7. Term of CAM Application
Section 365.1(c)(2)(B) provides that "the allocation of the net capacity costs of contracts with third parties shall be allowed for the terms of those contracts." In D.06-07-029, we established that CAM treatment of contracts last no more than ten years:
New generation approved by this Commission and eligible for the cost allocation mechanism will receive cost recovery for a period of up to 10 years. We limit the maximum term of any cost paid by all customers to the term of the contract, or 10 years, which ever is less, from the time that the new unit comes online.28
For a contract that meets the statutory condition for cost allocation, DRA, SCE and TURN argue that SB 695 requires the cost allocation be allowed for the entire term of the contact.29 PG&E/SDG&E note that "the CAM process is limited to ten years, while SB 695 does not have any duration limit,"30 but do not offer any opinion on whether the Commission retains the discretion to place a duration limit on the CAM. And while DRA and SCE believe that this limitation should be removed,31 AReM recommends that the contractual terms of procurement eligible for cost allocation be for the shortest possible to minimize nonbypassable charges and ensure that the reliability supply portfolio remains flexible to changing load conditions.32
For utility-owned generation cost allocation, AReM notes that, since SB 695 only addresses the term of the cost recovery for PPAs, the Commission will need to determine the appropriate time period for cost recovery for a utility-owned generation project if it is ordered by the Commission under the necessary conditions provided by SB 695.33
SB 695 requires us to allocate a contract's net capacity cost for the full term of the contract if we determine that the contract meets the necessary statutory conditions. Our prior ten-year limit on cost allocation is inconsistent with the clear language of the statute. Accordingly, the CAM now applies for the actual term of the contract, even if that contract term is longer than ten years.
Nothing in SB 695 limits the Commission's authority to limit contract durations in this or other proceedings, but CAM treatment now must correspond to the length of the contract.34 While we could limit the contracts at issue here to ten years in length, we decline to do so at this time, as that would result in a de facto differentiation between contracted resources and utility-owned resources.
Regarding cost allocation for utility-owned generation, AReM correctly observes that SB 695 is silent on the cost recovery duration of utility-owned generation cost allocation. The simplest approach, and clearly allowable under SB 695, is to allow cost allocation for utility-owned generation for as long as it meets the statutory requirements.
Whether or not this is a good approach, however, is not clear, nor is it clear whether this approach results in outcomes consistent with the statutory intent of providing equivalent treatment of utility and non-utility-owned generation resources. Accordingly, it is essential that we develop a methodology to properly compare and evaluate PPAs versus utility-owned generation bids in a competitive solicitation, as well as developing a method for applying the CAM to utility-owned generation.
28 D.06-07-029 at 27.
29 DRA October 8, 2010 Comments at 2; SCE October 1st 2010 Comments at 6; and TURN October 1st 2010 at 5.
30 PG&E/SDG&E October 1st 2010 Comments at 3.
31 DRA October 8th 2010 Comments at 2 and SCE October 1st 2010 Comments at 6.
32 AReM October 1st 2010 Comments at 6.
33 Id.
34 Similarly, the Commission retains its authority to impose limits on the procurement of utility-owned generation resources.
