2. Background
2.1. Overview of Proceedings
Pursuant to Decision (D.) 08-07-048, Southern California Edison Company (SCE) filed Application (A.) 08-11-001 to obtain authority to retrospectively apply, for the period July 2003 through July 2008, the Qualifying Facility (QF) pricing adopted in D.07-09-040 for calculating short-run avoided costs (SRAC). This proceeding has been held in abeyance while the negotiations that led to the Proposed Settlement were in progress.
The Commission instituted Rulemaking (R.) 06-02-013 to ensure reliable and cost-effective electricity supply in California through integration of a comprehensive set of procurement policies and review of long-term procurement plans (LTPP). It is the successor proceeding to R.04-04-003 as to LTPP issues. Although most issues have been resolved, R.06-02-013 remains open for consideration of a petition for modification of D.07-12-052 that pertains to treatment of QF capacity in the LTPP process.
R.04-04-003 is a multi-phase "umbrella" proceeding to promote policy and program coordination and integration in utility resource planning. Among other procurement issues, R.04-04-003 addresses development of a long-term policy for QFs with expiring contracts. The Commission instituted R.04-04-025 to develop avoided costs in a consistent and coordinated manner across Commission proceedings, including QF pricing issues. R.04-04-003 and R.04-04-025 were consolidated for purposes of testimony and hearings on QF policy and pricing issues by ruling issued in those proceedings on February 18, 2005. D.07-09-040, as modified, adopted specific policies and pricing mechanisms applicable to the utilities' purchase of energy and capacity from QFs. D.07-09-040 has been the subject of several applications for rehearing and petitions for modification, some of which remain open, and a Petition for Writ of Review at the California Court of Appeal (Case 210398).
R.99-11-022 was instituted to implement Public Utilities Code Section 390, which governs energy prices paid by utilities to nonutility power generators. It remains open to consider an evidentiary matter remanded to the Commission by the California Court of Appeal, i.e., retrospective application of the SRAC formula adopted by D.01-03-067.1
2.2. Policy Background
In 1978, Congress enacted the Public Utility Regulatory Policies Act2 (PURPA), which was part of a national effort to promote energy independence and efficiency. Under PURPA and subsequent implementing regulations of the Federal Energy Regulatory Commission (FERC), qualifying cogeneration and small power production facilities were provided certain benefits and exemptions. State regulatory agencies were delegated responsibility for developing QF programs and determining avoided-cost pricing. The Commission implemented PURPA in the early 1980s by adopting for the investor-owned utilities (IOUs) a number of standard form power purchase agreements (PPAs) that were available to QFs and establishing energy and capacity prices to be paid under these PPAs. Many QFs signed these PPAs and built cogeneration and small power production facilities to provide energy and capacity to the IOUs.
Since the Commission implemented the QF program in the 1980s, there have been disputes between the QFs, IOUs and ratepayer advocates involving contract terms, SRAC pricing, capacity payments, contract extensions and terminations, and the availability of new contracts. Many of these disputes are still pending at the Commission. These include retrospective adjustments to SRAC pricing, disputes over pricing and ability to execute PPA extensions, motions for prospective QF PPA options, SRAC disputes dating back to the 2000-2001 energy crisis, disputes concerning administrative heat rates used to calculate SRAC, and applications for rehearing and petitions for modification of numerous QF decisions.
Not only is the Commission faced with disputes regarding existing QF PPAs and the existing QF program, the Commission is also faced with challenges as to how to implement the QF program going forward. For example, in D.07-09-040, the Commission recognized that it would need to address the impact of the California Independent System Operator's (CAISO) Market Redesign and Technology Upgrade (MRTU) on SRAC and the QF program. The Commission also has before it disputes over the terms and conditions of the new QF Standard Offer Contract (SOC) and disputes over the amount of QF capacity to include in the LTPP.
On the federal level, recently there have been changes to the PURPA purchase obligation. In October 2006, FERC issued Order No. 688:
... revising its regulations governing utilities' obligations to purchase electric energy produced by QFs. Order No. 688 implements PURPA section 210(m), which provides for termination of the requirement that an electric utility enter into power purchase obligations or contracts to purchase electric energy from QFs, if the Commission finds the QFs have nondiscriminatory access to markets.3
Although the California IOUs have not yet sought from FERC a termination of their PURPA purchase obligation for QFs larger than 20 megawatts (MW), it is argued that the changes in PURPA support a reexamination of California's existing QF program.
