3. Summary of the Proposed Settlement

The Proposed Settlement comprises an 8-page "CHP Settlement Agreement," a 76-page "CHP Program Settlement Agreement Term Sheet" (Term Sheet) with 17 sections, and 11 exhibits totaling more than 700 pages. The Term Sheet and exhibits are attached to, and incorporated by reference into, the CHP Settlement Agreement. Due to the length of the Proposed Settlement and its attachments, we do not republish it with this decision. The Proposed Settlement in its entirety is permanently posted on the Commission's website.13

Sections 3.1 through 3.17 below present a brief overview of the corresponding 17 sections of the Term Sheet as described in the Joint Motion. Section 3.18 lists the 11 exhibits that are attached to the Proposed Settlement, including the Pro Forma PPAs and the Pro Forma PPA amendments that are included with the Proposed Settlement. We note the Joint Parties' caveat that any inconsistencies between their summary and the Term Sheet should be governed by the Term Sheet.

3.1. Goals and Objectives

Section 1 of the Term Sheet outlines the goals and objectives of the Proposed Settlement. The goals and objectives are addressed later in this decision.

3.2. Settlement Periods

Section 2 describes the three periods covered by the Proposed Settlement: the Transition Period, the Initial Program Period, and the Second Program Period. The Transition Period is designed to facilitate the transition from the existing QF Program to the new QF/CHP Program. During the Initial Program Period, which overlaps with the Transition Period, the IOUs have specific MW Targets (MW Targets) for entering into new PPAs with CHP and other facilities. In the Second Program Period, the IOUs procure any portion of the MW Targets that they did not procure during the Initial Program Period and additional CHP capacity to meet GHG Emissions Reduction Targets (GHG Targets) or other CHP procurement targets established by the Commission. SDG&E has a target to procure an additional 51 MW during the Second Program Period.

3.3. Transition PPA

Section 3 describes the eligibility requirements for QF and CHP facilities for a PPA during the Transition Period and the pricing for Transition Period PPAs. The "Transition Standard Contract for Existing Qualifying Cogeneration Facilities" (Transition PPA) is included as an exhibit to the Term Sheet and is an attachment to the Proposed Settlement.

3.4. CHP Procurement Process

Section 4 of the Term Sheet describes the various aspects of the CHP procurement process under the new QF/CHP Program. First, Section 4.2 describes the new CHP Request for Offers (CHP RFO) process under which the IOUs will procure generation from CHP facilities to meet MW Targets and GHG Targets specified in the Proposed Settlement. Section 4.2 includes eligibility requirements for CHP participating in the RFOs (Section 4.2.2), the delivery terms of PPAs resulting from the RFOs (Section 4.2.3), pricing (Section 4.2.4), and RFO evaluation and selection criteria (Section 4.2.5). In addition, the Joint Parties developed a Pro Forma power purchase agreement for CHP RFOs (CHP RFO PPA) that is attached as an exhibit to the Term Sheet.

Section 4 also describes the procurement processes for CHP other than through CHP RFOs that will count towards meeting MW and GHG Targets. Specifically, Sections 4.3 - 4.6 describe bilaterally negotiated CHP PPAs, PPAs under the AB 161314 feed-in tariff, PPAs for QFs of 20 MW or less under PURPA, and Optional As-Available PPAs for certain large CHP facilities that have significant on-site load and specific operating characteristics. Section 4.7 addresses utility-owned CHP and limits the contribution of utility-owned facilities to ten percent (10%) of each IOU's GHG Target. IOU-owned facilities will not count toward the MW Targets in the Initial Program Period. Section 4.8 describes "utility prescheduled facilities" which are existing QF facilities that convert to IOU-dispatchable generating facilities. Finally, Section 4.9 addresses new behind-the-meter CHP facilities as one of the procurement options under the QF/CHP Program.

Section 4.10 specifies the Commission approval process required for new PPAs arising from the procurement options in the QF/CHP Program. This includes Tier 2 advice letter filings for existing CHP facilities that execute the CHP RFO PPA without material modification, and a Tier 3 advice letter process for all other CHP PPAs. CHP PPAs that are less than five years in duration do not require Commission pre-approval but will be reported in the IOUs' Quarterly Compliance Reports and CHP Program Semi-Annual Report.

