5. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Peter V. Allen is the assigned ALJ in this proceeding.
1. The proposed settlement deferring a determination on the issue of the utilities' need for additional electric generation is supported by most of the parties to this proceeding.
2. The proposed settlement is reasonable in light of the whole record, consistent with law, and in the public interest.
3. Calpine did not present evidence on the specific economics of its generation facilities to support its proposal for utility solicitations aimed at existing power plants without contracts.
4. Calpine did not identify any non-Calpine combined-cycle generation facilities that are operating without contracts.
5. The California SWRCB has adopted regulations limiting the use of OTC by electric generation facilities.
6. Utility procurement of electricity from generation facilities using OTC should be consistent with the SWRCB regulations, and should encourage the operators of those generation facilities to comply with the regulations.
7. SCE's proposed new proceeding to address a new generation auction mechanism is unnecessary, and its focus and scope are inappropriate.
8. It is difficult to compare the cost and value of UOG facilities with independently-owned generation facilities.
9. UOG participating in a utility-run RFO creates an appearance of unfairness.
10. An open and competitive RFO process for generation is desirable.
11. UOG may be necessary if suitable independently-owned generation is not available.
12. The utilities need to procure greenhouse gas compliance products to comply with CARB's implementation of a greenhouse gas cap-and-trade program.
13. The greenhouse gas compliance products procured by the utilities should ensure their compliance with CARB's program at a reasonable cost and low risk to ratepayers.
14. The default under CARB regulations is that the responsibility for invalidated offsets falls on the buying entity.
15. Some contracts between independent generators and the utilities that were executed prior to the passage of AB 32 do not address cost recovery for greenhouse gas compliance costs, and are not addressed by the QF/CHP Settlement.
16. The rules relating to utility procurement of electricity could benefit from continued adjustment and refinement.
17. It would be good practice to have a single set of procurement rules in one place, but many parties opposed the rulebook proposal presented in this proceeding.
1. The proposed settlement meets the requirements of Commission Rule 12.1(d), and should be approved.
2. Calpine failed to present adequate evidence to support its proposal for utility solicitations aimed at existing power plants without contracts.
3. Utility procurement of electricity from generation facilities using once-through cooling should be structured to result in compliance with the SWRCB regulations regarding OTC.
4. The Commission should not open a new proceeding to examine SCE's proposed new generation auction mechanism.
5. UOG should not compete with independently-owned generation in a utility-run RFO.
6. In considering UOG, the Commission should use criteria to fairly compare it with independently-owned generation.
7. UOG should be considered only after an RFO for independent generation has failed.
8. The utilities should be allowed to procure certain greenhouse gas compliance instruments at this time, specifically allowances, allowance forwards and futures, and offsets and offset forwards.
9. To reduce risk to ratepayers, the quantities and sources of greenhouse gas compliance instruments procured by the utilities should be limited.
10. It would be desirable for contracts between independent generators and the utilities to address cost recovery for AB 32 greenhouse gas compliance costs, but the record in this proceeding does not support a Commission-ordered resolution at this time.
11. It is reasonable to adopt certain refinements and clarifications of the utilities' electric procurement rules.
IT IS ORDERED that:
1. The Proposed Settlement, as attached to the August 3, 2011, Motion For Expedited Suspension Of Track 1 Schedule, And For Approval Of Settlement Agreement Between And Among Pacific Gas And Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, The Division Of Ratepayer Advocates, The Utility Reform Network, Green Power Institute, California Large Energy Consumers Association, The California Independent System Operator, The California Wind Energy Association, The California Cogeneration Council, The Sierra Club, Communities For A Better Environment, Pacific Environment, Cogeneration Association Of California, Energy Producers And Users Coalition, Calpine Corporation, Jack Ellis, Genon California North LLC, The Center For Energy Efficiency And Renewable Technologies, The Natural Resource Defense Council, NRG Energy, Inc., The Vote Solar Initiative, And The Western Power Trading Forum is approved.
2. Calpine Corporation's proposal for the utilities to conduct solicitations aimed at existing power plants without contracts is not approved.
