PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ENERGY DIVISION RESOLUTION E-3809
January 30, 2003
Resolution E-3809. Southern California Edison Company for approval of five power purchase agreements (PPAs) contributing toward procurement of at least an additional one percent of the utility's annual electricity sales from renewable energy resources irrespective of utility residual net short.
By Advice Letter 1676-E Filed on December 24, 2002.
__________________________________________________________
SUMMARY
Southern California Edison Company (SCE) filed Advice Letter (AL) 1676-E on December 24, 2002, requesting Commission approval of five power purchase agreements (PPAs) contributing toward procurement of at least an additional one percent of the utility's annual electricity sales from renewable energy resources1 irrespective of the residual net short.
Specifically, SCE would like the Commission to make the following five findings:
1. The PPAs and SCE's entry into the PPAs are reasonable and prudent for all purposes, including, but not limited to, recovery of all payments made pursuant to the PPAs in rates, subject only to review with respect to the reasonableness of SCE's administration of the PPAs.
2. SCE's solicitation of renewable power that resulted in the PPAs has been conducted reasonably.
3. Any procurement pursuant to the PPAs is deemed part of SCE's "baseline" quantity of eligible renewable resources for purposes of Section 399.15 of the Public Utilities Code or other applicable law.
4. Any procurement pursuant to the PPAs is deemed transitional procurement by SCE from a renewable resource for purposes of determining SCE's compliance with any obligation that it may have pursuant to D.02-08-071 and D. 02-10-062, or other applicable law, to procure an additional 1% of its annual electricity sales from renewable resources.
5. Pursuant to the terms of one of the PPAs, SCE may purchase electric energy and capacity from the seller upon Commission approval of the PPA, as Commission approval is defined therein, but before the decision granting approval becomes final; more specifically, notwithstanding any termination of such PPA based on a failure of Commission approval to become final by the date specified in the PPA, SCE's payments at the full contract rate for any deliveries before the termination date of energy and capacity are reasonable and prudent for all purposes, including, but not limited to, recovery in full by SCE in rates, subject only to review with respect to the reasonableness of SCE's administration of such PPA.
This resolution makes the above findings with certain qualifications to the second proposed finding.
SCE demonstrated that the bid solicitation was conducted in an open competitive manner and that the evaluation methodology used to select the power procurement contracts was reasonable for the purposes of this interim solicitation, although we order removal of contract [REDACTED] clauses and
[REDACTED] funding requirements from the PPAs, and reiterate our position that Renewables Portfolio Standard (RPS) rules will be developed in due course.
SCE made a sufficient showing that these contracts are in the ratepayers' interest because they meet SCE's obligation to procure renewable resources at prices at or below the Price Benchmark provided in D.02-08-071.
AL 1676-E was submitted in compliance with Ordering Paragraphs 2, 3, 4, 5, and 6 of Decision (D.) 02-08-071, which: (1) allowed SCE to obtain California Department of Water Resources (DWR) credit support; (2) allowed SCE to use an expedited contract approval process set forth by the Commission; (3) required SCE to make advice letter filings for contract pre-approval within 30 days of contract signing or selection; (4) stated that the aforementioned requirements also apply to renewable and Qualifying Facility (QF) procurement during the transitional process; and (5) required the respondent utilities, including SCE, to "procure at least one percent of their annual electricity sales through a set-aside competitive procurement process for renewable resources [in which] utilities must solicit bids with contract terms of five, ten, and fifteen years, and enter into contracts with a mixture of lengths of not less than five years." (D. 02-08-071, Ordering Paragraph 6)
The five contracts, for which SCE is seeking approval, were solicited under SCE's September 28, 2002 "Request for Proposals [RFP] from Eligible Renewable Resources (ERRs) Suppliers" (Renewables RFP ). Responses to the Renewables RFP were due on October 10, 2002.
DWR credit support is not required by any of the counterparties for any of the PPAs proposed by SCE.
Some members of SCE's Procurement Review Group (PRG) protested the advice letter filing, expressing, in some cases, emphatic concern over compliance with D.02-08-071, the bid solicitation process and evaluation criteria, whether ratepayer interest is adequately served by the contracts as filed, and SCE's submission of AL 1676-E on December 24, 2002 which precluded Commission consideration of the request before the close of 2002.
AL 1676-E was protested by Office of Ratepayer Advocates (ORA), the Utility Reform Network (TURN), the Coalition of California Utility Employees (CUE), the California Energy Commission (CEC), Ridgewood Olinda, LLC (Ridgewood), and California Wind Energy Association (CalWEA). SCE submitted a confidential response to the protests of ORA, TURN, CUE, CEC, Ridgewood, and CalWEA on January 9, 2003, under Public Utilities Code Section 583. On January 10, 2003, SCE submitted a revised confidential Appendix A to its January 9, 2003 response in order to correct several non-substantive typographical errors.
