4. Discussion
4.1. Standard of Review of Settlements
Rule 12.1(d) provides that "[t]he Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest." The Commission has rejected (or provided for modification of) settlements when it does not find these criteria are met. Factors that the Commission has considered in reviewing settlements include: (1) the risk, expense, complexity and likely duration of further litigation, (2) whether the settlement negotiations were at arms-length, (3) whether major issues were addressed, and (4) whether the parties were adequately represented.17 The Commission needs to be assured that parties to a settlement were able to make informed choices in the settlement process. With respect to whether a settlement agreement is consistent with the law, the Commission must be assured that no term of the settlement agreement contravenes statutory provisions or prior Commission decisions. A settlement that implements or promotes state and Commission policy goals embodied in statutes or Commission decisions would be consistent with the law. To determine whether a settlement agreement is in the public interest, in addition to substantive public interest concerns associated with the circumstances of a particular proceeding, the Commission may inquire into whether a settlement expeditiously resolves issues that otherwise would have been litigated.
Noting that the Commission has rejected or modified settlements where the interests of parties affected by the settlement were not represented in the settlement discussions, CCSF cites to D.96-01-011. There, the Commission considered a settlement that resulted from negotiations that excluded some parties. CCSF points out that the Commission applied a heightened standard of review, quoting the following passage:
While the settling parties have met the strict letter of the settlement rules, they did not "bring to the table" those who are in a position to represent all affected groups. If the settling parties choose not to accommodate all affected interest groups, they run the risk of not achieving an all-party settlement, and thus heightening the Commission's standard of review as they have done in this case.18
In the same decision, the Commission had explained the more stringent standard of review, distinguishing it from the standard for all-party settlements established in D.92-12-019. After noting that it was not considering an all-party settlement, the Commission stated that it would consider the settlement under the three criteria set forth in Rule 51.1(e):19
However, the standard of review here is somewhat more stringent. Here, we consider whether the Settlement taken as a whole is in the public interest. In doing so, we consider the individual elements of the settlement in order to determine whether the settlement generally balances the various interests at stake as well as to assure that each element is consistent with our policy objectives and the law.20
We concur that it would be inappropriate to apply the standards for all-party settlements here, just as it was in Re Southern California Edison Company, supra, since we are reviewing a settlement that was not signed by all parties. We consider the Proposed Settlement as a whole and its individual elements, and whether it balances the various interests at stake. Before we review the Proposed Settlement and whether these settlement criteria are met, we address issues regarding the process of its development and submittal to the Commission.
4.2. Process Issues
We find that Joint Parties have complied with the relevant elements of the Commission's settlement rules.21 In particular, they convened and provided timely notice of a settlement conference (Rule 12.1(b)), and they filed a motion for approval that provided a statement of the factual and legal considerations adequate to advise the Commission of the scope of the settlement and of the grounds on which adoption is urged (Rule 12.1(a)).
Noting that hearings in R.06-02-013 were held in 2007, CARE argues that, at least with respect to R.06-02-013, the Joint Parties' filing of the Proposed Settlement on October 8, 2010 violates the Rule 12.1(a) provision that settlements may be proposed within 30 days after the last day of hearing. We find this to be an unreasonable, overly restrictive application of Rule 12.1(a). R.06-02-013 was litigated and largely resolved by 2007. It remains open for consideration of a petition for modification, for which a proposed decision is pending. There is no connection between the evidentiary hearings held in 2007 and the petition for modification that would warrant the strict application of Rule 12.1(a) that CARE suggests. If we were to apply the rule as literally as CARE proposes in all circumstances, we would render the Commission's settlement process unavailable in many proceedings, including those where petitions for modification are involved as well as proceedings where no evidentiary hearings are held. No purpose is served by such an outcome, and it would be contrary to our preference that parties have the opportunity to pursue settlements and other forms of alternative dispute resolution. We therefore reject CARE's argument that the motion is untimely.
CARE contends that its due process rights were violated, "because an October 25, 2010 (12 days) comments due date and a November, 1, 2010 (7 days) reply comments due date is unreasonable and unjustified..."22 CCSF argues that CCAs have had "minimal time" to review and analyze the settlement. Shell Energy also raises concerns about the shortened comment period.
As explained in the October 11 Ruling, which adopted the expedited schedule for considering the Proposed Settlement, parties were given notice of the October 7 formal settlement conference on September 24, 2010. That notice also informed parties that settlement documents would be posted on the IOUs' websites prior to the settlement conference. In accordance with the notice, the Term Sheet, which sets forth in detail the elements of the Proposed Settlement, was posted on the IOUs' respective websites on October 4, 2010, as were the pro forma agreements and amendments. At the October 7, 2010 settlement conference, parties had opportunity to participate and ask questions about the settlement. Parties also had the opportunity to propound data requests and one party, CMUA, did so.
We conclude that while this process was expedited, parties had adequate time and were not unreasonably burdened or prejudiced by the schedule. The thoughtful and substantive comments that were filed by the parties demonstrate that they had reasonable opportunity to review and respond to the Proposed Settlement.
CARE also argues that the settlement rules do not specify that the time for filing comments on proposed settlements and replies to such comments may be shortened from 30 and 15 days, respectively, and, therefore, that the expedited schedule shortening time for comments and replies violates its due process rights. This argument is without merit. While Rule 12.2 itself does not explicitly provide for such a reduction, it is subject to the application of Rule 1.2, which provides that:
These rules shall be liberally construed to secure just, speedy, and inexpensive determination of the issues presented. In special cases and for good cause shown, the Commission may permit deviations from the rules.
Based on the foregoing discussion, we affirm the October 11 Ruling's provision for shortening time for comments and replies on the Proposed Settlement.