Section 4.11 specifies information that CHP facilities must provide to the IOUs on an annual basis for monitoring purposes and Section 4.12 specifies the timing for commencement of deliveries from a CHP facility that has entered into a new CHP PPA.

3.5. MW Targets

Section 5 establishes a total MW Target for the IOUs of 2,949 MW during the Initial Program Period and a total MW Target of 3,000 MW for the entire QF/CHP Program. Section 5.1.2 includes a chart allocating this MW Target to three target periods for each of the IOUs. For example, the first MW Targets for SCE, PG&E, and SDG&E are 630 MW, 630 MW, and 60 MW, respectively. SDG&E has a specified MW Target during the Second Program Period. If the IOUs have not fulfilled the MW Targets assigned to them for the Initial Program Period they will also need to procure MWs during the latter period to fulfill those targets.

Section 5.1.4 provides that the IOUs are required to conduct three CHP RFOs during the Initial Program Period to seek CHP PPAs to meet the MW Targets. The number of CHP RFOs during the Second Program Period will be established in the LTPP proceedings.

Section 5.2 includes detailed counting rules as to how CHP PPAs executed during the Initial Program Period, whether through a CHP RFO or another procurement process, count toward the MW Targets. Section 5.3 clarifies the appropriate use of the MW counting procedure.

Section 5.4 addresses justifications for an IOU's failure to meet its MW Target. These justifications include lack of sufficient offers in the RFOs, the efficiency of CHP participating in the procurement programs, excessive offer prices, and the amount of GHG reductions.

3.6. GHG Emissions Reduction Targets

The Joint Parties assert that one of the key benefits of the Proposed Settlement is the implementation of a CHP Program designed to reduce GHG, consistent with the CARB Scoping Plan. Section 6.1 describes the Proposed Settlement strategy for reducing GHG, including maintaining existing, efficient CHP facilities, adding new, efficient CHP resources and achieving the GHG Targets by December 31, 2020. Section 6.2 addresses maintaining the GHG emissions reductions from existing CHP and establishing new targets for GHG reductions from new facilities. In particular, the Proposed Settlement establishes a GHG Emissions Reduction Target or "GHG Target" of 4.3 million-metric tons (MMT) for the IOUs and 0.5 MMT for ESPs15 and CCAs. These targets are based on the 6.7 MMT GHG reductions attributable to CHP in the CARB Scoping Plan. Based on the current percentage of retail sales in California, the 6.7 MMT would be allocated as follows: (1) 4.3 MMT to the IOUs; (2) 0.5 MMT to ESPs and CCAs; and (3) 1.9 MMT to POUs. Joint Parties note that the Commission does not have jurisdiction over POUs, but assert it can set GHG Emissions Reduction Targets for the IOUs, ESPs and CCAs (collectively, load-serving entities or LSEs).

Section 6.2.2.3.3 provides for the adjustment of the allocation of the GHG Targets based on changes in retail sales during the term of the Proposed Settlement. Thus, for example, if customers depart utility service for ESPs or CCAs, the GHG Targets for the IOUs will decrease and the targets for the ESPs and CCAs will increase. The GHG Targets can also be adjusted among the IOUs.

Section 6.3 identifies the GHG Target allocated to ESPs and CCAs and indicates that it is the preference of the Joint Parties that these non-IOU Load Serving Entities (LSEs) achieve these targets by entering into CHP PPAs. However, if these non-IOU LSEs are not required to enter into CHP PPAs, the IOUs will procure the appropriate amount of CHP for these LSEs to meet their GHG Target and the costs of this procurement by the IOUs will then be allocated to the customers of non-IOU LSEs. The allocation of CHP PPA costs is addressed in Section 13 of the Proposed Settlement. Section 6.4 describes the methodology for establishing the GHG Targets for each of the IOUs. Section 6.5 requires each IOU to report its progress toward meeting its GHG Target in its semi-annual CHP Program Reports that are submitted to the Commission. Section 6.6 states that the GHG Targets for the Second Program Period are subject to review and revision in the LTPP process.