SCE requests that AL 1676-E be effective on January 30, 2003, pursuant to the
Procurement Contract Review Process set forth in Appendix B of D.02-08-071, under the shortened notice authority under Section V. B. of General Order 96-A and Section 491 of the Public Utilities (PU) Code.
This resolution approves AL 1676-E, as modified, effective today. This resolution defers for consideration of the [REDACTED] Contract to a later Commission meeting.
BACKGROUND
On August 22, 2002, the Commission issued D.02-08-071 which, among other things, set aside a portion of procurement to come from renewable sources. The following month, three renewable energy bills were signed into law.
· Assembly Bill (AB) 57, regarding Electric Utility Procurement Plans, was signed by the Governor on September 24, 2002 and became effective immediately. AB 57 added Section 454.5 to the PU Code, to provide guidance to the utilities and the Commission for the procurement of electricity and electricity demand reduction products. The bill requires the Commission to review and adopt a procurement plan for each utility in accordance with specific plan elements and objectives to ensure that no later than January 1, 2003, the utilities resume procurement for those needs that will no longer be met by DWR.
· Senate Bill (SB) 1078, regarding the California Renewables Portfolio Standard (RPS) Program, was signed by the Governor on September 12, 2002 and became effective January 1, 2003.
· SB 1038, regarding the Renewable Energy Program, Investment Plan and the Public Interest Energy Research (PIER) Program, was signed by the Governor on September 12, 2002 and became effective January 1, 2003.
D.02-08-071 ordered a separate renewables solicitation2 by each utility for at least an additional one percent of their actual energy and capacity needs. This was roughly equivalent to the Renewables Portfolio Standard Program approach enacted in SB 10783 and reflected in AB 57. D.02-08-071 was issued in anticipation of SB 1078's passage, therefore the decision's requirements were conformed to the controlling language of the bill, even as our authority to order the solicitation derived from PU Code 701.3. D.02-08-071 set forth the requirements for this renewables solicitation at page 32:
"In particular, PU Code Section 701.3 states, in relevant part:
The Commission shall direct that a specific portion of future generating capacity needed for California be reserved or set aside for renewable resources.
"AB 57 states, in relevant part:
[454.5(b)(9)(A)] The electrical corporation will, in order to fulfill its unmet resource needs and in furtherance of Section 701.3, until a 20 percent renewable resources portfolio is achieved, procure renewable energy resources with the goal of ensuring that at least an additional 1 percent per year of the electricity sold by the electrical corporation is generated from renewable energy resources...[provided sufficient funds are made available pursuant to Section 399.6, to cover the above-market costs for new renewable energy resources.]"4
D.02-08-071 set forth the Commission's expectation that utilities should take the mandates of Section 701.3 and AB 57 into consideration at Finding of Fact 22:
"22. We expect utilities to take into consideration in their resource selection the mandates of Section 701.3 and AB 57."
D.02-08-071 continued to set forth requirements for the power solicitations:
"Though AB57 ... [was] not yet law [when D.02-08-071 was issued], we see no reason to delay movement towards this renewable resource goal. Thus, during the transitional period, we require that [numbered format added]:
1. "each IOU hold a separate competitive solicitation for renewable resources in the amount of at least an additional 1 percent of their annual electricity sold beginning January 1, 2003.
2. "Utilities should solicit bids for electricity to be delivered beginning January 1, 2003, and extending for five, ten, and 15 year terms, with no contract shorter than five years.... Utilities should enter into contracts with a mixture of term lengths.... We also require that any
contracts for new renewables projects require that the resources come online and begin delivering electricity before the end of 2003.
3. "During the solicitation process, utilities should give a preference to existing renewable resources in the bidding process if their bids are equal to or lower than prices offered by new projects....
4. "This requirement for a 1 percent increase in renewable resources is irrespective of the residual net short, though we encourage the utilities to solicit bids from innovative renewables projects that can help meet the utilities' residual net short requirements.
5. "We also require that bids to provide renewable power clearly identify any expected funds from the public goods charge (PGC) administered by the CEC that are included in the resource pricing.
"Creating this set-aside in the transitional procurement process for renewable resources should obviate the need to require automatic extensions of renewable contracts currently held by DWR, as requested by Ridgewood Olinda LLC in its June 12 motion. Thus, we deny this motion, but encourage Ridgewood, and any other renewable operators holding existing or recently expired DWR or utility contracts, to participate in the solicitation process described above.
"In comments on this alternate decision, many parties request that the Commission set at least a provisional "benchmark" price for reasonableness review for renewable procurement. AB57 includes provision for such a benchmark, along with any "above-market" costs beyond the benchmark. As a general proposition, any renewable contract approved through the transitional procurement process outlined in this decision will be deemed reasonable, with its costs fully recoverable by the utilities. Thus, establishment of a benchmark for the transitional period is not strictly required. However, to give guidance to bidders and to the utilities, we will adopt an interim, provisional benchmark of 5.37 cents per kWh, which is consistent with prices previously adopted by the Commission in D.01-06-015, and as recommended by the California Biomass Energy Alliance (CBEA). We will revisit this benchmark in the next phase of this proceeding for the long-term procurement process. During the transitional period, any contract that meets or exceeds the benchmark will be deemed per se reasonable, though other contracts at prices above the benchmark may also be approved by the Commission for cost recovery through the process outlined in this decision.