Raising concerns similar to those regarding the shortened comment period, some parties contend, in effect, that the settlement rules' provision for comments and replies on the Proposed Settlement is inadequate in this proceeding. CCSF asserts that it has had no meaningful opportunity to have its concerns considered or addressed. Shell Energy contends that the settlement review process was flawed because ESPs, CCAs, and their customers were not consulted about or invited to participate in the settlement process. CCA/Direct Access Parties raise due process concerns based on the grounds that negotiations leading to the Proposed Settlement were conducted without notice that DA and CCA issues were being discussed.
The settlement rules do not require that all parties participate in settlement discussions. In fact, the rules explicitly accommodate settlements among a limited number of parties to a proceeding by (1) providing that settlements need not be joined by all parties (Rule 12.1(a)), and (2) providing that, prior to signing a settlement, the settling parties shall convene at least one conference with notice and opportunity to participate provided to all parties (Rule 12.1(b)). As Joint Parties observe, the fact that some parties may not be invited to participate in settlement negotiations is the very reason why the rules allow for non-settling parties to file comments. Additionally, as the Commission has stated:
Our settlement rules do not require that all interested parties participate in the preliminary discussions leading to the settlement. Indeed, if that were the case, parties might find it difficult to reach settlements as it is often easier to reach consensus with a few parties first, and then attempt to get consensus from a broader array of parties.23
CCSF notes that in D.06-05-034, the Commission modified a settlement that would have allocated potential Competition Transition Charge costs to parties that were not represented in settlement discussions. However, in that case the affected parties were not parties to the proceeding. In this case, affected parties were given notice of the settlement, and six parties (or party groups) actively participated by submitting comments.
The process followed here is in conformance with the Commission's settlement rules, and parties have had the opportunity to file comments and replies on the Proposed Settlement as well as file comments and replies on the proposed decision. We find that parties were given notice of the settlement and had the opportunity to be heard, and conclude that the process followed here meets due process requirements.
CCA/Direct Access Parties request that hearings or workshops on the Proposed Settlement be scheduled. CCA/Direct Access Parties request is limited to three issues:
1. Whether unbundled customers would derive any benefits from IOU procurement under the proposed QF/CHP program, and if so what costs are associated with these benefits.
2. Whether the current cost allocation under D.06-07-029 is appropriate for "above market" costs associated with the QF/CHP program.
3. Whether the current cost allocation under D.06-07-029 should be extended from 10 years to 12 years for purposes of the QF/CHP program.
CCA/Direct Access Parties argue that these issues should be considered on a comprehensive basis along with other IOU procurement/cost allocation issues. We will address cost allocation issues later in this decision to the extent necessary for considering the Proposed Settlement. However, we are persuaded that these are policy and legal issues that are appropriately addressed by notice and comments. We find that neither hearings nor workshops on the Proposed Settlement are necessary.
CARE claims that the Proposed Settlement is not allowed within the scope of R.06-02-013 in light of a 2006 scoping ruling providing that that proceeding will not be the place to re-litigate procurement targets already established elsewhere. However, CARE fails to explain how approval of the Proposed Settlement would constitute relitigation of earlier proceedings. CARE's claim is therefore without merit.
CCA/Direct Access Parties contend that the following three issues are outside the scope of the consolidated proceedings, contrary to Rule 12.1(a):24
1. Whether the Commission has the authority to establish GHG emissions reduction targets for ESPs and CCAs, and if so what those targets should be.
2. Whether the Commission has the authority to impose CHP procurement requirements on ESPs and CCAs, and if so, what those requirements should be.
3. Whether the Commission has the authority to allocate costs incurred by the IOUs under a CHP procurement program to all customers, and if so what costs should be allocated to all customers and how should that allocation be implemented.
We are not persuaded by these arguments. The issue of cost allocation to ESPs and CCAs is within the scope of R.06-02-013, a phase of which dealt with stranded costs, non-bypassable charges, and ESP/CCA customer responsibility for those charges. D.08-09-012, issued in R.06-02-013, addressed the allocation of QF contract costs to ESP and CCA customers. Also, in D.06-06-071, issued in R.04-04-003, the Commission determined that GHG-related issues for the IOUs, ESPs, and CCAs were within the noticed scope of R.04-04-003. Further, the question of Commission jurisdiction over CCAs and ESPs for purposes of GHG emissions reductions has been addressed in R.04-04-003 and is within the scope of that proceeding. Finally, we note that the Amended Scoping Memo provides that the Proposed Settlement is within the scope of the consolidated proceeding.
The joint motion for approval of the Proposed Settlement notes that Commission staff representatives were involved in the framing of settlement discussions in May 2009. In their reply comments, Joint Parties also note that during the actual settlement negotiations, staff representatives were involved in some but not all of the meetings. CARE states the following regarding staff participation:
CARE objects to [Commission] staff exercising undue influence on the settlement as specific evidence of constructive retaliatory action against CARE and its members. We believe this is because we represent low-income, people of color and native people ratepayers in our complaints and pleadings before the FERC and CPUC which is a protected activity under both the Federal and State Constitutions and civil rights statutes. The [Commission] continues to seek to deny us our constitutional right to petition the government for grievances.25
CARE offers no evidence, argument, or other legal basis to support any allegation that staff involvement in the settlement discussions was in any way improper. In particular, CARE provides no evidence that staff exercised "undue influence," has or had any intent to retaliate against CARE, or actually retaliated against CARE. Likewise, CARE offers no evidence, argument, or other legal basis to support the allegation that the Commission seeks or has sought to deny CARE's right to petition government. CARE is admonished that making such groundless and frivolous claims is wholly inappropriate and may constitute a failure to maintain the respect that is due the Commission.
Therefore, we dismiss as baseless CARE's claims regarding staff participation in the settlement process and the alleged denial of its rights.
