6. Use of Energy Auction to Calculate Net Capacity Cost
In D.06-07-029, we adopted the conceptual framework of a CAM process under which "the costs and benefits of the energy component [are] assigned to those that value the energy the most, as demonstrated through an auction or similar mechanism."19
In D.07-09-044, we adopted an unopposed settlement outlining products and processes that govern the utilities' administration of the new resource contracts and periodic energy auctions.20 Under the rules established in D.06-07-029 and D.07-09-044, if the Commission allows a particular resource contract to receive CAM treatment, then an energy auction necessarily follows.21 If there are no bidders participating in the energy auction, then the utility is to use an alternate methodology to calculate the net capacity cost.22
Some parties believe that, under SB 695, the Commission cannot require the utility to use an energy auction as a condition for the resource to receive CAM treatment, but it can allow one to be conducted by the utility voluntarily.23 Reid appears to support the Commission having continued authority to require an auction, and for the Commission to use an auction.24
PG&E/SDG&E recommend that the energy auction process be eliminated in total because "the energy auctions that have been conducted to date have been complicated, time consuming and not particularly effective."25 SCE, the only utility that has conducted energy auctions under the CAM process, disagrees with PG&E/SDG&E, and argues that utilities should still have the option to conduct an energy auction.26
The auction-related language of SB 695 is in fact somewhat unclear:
An energy auction shall not be required as a condition for applying this allocation, but may be allowed as a means to establish the energy and ancillary services value of the resource for purposes of determining the net costs of capacity to be recovered from customers pursuant to this paragraph, and the allocation of the net capacity costs of contracts with third parties shall be allowed for the terms of those contracts.27
The passive voice of this language makes it somewhat confusing who it applies to. If it said that "utilities are not required to conduct an energy auction, but may choose to do so," it would be clear that the utilities get to make the choice whether or not to conduct an auction. But the code section is directed at the Commission, not the utilities, so the choice would appear to rest with the Commission. It is clear that an auction is permissible, so the Commission is not barred from using an auction. The question becomes whether the Commission can require the use of an auction.
On one hand, the language that says an auction "shall not be required" could possibly be read to bar the Commission from requiring an auction. On the other hand, the language that directs the Commission that an auction "may be allowed," gives the Commission authority to use an auction.
The statute neither requires nor prohibits the use of an auction, but allows the Commission, not the utilities, to choose to use an auction. The Commission is not required to use an auction, but may do so. If the utilities are given the choice to either use or not use an auction, then the Commission does not get a choice - the utilities do. If the utilities choose to not use an auction (as PG&E and SDG&E seem inclined), then the ability to choose an auction has been taken away from the Commission. Since the statutory language is directed at the Commission, not the utilities, and gives the Commission the choice, the only interpretation consistent with the intent of the statutory language is that the Commission can choose to require an auction.
This interpretation is consistent with the Commission's responsibilities pursuant to Public Utilities Code Section 380(b) to achieve all of the following objectives in establishing resource adequacy requirements: "(1) Facilitate development of new generating capacity and retention of existing generating capacity that is economic and needed. (2) Equitably allocate the cost of generating capacity and prevent shifting of costs between customer classes. (3) Minimize enforcement requirements and costs." Nothing in this statutory scheme or the legislative history of SB 695 supports the parties' contention that the Commission abdicates its authority in favor of offering the utilities a menu of options for the utilities to determine the net capacity costs and benefits of system resources. It is the Commission's duty, not that of the utilities, to "equitably allocate the cost of generating capacity..."
While the Commission may choose to employ an auction, it may also choose not to use an auction. Accordingly the Commission can, consistent with SB 695, use another method for determining net capacity cost. The Commission acknowledges that the existing energy auction mechanism adopted in D.07-09-044 may need to be revised. Consideration of non-auction processes and revisions to the auction methodology will occur in later phases of this proceeding or in a successor proceeding.
19 D.06-07-029 at 31.
20 Parties to the Settlement Agreement include AReM, Aglet Consumer Alliance, Barclays Bank, PLC, Constellation Energy Commodities Group, Inc., Constellation NewEnergy Inc., DRA, J. Aron & Company, Mirant California, LLC, Mirant Corporation, Mirant Delta, LCC, PG&E, SCE, SDG&E, TURN, and Western Power Trading Form.
21 D.07-09-044 Appendix A Section IX.
22 Id. Section IX(B) provides the methodology to calculate the net cost of capacity if there are no bidders participating in an energy auction.
23 AReM October 1st 2010 Comments at 13; DRA October 8th Comments at 5; PG&E/SDG&E October 1st 2010 Comments at 5; SCE October 1st 2010 Comments at 8; and TURN October 1st 2010 Comments at 8.
24 Reid October 1st 2010 Comments at 11-12.
25 PG&E/SDG&E October 1st 2010 Comments at 5.
26 SCE October 8th 2010 Comments at 8.
27 Section 365.1(c)(2)(B).
