PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ENERGY DIVISION RESOLUTION E-4469
March 8, 2012
REDACTED
Resolution E-4469. Pacific Gas and Electric Company seeks approval of a new power purchase agreement with Shiloh IV Wind Project, LLC, and also seeks approval of modifications to two existing Qualifying Facility agreements.
PROPOSED OUTCOME: This Resolution approves cost recovery for the long-term renewable energy power purchase agreement between Pacific Gas and Electric Company and Shiloh IV Wind Project, LLC, and approves modifications to two existing Qualifying Facility agreements with enXco Windfarm V, Inc.
ESTIMATED COST: Actual costs are confidential at this time.
By Advice Letter 3893-E filed on August 18, 2011, and Supplemental Advice Letter 3893-E-A filed on February 3, 2012.
__________________________________________________________
SUMMARY
Pacific Gas and Electric Company's ("PG&E") renewable energy power purchase agreement with Shiloh IV Wind Project, LLC is approved without modification. PG&E's corresponding modifications to two existing Qualifying Facility ("QF") agreements with enXco Windfarm V, Inc. are also approved without modification.
Pacific Gas and Electric Company ("PG&E") filed Advice Letter ("AL") 3893-E on August 18, 2011 requesting approval of a 25-year Power Purchase Agreement ("PPA") with Shiloh IV Wind Project, LLC ("Shiloh IV" or "Project"), a subsidiary of enXco Development Corporation ("enXco"), which resulted from bilateral negotiations.
In its original Advice Letter, PG&E also sought approval of modifications ("QF Modifications") to three existing Qualifying Facility Standard Offer #4 Power Purchase Agreements for projects owned and operated by enXco Windfarm V, Inc. ("enXco Windfarm V"), another subsidiary of enXco.
The following is a summary of the three QF Modifications originally proposed by PG&E in AL 3893-E:
(1) PG&E and enXco Windfarm V have agreed to reduce the capacity of an existing 30 MW QF contract for a wind facility in Solano County ("Amended QF Agreement"). enXco Windfarm V will remove 235 of the existing, older 100 kV wind turbines (with a nameplate capacity of 23.5 MW) from the site in order to facilitate development of the Shiloh IV Project, which will include newer wind turbine technology. Approximately 58% of Shiloh IV's capacity will be located on the site of the Amended QF Agreement.
(2) PG&E and enXco Windfarm V have also agreed to terminate an 11.9 MW QF contract for a wind facility in the Altamont area ("Terminated QF Agreement"). Although the capacity of this QF agreement is 11.9 MW, only 5.3 MW are currently in operation. PG&E has agreed to terminate this QF agreement in order to facilitate the implementation of an adaptive management plan for avian mitigation in the Altamont area.
(3) PG&E and enXco Windfarm V also agreed to a nine-year term extension of another existing QF contract for a 10 MW QF wind facility located in Solano County ("Extended QF Agreement"). Commission Decision ("D.") 06-12-009 stipulates that QF contracts with terms greater than five years require an application. As such, the Commission cannot consider this modification through an Advice Letter filing.
PG&E filed AL 3893-E-A, a supplement to its original Advice Letter ("Supplemental Advice Letter"), on February 3, 2012. The purpose of PG&E's supplemental filing was to remove the Extended QF agreement from review by the Commission and to eliminate any reference to the Extended QF Agreement from the Shiloh IV PPA, the Amended QF Agreement, and the Terminated QF Agreement. This resolution approves the Shiloh IV PPA, and also approves the amendments requested in the Supplemental Advice Letter to eliminate reference to the proposed Extended QF Agreement.
PG&E proposes that the 100 megawatt (MW) Shiloh IV wind project will interconnect directly into the California Independent System Operator (CAISO) balancing authority area (BAA) with annual projected deliveries of 258 GWh.
This resolution approves the Shiloh IV PPA, the Amended QF, and the Terminated QF without modification. PG&E's execution of the Shiloh IV PPA is consistent with PG&E's 2009 and 2011 RPS Procurement Plans, including a fit with its resource need, which the Commission approved in Decisions 09-06-018 and 11-04-030. Deliveries under the PPA are fully recoverable in rates over the life of the contract, subject to Commission review of PG&E's administration of the PPA.