Section 6.7 provides for revisions to the GHG Targets if CARB modifies its CHP reduction goals and provides for GHG Targets to be adjusted in the LTPP if AB 32 compliance is suspended or delayed. In Section 6.8, the Joint Parties agree to advocate at CARB in support of the Proposed Settlement, subject to certain conditions.

Finally, Section 6.9 sets out the justifications for failing to meet the GHG Targets, including the efficiency of CHP facilities participating in the IOUs' procurement programs, excessive offer prices, and a lack of need for CHP resources.

3.7. GHG Emission Accounting Methodology

Section 7 establishes the accounting principles for determining the IOUs' progress toward meeting their GHG Targets. This section adopts a Double Benchmark methodology for determining GHG reductions and provides detailed accounting procedures for new, repowered, and existing CHP facilities to determine the amount of GHG emissions reductions that are attributable to these different types of facilities.

3.8. Commission Jurisdictional Entities' Reporting Requirements

Section 8 establishes reporting requirements for Commission-jurisdictional LSEs. Each LSE must prepare a semi-annual report detailing progress toward meeting its MW Targets and GHG Targets. Sections 8.2 - 8.5 describe the contents of the semi-annual reports, and specify report content for different categories of CHP generation (e.g., new, legacy, terminated).

3.9. CHP Auditor

Section 9 provides for a CHP auditor (CHP Auditor) who is to act as an advocate for CHP interests regarding the implementation of the QF/CHP Program. The CHP Auditor is used in situations where an IOU provides notice that it does not anticipate meeting the MW Targets during a particular RFO or the GHG Targets. The CHP party or parties requesting a CHP Auditor bear the costs and the CHP Auditor is provided with an opportunity to receive and review confidential IOU information regarding the relevant QF/CHP RFO. Section 9 includes provisions for execution of a non-disclosure agreement by the CHP Auditor (Section 9.1.4), when an IOU notice triggers an audit (Section 9.2), the time period for an audit review (Section 9.3), receipt and review of confidential information (Section 9.4), and the number of CHP Auditors, as well as rules regarding any potential conflicts of interest (Section 9.5).

3.10. SRAC Energy Pricing Structure

Section 10 establishes methodologies and formulas for SRAC to be used in Transition PPAs, Legacy PPAs, other existing QF PPAs and Optional As-Available PPAs. Section 10.2 includes a methodology for transitioning, by January 1, 2015, SRAC pricing from a formula that is based in part on administratively-determined heat rates to a formula that uses solely market heat rates. Section 10.4 includes a process for addressing market disruptions that may impact the market heat rate to be used in SRAC. Section 10.2 also includes IOU-specific time-of-use (TOU) factors to be applied to energy prices to encourage energy deliveries during the times when the energy is most needed by customers. The SRAC formula also includes a locational adjustment based on CAISO nodal prices. Section 10.2 also includes pricing options based on whether a cap-and-trade program or other form of GHG regulation is developed in California or nationally.

If and when such a cap-and-trade program initially is developed that applies to California, Section 10.2 establishes a floor test which compares an energy price developed with a market-based heat rate to an energy price developed with either a negotiated heat rate, or a heat rate from a period prior to the start of a cap-and-trade program, plus the market price of GHG allowances. The higher of the two energy prices is the one chosen as SRAC.

Section 10.3 requires the Seller under a CHP PPA to provide certain information to the IOU regarding GHG information that it has reported to CARB or another governmental authority, and information concerning the operation of its facility. Finally, Section 10.5 addresses the responsibility for GHG-related costs.

