II. BACKGROUND
A. AB 1613
AB 1613 - The Waste Heat and Carbon Emissions Reduction Act - was enacted by the California Legislature in 2007 to be effective January 1, 2008, in order to further environmental objectives, particularly the reduction of GHG emissions. AB 1613 is codified at Public Utilities Code sections 2840 through 2845.
In short, AB 1613 requires the Commission to establish a "standard tariff" for qualifying CHP generators to sell their excess electricity to the utilities. (Pub. Util. Code, § 2841, subd. (b)(1).) AB 1613 anticipates that such a program will result in multiple benefits to California because it will:
[(a)] advance the efficiency of the state's use of natural gas by capturing unused waste heat, and in doing so, help offset the growing crisis in electricity supply and transmission congestion in the state.
[(b)] reduce wasteful consumption of energy through improved . . . utilization of waste heat whenever it is cost effective, technologically feasible, and environmentally beneficial, particularly when this reduces emissions of carbon dioxide and other carbon-based greenhouse gases.
(Pub. Util. Code, § 2840.6, subds. (a) and (b).) The AB 1613 program seeks to enhance the efficiency of an existing class of industrial boilers and reduce GHG emissions by providing incentives to install heat recovery steam generators and turbines (CHP systems) at the tail end of these existing units. AB 1613 CHPs will capture and make useful the energy already produced by boilers, which until now, had been discharged to the atmosphere as waste heat.5 AB 1613's policy goal to reduce carbon-based emissions is part of the state's overall objective to reduce GHG emissions, as articulated in Assembly Bill 32, California's "Global Warming Solutions Act of 2006" (Stats. 2006, ch. 488) ("AB 32").6
To advance these goals beyond a traditional CHP program, an AB 1613 CHP must meet strict efficiency and emission requirements, including the following: at least a 60% Energy Conversion Efficiency; a nitrogen oxide (NOx) emission standard of 0.07 pounds per megawatt-hour ("MWh"); a GHG emission standard of no more than 1,100 pounds of carbon dioxide ("CO2") equivalent emissions per MWh; and an allocation of any more stringent carbon emissions compliance costs, which the California Air Resources Board ("CARB") may adopt under AB 32, and/or which the Federal government ultimately may impose. (Pub. Util. Code, § 2843.)
AB 1613 also imposes requirements to ensure reliable and continuous onsite generation to address the state's energy supply and transmission congestion challenges. An AB 1613 CHP must be sized to meet its onsite load, must "operate continuously in a manner that meets the expected thermal load," and may only sell its excess power to the utilities. (See Pub. Util. Code, §§ 2840.2, subds. (a) and (e), 2841, & 2843, with quotation from § 2843, subd. (a)(2).) In exchange, the entire physical generating capacity of the AB 1613 CHP, not just the excess energy sold to the utility, counts towards the purchasing utility's resource adequacy obligations. (Pub. Util. Code, § 2841, subd.(f).)
B. Commission Implementation of AB 1613
Rulemaking (R.) 08-06-024 was opened to develop the policies and procedures for the utilities to purchase excess electricity from AB 1613 CHPs pursuant to a standard tariff. The AB 1613 program has been very controversial because of the utilities' objections to a standard tariff that establishes a fixed price for purchases, also known as a "fixed price feed in tariff" or "FIT". Consequently, the utilities have opposed implementation of AB 1613 at the Commission and before FERC.
The Commission has now adopted three decisions in its efforts to implement the FIT portion of AB 1613: (1) D.09-12-042 initially implementing the AB 1613 program; (2) D.10-04-055 denying rehearing of D.09-12-042, as modified, to clarify certain discussions; and (3) D.10-12-055, granting in part, and denying in part, a Joint Utilities' petition for modification of D.09-12-042 (together "CHP decisions").7 This last decision modified D.09-12-042 to implement the AB 1613 program pursuant to PURPA and consistent with two FERC orders issued after the Commission's adoption of D.10-04-055. However, D.10-12-055 ordered very few specific modifications to D.09-12-042, and most of those modifications were focused on contract terms. The modifications did not reflect the changed legal status of the program to a PURPA/Qualifying Facility ("QF") program. The history of these changes is described in more detail below.