The following table summarizes the features of the Shiloh IV PPA and the corresponding proposed QF Modifications:
Shiloh IV Wind Project | ||||||
Generating Facility |
Type |
Term |
MW Capacity |
Annual Deliveries |
Operation Date |
Project Location |
Shiloh IV |
Wind |
25 |
100 |
258 GWh |
12/31/2012 |
Solano Co, CA |
Qualifying Facility ("QF") Modifications | ||||||
Amended QF |
Wind |
Replaced by Shiloh IV |
23.5 |
- |
- |
Solano Co, CA |
Terminated QF |
Wind |
Terminated |
11.9 |
- |
- |
Solano Co, CA |
BACKGROUND
Overview of the Renewables Portfolio Standard (RPS) Program
The California RPS Program was established by Senate Bill (SB) 1078, and has been subsequently modified by SB 107, SB 1036 and SB 2 (1X).1 The RPS program is codified in Public Utilities Code §§ 399.11-399.312 and requires each retail seller to increase its total procurement of eligible renewable energy resources so that 33 percent of retail sales are served by eligible renewable energy resources no later than December 31, 2020.3
Additional background information about the Commission's RPS Program, including links to relevant laws and Commission decisions, is available at http://www.cpuc.ca.gov/PUC/energy/Renewables/overview.htm and
http://www.cpuc.ca.gov/PUC/energy/Renewables/decisions.htm.
NOTICE
Notice of AL 3893-E and Supplemental AL 3893-E-A was made by publication in the Commission's Daily Calendar. Pacific Gas and Electric Company states that a copy of both the Advice Letter and the Supplemental Advice Letter was mailed and distributed in accordance with Section 3.14 of General Order 96-B.
PROTESTS
AL 3893-E and AL 3893-E-A were not protested.
DISCUSSION
Pacific Gas & Electric Company requests Commission approval of a new renewable energy contract with Shiloh IV Wind Project, LLC, and corresponding modifications to two existing Qualifying Facility agreements with enXco Windfarm V, Inc.
On August 18, 2011, Pacific Gas and Electric Company ("PG&E") filed Advice Letter ("AL") 3893-E. In AL 3893-E, PG&E requested Commission approval of a new renewable energy contract with Shiloh IV Wind Power, LLC ("Shiloh IV" or "Project"), a subsidiary of enXco Development Corporation ("enXco"), itself a wholly-owned North American subsidiary of EDF Energies Nouvelles, for generation from its proposed wind power facility in Solano County, California. AL 3893-E also sought Commission approval of modifications to three existing Qualifying Facility agreements with enXco Windfarm V, Inc. ("QF Modifications"). AL 3893-E-A, filed on February 3, 2012, removed the third of these QF modifications from consideration by the Commission.
PG&E negotiated the Shiloh IV power purchase agreement ("PPA") on a bilateral basis because it believed that the offer was at a favorable price with acceptable terms and conditions, and because of the high probability that deferring the project to the 2011 RPS Solicitation could significantly delay the project's online date.
The Project will be located in Solano County, CA and will interconnect into the California Independent System Operator (CAISO) balancing authority area (BAA). The Shiloh IV project will deliver approximately 258 gigawatt-hours (GWh) per year of renewable energy with a commercial operation date (COD) of December 31, 2012 for a term of 25 years.
PG&E requests that the Commission issue a resolution containing the following findings:
1. Approves the PPA in its entirety, including payments to be made by PG&E pursuant to the PPA, subject to the Commission's review of PG&E's administration of the PPA.
2. Approves the QF Modifications in their entirety.
3. Finds that any procurement pursuant to the PPA is procurement from an eligible renewable energy resource for purposes of determining PG&E's compliance with any obligation that it may have to procure eligible renewable energy resources pursuant to the California Renewables Portfolio Standard (Public Utilities Code Section 399.11 et seq.) ("RPS") Decision ("D.") 03-06-071 and D.06-10-050, or other applicable law.
4. Finds that all procurement and administrative costs, as provided by Public Utilities Code section 399.14(g), associated with the PPA shall be recovered in rates.
5. Adopts the following finding of fact and conclusion of law in support of CPUC Approval:
a. The PPA is consistent with PG&E's 2009 RPS procurement plan.
b. The terms of the PPA, including the price of delivered energy, are reasonable.
6. Adopts the following finding of fact and conclusion of law in support of cost recovery for the PPA:
a. The utility's costs under the PPA shall be recovered through PG&E's Energy Resource Recovery Account.
b. Any stranded costs that may arise from the PPA are subject to the provisions of D.04-12-048 that authorize recovery of stranded renewables procurement costs over the life of the contract. The implementation of the D.04-12-048 stranded cost recovery mechanism is addressed in D.08-09-012.