3.11. Legacy PPA Matters for Existing QFs

Under Section 11.1, QFs with existing standard offers or other PPAs (QF PPAs) at the time of the Settlement Effective Date will be paid for energy based on the SRAC formula specified in Section 10 (unless the QF PPA specifies a different price) or may elect to amend their standard offer QF PPA to choose one of the energy price options described in the Legacy QF Amendments, attached as an exhibit to the Proposed Settlement. Unless otherwise specified in the QF PPA, capacity payments for QF PPAs will be based on the capacity price established by the Commission in D.07-09-040. Section 11.2 provides for the transition from a QF PPA to a new CHP PPA and ensures that delivery from an existing CHP facility continues uninterrupted during that period. The amendments are not available to QFs participating in the Renewables Portfolio Standard (RPS) program.

Section 11.3 provides that the Seller under an existing QF PPA shall make a good faith effort to provide forecasting information to the IOU so that the IOU can more accurately schedule QF generation in the CAISO markets. This section provides specific forecasting submittal procedures.

3.12. CAISO Tariff Compliance

Section 12 provides that all CHP facilities subject to the CAISO Tariff shall comply with CAISO requirements when the facility begins deliveries under a CHP PPA. Section 12 also includes requirements for the installation of metering and telemetry equipment at existing CHP facilities within six months of the execution of a CHP PPA. The Joint Parties also acknowledge that the CAISO may condition, waive or modify certain requirements for QF and CHP facilities.

3.13. IOU Cost Recovery for CHP PPAs

Section 13 addresses cost allocation if the Commission determines that IOUs should purchase CHP generation on behalf of ESPs and CCAs. In this circumstance, the IOUs are authorized to recover "net capacity costs" from all bundled, direct access (DA) and CCA customers on a non-by-passable basis. Net capacity costs are the total costs paid by the IOU under the QF/CHP Program less the value of the energy and ancillary services supplied to the IOU under the program.

Section 13.1.1 recognizes that PPAs under the QF/CHP Program may be greater than 10 years and requires that the Commission: (1) affirmatively supersede the 10-year limitation for stranded cost recovery established in D.04-12-048 and D. 08-09-012, and (2) determine that all above-market or net capacity costs associated with the QF/CHP Program can be recovered for the entire duration of any CHP PPA.

Section 13.1.2.1 provides that if the Commission determines that ESPs and CCAs are responsible for procuring CHP generation for their customers, any above-market costs associated with the QF/CHP Program can be allocated to future departing load customers who depart for DA or CCA service.

In Sections 13.1.3 and 13.1.4, the Joint Parties agree that they will not advocate the imposition of QF/CHP Program costs on CHP customer generation departing load, and in Section 13.1.5 the Joint Parties agree to advocate that CHP PPAs entered into as a result of the QF/CHP Program not be included in the existing Competition Transition Charge.

Finally, Section 13.2 provides that all payments made by the IOUs under the QF/CHP Program can be recovered in the IOUs' respective Energy Resources Recovery Account.

3.14. Settlement of Pending and Anticipated Litigation

Section 14 addresses the settlement of pending as well as anticipated claims and litigation. In Section 14.1, the IOUs agree under certain conditions to withdraw with prejudice all SRAC retrospective price adjustment claims. The Joint Parties mutually agree not to raise any new SRAC retrospective adjustment claims under the Court's remand as long as the PURPA purchase obligation remains suspended (as described in more detail in Section 15).

In Section 14.2, the Joint Parties agree to release or withdraw a number of pending claims, rehearing applications, or motions including claims and motions at the Commission (Sections 14.2.1 -14.2.3, 14.2.5 -14.2.12) and pending appeals at the Court of Appeal (Section 14.2.4).16 Section 14 does not affect the Joint Parties' rights to advocate their respective position regarding the confidentiality of IOU procurement information.

3.15. FERC Section 210(m) Application

Under Section 15, if the Commission approves the Proposed Settlement, the IOUs will then submit an application to FERC requesting termination of the IOUs' PURPA purchase requirement from QFs with net capacity in excess of 20 MW, consistent with Section 210(m) of PURPA. Section 15.1 establishes a process for the CHP representatives to review the IOUs' FERC application and provides that these parties can intervene and comment on, but not protest, the IOUs' application. Under Section 15.1.10, the CHP representatives can file at FERC for reinstatement of the PURPA purchase obligation if an IOU "breaches its obligations under the [Proposed Settlement] or the CHP Program adopted in the [Proposed Settlement] is not successfully implemented, based upon the IOU's failure to meet the targets established by the Commission pursuant to the [Proposed Settlement], without justification as provided for in the [Proposed Settlement]."