4.3. Review of the Proposed Settlement
As discussed below, the Proposed Settlement is reasonable in light of the record. It is the result of lengthy, arms-length settlement negotiations and compromise among divergent interests. The settling parties are experienced with Commission processes and well-represented, and we are convinced that their respective decisions to sign the Proposed Settlement were, in each case, the product of informed choices. None of the Joint Parties received everything it wanted, and each of them was required to compromise in specific areas so that an overall settlement could be reached.
The Joint Parties addressed the major issues regarding the development and operation of CHP in California historically and going forward. The Proposed Settlement resolves numerous complex and contentious disputes pending at the Commission. These disputes involve QF pricing, QF SOC terms and conditions, the amount of QF/CHP capacity included in long-term planning, retrospective SRAC price adjustments dating back to 2000, and numerous other disputes concerning the implementation of the Commission's current QF Program. The Proposed Settlement effectively resolves pending disputes by requiring the Joint Parties to either withdraw pending motions and applications or release certain claims.
In addition, the Proposed Settlement precludes the Joint Parties from raising new retrospective SRAC adjustment claims as long as certain conditions are met. Thus, the Settlement not only resolves past disputes, but it also limits potential future disputes regarding SRAC energy prices.
Additionally, the Proposed Settlement provides a comprehensive framework for a QF/CHP Program in California that will encourage the development of efficient CHP, and provide environmental benefits through reduced GHG emissions.
From the standpoint of the IOUs, QF representatives, and ratepayer advocates that signed the Proposed Settlement, the case in favor of adopting it is compelling. The relationship among these parties has been contentious and litigious for most of the last 30 years. It is apparent that the disputes arising from this relationship impose large costs upon the parties as well as the Commission, the FERC, and the courts. The uncertainty may also be delaying implementation of state policy goals for CHP and GHG emissions reductions. It is clearly in the public interest to adopt a settlement framework that resolves the ongoing controversies in a manner that is acceptable to the settling parties, provided that the settlement otherwise meets our criteria for approval. To the extent that consideration of the Proposed Settlement requires balancing the interests of various parties, including non-settling parties, we find that significant weight should be given to this public interest benefit.
The state policy objectives addressed by the Proposed Settlement include requirements of Pub. Util. Code Section 372(a):
It is the policy of the state to encourage and support the development of cogeneration technology as an efficient, environmentally beneficial, competitive energy resource that will enhance the reliability of local generation supply, and promote local business growth.
The Proposed Settlement is also intended to address the policy objective of the Energy Action Plan II, which states:
The loading order identifies energy efficiency and demand response as the State's preferred means of meeting growing energy needs. After cost effective efficiency and demand response, we rely on renewable sources of power and distributed generation, such as combined heat and power applications. To the extent efficiency, demand response, renewable resources, and distributed generation are unable to satisfy increasing energy and capacity needs, we support clean and efficient fossil-fired generation.
The Proposed Settlement explicitly provides that the purpose of the State CHP Program is to encourage the continued operation of the state's existing CHP facilities, and the development, installation, and interconnection of new, clean and efficient CHP Facilities, in order to increase the diversity, reliability, and environmental benefits of the energy resources available to the State's electricity consumers. The State CHP Program is designed to retain existing efficient CHP, support the change in operations of inefficient CHP to provide greater benefits to the State, and replace CHP that will no longer be under contract with the IOUs with new, efficient CHP. Thus, with respect to implementation of state policy objectives for CHP, the Proposed Settlement is consistent with state and Commission policy and law.
Enacting AB 32 to reduce California's GHG emissions, the Legislature declared that global warming caused by GHG emissions poses a serious threat to California.26 Since AB 32 was enacted, the Commission has repeatedly indicated that reduction in GHG emissions is a key policy objective for the utility industry.27 The Commission, CARB and the CEC have all recognized that efficient and clean CHP can reduce GHG emissions.28 CARB has made CHP one element in its Scoping Plan to implement AB 32 and reduce GHG emissions in California.
The State CHP Program created by the Proposed Settlement is both intended and designed to secure additional GHG emissions reduction benefits, consistent with the reduction targets of AB 32, by adding new, efficient CHP. It would do so by:
· Setting GHG Targets for all Commission-jurisdictional LSEs, including the IOUs, ESPs and CCAs. The targets are intended to facilitate LSEs meeting CARB's CHP goals by December 31, 2020. To the extent CARB modifies its CHP goals, the Settlement provides flexibility to incorporate any modification in them.
· Creating incentives for upgrading existing, inefficient CHP facilities, or, alternatively, for facilities that cannot participate or are unsuccessful in the CHP Program, providing an orderly exit strategy. All CHP facilities will be able to participate in the CHP RFOs, and some will be able to participate in other procurement processes and obtain contracts that facilitate the financing, construction and operation of upgraded and/or new facilities. The CHP RFO PPA includes efficiency performance obligations.
· Requiring all Commission-jurisdictional LSEs to file semi-annual compliance reports that include GHG emissions information. This will allow the Commission and other interested parties to monitor the GHG emissions resulting from the QF/CHP Program and to determine if LSEs are obtaining the GHG benefits expected, and to address any shortfalls in expected GHG emission reduction benefits in a timely manner.
With respect to its design for achieving state policy objectives for GHG emissions reductions, the Proposed Settlement is consistent with the law. We address below claims that setting GHG Targets and reporting requirements for all LSEs contravenes the law in other respects.
