically rejected natural gas-fired BUGs as inconsistent with the Commission's demand response goals. We agreed with The Utility Reform Network's statement that approving a natural gas-fired BUGs project would "turn the Commission's preferred resource loading order on its head." (D.06-11-049 at 58.)
On October 3, 2008, SDG&E filed an application seeking approval of a new agreement entered into with Celerity. The new agreement between SDG&E and Celerity (the Celerity Agreement) provides for Celerity's aggregation of 20-25 megawatts (MW) of existing, dispatchable backup generation within SDG&E's service area. Consistent with the Commission's prior directives, the new contract presents the BUG resources as peaking capacity, rather than an as-soon-as-possible demand response program. No protests were filed in response to SDG&E's application. On November 6, 2008, the Alliance for Retail Energy Markets filed comments related to SDG&E's request for approval of the Celerity Agreement.
By its terms, the Celerity Agreement allows SDG&E to dispatch capacity from a series of diesel generators of varying sizes, in a proscribed number of MWs, up to 210 hours per year, for the life of the agreement. As written, the Celerity Agreement allows Celerity to oversubscribe participants in order to achieve the 210 hours because emissions restrictions and other factors limit the use of individual units to between 50 and 199 hours of operation per year. All MWs under the Celerity Agreement terminate at the end of 10 years from the initial implementation date (the Celerity Agreement runs from 2009-2019).
The Celerity Agreement contains provisions intended to prevent Celerity and/or the BUGs owners from promising capacity or energy to any third party. The Celerity Agreement also prevents Celerity from receiving duplicative compensation for the same capacity from any other ratepayer funded program, demand response program, emergency or backup generation program, another utility, or state or local program.
The Celerity Agreement provides a capacity price that is significantly lower than the range of capacity prices that cleared the 2008 Peaker Request for Offers (RFO). Per the Celerity Agreement, the diesel-fuel generators will be retrofitted with filters to reduce the units' emission footprint. SDG&E asserts that the generator's lowered emissions will allow the maximum dispatchable hours to be increased to up to 210, and help qualify the energy generated for the provision of resource adequacy and energy prior to or during emergency conditions on the system.
SDG&E was the only party participating in the proceeding and the Celerity Agreement was unopposed. Consistent with our obligations and authority under Public Utilities Code Sections 451, 1001, and others, we review the application to determine, among other things, whether the facilities promote public safety, health, comfort, and convenience.
1 Our prior statement that "Celerity will also maintain the converted units, so when the customer does utilize them, they are running cleaner and more efficiently than the diesel units did" reflects our understanding and expectation that Celerity's maintenance practices would contribute to emission reductions. (Resolution E-3926 at 1.)
2 "If SDG&E and Celerity reach a mutually acceptable contract for a demand reduction proposal, SDG&E is authorized to execute the contract and recover the costs along the same mechanism established for the Comverge contract." (D.04-06-011, Ordering Paragraph 3, emphasis added.)
3 "PG&E's proposed program would call on these `clean' diesel units for up to 150 hours, making them available like a peaker plant to serve ongoing demand needs, but also establishes several limitations on ability to participate in order to limit exposure to emissions from the units." (D.05-01-049 at 48.) In this decision we also directed SDG&E to no longer consider this use of BUGs as demand response.
