VI. TOD Benchmarking Methodology
In December 2005, we adopted a recommendation to approve utilities' TOD factors during the review of utilities' RPS procurement Plans and proposed RFOs. (D.05-12-042, pages 21-22.) We said, however, that in order to do this a methodology for evaluating reasonableness of utilities' TOD profiles is required, on a schedule to be determined by the Assigned Commissioner and assigned ALJ. A schedule was set by ruling dated December 27, 2005. IOUs provided proposed methods on which parties commented. We now address the proposals and comments.
A. IOU Proposals and Comments
The IOUs propose TOD benchmarking methodologies with some similarities and many differences. Each proposal includes use of forward prices. The proposals vary, however, by the degree of quantitative evaluation or qualitative assessment used in the benchmarking exercise. They also differ in their treatment of energy costs (e.g., whether the energy assessment uses on-peak hours only, or averages of 8,760 hours broken into other subsets), and the treatment of capacity costs in the assessment of capacity.
Comments also span a range. Some parties recommend that the Commission adopt one benchmarking methodology that is to be used by all three IOUs. Others recommend use of public (not fee-based) data. Comments also differ on the recommended use of capacity values. A summary of each IOU proposal and the comments is contained in Appendix B.
B. Discussion
No comments lead us to reject any specific TOD factors, and we adopt them as proposed by IOUs, including the update provided by PG&E in its supplemental filing on February 8, 2006. We are not convinced, however, that any benchmarking proposal is sufficiently developed, documented, or explained to be explicitly endorsed or adopted by us at this time. We address the most important specific items and comments below.
We decline to adopt the recommendation that any one benchmarking method be adopted and used by all three IOUs. PG&E correctly notes that we have already decided that each utility may develop its own TOD factors, such that they best reflect each utility's market-based valuation of electricity in different time periods. (D.05-12-042, page 53, Finding of Fact 7.) Utility specific TOD factors are developed using different methods by the IOUs, and the benchmarking methodologies may reasonably also reflect such differences. Moreover, none of the methodologies is sufficiently explained or developed here to merit universal adoption. We do not permanently foreclose the option of adopting one benchmarking method in the future, if one is proposed and shown to reasonably apply to all three IOUs, but we do not do so here.
We decline to adopt Aglet's proposal to require the use of forward prices posted on the New York Mercantile Exchange (NYMEX) website. An IOU or party may use prices posted on the NYMEX website for the purpose of a benchmarking exercise if it wishes, but we will not require NYMEX as the only source. If non-public information is used by an IOU, parties may obtain access to such data after executing an appropriate confidentiality agreement. Moreover, as SDG&E correctly points out, we use fee-based sources for data where necessary (e.g., gas price indices used to calculate monthly commodity gas prices, short-run avoided costs for QFs, calculation of the MPR).
We also decline to adopt Aglet's proposal that the benchmarking be done based on price data from the last day of the calendar year. Trade volumes are typically lower during the last week of the year than during other times of the year, and may not be sufficiently representative of market prices. Further, near-term forward prices for NP-15, such as available from NYMEX, are closely linked to forecast hydro conditions. Using forward prices from only one day (or one week) is unlikely to provide reasonable long-term prices if the hydro situation at that time differs from average hydro conditions. While we do not foreclose a party from using end of year data for a benchmarking exercise, we neither limit the use of data to the last day of the year, nor to a limited number of days at year-end.
Aglet recommends that IOUs not use capacity benchmarks or combustion turbine proxies in their benchmarking analyses. We decline to adopt this recommendation.
TOD factors should recognize the extent of the need for additional capacity. TOD benchmarking methodologies should similarly reflect the extent of that need. That is, RPS contracts may run 10 or 20 years. To the extent capacity is needed over 10 to 20 years, TOD factors and TOD benchmarks should reasonably reflect that need.
Solel recommends that 2006 TOD factors for SCE and PG&E be applied to the 2005 solicitations, evaluations and signed contracts. Otherwise, Solel claims the contracting process could be delayed by at least a year (as projects withdraw from the 2005 solicitation and bid in the 2006 solicitation), important renewable peaking resource development might be delayed (for the same reason), and unwarranted reliance on SEPs might occur (since 2005 factors relative to 2006 factors undervalue peak periods and may require more SEPs in 2005). We first address the recommendation with regard to SCE, and reject it for the following reasons.29
We ordered the update to SCE's TOD factors because we determined that SCE's TOD factors were developed in the mid-1990s for purposes unrelated to the RPS program, were not appropriate for the MPR, and should be updated to rely on current market information. (D.05-12-042, page 20.) We directed SCE to recalculate its TOD profiles using market forward energy price information in a fashion similar to that of PG&E and SDG&E. We also ordered that SCE make this change for its 2006 solicitation, but decided not to require the change for SCE's 2005 solicitation, recognizing there would be an inconsistency.