"We also clarify, in response to comments from a number of parties, that this renewable procurement set-aside in the interim period is subject to the same procedural process outlined earlier in this decision, as well as the contract provisions that allow the utilities to partner with DWR.
"Finally, we encourage the utilities to work with the CEC and the CPA to take advantage of their knowledge of available existing and new renewable resources. In the next phase of this proceeding, we will make explicit requirements for the coordination of the CEC's PGC fund awards with utility renewable resource procurement, in compliance with AB57.
"The success of such an effort in the next phase, however, is largely dependent on legislative authorization of the CEC's financial plan for the future of the Renewable Energy Program. We anticipate that the legislature will have finalized the financial reauthorization of the PGC program when we turn to the full Procurement Plans in the next phase, and we will revisit the issue of establishing a benchmark price at that time." (D.02-08-071, pages 32-34)
In D.02-08-071, the Commission required each utility to establish a Procurement Review Group (PRG) whose members, subject to an appropriate non-disclosure agreement, would have the right to consult with the utilities and review the details of:
1. Each utility's overall transitional procurement strategy;
2. Proposed procurement processes including, but not limited to, RFO; and
3. Proposed procurement contracts with the utilities before any of the contracts are submitted to the Commission for expedited review.
The PRG for SCE comprises the California Energy Commission (CEC), Department of Water Resources (DWR), Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), Coalition of California Utility Employees (CUE), Natural Resources Defense Council (NRDC), and the Commission's Energy Division.
In D.02-12-074, the Commission, inter alia, defined exactly what would constitute an incremental one percent of renewable generation:
"To be considered incremental renewable generation, the interim procurement must result in a net increase of at least 1% of total 2001 retail sales in the utility's renewable portfolio above its 2002 level. If the 2002 renewable generation baseline amount will shrink in 2003, the utility must procure sufficient renewable power over and above this 1% of total 2001 retail sales amount, to result in a total 2003 renewable generation portfolio at least equal to the following: 2002 renewable procurement plus 1% of 2001 retail sales." (D.02-12-074, pages 18-19)
Further, D.02-12-074, which was issued in December 2002, informed SCE that while the Commission generally viewed the company's renewable "procurement targets and the RFO process" as generally reasonable up to that point, SCE's delay in filing specific contracts with the Commission was sanctionable as not in compliance with D.02-08-071:
"Edison provides in its November 12th filing a moderate amount of information regarding targets and assumptions for its 1 percent incremental renewable procurement. One of these assumptions - that the passage of SB 1078 limits the authority of § 701.3 - has been addressed above. Details regarding procurement targets and the RFO process are contained in confidential Volume II of the short-term plan, and what is disclosed looks, on balance, reasonable.
"No Advice Letter filing has been forthcoming, however, despite the utility's pledge to file early this month. This delay unfortunately lends credence to the concerns expressed by TURN and CalWEA that Edison is deliberately stalling the interim procurement process, either to test the Commission's § 701.3 authority or to pre-judge the implementation efforts for the RPS program. Examples such as creation of undue barriers to participation by particular technologies, and of price benchmarks different from the Commission's 5.37¢/kWh target, are cited in support of these assertions. Both of these practices, if verified, would constitute violation of
Commission orders and would be subject to sanction. The Commission is actively exploring its options in this regard.
"Subject to further sanction would be the utility's continued failure to simply file an Advice Letter containing renewable contracts of any sort, be they for more or less than the 1 percent target. Waiting to file will not have the effect of avoiding the requirements of D.02-08-071; in fact it will make those requirements more challenging, as the utility will need to procure the same GWh amount over fewer days in the calendar year.
"We find that the utility is in noncompliance with D.02-08-071, and will address this noncompliance in a subsequent Commission order. In the event that this Advice Letter is forthcoming, we reiterate our direction provided to the other utilities regarding calculation of the 1 percent target and the preservation of Edison's baseline level of renewable generation." (D.02-12-074, pages 25-26)
The five renewable contracts for which SCE is now seeking approval were solicited under SCE's September 28, 2002 "Request for Proposals [RFP] from Eligible Renewable Resources (ERRs) Suppliers" (renewables RFP).
NOTICE
Notice of Advice Letter 1676-E was made by publication in the Commission's Daily Calendar. SCE states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.
PROTESTS
D. 02-08-071 adopted an expedited schedule that requires a significantly reduced protest period. Protests were due within seven days of the advice letter filing and replies to protests were due within three days of the protest.
SCE's Advice Letter 1676-E was timely and confidentially protested on January 6, 2003 by ORA, TURN, CUE, and the CEC, and publicly protested by Ridgewood and CalWEA.