7. Adopts the following findings with respect to resource compliance with the Emissions Performance Standard ("EPS") adopted in R.06-04-009:
a. The PPA is not covered procurement subject to the EPS because the generating facility has a forecast capacity factor of less than 60 percent and, therefore, is not baseload generation under paragraphs 1(a)(ii) and 3(2)(a) of the Adopted Interim EPS Rules.
Energy Division Evaluated the Shiloh IV PPA on the Following Grounds:
· Consistency with Bilateral Contracting Rules
· Consistency with PG&E's 2009 and 2011 RPS Procurement Plans
· Consistency with RPS Standard Terms and Conditions (STCs)
· Consistency with PG&E's least-cost-best-fit (LCBF) requirements
· Price Reasonableness and Net Market Value
· Project Viability
· Portfolio Need
· Compliance with the Interim Greenhouse Gas Emissions Performance Standard
· Procurement Review Group (PRG) participation
· Independent Evaluator (IE) review
· Compliance with the Minimum Standard Conditions
Consistency with Bilateral Contracting Rules
PG&E negotiated the Shiloh IV PPA with Shiloh IV Wind Project, LLC on a bilateral basis. PG&E entered into bilateral negotiations given its view that the project has a favorable price and terms. It also acknowledged that having the developer bid the Shiloh IV PPA into the 2011 RPS Solicitation could significantly delay the COD. Furthermore, such a delay could also result in the project being ineligible to receive a U.S. Treasury grant (in lieu of the federal Investment Tax Credit), which PG&E asserts is integral to the economics of the Shiloh IV project.
The Commission developed guidelines pursuant to which utilities may enter into bilateral RPS contracts. In D.03-06-071, the Commission authorized entry into bilateral RPS contracts provided that such contracts did not require Public Goods Charge funds and that they were "prudent." In D.06-10-019, the Commission established additional rules pursuant to which the IOUs could enter into bilateral RPS contracts. PG&E adhered to these bilateral contracting rules because the PPA is longer than one month in duration, the PPA was filed by advice letter, and the contract is reasonably priced, as discussed in more detail below.
In D.09-06-050, the Commission also determined that bilateral agreements should be reviewed according to the same processes and standards as projects that come through a solicitation. Accordingly, as described below, the Shiloh IV PPA was compared to other RPS offers received by PG&E from its 2011 RPS RFO; the proposed agreement was reviewed by PG&E's Procurement Review Group; and an independent evaluator oversaw the project evaluation and PPA negotiation.
The Shiloh IV PPA is consistent with the bilateral contracting guidelines established in D.06-10-019 and D.09-06-050.
Consistency with PG&E's 2009 and 2011 RPS procurement plans
California's RPS statute requires the Commission to direct each utility to prepare an annual RPS Procurement Plan (Plan) and then review and accept, modify, or reject the Plan prior to the commencement of a utility's annual RPS solicitation.4 The Commission must then accept or reject proposed PPAs based on their consistency with the utility's approved Plan. During the time that the Shiloh IV PPA was negotiated, PG&E was operating under its 2009 RPS Procurement Plan; the Shiloh IV PPA conforms to that plan. Additionally, PG&E's stated preferences in its 2011 RPS Plan, its most recent approved plan, include 1) projects that allow it to address its long-term 33% mandate under the third compliance period, and 2) projects with high viability. The Shiloh IV project can help PG&E meet its long-term needs in the third compliance period that begins in 2017 and is highly viable.
The Shiloh IV PPA is consistent with PG&E's 2009 and 2011 RPS Procurement Plans approved by D.09-06-018 and D.11-04-030.
Consistency with RPS Standard Terms and Conditions (STCs)
The Commission adopted a set of standard terms and conditions (STCs) required in RPS contracts, four of which are considered "non-modifiable." The STCs were compiled in D.08-04-009 and subsequently amended in D.08-08-028. More recently in D.10-03-021, as modified by D.11-01-025, the Commission further refined these STCs. The non-modifiable terms in the Shiloh IV PPA conform exactly to the "non-modifiable" terms set forth in D.08-04-009, D.08-08-028, D.10-03-021, and D.11-01-025.
The terms in the Shiloh IV PPA that correspond to the "modifiable" standard terms and conditions drafted in D.07-11-025 and D.08-04-009 have been slightly modified by the parties based upon mutual agreement reached during negotiations. For an overview of all terms of the PPA, refer to Confidential Appendix B.
