3. Discussion

QF Parties' Petition relies heavily on an email summarizing agreements made by the parties during the November 14 and 15 workshops and describing how D.07-09-040 should be modified. However, a petition for modification must justify the requested modifications, as required by Rule 16.4(b) of the Commission's Rules of Practice and Procedure.3 References to agreements made during a workshop or an email from Commission staff are not, by themselves, sufficient justification. It is not the Commission's responsibility to guess why a party believes a proposed modification to one of its decisions is justified. Rather, the petitioning party bears the burden of justifying its requested modification.

In this instance, QF Parties have failed to provide the requisite justification for many of the proposed modifications. For example, the Petition contains no explanation of whether the proposed modifications to the components of the SRAC formula result in an SRAC energy price that complies with the Federal Public Utilities Regulatory Policies Act (PURPA).4 Furthermore, it is unclear in many instances why the proposed modifications are needed. Therefore, we only grant the portions of the Petition where there is sufficient justification.

The Market Heat Rate (MHR) component of the MIF is calculated using a 12-month average of the weighted average for forward market prices for North of Path (NP) or South of Path (SP) 15.5 This determination was based on testimony submitted by SCE prior to the issuance of D.07-09-040.

In its testimony, SCE had proposed calculating the heat rate based on a
24-month rolling average and collars on permissible market data to mute volatility and to account for seasonality in the data.6 While we agreed with the use of an average over a rolling time period, we limited the time period to
12 months and did not adopt a collar.7 Consequently, the MHR component of the MIF is calculated based on the average forward market prices on a rolling
12-month basis, as illustrated in Table 3 of D.07-09-040. That is to say, the MHR for any given month is the mean of the implicit heat rates derived from forward market prices for the next 12 months, and this heat rate will be recalculated on a monthly basis.8 We determined that this MHR component, combined with an Administrative Heat Rate component, would result in an energy price that would best represent utility avoided cost.9

The Petition asks that the Commission modify the Decision to use a simple average of 12-month forward market prices to calculate the MHR, rather than the adopted rolling average. QF parties note that all parties agreed to this change during the Energy Division workshop.

We find QF Parties' request somewhat puzzling. The methodology we have adopted in D.07-09-040 does, in fact, calculate the simple average of forward market prices. Thus, it appears that the requested modification is not based on disagreement over how the average is calculated, but rather a misunderstanding of our use of the term "12-month rolling average." Consequently, we shall modify D.07-09-040 to clarify our use of this term.10

In D.07-09-040, we determined that while the TOU/TOD factors needed to be updated, parties had made an insufficient showing of how the updating should be performed. Consequently, we determined that updating these factors needs to be considered in a separate proceeding. In the interim, however, we adopted TOU factors that are consistent with the adopted TOU factors for the MPR.11 As we explained, the TOU factors for the MPR fulfilled fundamentally the same role as the TOU factors in SRAC pricing. Consequently, we determined that use of these TOU factors in the MIF would result in an SRAC energy price that reasonably represented utility avoided cost.

QF Parties request to modify the TOU/TOD factors to use the energy-only portion of adopted TOU factors presented by SCE at the November 15, 2007 workshop and to map the MPR TOU periods to correspond to QF contract periods. The IOUs oppose these modifications.12

As with their prior request, QF Parties have failed to explain why these modifications are necessary or warranted, and this request is contested by the IOUs. Moreover, on August 4, 2008, the Commission issued D.08-07-048, which disposed of applications for rehearing of D.07-09-040 filed by the IOUs, CAC/EPUC and CCC. D.08-07-048 modified D.07-09-040 and removed the adopted TOU/TOD factors based on the MPR. In its place, D.08-07-048 used the TOU/TOD factors adopted in D.96-12-028 and directed that these factors be updated as part of the IOUs' next long-term procurement plans. In light of these considerations, we deny QF Parties' requested modification. However, QF Parties may present their proposal when the updating of the TOU/TOD factors are considered.

The intrastate transportation rate of the MIF is to be updated on an annual basis.13 QF Parties request that the rate be updated on a monthly basis. The IOUs support this request, noting that that the intrastate transportation rate changes on a monthly basis.

We grant QF Parties' request to allow for monthly, rather than annual, updates to the intrastate transportation rate. Since the intrastate transportation rate changes on a monthly basis, allowing a monthly update of this component of the MIF would likely result in an SRAC energy price that better reflects a utility's avoided cost for that month. Accordingly, we grant QF Parties' request on this issue.

