9. PV PPA Contract Forms

On August 21, 2009, PG&E along with the Solar Alliance, Vote Solar Initiative, and CALSEIA submitted a form PPA for projects greater than 3 MW to 20 MW. They refer to this proposal as the Large Project PPA. The Large Project PPA replaces PG&E's original proposal which was submitted on June 19, 2009. The Large Project PPA does not contain pricing or the process for solicitation of projects. There is no agreement on a form contract for projects 3 MW and less.

9.1. Parties' Positions

DRA recommends PG&E's and the Joint Solar parties' proposed standard Large Project PPA be rejected. DRA asserts that neither DRA nor any other consumer advocate parties participated in PG&E's and the Joint Solar Parties' settlement negotiations to form the proposed Large Project PPA form. As a result, DRA contends that only sellers (i.e., the Joint Solar parties) would benefit from the negotiated contract at the expense of ratepayers.⁶⁸ DRA suggests consistent with the Energy Division Staff RAM proposal, the Commission adopt the AB 1969 feed-in tariff (FiT) contract with a few additional terms. For projects between 10-20 MW, DRA recommends that PG&E file a Tier 3 Advice Letter proposing changes to the RPS pro-forma agreement.⁶⁹

CFC also opposes the Large Project PPA. CFC contends that the Large Project PPA as proposed has shifted risks and costs from solar developers to PG&E's customers and "in most cases, the changes increase the cost of purchased power to be paid by customers."⁷⁰ Specifically, CFC expresses concern with terms and conditions concerning the Compliance Costs Cap, Guaranteed Production, Modification to Contract Quantity, Project Security, Pollution and Earthquake Insurance objects and Fixed Price.⁷¹

CUE argues that the Large Projects PPA does not represent the interests of workers and specifically advocates that the PPA should require the independent power producers to: (1) hire only state-licensed electricians to perform electrical work; (2) invest in existing training infrastructure by requiring suppliers to hire apprentices enrolled in state-certified apprenticeship programs; and (3) pay construction workers the prevailing wage rate. CUE argues that while these terms are not required by state law, they serve important policy objectives of improved production efficiency, higher quality work product, continuity of a skilled workforce, and a guarantee that workers will receive fair wages and benefits such as health care.⁷²

In response, PG&E asserts that the PPA forms "equitably allocates risk between independent developers of PV facilities and PG&E, acting on behalf of its customers, because it was an agreement reached in an arm's length negotiation between a number of parties representing competing interests."⁷³

9.2. Discussion

We adopt a modified standard PPA for the PPA portion of the PV Program. We understand DRA's concern that no consumer advocate groups were present during negotiations to form the proposed Large Project PPA form. Nonetheless, we find it reasonable to adopt a modified standard contract for PPAs for this program. As TURN has stated, a standard contract would provide some modest level of development security.⁷⁴ A modified PPA will be in ratepayers' interest because it will expedite the negotiation and commission approval of PPAs and could attract more sellers to participate in the solicitation. It will also reduce the administrative costs associated with contracting for individual PV projects due to less review and documentation requirements.

Modeling the standard contracts on the existing RPS standard contracts seems reasonable and we agree with most of the revisions to tailor the RPS standard contract to this program. However, we make a number of revisions to the Large Project PPA to minimize ratepayers' risk exposure.