SCE submitted a confidential response to the protests of ORA, TURN, CUE, and the CEC on January 9, 2003, under Public Utilities Code Section 583. On January 10, 2003, SCE submitted a revised confidential Appendix A to its January 9, 2003 response in order to correct several non-substantive typographical errors.
There were several major issues raised by the protestants, including: (1) compliance with D.02-08-071; (2) concern over the bid solicitation process and evaluation criteria; (3) whether ratepayer interest is adequately served by the contracts as filed; and (4) SCE's submission of AL 1676-E on December 24, 2002 which precluded Commission consideration of the request before the close of 2002.
DISCUSSION
D.02-08-071 adopted a process to review and approve transitional period procurement contracts. It provided the utilities with an opportunity for an expedited resolution that resolves reasonableness issues, while ensuring effective Commission oversight, and a provisional benchmark of 5.37 cents per kWh was set forth in order to gauge the reasonableness of all contracts for which utilities seek approval. The utilities had the burden to show that the evaluation criteria used in the process were reasonable.
We examine SCE's request based on the directives set forth in D.02-08-071, as clarified in D.02-12-074, and generally with regard to the bid solicitation process and evaluation criteria, level of ratepayer benefit, timeliness, and PRG involvement.
Bid Solicitation Process
In many respects, SCE has substantially complied with the directives set forth in D.02-08-071. SCE was required to "hold a separate competitive solicitation for renewable resources in the amount of at least an additional 1 percent of their annual electricity sold beginning January 1, 2003." The five renewable contracts for which SCE is now seeking approval were solicited under SCE's Renewables
RFP. Prior to the issuance of the renewables RFP, SCE circulated a notice of availability via electronic mail and facsimile to prospective participants5 inviting them to submit a Proposal Request Form. Responses to the renewables RFP were due on October 10, 2002.
In contrast to SCE's September 18, 2002 General (all-source) RFO for generation capacity, energy, and related products, SCE did not post the September 28, 2002 Renewables RFP on its website. SCE did not state why the Renewables RFP was not posted on its website, but SCE did post "Responses to Request for Proposal Inquiries" on its website and stated that "SCE is posting the frequently asked questions (FAQs) and responses ... as a means of providing those who have presented [renewable] proposals with equal access to information."6 SCE also posted a revised definition of eligible renewable resources (ERRs) on this same webpage.7
On a related subject, it has come to our attention that SCE issued a non-renewables RFO on December 23, 2002. This "Request for Offers to Sell Electrical Energy Products for January 2003" was not distributed to SCE's PRG, nor was it posted on SCE's website. Instead, it was selectively distributed to some list of interested parties that happened to include some individuals on SCE's PRG. Consequently, we require that future RFOs, RFPs, or any substantial equivalents thereof be distributed to members of the PRG, posted on SCE's website and, at
least, served electronically to the utility's entire advice letter service list on the day issued, in order to notify parties that such activities are in progress.
Electricity Delivery in 2003
D.02-08-071 required SCE to "solicit bids for electricity to be delivered beginning January 1, 2003, and extending for five, ten, and 15 year terms, with no contract shorter than five years." SCE complied with this requirement in Section V.(C)(2) of its RFP:
2. Contract Term
[REDACTED] (Filed as Confidential Material, Disclosed here by the Assigned Commissioner per Section 583)
Several protestants took issue with this approach, including the CEC:
[REDACTED] (CEC Protest, page 6). (Filed as Confidential Material, Disclosed here by the Assigned Commissioner per Section 583)
TURN notes that SCE [REDACTED] which includes the following:
[REDACTED] (Filed as Confidential Material, Disclosed here by the Assigned Commissioner per Section 583)
TURN contends [REDACTED]
[REDACTED] [REDACTED] (TURN Protest, page 15) (Filed as Confidential Material, Disclosed here by the Assigned Commissioner per Section 583)
We agree that these additional [REDACTED] provisions made SCE's Renewables RFP more complex, but though these provisions could have contributed to higher prices, all participants were subject to the same requirements and it has not been shown that these provisions were discriminatory toward any participant or technology. Thus, these [REDACTED] provisions are in compliance.
D.02-08-071 also required that "any contracts for new renewables projects ... come online and begin delivering electricity before the end of 2003." SCE has complied with this requirement. Two of the contracts proposed by SCE are existing projects currently in operation which will clearly allow SCE to meet the one percent goal. Of the remaining three contracts with new resources, two PPAs with one counterparty appear able to begin delivering electricity before the end of 2003. Because there is uncertainty as to whether the remaining contract will meet this 2003 online requirement, we defer consideration of this contract to a later Commission meeting.
Contracts for a Mixture of Term Lengths
D.02-08-071 required SCE to "enter into contracts with a mixture of term lengths." SCE has complied with this requirement, given that SCE's five proposed contracts are for a mixture of term lengths, including 5, 10, and 15-year contracts.