The Commission has repeatedly stated a policy preference for competitive wholesale energy markets and competitive solicitations to procure new resources in those markets.29 Yet, currently, CHP QF contracting is not conducted through a competitive solicitation process. The Commission's early QF Program involved the issuance of standard offer contracts that a QF of any technology could sign. In recent years, the CHP QF Program has primarily been sustained by extensions of existing contracts and the availability of short-term contracting options. In D.07-09-040, however, the Commission ordered the IOUs to offer QFs five-year as-available and ten-year firm PPAs. Despite considerable efforts, those contracts have never been finalized or made available to QFs.
Under the Proposed Settlement, a new, competitive procurement process will be adopted in lieu of the Commission-ordered contracts. In particular, the Proposed Settlement creates a CHP RFO process that allows the IOUs to run competitive, transparent RFOs for CHP resources. This is a significant change in CHP procurement. It puts CHP resources into a process similar to the one currently used for conventional and RPS procurement. This process will result in competitive prices that are ultimately subject to Commission approval.
The Commission has also provided for other methods for utility procurement, such as bilateral contracting.30 The Proposed Settlement provides similar additional flexibility to the IOUs in the CHP procurement process by including not only RFOs, but also other processes such as bilateral contracting, AB 1613 feed-in tariffs, a PURPA Program for QFs under 20 MW, utility-ownership, and other procurement options. The Proposed Settlement also includes a regulatory approval process for CHP PPAs that result from these procurement options. In short, the Proposed Settlement adopts a procurement process for QF and CHP resources that is competitive, flexible, and allows for sufficient regulatory oversight to ensure that the IOUs are able to minimize costs and select appropriate resources for California customers. It is consistent with, and gives effect to, the Commission's preference for competitive procurement, and in this respect it is consistent with the law.
The Proposed Settlement has several pricing and contracting options. First, CHP PPA prices will be set on a contract-specific basis through a competitive RFO process subject to Commission approval. Allowing CHP developers to bid into the RFO will allow them to propose prices that are sufficient to finance and develop their facilities, while at the same time allowing the IOUs to pick the best offers based on a number of criteria, including price. An RFO procurement process, similar to the processes currently used for conventional and RPS contracts, will result in competitive prices that are ultimately subject to Commission approval. The Proposed Settlement expressly provides that an IOU may use excessive RFO prices as a justification for failing to meet the MW Targets and GHG Targets.
Second, the Proposed Settlement establishes SRAC prices for the Transition PPAs, Legacy PPAs, QF contracts that are still available under PURPA for facilities less than 20 MW, and the Optional As-Available PPAs. The SRAC included in the Proposed Settlement is based on the current Commission-approved SRAC pricing formula31 and achieves the goal of ultimately transitioning to a market heat rate to determine SRAC by January 1, 2015.32 The Joint Parties point out that there is a long history of setting SRAC prices through settlements, and that the Proposed Settlement resolves this very contentious issue through an arms-length negotiation among adverse parties. As such, we concur that the established SRAC prices are reasonable and in the public interest.
Finally, the Proposed Settlement includes capacity prices that have already been approved by the Commission in D.07-09-040 or are already incorporated in existing contracts.
We find that the energy and capacity pricing provisions of the Proposed Settlement are reasonable and consistent with recent commission decisions.
The Proposed Settlement establishes MW Targets for each IOU. In addition, it establishes a GHG Target for all Commission-jurisdictional LSEs. These targets are consistent with the CHP targets included in CARB's Scoping Plan, but they can be adjusted to reflect changes by CARB in CHP targets for GHG emissions reductions and if a lack of need is asserted by an IOU and determined by the Commission.
The Joint Parties state that the MW Targets are the result of heated and protracted negotiations among parties with divergent interests. As noted earlier, the Commission has recognized that a settlement of contested issues among parties with divergent interests is reasonable and in the public interest. That is the case here. We address concerns regarding the applicability of the targets to all LSEs below.
The Commission has encouraged transparency in RFO and procurement processes.33 The Proposed Settlement includes several provisions that promote such transparency. Commission-jurisdictional LSEs are required to submit semi-annual reports concerning their progress toward achieving the MW Targets and GHG Targets. The Proposed Settlement contains detailed requirements for the type of information to be included in the semi-annual reports. This will provide the Commission and interested parties with information concerning the progress of the QF/CHP Program, and do so with sufficient frequency that the Commission will have an opportunity to address issues and concerns as they arise, rather than waiting until the end of the program to address these issues.
The Proposed Settlement also provides for a CHP Auditor to be used for the CHP RFOs if an IOU does not or anticipates that it will not meet its MW Targets or GHG Targets. The CHP Auditor provisions provide the auditor with access to confidential IOU information, to review the CHP RFO process, while including appropriate safeguards to prevent the disclosure of confidential information. The CHP Auditor can review the results of the IOU CHP RFOs, and raise any concerns about the RFOs to the Commission or the Energy Division. This provides an additional level of transparency in the implementation of the QF/CHP Program.
The Proposed Settlement's provision for semi-annual reports and a CHP Auditor Process are consistent with Commission policies supporting greater public information and transparency. We address concerns about applicability of reporting requirements to all jurisdictional LSEs below. The first semi-annual progress report should be filed on the first business day of the month following the Settlement Effective Date.
The Commission has previously approved the use of Pro Forma PPAs for QFs, as well as for use in RFOs for conventional and RPS resources. The Proposed Settlement includes the following four Pro Forma PPAs that were developed for specific circumstances and a Pro Forma Legacy QF PPA Amendment for each IOU:
· Legacy QF PPA Amendments: These Pro Forma Amendments offer QFs under unexpired Legacy QF PPAs as of the Settlement Effective Date (Legacy QFs) the option of amending the energy payment terms of their QF PPAs by selecting one of several payment options and executing the Legacy Amendment within 180 days of the Settlement Effective Date.
· Transition PPA: This Pro Forma PPA offers an existing CHP facility whose existing QF PPA or extension thereof is scheduled to expire prior to 2015 the option to continue existing deliveries until July 1, 2015.