First, we adopt the proposed compliance cost cap with modifications.⁷⁵ We agree with Solar Alliance that complying with changes in law and regulatory requirements may be difficult to quantify and as such may pose additional risk to the project financing. Having certainty in contract terms and obligation not only helps with securing project financing, but also gives the seller an increased ability to offer better prices. We find it is reasonable to identify a limited liability for these costs in order to facilitate financing. Therefore, we adopt the proposed compliance cost, and require that section 3.1(o) be modified to clarify that it would only apply to costs due to changes in the law that occur after the execution of the contract. We make another revision to the Compliance Cost Cap provision and require PG&E to seek Commission authorization through an advice letter prior to making any payments above the cap to ensure that such costs are reasonable. CFC's concern with the compliance cost cap is that PG&E's ratepayers could be responsible for any compliance costs that exceed the Compliance Cost Cap. PG&E explains that the Large Project PPA does not require that PG&E pay any cost that exceeds the cap. PG&E asserts that it would first assess whether the costs were commensurate with the value of the contract. We believe this is a reasonable measure to ensure that ratepayers are not automatically subject to costs above the cap. We require PG&E to seek Commission authorization through an advice letter prior to making any payments above the cap to ensure that such costs are reasonable. PG&E witness Jeung testified during hearings that major new compliance costs are less likely to occur because compliance rules are generally well established up front. No party has identified a scenario which would indicate that the PV projects are likely to be subject to higher compliance costs or that the compliance cost cap amount is unreasonable. With the above modification, we are comfortable that the risk exposure to ratepayers is low.

With respect to the guaranteed energy production provisions, the Large Project PPA lowered the performance requirements for a seller from an average of 160% of the expected generation over a two year period to 140%. The 160% is an existing provision in the RPS pro forma and standard contracts. CFC asserts that lowering the performance requirements will increase the likelihood that PG&E will need to acquire replacement power at a higher cost to PG&E's customers.

Although we disagree with CFC's analysis, because PG&E did not provide a specific justification for this change, we do not modify the 160% requirement. In conjunction with the lower general performance requirement, the Large Project PPA also proposed lower performance requirements to cure a performance default in a prior two year period. We reject this proposal as well and require PG&E to employ 90% which is its standard pro forma provision concerning this issue. Accordingly, the Guaranteed Energy Production will be 160% and the Guaranteed Energy Production Cure will be at 90%.

Regarding the contract capacity provision, the Large Project PPA includes an option for the seller to reduce the contracted for capacity of its project in the event it fails to meet delivery requirement set forth in the PPA. Specifically, the Large Project PPA provides that a seller having failed to perform according to the delivery requirements in the PPA, may reduce its contract capacity to no less than 70% percent of the original contact capacity. In addition, if a seller opted to exercise this one-time option, it can avoid paying penalties for past performance shortages but will be required to meet delivery requirements throughout the remainder of the contract term (i.e., 160% of the expected generation over a two year period).

CFC characterizes this new provision as a way for sellers to avoid paying a penalty. PG&E explains in its reply briefs that providing this one-time option for sellers also benefits PG&E's customers because it will allow a project to continue operating and delivering without resulting in an event of default.

We agree that including this flexibility for this program strikes a reasonable balance between buyer and seller without necessarily imposing additional costs on PG&E's customers. Accordingly, the standard PPA may include the one-time option for a seller to reduce the contract capacity to no less than 70% percent of the original contract capacity.

With regard to development security, because the size of the projects in the PV Program is limited and because these projects would be developed over a fairly short time frame, we are comfortable with the lower project development security amounts and the insurance provision proposed in the Large Project PPA.

With respect to CUE's request for PPAs to provide prevailing wage rates and other labor related requirements, although the California Labor Code pertaining to prevailing wage does not apply to the projects under the PPA portion of the PV Program, we agree with CUE that power developers seeking contracts under the PPA portion of the program should endeavor to pay prevailing wage. This is consistent with what the Commission required of SCE in adopting the SPVP and is similarly warranted here.

⁶⁸ DRA Opening Brief at 12.

⁶⁹ DRA Opening Brief at 12.

⁷⁰ CFC Opening Brief at 22.

⁷¹ We note that CFC's Opening Brief appears to refer to an old version of the Large Project PPA and contains several errors. The correct version of the Large Project PPA is Exhibit 13.

⁷² CUE Reply Brief at 13.

⁷³ PG&E Opening Brief at 19.

⁷⁴ Exhibit 800 at 5.

⁷⁵ The compliance cost cap applies to a seller's costs associated with complying with several regulatory certifications and requirements as described in Section of the Large Project PPA. The compliance cost cap is cap on total costs over the term of the agreement not to exceed $20,000/MW. CFC's brief incorrectly refers to an old version of the proposed Large Project PPA.