Preference for Existing Renewable Resources
D.02-08-071 required SCE to give "preference to existing renewable resources in the bidding process if their bids are equal to or lower than prices offered by new projects." On pages 7-8 of Confidential Appendix A to AL 1676-E, SCE notes that:
[REDACTED]
SCE's RFO contained a similar statement noting SCE's preference for existing projects. (See Section III. B., Page 5 of SCE RFP Protocols)
The results of SCE's solicitation demonstrate a preference for operating resources. The largest of the five contracts (in terms of energy and capacity) clearly provides for purchases from an existing, operating renewable resource.
Compliance with the One Percent Requirement
D.02-08-071 stated that the "requirement for a 1 percent increase in renewable resources is irrespective of the residual net short, though we encourage the utilities to solicit bids from innovative renewables projects that can help meet the utilities' residual net short requirements." The Commission has recently assigned a significant number of DWR contracts to SCE which created the
concept of a utility's residual net short.8 SCE has complied with this requirement in that the five proposed contracts clearly exceed the one percent goal.
Transitional Procurement and Baseline Confirmation Issues
SCE requested the following two findings in AL 1676-E:
"Any procurement pursuant to the PPAs is deemed part of SCE's "baseline" quantity of eligible renewable resources for purposes of Section 399.15 of the Public Utilities Code or other applicable law." (SCE AL 1676-E, page 3)
"Any procurement pursuant to the PPAs is deemed transitional procurement by SCE from a renewable resource for purposes of determining SCE's compliance with any obligation that it may have pursuant to D.02-08-071 and D. 02-10-062, or other applicable law, to procure an additional 1% of its annual electricity sales from renewable resources." (SCE AL 1676-E, page 4)
In approving the proposed contracts as amended, we confirm that procurement pursuant to the five proposed PPAs will be deemed part of SCE's baseline, and will be counted toward SCE's one percent purchase requirement under D.02-08-071 and D.02-10-062.
Public Goods Charge (PGC) Funds Issues
D.02-08-071 required "that bids to provide renewable power clearly identify any expected funds from the public goods charge (PGC) administered by the CEC that are included in the resource pricing."
One of the more hotly contested issues in the advice letter is SCE's inclusion of contract [REDACTED] clauses in four of the five PPAs, providing either party with [REDACTED] With regard to the PGC funds issue, there are several ways to address this: (1) approve the request as submitted with [REDACTED] clauses and with [REDACTED] requirements; (2) approve the request without [REDACTED] clauses and without [REDACTED] requirements; or (3) approve the request with the [REDACTED] clauses but without [REDACTED] requirements.
Based upon the factual information specific to the proposed PPAs, the requirements set forth by this Commission, and new law already cited above, it is within our authority to approve any of these options. D.02-08-071 did set forth the Commission's expectation that utilities should take the mandates of Section 701.3 and AB 57 into consideration when conducting the renewables solicitation:
"D.02-08-071, Finding of Fact 22. We expect utilities to take into consideration in their resource selection the mandates of Section 701.3 and AB 57."
AB 57, which was enrolled over a month prior to the issuance of D.02-08-071, established a link between the availability of PGC funds and market costs in Section 454.5(b)(9)(A):
PU Code Section 454.5(b)(9)(A) The electrical corporation will, in order to fulfill its unmet resource needs and in furtherance of Section 701.3, until a 20 percent renewable resources portfolio is achieved, procure renewable energy resources with the goal of ensuring that at least an additional 1 percent per year of the electricity sold by the electrical corporation is generated from renewable energy resources provided sufficient funds are made available pursuant to Section 399.6, to cover the above-market costs for new renewable energy resources.9
In D.02-08-071, we set forth a provisional benchmark of 5.37cents/kWh in an attempt to establish an acceptable level for per se reasonableness. However, the ORA protest correctly noted that, "D.02-08-071 did not specify whether the benchmark price was in nominal or constant dollars" (ORA Protest, page 2). Without breaching confidentiality, and notwithstanding this well-made point by ORA, it can be publicly stated that the five PPAs proposed by SCE are within an acceptable range of the provisional benchmark [REDACTED] .
If we grant SCE's request as proposed, the [REDACTED] might put undue pressure on the CEC to [REDACTED] . SCE's attempt to [REDACTED] to the proposed PPAs does appear to have some basis, but is viewed by the CEC and TURN protestants [REDACTED] . With this in mind, we note that [REDACTED] RPS program. Accordingly, given that the CEC must make certain determinations, we require that SCE remove [REDACTED] .
With regard to the use of [REDACTED] clauses, their exact purpose is not entirely clear. The other two utilities did not utilize such contract clauses. This contract language was not set forth in the RFP, nor was it part of the standard contract boilerplate. It appears that this language was formulated during contract negotiations. These clauses do not necessarily advance any of the policy mandates set forth by this Commission or related law. At this time, we do conclude that the use of contract [REDACTED] clauses, in this instance, are not consistent with the D.02-08-071 requirement that "utilities ... solicit bids for electricity to be delivered beginning January 1, 2003, and extending for five, ten, and 15 year terms, with no contract shorter than five years." As proposed, the
contract [REDACTED] clauses could result in contracts shorter than five years which is inconsistent with our directives on this point. Therefore, we direct SCE to remove the contract [REDACTED] clauses from the proposed PPAs that [REDACTED] .