· CHP RFO PPA: This Pro Forma PPA will be issued in the CHP RFOs to procure deliveries from CHP and other eligible generators larger than five MW.
· Optional As-Available CHP PPA: This Pro Forma PPA offers gas-fired CHP facilities with nameplates greater than 20 MW, but annual average deliveries less than 131,400 megawatt-hours (MWh), the option to make as-available deliveries to meet criteria specified in the Proposed Settlement. The facilities procured under this contract would be subject to a program cap and measured on a deliver basis.
· PPA for QFs of 20 MW or Less: This Pro Forma PPA offers QFs of 20 MW or less, including small power producers and renewable energy resources, the option to make firm or as-available sales to the IOUs.
The establishment of these PPAs and amendments represents a significant achievement that provides the foundation for a new QF/CHP program. This element of the Proposed Settlement is consistent with Commission policy and in the public interest.
Recognizing the amount of intermittent, renewable resources that will be added in California as a result of the RPS requirements, the Commission has encouraged the development of operationally flexible conventional resources to assist with renewables integration.34 One of the challenges for CHP facilities is that they are often operated as baseload facilities and/or need to operate consistent with the needs of a thermal host. Accordingly, these facilities often lack significant operational flexibility. Under the Proposed Settlement, the IOUs can contract with a limited group of existing CHP facilities that convert from a QF facility to a dispatchable generation facility. The dispatchable generating facility is referred to in the Proposed Settlement as a "Utility Prescheduled Facility."
This aspect of the Proposed Settlement has important benefits and thus is in the public interest. If an existing CHP facility converts to a dispatchable facility, it gives the IOU the ability to dispatch the resource when it is needed, rather than the facility providing baseload generation or operating based on a thermal host's needs. This is similar to the contracts the IOUs have with peaking and other existing conventional generation facilities. It should prevent any incentive to maintain a facility as a CHP resource, when a thermal need no longer exists, simply because of an overall CHP program target. Also, conversion to a dispatchable facility may ultimately result in GHG emission reductions. If an existing CHP facility operates as a baseload facility and is not efficient, its GHG emissions may be higher than a new conventional facility or other resource options. By giving the IOU the flexibility to dispatch a facility, the utility can optimize its GHG emissions reductions by choosing to operate facilities with the lowest total GHG emissions.
Most elements of the Proposed Settlement are uncontested by most of the parties in these proceedings. Four of the five parties that filed comments in opposition to one or more aspects of the Proposed Settlement (CCSF, CMUA, Shell Energy, and CCA/Direct Access Parties addressed those portions of the settlement that pertain to procurement requirements and reporting obligations for ESPs and CCAs, and cost allocation issues, including non-bypassable charges for departing load customers. These parties recommend rejection of the Proposed Settlement only if it is not modified to address their proposed changes. Only CARE urges rejection of the Proposed Settlement as a whole. In Section 4.3.3 we address the recommendations and arguments of these parties.
Under the Proposed Settlement, the CARB CHP goal is allocated among Commission-jurisdictional LSEs based on their respective percentage of total retail sales. This allocation is used to establish GHG Targets for all LSEs, including the IOUs, ESPs and CCAs. The Proposed Settlement provides that the Commission can require that ESPs and CCAs procure their portion of the GHG Emissions Reduction Targets for their own customers. While it does not dictate the procurement method by which ESPs and CCAs will need to comply with this requirement, it does require semi-annual reporting to ensure that these Commission-jurisdictional entities are making progress toward their targets. Alternatively, the Proposed Settlement provides that the Commission can require the IOUs to procure the ESP and CCA customers' portion of the GHG Emissions Reduction Targets, in which case the ESPs and CCAs will pay the net capacity costs associated with the CHP procured on their behalf.
Parties representing ESPs and CCAs contend that the Commission lacks jurisdiction to require them to participate in the QF/CHP Program or to procure a share of the GHG emissions reduction targets established under the Proposed Settlement. As explained below, there are several statutory provisions and other reasons that we have the requisite jurisdiction to require ESP and CCA participation in the QF/CHP Program.
First, the QF/CHP Program in part implements CARB's CHP goals for the electrical sector. Under Pub. Util. Code Section 365.1(c)(1), enacted as part of Senate Bill (SB) 695,35 ESPs should be subject to the same GHG emissions net reduction requirements as the IOUs. The Proposed Settlement provides for this by requiring either that ESPs procure their share of CHP to meet the GHG Emissions Reduction Targets, or that the customers of the ESPs pay their share of the costs attributable to the IOUs' procurement of CHP on the ESPs' behalf.
Second, notwithstanding the opponents' argument that SB 695 only applies to "requirements" adopted by CARB, and not to the CARB Scoping Plan, the Scoping Plan itself indicates (at ES-1) that "the measures in this Scoping Plan will be developed over the next two years and be in place by 2012." To the extent that CARB modifies the CHP portion of the Scoping Plan in any final AB 32 rules or regulations, these changes will be reflected in adjustments to the GHG Emissions Reduction Targets. To the extent the GHG Emissions Reduction Targets are modified, the ESP and CCA obligations will also be modified to reflect any final CARB rules or regulations. Thus, whatever CHP-related rules and regulations CARB ultimately adopts for all LSEs as a part of its implementation of AB 32, the Proposed Settlement allows for the incorporation of these final rules and regulations for the IOUs, ESPs and CCAs.
