4. Discussion
The Commission's standards for reviewing QF contract amendments and modifications were discussed in D.99-02-085.1 In general, the Commission examines a QF contract amendment or modification to determine if there are customer benefits that result from the amendment or modification.2
The Commission has previously found that it is reasonable to pay QFs fixed short-run avoided energy cost prices. After the energy crisis of 2001, the Commission adopted an SRAC price that was intended to encourage renewable QFs to resume deliveries. At that time, the Commission found that a proposal to replace the monthly variable SRAC with a five-year fixed energy price would provide greater incentives to renewable QFs. The fixed-price structure was also found to provide utility customers greater price certainty and less volatility over the five-year period3 and to provide the utility with greater predictability of revenue.4
The Commission approved a fixed energy price settlement for a second time in a proceeding to promote consistency in QF pricing. In that case, PG&E and IEP reached a settlement that included an SRAC price and either fixed or variable pricing. Fixed SRAC pricing for five years was offered to renewable energy generators. Non natural gas fueled QFs, including renewables, received a five-year fixed energy price of $64.50/ Megawatt-hours, with a 1% annual escalation. The total settlement package was found to be consistent with Commission standards for the approval of settlement agreements and was approved in D.06-07-032. In this application, PG&E proposes a similar fixed energy price offer limited to Renewable QFs for a five-year term, not to exceed the remaining term of the Seller's contract.
Payments under the FEPAs are based on the same energy price components as the Sellers' otherwise applicable SRAC. No other pricing term in Seller's existing PPA is affected. PG&E's customers should not experience any significant difference in procurement cost due to the Amendment, unless actual gas prices during the Amendment term deviate significantly from currently forecasted prices. However, we believe that the certainty that is gained from having renewables on a fixed energy price is more important than this potential risk on ratepayer cost exposure. We also note that if gas prices deviate significantly in the other direction that this fixed energy price could represent a significant savings. We find it reasonable that a renewable QF could operate more in the ratepayer interest by having its SRAC have fixed components.
Each of the 48 Amendments consists of a pro-forma FEPA that has been signed by the Renewable QF and PG&E without any changes to the form. The pro-forma FEPA provides the Renewable QFs with a fixed-price version of the SRAC that was adopted in D.10-12-035. In exchange, Sellers agree to provide PG&E with non-binding forecasts of their generation and notice of outages. Sellers also agree to maintain their status as Eligible Renewable Energy Resources and take other actions to enable PG&E to claim the benefits of their renewable generation under the Commission's Renewable Portfolio Standard program. We find that the PPAs are consistent with the QF/CHP Settlement.
The pro-forma FEPA incorporates the essential terms of the PPA Legacy Amendment. In particular, it requires the QF to agree to the voluntary generation forecast and outage reporting terms contained in the PPA Legacy Amendment5 and to comply with provisions applicable to eligible renewable energy resources.6 We are aware that terms concerning greenhouse gas emissions were omitted because renewable sellers do not emit regulated greenhouse gas emissions. Also, lengthy and complex dispute resolution provisions were not included.
We find that the Amendment is reasonable. The FEPA for each of the 48 QFs offers generally the same terms and energy price as the Legacy PPA Amendment but at pricing that is better aligned with the operations of renewable QFs. The price is based on an SRAC that was approved by D.10-12-035. The Commission has twice authorized a five-year fixed energy price, in D.01-06-015 and D.06-07-032. The Amendment will provide the Renewable QFs with greater revenue certainty and will therefore encourage them to continue production for the remaining terms of their PPAs. Consistent deliveries will provide consumers with electricity at a reasonable price and reduce the potential need to procure replacement renewable power. In addition, the Amendment will provide utility customers greater price certainty and less volatility than otherwise applicable fossil fuel-based SRAC and will benefit PG&E by providing some revenue certainty.
Last, we recognize that by adopting PG&E's application, we enable certain legacy renewable QFs to have some price certainty for a period of up to 5 years in exchange for some updated contract performances. As the vintage of the existing renewable QF fleet continues, we anticipate that further contract modifications will be requested by one or more party. We anticipate that some of these existing facilities will also seek a transition into a new PPA arrangement, either a new QF standard offer contract or some other agreement where they are eligible. It is our intent to continue to modernize the contractual relationships between buyer and seller to make them comparable to other more recent agreements. We encourage this type of approach going forward.
1 See D.99-02-085, 85 CPUC2d 158, 167 (1999).
2 In earlier decisions, the Commission referred to "commensurate" benefits. In other decisions, the Commission referred to customer indifference. (Id. at 166-167.) (Describing Commission decisions and different descriptions of customer benefit standards).
3 D.01-06-015, Conclusion of Law 2.
4 Ibid, Finding of Fact 5.
5 D.06-07-032. Legacy PPA Amendment Section 1.04, Addition of Forecasting Attachment.
6 Legacy PPA Amendment Sections 1.05, Additional Representations, Warranties, and Covenants Applicable to Renewable Facilities and 1.07, Additional Defined Terms.