The Shiloh IV PPA includes the Commission-adopted RPS "non-modifiable" standard terms and conditions, as set forth in D.08-04-009, D.08-08-028, and D.10-03-021, as modified by D.11-01-025.
Consistency with PG&E's Least-Cost Best-Fit (LCBF) Requirements
In D.04-07-029, the Commission directs the utilities to use certain criteria in their LCBF selection of renewable resources.5 The decision offers guidance regarding the process by which the utility ranks bids in order to select or "shortlist" the bids with which it will commence negotiations. As described in its 2009 and 2011 RPS Plans, PG&E's LCBF bid evaluation includes a quantitative analysis and qualitative criteria. PG&E's quantitative analysis or market valuation includes evaluation of price, time of delivery factors, transmission costs, congestion costs, and resource adequacy. PG&E's qualitative analysis focuses on comparing similar bids across numerous factors, such as location, benefits to minority and low income areas, and resource diversity.
PG&E negotiated the Shiloh IV PPA bilaterally and therefore it did not compete directly with other RPS projects. In AL 3893-E, PG&E explains that it evaluated the bilateral agreement using the same LCBF evaluation methodology it employs for evaluating bids from solicitations. Thus, PG&E used its LCBF methodology to evaluate the Shiloh IV PPA. See the "Price Reasonableness and Net Market Value" section of this Resolution for a discussion of how the Project compares to PG&E's 2011 RPS solicitation. In addition, see Confidential Appendix A for PG&E's LCBF evaluation of the project.
The Shiloh IV PPA was evaluated consistent with the LCBF methodology identified in PG&E's RPS Procurement Plan.
Price Reasonableness and Net Market Value
The Shiloh IV PPA was negotiated as a bilateral contract and executed in July 2011, concurrent to the 2011 RPS Solicitation. Therefore, the proper offers against which the Shiloh IV PPA should be measured are those bids shortlisted by PG&E from its 2011 RPS Solicitation and other bilateral contracts negotiated and executed around the same time.
The response to the 2011 RPS Request For Offers ("RFO") was incredibly robust, with over 1,000 cumulative unique bids having been submitted to PG&E, SDG&E, and SCE. The average post-TOD levelized bid price of the most competitive quartile of those bids was less than $100/MWh. As a result of this robust market response, Energy Division staff believes it is appropriate to evaluate the price reasonableness and value of the Shiloh IV PPA against the bids short-listed from the 2011 RFO. It is also appropriate to evaluate the Shiloh IV PPA against other agreements negotiated bilaterally and executed around the same time.
The price and net market value of this PPA are reasonable and competitive. See Confidential Appendix A for a discussion on the price reasonableness and net market value of the Shiloh IV PPA.
The price and net market value of the Shiloh IV PPA are reasonable and competitive with PG&E's 2011 RPS Shortlist and other bilateral contracts negotiated and executed around the same time.
Payments made by PG&E under the Shiloh IV PPA are fully recoverable in rates over the life of the PPA, subject to Commission review of PG&E's administration of the PPA.
Project Viability
The Shiloh IV project is viable and it is reasonable to expect that the project will meet the terms and conditions of its PPA.
Developer
The developer of the Shiloh IV project, enXco, has installed over 3,325 MW of existing wind power capacity and administers more than 5,250 wind turbines across numerous projects in the United States. Moreover, PG&E utilized enXco to develop both the Shiloh II (150 MW) and Shiloh III (100 MW) wind projects on nearby sites in Solano County. Project financing is not expected to be an issue (for more information, see Confidential Appendix A, "Project Viability").
Technology
The project developer is expected to utilize proven wind turbine technology, the procurement of which is not expected to impact the COD. For more information, see Confidential Appendix A, "Project Viability".
Interconnection
The project will interconnect within the CAISO Balancing Authority Area (BAA), requiring only a 500 foot gen-tie to the 230 kV Birds Landing Switching Station. PG&E will receive deliveries at the designated PNode and it is the Participating Transmission Owner.
The amended Large Generator Interconnection Agreement (LGIA) for this project was signed in on August 8, 2011, enabling 200 MW of capacity to interconnect in two 100 MW phases, then named Shiloh III Phase A and Shiloh III Phase B (now known by the name of this project, Shiloh IV). PG&E expects the required interconnection facility and network upgrade costs to be reasonable and not impact the COD or the project's ability to convey resource adequacy value.