Third, Pub. Util. Code section 365.1(c)(2), enacted as part of SB 695, requires the Commission to allocate the net capacity costs and resource adequacy benefits to all customers, including CCAs, ESP and CCA customers, when it authorizes or directs the IOUs "to obtain generation resources that the commission determines are needed to meet system or local area reliability needs for the benefit of all customers in the electrical corporation's distribution service territory." By approving the Proposed Settlement and directing the IOUs to meet the CHP procurement targets included on behalf of all retail customers in their service territories, the Commission would trigger this provision of SB 695, since CHP resources provide system and local area reliability benefits, commensurate with their Net Qualifying Capacity.
Fourth, under Pub. Util. Code Section 366.2(f)(2), the Commission is required to ensure that CCA customers reimburse the IOUs for their share of procurement costs attributable to the customer. Accordingly, CCA customers should be responsible for their share of the costs of the QF/CHP Program.
Fifth, the Commission has determined that where DA and CCA customers benefit from procurement, these customers should pay their share of the procurement costs. For example, it has authorized the allocation of new generation resource costs to DA and CCA customers because these customers benefitted from the system reliability provided by the new generation resources.36 It has also allocated GHG compliance costs and certain locational costs associated with CHP facilities developed under AB 1613 to DA and CCA customers because these customers benefitted from the AB 1613 program.37
Finally, we note that in 2006 the Commission adopted a load-based cap for GHG emissions and indicated that it intended to develop a GHG reduction program in the longer term.38 At that time, ESPs asserted that the Commission did not have jurisdiction to apply GHG-related requirements to them.39 The Commission rejected these arguments, noting that "[a]s a general policy, we believe it is imperative that GHG reduction goals and responsibilities be shared as broadly as possible."40 In addition, the Commission determined that it had "direct authority" to regulate CCA and ESP procurement activities related to GHG insofar as the determination of those targets is "germane to the regulation of public utilities" and promotes equity.41 On rehearing the Commission again rejected the argument that it has no jurisdiction over ESPs and CCAs on GHG-related issues, citing, in part, its general authority over "public utilities" in Public Utilities Code section 701.42 It also noted that exempting ESPs and CCAs from GHG-related requirements would give these LSEs an improper competitive advantage over the IOUs.43
We concur with the Joint Parties that the same argument applies in this proceeding, and that if the ESPs and CCAs were exempted from the GHG Emissions Reduction Targets, they would potentially have an improper competitive advantage because they would not be required to procure CHP. For this reason we reject Shell Energy's argument that the Proposed Settlement puts ESPs at a competitive disadvantage because they cannot compete with the IOUs for CHP resources. Similarly, we reject the CCA/Direct Access Parties' assertion that the Proposed Settlement is "fundamentally unfair" because it imposes GHG Emissions Reduction Targets on the ESPs and CCAs and not just IOUs.
We conclude that both California statutory law and Commission precedent fully support the Commission's jurisdiction to adopt the portions of the Proposed Settlement that are applicable to the ESPs and CCAs.
The CCA/Direct Access Parties assert that if the Commission determines that the IOUs should procure CHP on behalf of the ESPs and CCAs, the Proposed Settlement improperly applies the SB 695 cost allocation methodology set forth in Pub. Util. Code section 365.1(c)(2). According to the CCA/ Direct Access Parties, the statute requires a determination that a generation resource is needed for reliability, and such a determination has not been made for CHP. However, CHP resources count toward resource adequacy requirements and provide system and local reliability benefits commensurate with their Net Qualifying Capacity. The "Goals and Objectives" section of the Proposed Settlement specifically cites the reliability benefits of CHP procurement. Thus, a requirement for procurement of CHP by the IOUs fits squarely within the parameters of SB 695.
CCSF argues that the non-bypassable charge approved in D.08-09-012 should not be extended from 10 years to 12 years. In response, the Joint Parties note that they are not seeking a blanket modification of the D.08-09-012 requirements to expand the recovery period for all PPAs from 10 years to 12 years. Rather, because some PPAs under the QF/CHP Program can have a duration of up to 12 years, the Joint Parties contend that it is appropriate for purposes of the Proposed Settlement to permit extending the 10 years in D.08-09-012 to 12 years to ensure recovery of the QF/CHP program costs that will be incurred over the entire term of the PPAs. We concur that the extension is reasonable and will therefore approve it. The Commission has extended the 10-year non-bypassable charge limitation in other areas, most notably with RPS contracts, which are recovered over the life of the PPA and thus may be recovered for a period substantially longer than 10 years.44
We conclude that the cost allocation provisions of the Proposed Settlement are fair, reasonable, and consistent with California law.
CMUA proposes modification to the language in Section 6.3.4 and the deletion of Section 6.3.5. We find these modifications to be unnecessary and decline to make them. The Proposed Settlement recognizes that the POUs are not subject to Commission jurisdiction, and it does not impose any GHG Emissions Reduction Targets on them. Section 6.3.4 simply acknowledges that entities not regulated by the Commission should be responsible for a portion of the GHG Emissions Reduction Targets. In approving the Proposed Settlement, the Commission will not be imposing a GHG Emissions Reduction Target on the POUs. Similarly, Section 6.3.5 simply states that the Joint Parties support GHG Emissions Reduction Targets for the POUs. Again, this does not impose an obligation on the POUs.
CMUA also proposes deleting provisions in the Proposed Settlement that would require IOU bundled customers who depart bundled service to become municipal utility customers (MDL) to bear a share of the IOU costs incurred on their behalf. CMUA bases its argument primarily on D.08-09-012. In the context of the Proposed Settlement, we concur with the Joint Parties that it is appropriate to permit a deviation from D.08-09-012 related to MDL as a part of our approval of the Proposed Settlement. In D.08-09-012, the Commission exempted MDL from stranded cost responsibility for new generation resources because the load forecast to determine new resource needs takes into account the departure of customers for municipal service. Here, however, the GHG Emissions Reduction Targets are not based on load forecasts that exclude MDL, but rather on actual retail sales data that includes all current bundled service customers, even if some of those customers later depart for municipal service. Because the IOUs' GHG Emissions Reduction Targets obligations are based on their current bundled service customers' retail sales (as compared to future load forecasts that account for departing customers), to the extent that a customer departs, that customer should bear its share of the costs incurred on its behalf. The Proposed Settlement's methodology for allocating the GHG Emissions Reduction Targets reflects a fair allocation of these targets among all customers.