QF Parties also request modifications concerning the forward market price data used in the MIF. First, they request that forward market prices be based on a weighted average price of a minimum of three (3) publications, rather than just Platts Megawatt Daily and/or the Intercontinental Exchange (ICE). QF Parties request that the modification either specifically identify the publications to be used, or to simply state that the publications contain "robust forward price indices." In their response to the Petition, the IOUs request that in addition to expanding the number of publications to be used, D.07-09-040 should also be modified to allow the IOUs the ability to use different data sources, rather than require them all to use the same data sources.

Generally, increasing the number of sources for determining forward prices would likely result in forward prices that are more representative of the overall market. This in turn would likely result in an SRAC energy price that would better represent a utility's avoided cost. Therefore, expanding the number of publications could be beneficial. However, we believe three publications would be sufficient in terms of robustness. Further, we are reluctant to allow the IOUs to determine on their own the independent sources of data, because we need to ensure that these data sources are both reliable and sufficiently robust. Additionally, we believe that at least one of the publications to be used should be either Platts-ICE Forward Curve-Electricity (North America)14 or the ICE. Finally, the IOUs should not be allowed to use different publications without first demonstrating that such use is necessary to better reflect its avoided cost.

Based on these considerations, we shall grant QF Parties' request in part. We shall modify the decision to have forward market prices based on an average of three publications. The publications shall be selected from a list of publications approved by the Energy Division.15 Each IOU may select its own set of publications, provided: (1) the IOU demonstrates that use of the selected publications is necessary in order to best reflect its avoided costs; and (2) at least one of the selected publications must be either Platts-ICE Forward Curve-Electricity (North America) or the ICE. Finally, we recognize that Energy Division will need some time to determine which publications to include in its list. Therefore, the IOUs shall use Platts-ICE Forward Curve-Electricity (North America) for forward market prices until Energy Division establishes its approved list of publications.

Second, QF Parties request that the monthly weighted average forward power price be determined based on the actual on-peak and off-peak hours during the applicable month, rather than the 57%/43% weighting adopted in D.07-09-040. The IOUs support this request, noting that use of actual hours would result in a more accurate calculation of the MIF. We agree. Use of actual monthly average on-peak and off-peak hours would not only provide for better accounting of month-to-month changes in consumption patterns, but would also allow for changes in such patterns over a longer timescale. Accordingly, we grant the proposed modification.

D.07-09-040 defines a "small QF" as "QFs under 20 megawatts (MW) or that offer equivalent annual energy deliveries of 131,400 megawatt hours (MWh) and that consume at least 25% of the power internally and sell 100% of the surplus to the utilities."16 QF Parties request to modify the definition to state that a small QF is one that offers "equivalent annual energy deliveries of less than or equal to 175,200 MWh." They contend that the MWh amount should be increased because the result of multiplying 20 MW by 8,760 hours is
175,200 MWh. TURN opposes the proposed change to the MWh. It notes that the 175,200 MWh represents the QF's maximum annual energy production and that the request fails to take into consideration the requirement that the QF must "consume at least 25% of the power internally." Therefore, TURN asserts that a 20 MW QF can deliver to utilities, at most, 75% of its maximum annual energy production, or 131,400 MWh (20 MW x 8760 hours x .75).

We grant, in part, and deny, in part, the requested modification. Specifically, we approve of the insertion of the words "less than or equal to" before "131,400 MWh." The definition of small QFs was meant to impose a limit only on the maximum annual energy deliveries that such a facility could make to the utilities. It was plainly not meant to preclude a facility from being classified as a small QF on the grounds that it makes even smaller annual deliveries. Therefore, we approve the insertion of "less than or equal to" language so as to better clarify the decision.

However, we decline to revise the limit from 131,400 MWh upwards to 175,200 MWh. The Petition conflates annual energy production with annual energy deliveries. While a continuously operating 20 MW facility will produce 175,200 MWh in one year, the definition of "small QFs" also requires such a facility to consume at least 25% of its power internally. Thus, as TURN correctly points out, the 131,400 MWh figure represents the maximum annual "energy deliveries" that a small QF can make to the utilities. Accordingly, we decline to revise the maximum energy deliveries amount.

D.07-09-040 determined that the Administrative Heat Rate (AHR) component of the MIF shall be removed once the California Independent System Operator's MRTU is operational and sufficiently robust.17 Consequently, the IOUs were ordered to include, as part of their joint advice letter filing to implement the MIF, the data set and formula for calculating the MIF once the AHR component is removed. QF Parties seek to modify D.07-09-040 to defer this requirement and other post-MRTU implementation issues to an Energy Division workshop which will be scheduled after MRTU becomes operational. The IOUs agree that the order concerning the joint advice letter filing should be modified and that post-MRTU implementation issues should be considered at a separate workshop, but oppose delaying consideration of these issues until after MRTU becomes operational.