Permitting
There are not outstanding permitting issues expected to impact the COD. Solano County issued to PG&E both the Conditional Use Permit (CUP) and the necessary final Environmental Impact Report (EIR) under California's Environmental Quality Act (CEQA) on December 15, 2011. PG&E also expects to receive both a take permit for the endangered California Tiger Salamander from the U.S. Fish and Wildlife Service by Q2 2012, and a related incidental take permit from the California Department of Fish and Game by the same date.
Site Control
The developer has sufficient site control, such that it is reasonable to expect the Shiloh IV project will meet the terms and conditions of its PPA. For additional information, see Confidential Appendix A, "Project Viability".
It is reasonable to expect that the Shiloh IV project will meet the terms and conditions of its PPA. Confidential Appendix A includes additional discussion about other project development milestones that are confidential.
Portfolio Need
In D.11-12-020, the Commission established the methodology for calculating a retail seller's RPS requirements for three compliance periods ("CP") through 2020. Accordingly, PG&E must procure RPS-eligible resources equivalent to an average of 20% of retail sales for 2011-2013 ("CP1"); 25% of retail sales by the end of 2016 ("CP2"); and 33% of retail sales by 2020 ("CP3") and for each year thereafter. As a resource with commercial deliveries through 2020, the Shiloh IV project fits with PG&E's long-term risk-adjusted6 renewable procurement need during CP3.
There is inherent uncertainty in forecasting a utility's RPS need for new generation to meets its RPS compliance obligations through 2020. For example, a likely success rate for projects not yet online must be estimated; the rate at which utilities re-contract with expiring facilities must be estimated; climate can result in uncertain fluctuations in generation from hydro and other resources; and, Commission implementation of excess procurement provisions pursuant to § 399.13(a)(4)(B) has yet to occur. As a result, it is difficult to project with certainty a utility's future need for new renewable generation.
That said, when risk-adjusting its RPS portfolio to account for a certain amount of project failure, PG&E's primary need for new renewable generation falls in the second half of this decade, during CP3.
The following provides a summary of 1) the forecast annual generation from 2011 to 2020 for the Shiloh IV contract, and 2) PG&E's forecast7 for RPS compliant renewable generation on a risk-adjusted basis (High Need Portfolio Scenario). PG&E assumes a 40% failure rate for all facilities not yet under construction in its risk-adjusted portfolio scenario.
Table A below shows the forecast annual generation in Gigawatt-Hours (GWh) as well as the annual risk-adjusted net long/short positions of the portfolio when benchmarked against the new compliance periods under SB 2 (1X).
Figure 1 below graphically depicts the annual net long/short position for PG&E's risk-adjusted portfolio scenario. The vertical line on the graph indicates the division between the second (2014 to 2016) and third (2017 to 2020) compliance periods. This graphical illustration shows that PG&E is significantly over-procured in CP2 from 2015 to 2016. Its annual need then increases dramatically during CP3 from 2017 to 2020.
Compared against PG&E's risk-adjusted need, it becomes apparent that Shiloh IV's most valuable contribution will come during CP3 when the utility faces a significant net short position. As a result, the Shiloh IV PPA fits PG&E's RPS Portfolio Need.
Projected generation from the Shiloh IV project is expected to contribute to the need requirements of PG&E's RPS portfolio during the third compliance period. See Confidential Appendix A for further discussion on PG&E's need requirements and portfolio fit.
Compliance with the Interim Greenhouse Gas Emissions Performance Standard (EPS)
California Public Utilities Code §§ 8340-41 require the Commission to consider emissions associated with new long-term (five years or greater) power contracts procured on behalf of California ratepayers.
D.07-01-039 adopted an interim EPS that establishes an emission rate for obligated facilities at levels no greater than the greenhouse gas (GHG) emissions of a combined-cycle gas turbine power plant. The EPS applies to all energy contracts for baseload generation that are at least five years in duration.8
Generating facilities using certain renewable resources are deemed compliant with the EPS.9
The Shiloh IV PPA meets the conditions for EPS compliance because it is for intermittent generation with a capacity factor less than 60 percent, whose generation will be delivered into California.10
The Shiloh IV PPA meets the conditions for EPS compliance established in D.07-01-039 because the facility will produce electricity at a capacity factor of less than 60 percent and is therefore not a baseload power plant as defined in Public Utilities Code §8340(a).
Procurement Review Group (PRG) Participation
The Procurement Review Group (PRG) process was initially established in D.02-08-071 as an advisory group to review and assess the details of the IOUs' overall procurement strategy, solicitations, specific proposed procurement contracts and other procurement processes prior to submitting filings to the Commission as an interim mechanism for procurement review.
