The SRAC Factor
For SCE, D.96-12-028 set the Factor at 0.7067, which represented a regression describing the historical relationship between changes in border gas costs and SCE's calculated avoided cost. SCE argues that "because the difference between burnertip gas prices and border gas prices (accounted for by gas transportation costs) assumed in the Transition Formula has declined dramatically over recent years, the Factor established by the Commission in 1996 no longer properly adjusts for the actual impact of changes in border gas prices on SCE's assumed avoided cost." (SCE Petition, p. 3.) SCE requests that we modify the factor so that it is adjusted monthly. SCE did not present in formula form the methodology to derive the monthly factor, but based on its pleadings, it would be calculated as follows:
Factor = (((IER * (GPN + GTN))/10,000) + O&M) - Pbase
Pbase * ((GPN - GPbase)/GPbase)
Where: IER = 9,140 Btu/kWh
GPN = the monthly border gas price
GTN = intrastate transportation calculated as
GT-F5 rate + ITCS rate + G-MSUR component1
O&M = $0.2 cents/kWh
Pbase = $2.0808 cents/kWh
GPbase = $1.3975/MMBtu
Pbase and GPbase were specified in D.96-12-028. In its Petition, SCE states that Pbase was calculated assuming an IER value of 9,140 Btu/kWh and an O&M adder of $0.2¢/kWh. (SCE Petition, p. 8.) In essence, modification of the factor in the manner proposed more closely ties the resulting avoided costs to the IER methodology used prior to D.96-12-028.
ORA supports SCE's proposed modification to the factor. ORA finds SCE's requested modification of the factor "consistent with the Commission's intent to keep the indices within the SRAC transition formula reliable and in-step with the dynamics of the market. ... In particular, ORA supports SCE's petition because it effectively keeps the SRAC transition formula energy price aligned with the utility's avoided cost as defined by PURPA."2 (ORA August 28, 2000 Comments, p. 2.) ORA believes that a fixed value factor is "incapable of reflecting changes in the utility's avoided cost of gas purchases. (ORA August 28, 2000 Comments, p. 2.) ORA argues that SCE's petition reflects the need to update the Transition Formula based on the changes in the gas industry, specifically the trend of declining intrastate transportation costs.
The California Cogeneration Council (CCC) argues that the factor is the product of a linear regression comparing historical SRAC prices and historical gas border prices. CCC argues that the factor bears no relationship to the cost of intrastate transportation. Rather, CCC argues that the starting price, Pbase, is the only element of the Transition Formula that bears a relationship to intrastate transportation costs, and § 390(b) sets the starting price based on historical cost relationships, not current cost relationships. CCC argues that it would be unfair to modify any component of the Transition Formula based on changes to only one underlying element. CCC is simply pointing out "that it would be methodologically unsound ... to reflect the impact of lower intrastate transportation rates and not account for changes in other assumed values that, if recalculated, would result in the SCE Formula producing higher SRAC prices." (CCC August 28, 2000 Comments, p. 11.)
FPL Energy LLC and Caithness Energy L.L.C. (FPL/Caithness) likewise argue that "the transition formulas represent carefully negotiated balances among the parties' interests and reconsideration of one element requires consideration of all elements." (FPL/Caithness August 28, 2000 Comments, pp. 1-2.) Both FPL/Caithness and CCC raise the concern that SCE's proposed change to the factor could be detrimental to California's fragile supply and demand balance by disrupting QF supply.
PG&E has not proposed to modify its factors and no party has commented on this possibility. SDG&E clarifies in comments on the draft decision that it also seeks modifications to its factor in the same manner we have modified SCE's factor. Unlike SCE, SDG&E did not present information in its comments to allow us to determine whether changes to input in the factor have changed. Therefore, we decline to make this modification for SDG&E at this time. SDG&E may renew its request in a fully supported petition.
1 As clarified in SCE's December 18, 2000 Supplemental Declaration, the components that make up SCE's proposed intrastate transportation rates can be found in the tariffs of Southern California Gas Company (SoCal). Schedule GT-F includes the GT-F5 rate and the ITCS rate. Schedule G-MSUR specifies the municipal surcharge for transportation volumes. The G-MSUR component is calculated by multiplying the surcharge rate (1.4828%) by the imputed franchise fee factor (98.5172%) and the monthly weighted average cost of gas posted monthly in Schedule G-CS. 2 PURPA is the Public Utility Regulatory Policy Act of 1978 and provides the federal framework for QF policy and avoided cost payments.
