6. Scope and Timing of
Reasonableness Review
6.1. Parties' Positions
Greenlining argues that "the SPVP is a more costly and less certain means of achieving progress toward the Million Solar Roofs goal, as compared to CSI, and will not result in savings to Edison's ratepayers."56 Greenlining is concerned that in contrast to the CSI, where the ratepayers only fund incentives given to productive installations, there are no performance incentives in the SPVP to protect the ratepayers from the risk that the SPVP might not produce the energy it promised. For that reason, Greenlining recommends that should the Commission choose to approve the application, it should hold SCE to performance standards as part of the annual reasonableness review, so that SCE's ratepayers are not required to pay for installations that are less productive than CSI installations.
TURN recommends that if the Commission authorizes SCE's project as proposed, it would also require some risk-sharing of cost overruns. TURN argues that if SCE cannot deliver the estimated lower capital costs, then it should share the capital cost overruns of up to 20% with its shareholders.57 Likewise, TURN recommends that any cost savings in capital costs below $3.50/W be shared 80/20 between ratepayers and shareholders.
CARE also recommends that we adopt a cost sharing mechanism between the ratepayers and the shareholders. CARE advocates that we use here the ratemaking mechanism that was adopted in D.94-05-020.
SCE explains that the review of SPVP will take place in SCE's annual ERRA reasonableness proceedings, where SCE must prove that all its plant operations were reasonable. SCE contends that in the ERRA reasonableness proceedings, the Commission, "after-the-fact," determines if SCE has effectively managed its generating units in order to achieve appropriate system performance based on what it knew or should have known at the time.58 SCE argues that if as part of this review, the Commission finds that the SPVP did not operate in a prudent manner, the Commission could disallow recovery of the replacement power costs (i.e., the replacement power costs would be borne by SCE's shareholders rather than customers). SCE argues that no form of cost sharing or additional incentives are necessary because the review process in ERRA will create adequate incentives for prudent system performance.59
6.2. Discussion
SCE's claimed primary potential benefit of the SPVP is that this project would provide additional MWs of renewable energy. However, several parties contend that as proposed, there is no guarantee that any of the projected power will be actually delivered. Parties are therefore concerned that the ratepayers will be paying for an investment that may never produce the expected benefits, and they encourage us to consider some protection in case the expected benefits from the investments paid by ratepayers are never realized.
As a general matter, the Commission has an ongoing duty to ensure that utility investments result in infrastructure that is used and useful. In the context of utility owned generation, we have long-standing policies and procedures in place under which utility projects are reviewed to make sure that approved investments are being made in a reasonable manner and that the resulting facilities actually fulfill their stated purpose. As SCE points out, in the context of utility generation projects, this review is done in the utilities' annual Energy Resources Recovery Account proceedings. We see no compelling reason why in the context of the SPVP we should stray from this existing process. While the program is itself new there is nothing about the UOG portion of the program, nor anything parties have presented, to suggest that the ERRA proceeding and the after the fact reasonableness review of operations conducted therein is insufficient to protect ratepayer interests. As SCE notes, should the Commission find in the ERRA proceeding that SCE did not live up to its responsibilities or did not prudently maintain and operate the solar facilities built pursuant to this program, the Commission can disallow recovery of certain costs.
We decline to adopt TURN's framework for sharing cost overruns between ratepayers and shareholders in the event that installation costs exceed $3.85 a watt. Reasonableness of capital costs, O&M costs and other UOG expenses are typically addressed in a utility's GRC. We see no reason why review of SPVP costs should be different than for other utility owned resources. However, as discussed above, we will use the ERRA proceeding to review SCE's operation of the SPVP plant.
In addition, to help the Commission better understand the impacts of this program, and the comparative costs and benefits of UOG and IPP solar PV generation, the Commission will monitor this program on an ongoing basis. As part of this review, we will examine, among other measures, the result of the competitive solicitation and the number of market participants competing for access to the one to two MW market. We will also monitor the prices received under the PPA portion of the program as well as the costs SCE incurs under the UOG portion of the program. This will provide for a broader comparison between utility owned renewable generation and generation projects that result from the competitive solicitation. Because SCE's GRC occurs only every three years, in order for the Commission to have timely data to evaluate this program and consistent with the requirements of Pub. Util. Code § 2775.5, SCE shall file an annual compliance report in this proceeding. SCE shall consult with Energy Division to develop the format and content of the report. The information provided in these reports shall be reviewed by Energy Division and shall be reflected in the Commission's reports to the legislature on the RPS program.
The first report shall be filed on July 1, 2010. The report shall include, at a minimum, the following:
· All solicitations issued for PPA contracts;
· A description of all bids received from the PPA solicitations, including name of bidder, location of bid, bid price, and description of proposed facility (generating capacity, type of technology, host customer, host tenant, and on-site load). SCE should indicate the winning bids;
· The total electrical output for all SPVP systems under PPS contract that are currently selling electricity to SCE, for each month of the previous year.
· A calculation of the LCOE for each SCE-owned facility that is completed and interconnected to the grid. SCE should accompany this calculation with workpapers showing actual amounts for all cost and electrical output entries that are used to calculate LCOE;
· Electrical output by month for the previous year for each SCE-owned facility that is completed and interconnected to the grid; and
· A description of all facilities for which work has been initiated or completed in the previous year, including: capital and O&M expenses; generating capacity; description of the site (host customer, host tenant, lease cost and on-site load); progress toward completion.
Resolution E-4182 authorized SCE to establish a memorandum account to record the incremental O&M and capital-related revenue requirement associated with the first $25 million of direct capital expenditures in the SPVP (SPVPMA). Ordering Paragraph 4 states that the Commission will address rate recovery of the amounts recorded in the SPVPMA when it acts on SCE's SPVP application. SCE shall transfer the balance in the SPVPMA to the SPVPBA for future rate recovery after the Commission reviews the balance in the ERRA proceeding.
56 Greenlining Opening Brief at p. 7.
57 TURN recommends that because costs may vary annually, the utility be authorized to combine the costs over the lifetime of the program for purposes of calculating the sharing requirement. (See TURN's Opening Brief, at p. 23.)
58 SCE Opening Brief at p. 29.
59 SCE Opening Brief at p. 29.