Section 15.2 addresses a circumstance where FERC reinstates the PURPA purchase obligation. In this case, SRAC pricing established under the Proposed Settlement stays in place until changed by the Commission (Section 15.2.1.1), although Joint Parties may advocate for a change to SRAC (Section 15.2.1.3). Joint Parties may also advocate for retrospective adjustments to SRAC pricing (Section 15.2.1.4). If the PURPA purchase obligation is reinstated, the IOUs' obligations to conduct CHP RFOs or to engage in alternative procurement processes and the MW Targets and GHG Targets are suspended "provided that the Commission may on grounds other than the Settlement [Agreement] direct the procurement of CHP resources." (Section 15.2.1.7) Any procurement target to be established by the Commission in the LTPP remains in place unless and until modified by the Commission in a subsequent proceeding. The Joint Parties also agree in Section 15.2.1.8 that for purposes of Section 210(m), designated CHP PPAs constitute "legally enforceable obligations."

3.16. Conditions Precedent and Settlement Effective Date

Section 16.2 specifies that the Proposed Settlement becomes effective upon satisfaction of the following conditions precedent: (1) a final and non-appealable FERC order approving the IOUs' application to terminate their PURPA purchase obligation (Section 16.2.1), (2) a final and non-appealable Commission decision approving the Settlement, including a determination that the Settlement supersedes certain portions of existing Commission decisions (Sections 16.2.2 and 16.2.4 -16.2.6), and (3) CARB support, in written form, for the Settlement (Section 16.2.3).

Section 16.3 provides that after the Proposed Settlement becomes effective, if CARB adopts regulations directly imposing a MW Target or GHG Emissions Target that differs from the Proposed Settlement for the Second Program Period, the IOUs' obligations to purchase from CHP to meet these targets will remain in place until such time as the Commission is able to consider such change in an LTPP or other pertinent proceeding.

3.17. Glossary

The section includes a glossary of the defined terms used in the Settlement.

3.18. Attachments to the Settlement

In addition to the Term Sheet, the Settlement Agreement attaches the following exhibits (Exhibits 1-11), as listed below:

1. Amendment to Legacy QF PPA for PG&E

2. Amendment to Legacy QF PPA for SCE

3. Amendment to Legacy QF PPA for SDG&E

4. Transition PPA for existing Qualifying Cogeneration Facilities

5. CHP RFO Pro Forma PPA for CHP Facilities Participating in Solicitations

6. QF PPA for QFs 20 MW or Less

7. Optional As-Available PPA for eligible As-Available Facilities

8. Non-Disclosure Agreement (NDA) for CHP Auditor

9. List of Members of CAC

10. List of Members of CCC

11. 11.List of Members of EPUC

13 Appendix A to this decision contains links to the Commission's website for each of the component documents of the Proposed Settlement as well as the joint motion for approval of the Proposed Settlement.

14 Stats. 2007, Ch. 713.

15 The Joint Parties use the term "energy service provider." We use the statutory term "electric service provider." (Pub. Util. Code Section 218.3.)

16 There are pending appellate court cases in which the Commission is a party. (See Southern California Edison Company, et al. v. Public Utilities Commission of the State of California, California Court of Appeal, Second Appellate District, Division 8 (Case No. B210398).) We observe that the Joint Parties have no authority to settle a court case in which the Commission is a party, since the Commission is a decision maker in the review of this settlement rather than a party to the settlement. However, we note that the approval of the Proposed Settlement will have the effect of making moot issues raised in pending appellate court litigation. In an order filed October 13, 2010, the California Court of Appeal granted an abeyance of the appellate litigation pending regulatory approval of the settlement by the Commission and the FERC.

Previous PageTop Of PageNext PageGo To First Page