The Commission adopted D.09-12-042 on December 17, 2009. On January 20, 2010, the Joint Utilities together filed an application for rehearing of D.09-12-042 on the grounds that its adopted price formula was preempted by federal law and violated the ratepayer indifference standard of AB 1613. On the same day, the Joint Utilities also filed a motion for stay, and the Alliance for Retail Energy Markets ("AReM") also filed a rehearing application of the same decision. San Joaquin, CCDC, AReM and the Division of Ratepayer Advocates ("DRA") filed responses to the Joint Utilities' application for rehearing. San Joaquin and CCDC/FuelCell filed a response to the Joint Utilities' stay motion, and PG&E and DRA filed a response to AReM's rehearing application.
On February 2, 2010, the Joint Utilities timely filed a Joint Petition for Modification of D.09-12-042 ("Joint Utilities' PFM"). The Joint Utilities claimed to be seeking resolution of alleged problems with the implementation of D.09-12-042 as it stood at that time. San Joaquin, CCDC, FuelCell, and The Utility Reform Network ("TURN")/DRA filed comments on the Joint Utilities' PFM.
On April 26, 2010, the Commission issued D.10-04-055 denying both applications for rehearing and clarifying, through modifications, certain aspects of D.09-12-042.
On May 4, 2010, the Commission submitted a petition for declaratory order to FERC to find that the Federal Power Act ("FPA"), PURPA and FERC regulations do not preempt the Commission's decision to require California utilities to offer a certain price to CHP generating facilities of 20 MW or less that meet specific energy efficiency requirements.8
On May 11, 2010, the Joint Utilities together filed a separate petition at FERC for a declaratory order in which they argued that the Commission's decision is preempted by the FPA insofar as it sets rates for electric energy that is sold at wholesale.
On July 15, 2010, FERC issued California Public Utilities Commission et al. ("FERC Declaratory Order"), (2010) 132 FERC ¶ 61,047 which granted in part and denied in part the cross-petitions for declaratory order. In this order, FERC found:
Although the CPUC has not argued that its AB 1613 program is an implementation of PURPA, we find that to the extent the CHP generators that can take part in the AB 1613 program obtain Qualifying Facility (QF) status, the CPUC's AB 1613 feed-in-tariff is not preempted by the FPA, PURPA or FERC regulations, subject to certain requirements.
(Id. at P 65 (emphasis in original).) To comply with PURPA, FERC found that the Commission's AB 1613 CHP program needed to meet two requirements: (1) the CHP generators must be QFs pursuant to PURPA; and (2) the rate established by the Commission should "not exceed the avoided cost of the purchasing utility." (Id. at P 67.)
On August 16, 2010, the Commission filed with FERC a request for clarification, or, in the alternative, a request for rehearing, which sought clarification regarding the avoided cost rates for facilities participating in the AB 1613 program.
On September 9, 2010, the Commission issued an amended scoping memo and ruling in the proceeding ("Amended Scoping Memo") asking for further comment on certain issues brought up in the Joint Utilities' PFM. Comments in response to the Amended Scoping Memo were filed by the Joint Utilities, DRA, FuelCell, CCDC, San Joaquin, and Sustainable Conservation. Joint comments were filed by Pacific Corp and Sierra Pacific Power Corporation.
On October 21, 2010, FERC issued an order, which granted the Commission's August 16, 2010 request for clarification. (California Public Utilities Commission ("FERC Clarification Order") (2010) 133 FERC ¶ 61,059.) In this order, FERC clarified that the state has a wide degree of latitude in setting avoided cost, can utilize a multi-tiered avoided cost rate structure, and that this approach is consistent with the avoided cost requirements set forth in Section 210 of PURPA. (Id. at PP 24 & 30.) FERC also clarified that state procurement obligations can be considered when calculating avoided cost, and it specifically overruled its prior holding from SoCal Edison to the extent its current determination was inconsistent with that clarification. (Id. at PP 29-30 referring to SoCal Edison (1995) 71 FERC ¶ 61,269 at 62,080.)