Participants in the Procurement Review Group include representatives from the CPUC's Energy and Legal Divisions, the Division of Ratepayer Advocates, The Utility Reform Network, the Natural Resources Defense Council, California Utility Employees, the Union of Concerned Scientists, and the California Department of Water Resources.
PG&E presented the Shiloh IV PPA to its Procurement Review Group on June 14, 2011.
Pursuant to D.02-08-071, PG&E's Procurement Review Group participated in the review of the Shiloh IV contract, and PG&E has complied with the Commission's rules for involving the PRG.
Independent Evaluator (IE) Review
Lewis Hashimoto of Arroyo Seco Consulting ("Arroyo" or "IE") provided a Statement of Independent Evaluator for AL 3893-E. The IE conducted activities to review and assess PG&E's processes as the utility evaluated and bilaterally negotiated the Shiloh IV PPA and the QF Modifications. The IE reviewed the negotiation's communications, evaluated the PPA, and concluded that the PPA merits CPUC approval.
The IE was unable to directly observe any of the actual negotiations between PG&E and the developer, enXco, requiring the IE to qualify its assessment of the fairness of this process. However, the IE stated that it was routinely provided with copies of correspondence between the two parties (including draft term sheets, issues lists, and marked-up agreements) and that the IE made its assessment of the fairness of these negotiations on the basis of its review of that correspondence.
In conclusion, the IE found that the PPA merits Commission approval as the contract will provide high valuation, a low contract price, moderate portfolio fit, and high project viability.
Consistent with D.06-05-039 and D.09-06-050, an Independent Evaluator reviewed PG&E's negotiations with Shiloh IV Wind Project, LLC and recommends the Shiloh IV PPA for approval by the Commission. See Confidential Appendix C for the Independent Evaluator's summary comments on AL 3893-E.
Compliance with the Minimum Standard Conditions
Section 399.13(b) requires that the commission establish "minimum quantities of eligible renewable energy resources to be procured through contracts of at least 10 years' duration." Because the Shiloh IV PPA is greater than 10 years in length, the PPA may be construed as counting toward the minimum quantity requirements that the Commission has not yet established in R.11-05-005.
Energy Division Evaluated the QF Amendments on the Following Grounds:
· Consistency with the Qualifying Facility and CHP Settlement Agreement as established by Commission Decision 10-12-035
· Whether the Amendments are Reasonable and in the Public Interest
Consistency with the Qualifying Facility Settlement Agreement as established by Commission Decision 10-12-035
The Qualifying Facility and CHP Settlement Agreement, as established by D.10-12-035, did not take effect until November 23, 2011. The Commission requires any amendment, change, or alteration to an existing QF or CHP agreement executed after the effective date of D.10-12-035 to adhere to the standards and procedures established by that decision.
The modified PPAs for the Amended QF and the Terminated QF were executed by PG&E on July 29, 2011.
The PPAs for the Amended QF and the Terminated QF were executed by PG&E before November 23, 2011, the effective date for D.10-12-035. As a result, consistency with this D.10-12-035 need not be established.
Whether the Amendments are Reasonable and in the Public Interest
Energy Division Staff has evaluated whether the QF Amendments are reasonable and in the public interest. (See, e.g., D.09-02-085 and D.03-04-001.) These QF Amendments are reasonable and in the public interest because they, together with approval of the Shiloh IV PPA, will provide a net ratepayer benefit.
The Amended QF and Terminated QF currently deliver energy to ratepayers at a lower levelized cost of energy than would the Shiloh IV project. That said, the Shiloh IV project has higher levelized energy and resource adequacy values due in large part, according to PG&E, to the shape of the energy and the RA curves used in the valuation of the 25 year term of the Shiloh IV PPA. The curves utilized by PG&E for valuation purposes place increased energy and RA values on deliveries in future years. As a result, in comparison to the short-term valuation curves used to value the existing QF agreements (because they are scheduled to deliver only through 2018 and 2017, respectively), PG&E expects the Shiloh IV PPA to provide greater value to ratepayers, despite its higher levelized cost of energy deliveries.
When the QF Modifications are bundled with the Shiloh IV PPA and valued as one product, PG&E shows that the bundled product (Shiloh IV plus the two QF Amendments) provides a product with higher overall value to ratepayers. The primary reason for this, according to PG&E, is that generation from the lower valued QFs is avoided and would be supplanted by generation from the higher valued Shiloh IV PPA.