It should be noted that we do not establish a routine practice or new methodology in this resolution, as the approval of these contracts is not indicative of approval of any contracts to be submitted in the future.
Sanctions Issue
Both TURN and the CEC have requested that the Commission find SCE in contempt of D.02-05-071, D.02-10-062, and D.02-12-074 and request sanctions pursuant to Section 2113 of the PU Code. TURN listed five specific issues on this point which generally comport with the CEC protest: delayed filing of a renewables advice letter, uncertain methodology for calculating market prices, PGC funding requirements, lack of cooperation with PRG members, and discriminatory language in the RFP. D.02-12-074 at pages 25-26 made the following assessment of SCE's progress on its renewables solicitation:
"No Advice Letter filing has been forthcoming, however, despite the utility's pledge to file early this month. This delay unfortunately lends credence to the concerns expressed by TURN and CalWEA that Edison is deliberately stalling the interim procurement process, either to test the Commission's § 701.3 authority or to pre-judge the implementation efforts for the RPS program. Examples such as creation of undue barriers to participation by particular technologies, and of price benchmarks different from the Commission's 5.37¢/kWh target, are cited in support of these assertions. Both of these practices, if verified, would constitute violation of Commission orders and would be subject to sanction. The Commission is actively exploring its options in this regard.
"Subject to further sanction would be the utility's continued failure to simply file an Advice Letter containing renewable contracts of any sort, be they for more or less than the 1 percent target. Waiting to file will not have the effect of avoiding the requirements of D.02-
08-071; in fact it will make those requirements more challenging, as the utility will need to procure the same GWh amount over fewer days in the calendar year.
"We find that the utility is in noncompliance with D.02-08-071, and will address this noncompliance in a subsequent Commission order. In the event that this Advice Letter is forthcoming, we reiterate our direction provided to the other utilities regarding calculation of the 1 percent target and the preservation of Edison's baseline level of renewable generation.
At the time D.02-12-074 was issued, we were concerned that the utility was "avoiding the requirements of D.02-08-071." Although SCE filed AL 1676-E too late in 2002 for Commission consideration during that year, SCE did put forth a filing that exceeded the one percent requirement set forth in D.02-08-071. The alleged "undue barriers to particular technologies" were based on RFP language that was issued on September 28, 2002 and was not specifically addressed or modified by D.02-12-074. The protests on the latter point provided no compelling evidence beyond what was already known at the time D.02-12-074 was issued. Therefore, we decline to issue sanctions on this point.
SCE's market price methodology and level of cooperation with the PRG was in compliance with D.02-08-071. The relationship between market price and PGC funding will be addressed more definitively and with more clarity by both this Commission and the CEC for future solicitations. The issue of PGC funding requirements was addressed earlier in this resolution. Thus, the issue of the delayed advice letter filing remains outstanding and could be subject to Commission investigation.
Procurement Review Group (PRG) Involvement
D.02-08-071 required SCE, PG&E, and SDG&E to establish a Procurement Review Group (PRG) in order to ensure that interim procurement contracts entered into by the utilities are subject to sufficient and expedited review and pre-approval. The PUC Energy Division and ORA staff would be ex officio members of each PRG, and membership of the PRG would be open to an appropriate number of interested parties who are not "market participants."
PRG members have the right to consult with and review the details of: (1) each utility's overall interim procurement strategy; (2) proposed procurement contracts with the utilities before any of the contracts are submitted to the PUC for expedited review; and (3) proposed procurement processes including but not limited to RFPs, which result in contracts being entered into in compliance with the terms of the RFP.
From September 2002 through December 2002, SCE sponsored two face-to-face PRG meetings10 in San Francisco and arranged three telephone conferences11 concerning SCE's renewable solicitation. In a meeting on September 16, SCE reviewed its draft RFO documents with its PRG. SCE received feedback on the draft documents during a September 19 conference call, and took it into account before finalizing and issuing the RFO to potential renewable bidders on September 28. At this meeting, the PRG concurred that SCE should accept bids from projects with on-line dates after December 31, 2003, but that SCE should prefer those resources, if possible, that came on-line as soon as possible. SCE concurrently provided a copy of the final RFP to each of its PRG members. At the November 8 PRG meeting, SCE reviewed the status of its solicitation by providing preliminary results and substantial detail regarding the progress of negotiations with "short listed" bidders.
During the November 14 PRG conference call, SCE again discussed the progress of the negotiating and contracting process. On December 4, SCE provided the PRG with near-final versions of "term sheets" that provided substantial detail regarding proposed contract terms with the bidders who were being selected from SCE's "short list." During a PRG conference call that same day, SCE reviewed the term sheets and SCE's intent to file shortly an advice letter requesting Commission approval of finalized contracts based on the material terms reflected in the term sheets.
ORA, TURN, CEC, NRDC, DWR, CUE, and the Commission's Energy Division actively participated in this PRG process.