With this FERC guidance, the Commission issued D.10-12-055 on December 16, 2010. Decision 10-12-055 granted in part and denied in part the Joint Utilities' PFM. Most significantly, D.10-12-055 stated that it was modifying D.09-12-042 to be consistent with the FERC Declaratory Order and the FERC Clarification Order by acknowledging that the AB 1613 program was being implemented pursuant to PURPA, that all generators in the program must be QFs, and that the prices set were consistent with avoided cost principles. D.10-12-055 modified D.09-12-042 so that the price paid to AB 1613 generators would be calculated each year based on the most current market price referent (MPR) inputs. (D.10-12-055 at pp. 9-10.) D.10-12-055 also modified the standard contracts approved in D.09-12-042 to correct errors and to resolve ambiguities. (D.10-12-055 at pp. 13-14.) Finally, D.10-12-055 clarified that GHG compliance costs were not reflected in the adopted MPR-based pricing formula and are instead addressed in the contracts as a direct pass-through of actual compliance costs from the generator to the utility, similar to treatment of renewable energy credits ("RECs"). (D.10-12-055 at p. 14.) Significantly, with the exception of the specific changes ordered to the AB 1613 contracts, D.10-12-055 did not order any specific language changes to D.09-12-042.
Before issuance of D.10-12-055, on November 22, 2010, the Joint Utilities filed at FERC a request for rehearing, or, in the alternative, reconsideration, partial vacatur, or clarification of the FERC Clarification Order. FERC denied rehearing of its Clarification Order on January 20, 2011. (California Public Utilities Commission ("FERC Rehearing Order") (2011) 134 FERC ¶ 61,044.) Among other things, it deferred to the Commission to implement FERC's guidance before it would rule on the Joint Utilities' assertions that the Commission has violated PURPA. (Id. at P 35.)
On January 6, 2011, the Joint Utilities filed a motion to stay D.10-12-055. DRA and San Joaquin filed a response, and CCDG and FuelCell filed a joint response to this motion to stay on January 10, 2011. On January 12, the motion to stay was denied by an Assigned Commissioner's ruling on the basis that it was premature because the Joint Utilities had not yet filed their rehearing application of D.10-12-055.
As described above, the Joint Utilities timely filed their applications for rehearing of D.10-12-055. PG&E and SDG&E filed a joint rehearing application and SCE filed its own rehearing application. At the same time, the Joint Utilities filed another motion for stay of D.10-12-055. San Joaquin filed a response and CCDG and FuelCell filed a joint response to both rehearing applications and the Joint Utilities' stay motion. The Joint Utilities filed a reply to the responses to the motion for stay.
On January 31, 2011, notwithstanding the FERC Rehearing Order that declined to rule on the Commission's implementation of the FERC guidance until implementation was complete (Rehearing Order, supra, 134 FERC ¶ 61,044 at P 35), the Joint Utilities filed their Enforcement Petition with FERC. In essence, the Joint Utilities claim that the Commission's AB 1613 decisions violate either the FPA's requirement that rates must be just and reasonable, or violate PURPA by setting rates above the utilities' avoided costs.
The Joint Utilities also filed their supplemental advice letters with the Commission on January 31, 2011, in compliance with Ordering Paragraphs 9, 10, and 11 in D.10-12-055. Energy Division issued a notice of suspension on February 18, 2011, which stayed Energy Division's action on those supplemental advice letters for up to 120 days for further staff review.
On February 22, 2011, the Commission filed at FERC a Notice of Intervention, Motion to Dismiss, and Protest to the Joint Utilities' Petition for Enforcement. On March 31, 2011, FERC issued its "Notice of Intent Not to Act," declining to initiate an enforcement action against the Commission.
5 This process and logic can be used to describe either topping-cycle or bottoming-cycle CHP; the policy goal to maximize the use of waste heat applies to both.
6 AB 32 requires, among other things, that the California Air Resources Board adopt a statewide GHG emissions limit equivalent to the statewide GHG emissions levels in 1990, to be achieved by 2020, in consultation with this Commission and the California Energy Commission.
7 A fourth decision, D.11-01-010, was issued to address the "Pay as You Go" issues raised in the proceeding. That decision closed the proceeding.
8 California Public Utilities Commission, FERC Docket No. EL10-64.