As requested by CMUA, we clarify here that adoption of the Proposed Settlement does not alter existing non-bypassable charge (NBC) agreements between POUs and IOUs. NBC payment provisions in existing NBC agreements are deemed to cover all CHP Program costs and no additional NBCs or other CHP Program costs will be imposed on customers covered by existing NBC agreements.
CARE reargues portions of a complaint that it recently filed at the FERC, asserting that the Commission does not have authority to approve the Proposed Settlement or any of the underlying pro forma PPAs or amendments. We find the arguments proffered by CARE unpersuasive and therefore reject them. The Proposed Settlement is intended to resolve disputes that are currently pending at the Commission, and CARE fails to explain why Commission review of a settlement to resolve these pending disputes is improper. Also, the Proposed Settlement establishes a QF/CHP Program for the State, consistent with California statutory law and policy, yet CARE provides no explanation as to why the Commission does not have jurisdiction to approve a settlement that establishes a QF/CHP Program pursuant to California statutes and policy.
CARE also claims that approval of the Proposed Settlement would constitute approval of a PPA without FERC approval and thus not be lawful. However, approval of the pro forma PPAs and amendments is clearly distinguishable from mandating that a contract's rate be set at a specific price. Moreover, the prices included in the Proposed Settlement were negotiated between the Joint Parties and were not mandated by the Commission. In addition, the Commission's preapproval of a PPA, which will be set at market rates, is pursuant to Pub. Util. Code sections 380 and 454.4(d), ensuring that the utilities' resource adequacy needs are met and determining that the IOU will not later be subject to a reasonable review proceeding.
Finally, CARE asserts that the Proposed Settlement violates a recent FERC order, which granted the Commission's request for clarification of the FERC's declaratory order involving the AB 1613 feed-in tariffs.45 In particular, the FERC's clarification order has recognized that states are allowed a "wide degree of latitude" in setting avoided cost rates.46 However, in terms of the SRAC terms of the Proposed Settlement, CARE fails to explain how the Proposed Settlement would violate the FERC's regulations concerning avoided cost rates.
CARE asserts that FERC should review the Proposed Settlement before it is considered by the Commission. We reject this argument. The Proposed Settlement resolves certain state law disputes that are outstanding at the Commission and establishes a California QF/CHP Program, and is therefore appropriately subject to review by the Commission at this time.47 Also, the Joint Parties' proposal to seek Commission approval of the Proposed Settlement first, before filing the PURPA termination application at FERC, is entirely appropriate. As a part of their PURPA termination application, the IOUs will reference the Proposed Settlement among other facts to demonstrate that the statutory requirements of Section 210(m) are satisfied. This Commission first needs an opportunity to review and approve the Proposed Settlement before it can be referenced in any PURPA application filed at FERC.
Finally, CARE asserts that its federal due process rights will be violated as a result of the Commission reviewing the Proposed Settlement before the PURPA application is filed at FERC. However, as we have discussed earlier in this decision, CARE has been provided due process in this proceeding to challenge the Proposed Settlement. If the Proposed Settlement is approved and the IOUs file their PURPA application at FERC, CARE will have an opportunity to challenge that application at FERC consistent with FERC's rules and regulations. We find no basis for CARE's assertion that its federal due process rights will be violated.
As noted earlier, the Proposed Settlement provides for the Commission to choose one of two alternative approaches for allocating CHP procurement costs to ESPs and CCAs. One alternative, preferred by the Joint Parties, is to require these entities to meet their portion of the GHG Target by procuring CHP resources. Alternatively, if it is found that ESPs or CCAs are unable or unwilling to meet their portion of the GHG Targets by contracting with CHP facilities, the IOUs have agreed under the terms of the Proposed Settlement to procure CHP resources on behalf of these entities. In this case, however, ESP and CCA customers would be responsible for the costs of CHP resources procured on their behalf by the IOUs. As noted above, this is consistent with the Commission's recent decisions on cost allocation when ESP and CCA customers benefit from IOU procurement on their behalf.
We are persuaded that, at this time, we should provide for IOU procurement of CHP resources on behalf of non-IOU LSEs and allocation of net capacity costs and associated benefits as described in Section 13.1.2.2 of the Term Sheet. This approach is reasonable as it addresses concerns regarding the ability of ESPs and CCAs to procure CHP resources. The administrative burden for the Commission would also be reduced since it would only need to monitor the IOUs for compliance. We remain open to consideration, in a future proceeding, of proposals whereby ESPs and CCAs may opt out of IOU procurement and procure CHP resources on their own behalf.
In the foregoing discussion we have touched upon several public interest benefits of the Proposed Settlement. We restate the benefits here.
· It resolves numerous pending disputes, motions and applications and will likely limit disputes in the future. Settlements of disputes benefit the public by reducing the costs and expense of litigation and conserving Commission resources.
· The Proposed Settlement creates a framework for a QF/CHP Program going forward that is aligned with other Commission-approved procurement processes. For example, under the Proposed Settlement, the IOUs will initiate a CHP RFO process, which is similar to how conventional and RPS resources are now procured. The Proposed Settlement also includes Pro Forma PPAs, which will allow CHP developers and the IOUs to reduce transaction costs and resources, which they would otherwise be expended in the time-consuming process of negotiating individual PPAs.