Public Utilities Code Section 372(a) and Energy Action Plan II4 both demonstrate that state policy supports the development of "efficient, environmentally beneficial" CHP. In the 2009 Integrated Energy Policy Report (IEPR), the CEC recommended the continued support and development of CHP as a means to meet state greenhouse gas (GHG) goals and other policy objectives. In D.08-10-037 the Commission, joining with the CEC, recognized CHP as an emissions reduction strategy, provided for action to remove barriers to CHP penetration, and acknowledged the need for CHP policy review.
On December 11, 2008, the California Air Resources Board (CARB) adopted the Climate Change Scoping Plan for California pursuant to Assembly Bill (AB) 325 (the CARB Scoping Plan).6 In the CARB Scoping Plan, the CARB noted that:
... [c]ombined heat and power (CHP), also referred to as cogeneration, produces electricity and useful thermal energy in an integrated system. The widespread development of efficient CHP systems would help displace the need to develop new, or expand existing, power plants. This measure sets a target of an additional 4,000 MW of installed CHP capacity by 2020, enough to displace approximately 30,000 [gigawatt hours] of demand from other power generation sources.7
2.3. Settlement Process Overview
Seeing a need to resolve outstanding disputes and to establish a new CHP program for California going forward, in May 2009 SCE, Pacific Gas and Electric Company, San Diego Gas & Electric Company, The Utility Reform Network, the California Cogeneration Council, the Independent Energy Producers Association, the Cogeneration Association of California, the Energy Producers and Users Coalition, and the Division of Ratepayer Advocates (Joint Parties) and Commission representatives met to lay out a settlement framework. From that time to the filing of the Joint Motion described below, the Joint Parties conducted what they describe as frequent and lengthy meetings to negotiate the Proposed Settlement. The Joint Parties had divergent interests, and unresolved disputes in proceedings at the Commission. As a result, the Joint Parties assert that the Proposed Settlement represents a compromise that should be evaluated as an integrated package. They note that the Proposed Settlement provides a detailed and comprehensive framework for a Qualifying Facility and Combined Heat and Power (QF/CHP) Program in California.
Pursuant to Rule l2.1(b) of the Rules of Practice and Procedure (Rules), on September 24, 2010 the Joint Parties provided notice of a formal settlement conference to the service lists in these proceedings. Because of widespread interest in matters at issue in these proceedings, Joint Parties also provided notice of potential settlement to the service lists in R.03-10-003 (regarding community choice aggregation), R.07-05-025 (consideration of the lifting of the suspension of direct access), and R.08-06-024 (combined heat and power).8 The settlement conference was conducted on October 7, 2010. An overview of the Proposed Settlement was presented, and participants were able to ask questions and provide comments. Those that were interested in joining to support the Proposed Settlement were invited to do so.
On October 8, 2010, after the settlement conference was completed and participants were given an opportunity to review and comment on the Proposed Settlement, Joint Parties filed a motion (Joint Motion) for approval of the "Qualifying Facility and Combined Heat and Power Program Settlement Agreement" (Proposed Settlement).
2.4. Procedural History
Concurrently with the filing of the Joint Motion, the Joint Parties filed a motion for expedited consideration of the Proposed Settlement. The assigned Administrative Law Judge (ALJ) granted the motion by ruling issued in these proceedings on October 11, 2010 (October 11 Ruling).9 Among other things, the time for filing comments on the Proposed Settlement was shortened from 30 days, as set forth in Rule 12.2, to October 25, 2010. The time for filing reply comments was shortened from 15 days, as set by Rule 12.2, to November 1, 2010. The October 11 Ruling also consolidated the proceedings for purposes of considering the Proposed Settlement. The ALJ also directed service of the October 11 Ruling on the service lists for the proceedings for which Joint Parties had served notice of the settlement conference, i.e., R.03-10-003, R.07-05-025, and R.08-06-024, and on registered electric service providers (ESPs) and community choice aggregators (CCAs). On October 12, 2010 the ALJ directed the Joint Parties to serve notice of the Joint Motion on registered ESPs and CCAs. Joint Parties complied with this directive on October 13, 2010.10
On October 19, 2010 the assigned Commissioner and the ALJ issued an amended scoping memo for the consolidated proceedings for purposes of considering the Proposed Settlement (Amended Scoping Memo).11 It provided that, with respect to consideration of the Proposed Settlement, the issues to be addressed in this proceeding are:
1. Whether the Proposed Settlement is reasonable in light of the whole record of these proceedings;
2. Whether the Proposed Settlement is consistent with the law;
3. Whether the Proposed Settlement is in the public interest;
4. Whether the Proposed Settlement should be approved, and if so whether it should be approved in its entirety without change.