It is reasonable to expect that the QF Amendments discussed herein, when bundled with approval of the corresponding Shiloh IV PPA, will provide a net ratepayer benefit that is reasonable and in the public interest. For a more detailed calculation of the net ratepayer benefit resulting from approval of these QF Modifications, refer to Confidential Appendix B, "Overview of QF modifications."
CONFIDENTIAL INFORMATION
The Commission, in implementing Pub. Util. Code § 454.5(g), has determined in D.06-06-066, as modified by D.07-05-032, that certain material submitted to the Commission as confidential should be kept confidential to ensure that market sensitive data does not influence the behavior of bidders in future RPS solicitations. D.06-06-066 adopted a time limit on the confidentiality of specific terms in RPS contracts. Such information, such as price, is confidential for three years from the date the contract states that energy deliveries begin, except contracts between IOUs and their affiliates, which are public.
The confidential appendices, marked "[REDACTED]" in the public copy of this resolution, as well as the confidential portions of the advice letter, should remain confidential at this time.
RPS ELIGIBILITY AND CPUC APPROVAL
Pursuant to Pub. Util. Code § 399.25, the CEC certifies eligible renewable energy resources. Generation from a resource that is not CEC-certified cannot be used to meet RPS requirements. To ensure that only CEC-certified energy is procured under a Commission-approved RPS contract, the Commission has required standard and non-modifiable "eligibility" language in all RPS contracts. That language requires a seller to warrant that the project qualifies and is certified by the CEC as an "Eligible Renewable Energy Resource," that the project's output delivered to the buyer qualifies under the requirements of the California RPS, and that the seller uses commercially reasonable efforts to maintain eligibility should there be a change in law affecting eligibility.11
The Commission requires a standard and non-modifiable clause in all RPS contracts that requires "CPUC Approval" of a PPA to include an explicit finding that "any procurement pursuant to this Agreement is procurement from an eligible renewable energy resource for purposes of determining Buyer's compliance with any obligation that it may have to procure eligible renewable energy resources pursuant to the California Renewables Portfolio Standard (Public Utilities Code §§ 399.11 et seq.), Decision 03-06-071, or other applicable law."12
Notwithstanding this language, the Commission has no jurisdiction to determine whether a project is an eligible renewable energy resource, neither can the Commission determine, prior to final CEC certification of a project, that "any procurement" pursuant to a specific contract will be "procurement from an eligible renewable energy resource."
Therefore, while we include the required finding here, this finding has never been intended, and shall not be read now, to allow the generation from a non-RPS-eligible resource to count towards an RPS compliance obligation. Nor shall such finding absolve the seller of its obligation to obtain CEC certification, or the utility of its obligation to pursue remedies for breach of contract. Such contract enforcement activities shall be reviewed pursuant to the Commission's authority to review the utilities' administration of contracts.
COMMENTS
This is an uncontested matter in which the resolution grants the relief requested. Accordingly, pursuant to Public Utilities Code § 311(g)(2), the otherwise applicable 30-day period for public review and comment is being waived.
FINDINGS AND CONCLUSIONS
1. The Shiloh IV PPA is consistent with the bilateral contracting guidelines established in D.06-10-019 and D.09-06-050.
2. The Shiloh IV PPA is consistent with PG&E's 2009 and 2011 RPS Procurement Plans approved by D.09-06-018 and D.11-04-030.
3. The Shiloh IV PPA includes the Commission-adopted RPS "non-modifiable" standard terms and conditions, as set forth in D.08-04-009, D.08-08-028, and D.10-03-021, as modified by D.11-01-025.
4. The Shiloh IV PPA was evaluated consistent with the LCBF methodology identified in PG&E's RPS Procurement Plan.
5. The price and net market value of the Shiloh IV PPA are reasonable and competitive with PG&E's 2011 RPS Shortlist and other bilateral contracts negotiated and executed around the same time.
6. Payments made by PG&E under the Shiloh IV PPA are fully recoverable in rates over the life of the PPA, subject to Commission review of PG&E's administration of the PPA.
7. It is reasonable to expect that the Shiloh IV project will meet the terms and conditions of its PPA.
8. Projected generation from the Shiloh IV project meets the need requirements of PG&E's RPS portfolio.
9. The Shiloh IV PPA meets the conditions for EPS compliance established in D.07-01-039 because the facility will produce electricity at a capacity factor of less than 60 percent and is therefore not a baseload power plant as defined in Public Utilities Code §8340(a).