3. a. Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E) are authorized to sign power purchase agreements with power plants using once-through cooling, but those agreements may not commit to purchases beyond the applicable State Water Resources Control Board compliance deadline, and those agreements must be submitted to the Commission for approval via a Tier 3 advice letter for contracts of more than two years but less than five years, or via an application for contracts with a duration of five years or more. In addition, the applicable request for offers or other solicitation evaluation must take into consideration the plant's use of once-through cooling.
b. If such agreements terminate one year or less prior to the applicable State Water Resources Control Board compliance deadline, the advice letter or application must specifically show how the agreement helps facilitate compliance with the State Water Resources Control Board policy regarding once-through cooling.
c. PG&E, SCE, and SDG&E contracts with facilities utilizing once-through cooling may extend beyond the State Water Resources Control Board once-through cooling compliance date, but only if such contracts: 1) Allow for utility purchase or receipt of power generated by a unit using non-compliant once-through cooling only up to the State Water Resources Control Board once-through cooling policy compliance date in effect on the date the contract is signed. The contract shall not allow PG&E, SCE, and SDG&E to continue to purchase or receive power generated using non-compliant once-through cooling beyond that date even if the State Water Resources Control Board extends the compliance date; 2) Protect utility ratepayers against stranded costs; 3) Protect ratepayers against the risk of future unspecified cost increases resulting from increases in the cost of the generation unit compliance with the State Water Resources Control Board once-through cooling policy. For a utility to recover such cost increases from ratepayers, it must obtain approval from the Commission; 4) Are consistent with a need authorization from the System Track of the Long-Term Procurement Plan proceeding; and 5) Are consistent with other procurement rules, including this decision's requirement to file either a Tier 3 Advice Letter or an application.
d. Any such advice letter or application must show compliance with all relevant State Water Resources Control Board policies and regulations, and show how the contract provides or facilitates cost-effective and reliable service.
4. Southern California Edison's proposal for a new proceeding to address a new generation auction mechanism is not approved.
5. Utility-owned generation shall not bid into utility-run requests for offers for generation.
6. Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company's utility-owned generation shall be procured only after a corresponding utility request for offers has failed.
7. Applications by Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company for utility-owned generation shall be evaluated using criteria comparable to those used to evaluated independently-owned generation.
8. a. Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E) are authorized to procure greenhouse gas allowances, allowance futures and forwards, and offsets and offset forwards within separately calculated Direct Compliance Obligation Purchase Limits and Financial Exposure Purchase Limits, as set forth in Appendix 1.
b. PG&E, SCE, and SDG&E may only procure offsets certified by the California Air Resources Board.
c. PG&E, SCE, and SDG&E may purchase no more than 8% of their compliance requirement in the form of offsets.
d. PG&E, SCE, and SDG&E can only purchase offsets if the seller contractually assumes the risk of invalidation.
e. PG&E, SCE, and SDG&E may procure allowances from the California Air Resources Board.
f. PG&E, SCE, and SDG&E may procure allowances via forward contracts, and should apply their standard procurement credit and collateral requirements to these transactions, and may also impose additional credit and collateral requirements as appropriate.
g. If PG&E, SCE, and SDG&E wish to procure authorized compliance instruments via bilateral transactions (including brokers), PG&E, SCE, and SDG&E must utilize a competitive request for offer process, consult with their procurement review group, apply their approved procurement credit and collateral requirements, and apply the applicable affiliate transaction rules.
h. PG&E, SCE, and SDG&E may procure greenhouse gas compliance instruments on Commission-approved exchanges. Prior to purchasing greenhouse gas compliance instruments on an exchange not previously approved by the Commission for power procurement, PG&E, SCE, and SDG&E must submit a one-time Tier 2 advice letter detailing: 1) what exchange they are seeking to use; 2) the liquidity and transparency of the exchange, specifically for California greenhouse gas compliance instruments, including an explanation of how the Commission can be assured that the price of products procured on the exchange is reasonable; and 3) the regulatory authority or authorities the exchange is subject to.
i. PG&E, SCE, and SDG&E may resell greenhouse gas compliance instruments, but should report any such sales to their procurement review group.
9. When Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E) update their long term procurement plans in conformance with this decision, they should provide an estimated forecast of the amount of greenhouse gas compliance instruments (in metric tons carbon dioxide equivalents) that correspond with these maximum procurement levels, based upon their current expected range of emissions compliance obligations. The utilities may update their greenhouse gas compliance forecasts as necessary via a Tier 2 advice letter. Forecast updates and corresponding revisions to the procurement limits, along with all greenhouse gas compliance instrument transactions, shall be reported at each of the quarterly procurement review group meetings and quarterly compliance reports of PG&E, SCE, and SDG&E.
10. Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company costs incurred for the greenhouse gas compliance instrument transactions should be included in each utility's Energy Resource Recovery Account filing for cost recovery.
11. The utilities are directed to renegotiate contracts with independent generators that do not currently address the allocation of Assembly Bill 32 greenhouse gas compliance costs so that they reasonably address those costs.
12. The proposal to adopt an independently enforceable procurement rulebook is not approved.
13. The staff audit reports of Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company quarterly compliance reports shall be made public.
14. Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company procurement review group meeting summaries shall be distributed on the earlier of a) 14 days after the procurement review group meeting, or b) 48 hours before the next regularly scheduled procurement review group meeting.
15. Public versions of independent evaluator reports shall be identical to the corresponding confidential versions, except for the visible redaction of confidential material.
16. Other proposed procurement rule changes relating to independent evaluators are not adopted at this time.
17. This proceeding is closed.
This order is effective immediately.
Dated April 19, 2012, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
MICHEL PETER FLORIO
CATHERINE J.K. SANDOVAL
MARK J. FERRON
Commissioners
APPENDIX 1
1.) Direct Compliance Obligation Purchase Limit
Below is the formula for determining the purchase limit on the purchase of compliance instruments used to fulfill a utility's "direct compliance obligation", defined as the tons of emissions for which the utility has an obligation to retire allowances on its own behalf as a regulated entity under the cap and trade regime, and/or is otherwise obligated to procure instruments on behalf of a third party that is a regulated entity under the cap & trade regime (i.e., certain contractual arrangements where the IOU is contractually responsible for procuring allowances on a third party's behalf, or could elect to assume that responsibility). The number that results from this calculation would set the maximum amount of compliance instruments the IOU would be allowed to purchase in the current year. We define "purchase" as taking title of the instrument when it is delivered. Note that under this framework, the IOUs would not be allowed to purchase allowances or offsets with vintages more than 3 years from the current year.
LCY = A + 100% * FDCY + 60% * FDCY + 1 +40% * FDCY + 2 + 20% * FDCY + 3
Where:
"L" is the maximum number of GHG compliance instruments an IOU can purchase for purposes of meeting their direct compliance obligation.
"A" is the utility's net remaining compliance obligation to date", calculated as the sum of the actual emissions for which the utility is responsible for retiring allowances (or purchasing on behalf of a third party) up to the Current Year, minus the total allowances or offsets the utility has purchased up to the Current Year that could be retired against those obligations. This term in the calculation ensures the IOUs are always able to buy sufficient allowance to cover any prior years' shortfalls, given that actual emissions may end up being less than forecast and/or prior decisions about how much procurement to do.
"FD" is the utility's forecasted compliance obligation", the projected amount of emissions for which the utility is responsible for retiring allowances, or responsible for purchasing on behalf of a third party, calculated using an implied market heat rate (IMHR) that is two-standard deviations above the expected IMHR consistent with the approach described by PG&E.
"CY" is the current year, i.e., the year in which the utility is transacting in the market.
Note that should this equation result in a negative number in a given year, the utility's Direct Compliance Obligation Purchase Limit for that year should be set at zero.
2.) Financial Exposure Purchase Limit
Below is the formula that sets the specific limit on the amount of GHG compliance instruments the IOUs can purchase to hedge their financial exposure to greenhouse gas costs under the cap & trade regime. As with the formula above, this is a purchase limit, meaning the number that emerges from this calculation would set the maximum amount of GHG compliance instruments the IOUs would be allowed to purchase in the current year for purposes of hedging their financial exposure. As above, we define "purchase" as taking title of the instrument when it is delivered. Also as above, under this framework, the IOUs would not be allowed to purchase allowances or offsets for hedging purposes with vintages more than 3 years from the current year.
FLCY = 20% * FECY + 10% * FECY+1 + 5% * FECY+2 + 2.5% * FECY+3 - B
Where:
"FL" is the maximum number of GHG compliance instruments that a utility can purchase for purposes of hedging their financial exposure to GHG costs.
"FE" is an estimate of the utility's financial exposure to GHG costs that will, or are anticipated to be, embedded in the price of energy, calculated based on the tons of CO2 for which a given IOU believes it will bear the costs through an embedded cost of carbon as reflected in energy prices. This amount does not include the costs the IOUs anticipate incurring as a result of their direct compliance obligation as "direct compliance obligation" is defined above.
"CY" is the current year, i.e., the year in which the utility is transacting in the market.
"B" is the utility's net purchases of GHG compliance instruments to date for hedging purposes, calculated as the total purchases of GHG compliance instruments for purposes of hedging an IOU's Financial Exposure up to the Current Year minus those GHG compliance instruments sold up to the Current Year. This term helps ensure that if the IOUs have hedged a lot in prior years and those hedges didn't pay out (e.g. the price they saw in the market for carbon stayed below what they paid for a compliance instrument and so they didn't sell the instrument) that gets factored into the amount of additional hedging they are allowed to undertake.
Should this equation result in a negative number in a given year, the utility's Financial Exposure Purchase Limit for that year will be set at zero.
(END OF APPENDIX 1)