The Amended Scoping Memo also directed parties claiming that evidentiary hearings were necessary to state, in comments on the Proposed Settlement, "with specificity the disputed issues of material fact related to the Proposed Settlement that are claimed to require hearings and why the facts are material to the resolution of the motion."12
Comments on the Proposed Settlement were filed by six parties or party groups: the CAISO, CAlifornians for Renewable Energy, Inc. (CARE); City and County of San Francisco (CCSF); California Municipal Utilities Association (CMUA); Shell Energy North America (US), LP (Shell Energy); and jointly by the Marin Energy Authority, the Alliance for Retail Energy Markets, and the Direct Access Consumer Coalition (CCA/Direct Access Parties). The CAISO supports the Proposed Settlement. CARE opposes it on the grounds that it is preempted by federal law and FERC orders. CARE also raises concerns regarding the expedited consideration of the Proposed Settlement and other procedural matters. CCSF objects to the Proposed Settlement unless provisions regarding cost allocation and portfolio requirements applicable to CCAs are removed. CMUA supports the efforts of the Joint Parties in reaching the settlement and believes that it represents a major achievement, but recommends certain amendments, deletions, and a clarification regarding provisions of the Proposed Settlement that pertain to CCAs, publicly-owned utilities (POUs), and municipal departing load (MDL). Shell Energy opposes the Proposed Settlement, arguing that the process leading up to it was flawed insofar as it would impose affirmative procurement obligations on ESPs, CCAs, and their customers. Shell Energy contends that such provisions lack legal authority and should be severed from the Proposed Settlement if it is approved. CCA/Direct Access Parties oppose, on due process and other legal and policy grounds, the provisions of the Proposed Settlement that would impose new regulatory requirements and cost obligations on ESPs, CCAs, and their customers. CCA/Direct Access Parties contend that if the Commission is inclined to adopt the Proposed Settlement, the provisions that are applicable to ESPs, CCAs, and their customers should be deleted. CCA/Direct Access Parties contend that evidentiary hearings or workshops are required for certain cost allocation issues.
Joint Parties filed reply comments arguing, among other things, that modifying the Proposed Settlement as requested by the commenting parties would upset the balance of interests underlying the Proposed Settlement and could cause the Joint Parties to terminate it.
1 Southern California Edison Co. v. Pub. Util. Comm. (2002) 101 Cal. App. 4th 982.
2 16 U.S.C. § 796, et seq.
3 New York State Electric & Gas Corporation and Rochester Gas and Electric Corporation, 130 FERC ¶61,216 (2010) at 3 (footnotes omitted).
4 In 2003, the Commission, the California Energy Commission (CEC), and the California Power Authority adopted an Energy Action Plan (EAP), articulating a single, unified approach to meeting California's electricity and natural gas needs. A key element was the "loading order" which specified California's policy to invest first in energy efficiency and demand response, followed by renewable resources, and only then in clean conventional electricity supply. In 2005, the Commission and the CEC adopted a second plan, EAP II, to reflect policy changes and actions. Since then, the Commission and the CEC have updated the EAP. The 2008 EAP update is available at the Commission's website using the following link:
http://www.cpuc.ca.gov/NR/rdonlyres/58ADCD6A-7FE6-4B32-8C70-7C85CB31EBE7/0/2008_EAP_UPDATE.PDF
5 Stats. 2006, Ch. 488.
6 The CARB Scoping Plan is posted at:
http://www.arb.ca.gov/cc/scopingplan/document/scopingplandocument.htm
7 CARB Scoping Plan at 42-43 (footnotes omitted).
8 R.08-06-024 is the Commission's proceeding, in which the Commission has issued D.09-12-042, denying reh'g, as modified, D.10-04-055, implementing AB 1613 involving statutory requirements for feed-in tariffs for new CHP facilities of 20 MW or less. These Commission decisions have been the subject of cross-petitions for declaratory orders in litigation at the FERC. See, California Public Utilities Commission, et al. (2010) 132 FERC ¶ 61,047, request for clarification granted, 133 FERC ¶ 61,059. In a separate decision in R.08-06-024, currently scheduled for the December 16, 2010 agenda, the Commission will be further addressing issues resolving a pending petition for modification and new comments submitted by parties in light of the FERC's orders.
9 Administrative Law Judge's Ruling Shortening Time for Comments and Replies on Proposed Settlement and Consolidating Proceedings.
10 See Administrative Law Judge's Ruling Regarding Service of Joint Motion, Rulings, and Tendered Documents, dated October 18, 2010.
11 Assigned Commissioner and Administrative Law Judge's Joint Ruling and Amended Scoping Memo for Consolidated Proceedings.
12 Amended Scoping Memo at 4.