· The Proposed Settlement will encourage the continued operation of the State's existing CHP facilities and the development, installation and interconnection of new, clean, and efficient CHP facilities in order to increase the diversity, reliability and environmental benefits of the CHP energy resources.
· The Proposed Settlement creates a framework for achieving CARB's current CHP goals for the reduction of GHG emissions. GHG emissions pose a serious threat to the California economy, environment and the health and welfare of California's citizens. By providing a framework for the implementation of one aspect of the CARB Scoping Plan, the Proposed Settlement will facilitate efforts for California to meet its ambitious AB 32 goals. It encourages the retirement of existing, inefficient CHP facilities or repowering existing CHP facilities to make them more clean and efficient, and the development of new, clean and efficient CHP.
· The Proposed Settlement adopts a methodology for determining SRAC energy prices that is consistent with Commission decisions. The Proposed Settlement also provides for CHP PPA energy prices that are determined as a part of a competitive process, so that the prices accurately reflect a market price. Customers will benefit from clearly established SRAC prices, or prices determined through a competitive process. In addition, the capacity prices adopted in the Proposed Settlement have already been approved by the Commission.
· The Proposed Settlement creates a transparent procurement process, benefitting the Commission, interested parties and the public.
· The Proposed Settlement establishes clear rules for pricing and treatment of existing QF PPAs. For example, under the Settlement, QFs with existing PPAs are encouraged to provide forecasting information to the IOUs so that the IOUs can more accurately forecast QF generation. QFs also have greater certainty as the SRAC formula is clearly established rather than being subject to continued and ongoing disputes.
· The Proposed Settlement provides for the equitable allocation of costs associated with the QF/CHP program to all Commission-jurisdictional LSEs.
The Proposed Settlement resolves several past and ongoing disputes and will likely resolve potential future disputes among the settling parties. It establishes a framework for a QF/CHP Program going forward that advances state policies encouraging efficient CHP operations and promoting GHG emissions reductions. It provides for reasonable cost allocation of QF/CHP program compliance among all Commission-jurisdictional LSEs. Taken as a whole, it constitutes a reasonable and appropriate resolution of the many QF issues presently under consideration before the Commission and in other forums. We have reviewed the elements of the Proposed Settlement and find that it does not contravene any provision of law. The Commission has a long-standing policy of supporting settlements:
The Commission favors settlements because they generally support worthwhile goals, including reducing the expense of litigation, conserving scarce Commission resources, and allowing parties to reduce the risk that litigation will produce unacceptable results.48
We will therefore approve the Proposed Settlement without modification.
Rule 12.5 states the following regarding limits on the future applicability of a settlement:
Commission adoption of a settlement is binding on all parties to the proceeding in which the settlement is proposed. Unless the Commission expressly provides otherwise, such adoption does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding.
The Joint Parties request that the Commission expressly find that the Term Sheet is precedential. For good cause shown, we do so here.
17 Re Pacific Gas & Electric Company, 30 CPUC 2d 189, 222.
18 Re Southern California Edison Company 64 CPUC 2d 241, 267.
19 Id. Rule 51.1(e) is the predecessor of Rule 12.1(d). Nearly identical to its successor, Rule 51.1(e) provided that "[t]he Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest."
20 Id., quoting D.94-04-088 at 8.
21 Article 12 (Rules 12.1 -12.7).
22 CARE comments at 6. CARE misstates the date of the ALJ ruling that adopted the expedited schedule as October 13, 2010. The ruling was issued on October 11. Thus, there were 14 days from the date of the ruling to the date that comments were due, not 12 days as stated by CARE. Moreover, under Rule 12.2 the time for filing comments is calculated from the date the motion for adoption of the settlement was served, not the date of an ALJ's ruling. The comments were due 17 days after the motion was filed.
23 Re Southern California Edison, 64 CPUC 2d 241, 267.
24 Rule 12.1(a) provides in part that "[r]esolution shall be limited to the issues in that proceeding and shall not extend to substantive issues which may come before the Commission in other or future proceedings."
25 CARE comments at 8-9.
26 Cal. Health and Safety Code, § 38501, et seq.
27 See e.g., D.07-12-052 at 2-5, 243; D.08-10-037 at 2-3.
28 D.08-10-037 at 237-238, CARB Scoping Plan at 43-44, 2009 IEPR at 97-98.
29 D.04-01-050 at 63, D.07-12-052 at 205, D.08-11-008 at 20.
30 See e.g. D.03-12-062 at 38-40.
31 D.07-09-040 at 67, Resolution E-4246 (July 10, 2009) (adopting Market Index Formula).
32 D.07-09-040 at 68.
33 See e.g. D.07-12-052 at 148-151.
34 See e.g. D.07-12-052 at 106, 111-112, 115.
35 Stats. 2009, Ch. 337. Section 365.1(c), by its own terms, becomes effective "[o]nce the commission has authorized additional direct transactions pursuant to subdivision (b) ... " D.10-03-022 authorized and implemented a plan for increased limits in the allowed level of direct access transactions within the IOUs' service territories.
36 D.06-07-029 at 7.
37 D.09-12-042 at 21-25, aff'd, D.10-04-055 at 11-18.
38 D.06-02-032 at 2-3.
39 Id. at 25-27
40 Id. at 26.
41 Id.
42 D.06-06-071 at 20.
43 Id.
44 D.04-12-048 at 63.
45 See, California Public Utilities Commission, et al., 133 FERC ¶ 61,059.
46 See, id. at 24.
47 Under the Proposed Settlement, the Joint Parties agree that the IOUs may file an application to terminate the IOUs' PURPA obligations for QFs exceeding 20 MW under Section 210(m) and 18 C.F.R. §§ 292.309 - 292.310.88.
48 D.10-06-031 at 12.
