8. Cost Caps and Performance Mechanisms
8.1. Parties' Positions
Several parties have recommended that the PV Program cost recovery be contingent upon certain level of performance of the UOG facilities and shareholders share some of the cost savings or cost overruns with ratepayers.
TURN believes PG&E should be accountable for the cost estimates and the performance of its UOG PV facilities similar to requirements in the PPAs. TURN recommends that we establish a levelized cost of energy based on the proposed costs estimates as an overall cost cap for the UOG projects. TURN also recommends a performance mechanism to link cost recovery of PG&E's UOG facilities to the performance of the facilities by assessing a penalty if deliveries fall more than 10% below the initial forecast. TURN believes this would create an incentive for PG&E to select the most cost - effective projects and take all appropriate actions to properly operate and maintain them. Thus, TURN argues, it protects the ratepayers.64
DRA also proposes an 80/20 cost/share mechanism between ratepayers and shareholders with costs overruns above 20% to undergo a reasonableness review. CARE also supports a cost sharing mechanism. DRA suggests that the Commission conduct a reasonableness review of PG&E's capital expenditures and O&M costs after the fact in PG&E's GRC.
PG&E does not believe it should be subject to any performance guarantee or cost sharing mechanisms. It argues that a performance guarantee mechanism would be unfair to PG&E because PG&E would not have the benefit of
better-than expected performance of the facilities while it could bear the risk if facilities underperform.65 PG&E also opposes the cost sharing mechanism as proposed by DRA and CARE, arguing that such an approach is inconsistent with traditional cost-of-service ratemaking where the Commission initially determines the costs and later will have an opportunity to decide if additional costs are reasonable.
In comments on the APD, Solar Alliance/Vote Solar dispute the necessity of establishing a price cap for the PPA portion of the program, arguing that because the APD relies on a competitive solicitation to determine the price cap is unnecessary. They further argue that the methodology used to set the cap is flawed in that it is derived from bids into the 2009 RPS solicitation of projects
20 MW or less, which, as the APD itself notes, is generally oriented toward projects of a much larger scale than those being pursued under PG&E's proposed program, and as such, seems an odd choice to use for determining a price cap.66
8.2. Discussion
To ensure price protection for ratepayers, we adopt a cost cap as recommended by TURN for the maximum price ratepayers should pay for energy procured under the PV Program through PPAs. In the APD as issued, the price cap was to be based on an average price derived from bids submitted in PG&E's 2009 RPS solicitation for projects of 20 MW or less. While we continue to believe a price cap should be imposed to protect ratepayers, we agree with Solar Alliance/Vote Solar that reliance on RPS bids is problematic. In lieu of that approach, we will instead set the cap using the feed-in tariff price PG&E derived from it costs estimates for the UOG portion of the program. Although PG&E's cost estimate and resulting feed-in tariff price is imperfect, we believe this price can serve as a reasonable cost cap for the PPA side of the program. This amount is $246 per MWh, before application of time of delivery factors. Because we anticipate a relatively robust response to the solicitation, we expect the actual prices to be lower than this amount.
With respect to DRA's proposal for a reasonableness review, we believe the approach we have established herein for the UOG portion of the program is consistent with this approach sufficiently protects ratepayers from the risk of overpayment by subjecting PG&E to a reasonableness review should the capital costs of the program exceed the adopted revenue requirement. Furthermore, because PG&E will be relying on a competitive process for turn-key and EPC contracts and passing only actual costs on to ratepayers, we believe the risk of excessive costs is greatly reduced. With regard to a performance guarantee mechanism, we believe the utility is already well-motivated to maximize system performance because of the contribution these facilities are expected to make to PG&E's RPS goals. Under the RPS, compliance is assessed on the basis of energy deliveries. Thus, the value of these facilities in helping PG&E meet its RPS is goals is directly related to these facilities' output. We will, however, consider performance in review of the O&M costs. As described above, should the output from PG&E's UOG facilities on average fall below 80% of expected generation, it will weigh heavily on our determination of the reasonableness of the O&M costs and whether some of these costs should be disallowed or refunded to ratepayers. We also require that PG&E file an annual compliance filing in this proceeding with results of the PPA solicitation and UOG costs, as well available data regarding the all-in levelized cost of energy from projects that actually come online on both the UOG and PPA side of the program. This information will allow the Commission to compare the costs of the UOG and PPA projects and better understand the impacts of the program on the solar market. PG&E shall file annual compliance reports with the Energy Division.67 The annual report prepared by PG&E shall include the information outlined in Appendix A.
64 TURN Opening Brief at 8.
65 Rebuttal testimony at 11.
66 Solar Alliance/Vote Solar, Opening Comments on APD, at 6-9.
67 The first annual compliance report will be due a year from the effective date of this decision.