COMMENTS
PU Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission.
Energy Division requests that the 30-day comment period for this resolution be reduced to one day: (1) because of the expedited schedule set forth in D.02-08-071; and (2) because SCE's Procurement Review Group has been active throughout the interim procurement process leading up to the advice letter and resolution, and, hence, no comments would alter our response to their protests.
On January 28, 2003, a draft resolution was circulated to exclusively to the PRG via email at 1:34 p.m. for a confidential one-day comment period. Comments were due back via email to the Energy Division by 2:00 PM on Wednesday, January 29, 2003. The draft resolution that was circulated contained confidential material protected by the Non-Disclosure Agreement for SCE's PRG, and by Section 583 of the Public Utilities Code. Comments were filed by ORA, TURN, NRDC, CUE, CEC, and SCE. Some revisions to the draft resolution were made in response to comments.
In addition, Decision 99-11-052 discussed the need to reduce or waive the comment period due to public necessity. Rule 77.7(f)(9) requires this Commission to engage in a weighing of interests and refers to circumstances in which the public interest in the Commission adopting a decision before expiration of the 30-day review and comment period clearly outweighs the public interest in having the full 30-day period for review and comment.
We have balanced the public interest in avoiding the possible harm to public welfare flowing from delay in considering the Resolution against the public interest in having the full 30-day period, or even a reduced period, for review and comment, and have concluded that the former outweighs the latter. Failure to adopt this resolution before the expiration of the 30-day review and comment period would cause significant harm to the public welfare. Public necessity requires the waiver of the 30-day comment period in order to secure the potential benefits of the proposed interim procurement contracts to SCE customers. Thus, the 30-day comment period was reduced to one day due to public necessity.
FINDINGS
1. D.02-08-071 directed SCE, PG&E, and SDG&E to file an Advice Letter to seek pre-approval of any contract for transitional procurement, including contracts with renewables energy resources.
2. DWR credit support is not required by any of the counterparties for any of the contracts proposed by SCE in AL 1676-E.
3. The PRG for SCE comprises the California Energy Commission (CEC), California Utility Employees (CUE), Department of Water Resources (DWR), Energy Division, Office of Ratepayer Advocates (ORA), Natural Resources Defense Council (NRDC), and The Utility Reform Network (TURN).
4. SCE filed AL 1676-E on December 24, 2002 requesting approval of five power purchase agreements (PPAs) contributing toward procurement of at least an additional one percent of the utility's annual electricity sales from renewable energy resources irrespective of utility residual net short.
5. AL 1676-E was confidentially protested by ORA, TURN, CUE, and the CEC, and publicly protested by Ridgewood, and CalWEA on January 6, 2003.
6. SCE submitted a confidential response to the protests of ORA, TURN, CUE, and the CEC on January 9, 2003, and on January 10, 2003, SCE submitted a revised confidential Appendix A to its January 9, 2003 response in order to correct several non-substantive typographical errors.
7. SCE complied with the following requirements of D.02-08-071:
(a) "Each IOU hold a separate competitive solicitation for renewable resources in the amount of at least an additional 1 percent of their annual electricity sold beginning January 1, 2003.
(b) "Utilities should solicit bids for electricity to be delivered beginning January 1, 2003, and extending for five, ten, and 15 year terms, with no contract shorter than five years.
(c) "Utilities should enter into contracts with a mixture of term lengths.
(d) "During the solicitation process, utilities should give a preference to existing renewable resources in the bidding process if their bids are equal to or lower than prices offered by new projects.
(e) "We also require that any contracts for new renewables projects require that the resources come online and begin delivering electricity before the end of 2003.
(f) "This requirement for a 1 percent increase in renewable resources is irrespective of the residual net short, though we encourage the utilities to solicit bids from innovative renewables projects that can help meet the utilities' residual net short requirements.
(g) "We also require that bids to provide renewable power clearly identify any expected funds from the public goods charge (PGC) administered by the CEC that are included in the resource pricing.
(h) "During the transitional period, any contract that meets or exceeds the 5.37 cents per kWh benchmark will be deemed per se reasonable, though other contracts at prices above the benchmark may also be approved by the Commission for cost recovery through the process outlined in this decision."
8. We require that future RFOs, RFPs, or any substantial equivalent's thereof to be distributed to members of the PRG, posted on SCE's website and, at least, served electronically to the utility's entire advice letter service list on the day issued, in order to notify parties that such activities are in progress.
9. The PPAs and SCE's entry into the PPAs are reasonable and prudent for all purposes, including, but not limited to, recovery of all payments made pursuant to the PPAs in rates, subject only to review with respect to the reasonableness of SCE's administration of the PPAs.
10. SCE's solicitation of renewable power that resulted in the PPAs has been conducted reasonably for purposes of this interim procurement, although we order several changes to the terms of the PPAs and reiterate our position that RPS rules will be developed in due course.