10. Pursuant to D.02-08-071, PG&E's Procurement Review Group participated in the review of the Shiloh IV contract, and PG&E has complied with the Commission's rules for involving the PRG.
11. Consistent with D.06-05-039 and D.09-06-050, an Independent Evaluator reviewed PG&E's negotiations with Shiloh IV Wind Project, LLC and recommends the Shiloh IV PPA for approval by the Commission.
12. The confidential appendices, marked "[REDACTED]" in the public copy of this resolution, as well as the confidential portions of the advice letter, should remain confidential at this time.
13. Procurement pursuant to the PPA is procurement from an eligible renewable energy resource for purposes of determining PG&E's compliance with any obligation that it may have to procure eligible renewable energy resources pursuant to the California Renewables Portfolio Standard (Public Utilities Code Section 399.11 et seq.), D.11-12-020 and D.11-12-052, or other applicable law.
14. The immediately preceding finding shall not be read to allow generation from a non-RPS eligible renewable energy resource under the PPA to count towards an RPS compliance obligation. Nor shall that finding absolve PG&E of its obligation to enforce compliance with the PPA.
15. The PPAs for the Amended QF and the Terminated QF were executed by PG&E before November 23, 2011, the effective date for D.10-12-035. As a result, consistency with this D.10-12-035 need not be established.
16. It is reasonable to expect that the QF Amendments discussed herein, when bundled with approval of the corresponding Shiloh IV PPA, will provide a net ratepayer benefit that is reasonable and in the public interest.
17. The Shiloh IV power purchase agreement and two corresponding modifications to existing QF Agreements should be approved in their entirety.
18. Advice Letters 3893-E and 3893-E-A should be approved effective today without modification.
THEREFORE IT IS ORDERED THAT:
1. The power purchase agreement between Pacific Gas and Electric Company and Shiloh IV Wind Project, LLC is approved without modification.
2. The corresponding amendment to enXco Windfarm V, Inc.'s existing Qualifying Facility agreement to remove 235 existing 100 kV wind turbines is approved without modification.
3. The corresponding termination of enXco Windfarm V, Inc.'s existing 11.9 MW Qualifying Facility agreement is approved without modification.
This resolution is effective today.
I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on March 8, 2012; the following Commissioners voting favorably thereon:
/s/ PAUL CLANON
PAUL CLANON
Executive Director
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
MICHEL PETER FLORIO
CATHERINE J.K. SANDOVAL
MARK J. FERRON
Commissioners
Confidential Appendix A
Price Reasonableness, Net Market Value, RPS Portfolio Need and Project Viability
[REDACTED]
Confidential Appendix B
Overview of QF Modifications
[REDACTED]
Confidential Appendix C
Contract Terms and Conditions
[REDACTED]
Confidential Appendix D
Independent Evaluator Report's Conclusion
[REDACTED]
1 SB 1078 (Sher, Chapter 516, Statutes of 2002); SB 107 (Simitian, Chapter 464, Statutes of 2006); SB 1036 (Perata, Chapter 685, Statutes of 2007); SB 2 (1X) (Simitian, Chapter 1, Statutes of 2011, First Extraordinary Session).
2 All citations to sections (§) are to the Public Utilities Code of the state of California unless otherwise specified.
3 § 399.15(b)(2)(B).
4 §399.13.
5 See §399.14(a)(2)(B)
6 Risk-adjusted need is calculated by PG&E by attributing a 60% project success-rate to projected deliveries from executed PPAs signed before August 31, 2011 for projects not yet under construction (including: Shiloh IV). The baseline to determine need is then based on the utility's most recent bundled sales forecast through 2020. The calculation also assumes a 20% RPS requirement through 2013; a straight-line to 25% by 2016; and a straight-line to 33% in 2020. These calculations assume 100% deliveries from existing online renewable resources.
7 Pursuant to D.06-06-066, PG&E's forecast data for 2011 through 2014 is redacted from public release. Please refer to Confidential Appendix A for data from these years.
8 "Baseload generation" is electricity generation at a power plant "designed and intended to provide electricity at an annualized plant capacity factor of at least 60%." § 8340(a).
9 D.07-01-039, Attachment 7, p. 4.
10 D.07-01-039, Attachment 7, p. 7.
11 See, e.g. D. 08-04-009 at Appendix A, STC 6, Eligibility.
12 See, e.g. D. 08-04-009 at Appendix A, STC 1, CPUC Approval.