At the time D.07-09-040 was issued, we anticipated that MRTU would be operational within 12 months, and that the AHR component would be removed shortly thereafter. Given this, it was reasonable to require that post-MRTU implementation issues, including the calculation of the MIF once the AHR component is removed, be considered along with all other implementation issues. However, it is unclear whether MRTU will now be operational within the time period anticipated in D.07-09-040. Further, as noted by both QF Parties and the IOUs, the Energy Division has also deferred consideration of these implementation issues to a later, still unscheduled, workshop.

Although QF Parties do not fully explain why post-MRTU issues should be addressed after MRTU is operational, we believe that such an approach would be reasonable. This would allow us to consider the impact of the MRTU day ahead market using actual, rather than hypothetical, data and eliminate the potential need to further revise the MIF in the event there are discrepancies. Further, we do not believe this delay would impede implementation of a revised MIF, since the change to the revised MIF would not occur until the day-ahead market is determined to be sufficiently robust. In their response to the Petition, the IOUs assert that there are "important MRTU-related issues" which must be addressed before MRTU is operational. However, the IOUs fail to identify any of these allegedly important issues.

Based on these considerations, we grant QF Parties' request. We eliminate the requirement that the IOUs include the method for calculating the MIF after the AHR is replaced by MRTU day ahead pricing as part of the joint IOU Advice Letter ordered in OP 3 of D.07-09-040. Energy Division shall schedule and hold a workshop within 60 days after MRTU is operational to consider post-MRTU implementation issues. The IOUs shall subsequently file a joint Advice Letter specifying the data sets and formula that will be used to calculate the MIF once the AHR is removed, no later than 30 days after that workshop. Pursuant to D.07-09-040, as modified by D.08-07-048, the Assigned Commissioner's proposed ruling to remove the AHR component of the MIF shall not be issued until at least six months after the implementation of MRTU, and parties will have an additional 30 days to comment on the proposed ruling before it would become effective.18 Therefore, post-MRTU implementation procedures for the MIF should be in place before the AHR component is removed.

Energy Division's email had also recommended that D.07-09-040 be revised to delete the requirement for a simplified version of the Edison Electric Institute (EEI) contract for small QFs. Although QF Parties did include this issue in their Petition, they did not propose a modification. The IOUs assert that this requirement is the result of an oversight and request that D.07-09-040 be modified to remove the requirement. Upon review of D.07-09-040, we agree with the IOUs that this was a clerical error. By referring to a "simplified version of the EEI contract" for small QFs, D.07-09-040 appears to require the IOUs to develop different standard offer contracts for small and large QFs. However, our intent was that once standard offer contracts were adopted for large QFs, these standard offer contracts would be simplified and applied to small QFs. Therefore, we shall modify D.07-09-040 to correct this error.

3 Rule 16.4(b) requires, in relevant part, that a petition for modification "concisely state the justification for the requested relief."

4 16 U.S.C., § 824a-3.

5 D.07-09-040, at p. 65.

6 Exh. 1, p. 62 (Lavik/SCE, Woodruff/SCE).

7 D.07-09-040, at pp. 64-65.

8 For example, the MHR for August 2002 is mean of market prices for September 2002 to August 2003; the MHR for September 2002 is the mean of forward market prices for October 2002 to September 2003.

9 See D.07-09-040, at pp. 58-59, 61-62 & 64-65.

10 To the extent that QF Parties were requesting a different methodology for calculating the MHR, we deny that request on grounds that it is not sufficiently justified. The Petition fails to explain why a different methodology for calculating average market heat rate prices is necessary or whether a different methodology would result in an SRAC price that better reflects utility avoided cost. Moreover, the Petition is vague, as it fails to explain how the proposed simple average would be calculated and how frequently it would be updated.

11 D.07-09-040, at p. 72.

12 The IOUs' response references arguments made in their application for rehearing of D.07-09-040 concerning our decision to use the MPR TOU/TOD factors in the MIF on an interim basis. We do not address these substantive arguments here, as they are not properly before us in this Petition, nor do we prejudge any aspect of the rehearing application here.

13 D.07-09-040, at p. 70.

14 On November 27, 2007, Platts Megawatt Daily no longer provided sufficient forward market price data. This data is now provided in Platts-ICE Forward Curve-Electricity (North America).

15 Any publication included on Energy Division's list must be found reliable and appropriate for use in the MIF. Energy Division shall have the discretion to update the list as necessary.

16 D.07-09-040, at p. 3.

17 D.07-09-040, at p. 66.

18 D.08-07-048, at p. 19 (OP 1.h.).

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