11. Pursuant to the terms of one of the PPAs, SCE may purchase electric energy and capacity from the seller upon Commission approval of the PPA, as Commission approval is defined therein, but before the decision granting approval becomes final; more specifically, notwithstanding any termination of such PPA based on a failure of Commission approval to become final by the date specified in the PPA, SCE's payments at the full contract rate for any deliveries before the termination date of energy and capacity are reasonable and prudent for all purposes, including, but not limited to, recovery in full by SCE in rates, subject only to review with respect to the reasonableness of SCE's administration of such PPA.
12. As proposed, the contract termination clauses could result in contracts shorter than five years which is inconsistent with our directives on this point; therefore, we direct SCE to remove the contract [REDACTED] clauses from the proposed PPAs that [REDACTED] .
13. Given that the CEC must make certain determinations, we direct SCE to remove [REDACTED] from the PPAs.
14. Any procurement pursuant to the PPAs is deemed part of SCE's "baseline" quantity of eligible renewable resources for purposes of Section 399.15 of the Public Utilities Code or other applicable law.
15. Any procurement pursuant to the PPAs is deemed transitional procurement by SCE from a renewable resource for purposes of determining SCE's compliance with any obligation that it may have pursuant to D.02-08-071 and D. 02-10-062, or other applicable law, to procure an additional 1% of its annual electricity sales from renewable resources.
16. The delayed renewables advice letter filing remains outstanding with regard to possible sanctions, and could be subject to Commission investigation.
17. We defer consideration of the [REDACTED] contract to a later Commission meeting.
18. We do not establish a contract approval standard in this Resolution, thus the Commission's approval of the contracts is not indicative of approval of any contracts to be submitted in the future.
19. We should approve AL 1676-E, as modified, effective today.
THEREFORE IT IS ORDERED THAT:
1. SCE's request to enter into four of the five power purchase agreements contributing toward procurement of at least an additional one percent of its annual electricity sales from renewable energy resources, in Advice Letter 1676-E, is approved as modified.
2. We defer consideration of the [REDACTED] contract to a later Commission meeting.
3. 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 January 30, 2003; the following Commissioners voting favorably thereon:
______________________
WESLEY M. FRANKLIN
Executive Director
MICHAEL M. PEEVEY
President
CARL W. WOOD
LORETTA M. LYNCH
GEOFFREY F. BROWN
SUSAN P. KENNEDY
Commissioners
1 SCE refers to renewable energy resources as "eligible renewable resources" (ERRs).
2 The Commission also ordered the utilities to conduct a non-renewable, all-source (a.k.a. general) solicitation. Accordingly, SCE issued a Request for Offers (RFO) on September 18, 2002 for generation capacity, associated energy, and/or ancillary services for the period of January 1, 2003, or later, through December 31, 2007, or earlier. As a result of that RFO process, SCE filed Advice Letter 1660-E on November 5, 2002 for approval of proposed energy and capacity procurement contracts for potential award pursuant to a subsequent bid refresh process, in order to meet a portion of its 2003 through 2007 residual net short. On December 5, 2002, the Commission issued Resolution E-3802 approving AL 1660-E, as modified.
3 SB 1078, chaptered on September 12, 2002, requires the Commission to establish a program whereby the utilities must purchase a specified minimum percentage of electricity generated by renewable energy resources. The utilities must increase their total procurement of eligible renewable energy resources by at least one percent per year so that twenty percent of their retail sales are procured from eligible renewable energy resources by December 31, 2017.
4 The last part of Section 454.5(b)(9)(A) is shown here in its entirety, as taken directly from the July 3, 2002 enrolled version of AB 57. Section 454.5(b)(9)(A) remained unchanged in the chaptered version of AB 57 as signed on September 24, 2002.
5 [REDACTED] (AL 1676-E, Appendix A, page 2 -- Filed as Confidential Material)
6 SCE Renewables FAQs: http://www.sce.com/sc3/005_regul_info/005i_qualifying_facilities/RFP_QandA.htm
7 SCE's revised definition of eligible renewable resources (ERRs) in its RFP: http://www.sce.com/NR/rdonlyres/eujv6pasxnth4vy6uau4mieceu5fmn2df6hsr4legvw32yjuxqy47q422oidkaxujcfc3ulkl6c7qdv2qxc3e4zj7cd/QF_Protocol_Upd_20021001.pdf
8 The assignment of DWR contracts to SCE, and other IOUs, spawned the term "residual net short," which refers to a utility's open position relative to its system load. An IOU's "net short" is simply its System Load, less its Utility Retained Generation (URG). Residual net short is simply System Load, less URG, less DWR contracts.
9 The last part of Section 454.5(b)(9)(A) is shown here in its entirety, as taken directly from the July 3, 2002 enrolled version of AB 57. Section 454.5(b)(9)(A) remained unchanged in the chaptered version of AB 57 as signed on September 24, 2002.
10 These meetings took place at the Hyatt Regency Hotel in San Francisco on September 16 and November 8, 2002.
11 The phone conferences were held on September 19, November 14, and December 4, 2002.