Solel's proposal effectively appeals, and seeks reversal of, our December decision. Solel's arguments are unpersuasive. We already considered and rejected the same or similar arguments. We understood there would be an inconsistency between SCE's 2005 and 2006 TOD factors, but reasoned that this difference would be less problematic than the potential for delay and confusion. (D.05-12-042, page 20.) We specifically adopted SCE's proposal that TOD factors for a particular solicitation cycle be "hardwired" into any and all contracts signed during that cycle. (Id., page 22.)
SCE opposes Solel's proposal, contending that it has formulated its short list from the 2005 solicitation. Ordering SCE to re-evaluate its 2005 bids will introduce confusion and delay (which we considered and addressed just a few months ago in deciding not to order SCE to change its TOD factors for its 2005 solicitation). It is important to bring the 2005 solicitation to completion. We now can move forward quickly with the 2006 solicitation. We also have no data on the amount of SEP funds at issue here, if any, and whether that amount is, or should be, a material consideration in this decision. Thus, we decline to reverse our December 2005 decision now, but will proceed forward as expeditiously and efficiently as possible.
Solel also recommends that we order updated TOD factors for PG&E's 2005 solicitation, based on the 2006 TOD factors developed in PG&E's February 8, 2006 supplement. PG&E does not oppose using its 2006 TOD factors for its 2005 solicitation. PG&E says it has analyzed this change on its 2005 short list, and the parties on the short list do not change. PG&E further recommends, however, that the 2005 bidders be given the choice to adopt either the 2005 or 2006 TOD factors, and, if they adopt the 2006 factors, they should be required to re-calibrate their offer prices to ensure no change to the revenue requirement implicit in their bids. We decline to adopt either a mandatory or optional update for all the same reasons we rejected this for SCE, and those stated below.
Bidders relied on the factors published in the 2005 bid to make their offers. Those bids and TOD factors should be permitted to go forward, so that we may bring the 2005 solicitation to a close reasonably soon. An inconsistency, if any, between PG&E's 2005 and 2006 TOD factors is less problematic than delay and confusion introduced by requiring updates for all bidders, or permitting updates for individual projects. The potential for delay and confusion is further increased if we require re-calibration of price offers to ensure revenue requirement neutrality for some or all projects. We seek to bring the 2005 solicitation to a close by June 30, 2006. There is little time left from the filing of this order to the completion of the 2005 solicitation. On balance, it is best to complete the 2005 cycle, and move forward without delay on the 2006 cycle.
GPI suggests that SCE and SDG&E adjust their TOD periods. For example, SCE might, according to GPI, move (a) the month of June from summer to winter season, and (b) some afternoon weekend and holiday hours in July through September from off-peak to partial peak. Similarly, according to GPI, SDG&E might (a) consider three rather than two seasons, and (b) reassign some weekend and holiday days during summer and the November-December periods. GPI also believes hourly profiles are superior to the use of six or nine TOD periods.
We decline to adopt GPI's recommendation. The benchmarking methodology exercise here is not for the purpose of adjusting TOD periods. The TOD periods used here are generally consistent with General Rate Case (GRC) results, TOD periods in tariffs, and other uses of TOD periods. SCE points out its current 2006 GRC includes a showing on TOD periods that it believes validates the TOD periods in use here. Parties may litigate such changes in future GRCs or other proceedings, as appropriate. GPI's showing, however, is insufficient to justify any changes here.
Moreover, we have already considered and rejected GPI's proposal to time-differentiate the MPR using more than six to nine TOD periods. (D.05-12-042, pages 20-21.) We determined that GPI had not documented quantitative benefits of its method that are commensurate with the radically greater granularity of its proposal. GPI similarly fails to do so here. GPI's showing neither convinces us to reconsider our prior decision, nor that any changes in TOD periods are needed now.
SDG&E supports prospective modification of its TOD profile. SDG&E says: "in the spirit of promoting renewable resources, SDG&E supports the idea of including Saturdays in its on-peak and mid-peak periods as part of its TOD factor for its next RPS solicitation." (Reply Comments, page 6.) SDG&E does not believe it is necessary to split its TOD factors into three seasons, however. We encourage SDG&E and parties to consider prospective modification to TOD periods where reasonable.
29 We note that SCE filed updated TOD factors for use in its 2006 solicitation on January 10, 2006, as ordered in D.05-12-042. On January 17, 2006, SCE proposed its TOD benchmarking methodology. On February 8, 2006, SCE supplemented its benchmarking methodology to propose a validation methodology. Solel now proposes that SCE's February 8, 2006 pleading be used for the 2005 solicitation. SCE's February 8, 2006 supplement, however, provides a validation methodology based on publicly available data, but does not update SCE's TOD factors. Therefore, we understand Solel's recommendation to be with respect to SCE's January 10, 2006 updated TOD factors.
