Comments on Draft Decision
Rule 77.7(f)(9) provides for reduction or waiver of the 30-day period for public review and comment when public necessity requires such reduction. We must balance whether the public necessity of adopting an order outweighs the public interest in having the full 30-day period for review and comment. We are convinced that the petition of SCE as expanded falls under Rule 77.7(f)(9), and for that reason, we established a shortened period for comments on the draft decision.
On January 16, 2001, timely comments were received by SCE, PG&E, SDG&E, jointly by Caithness, FPL, and EWC (Caithness/FPL/EWC), IEP, Watson, Coastal, jointly by CCC and CAC (CCC/CAC), jointly by Tractebel and TEMI (Tractebel/TEMI), Calpine Corporation (Calpine), and CE. No reply comments were allowed.
With respect to modifications to the factor and adoption of the Malin index as a replacement for Topock in the Transition Formula, parties generally reiterate comments made in prior pleadings. Errors in the factor formula were identified and changes have been made as a result. PG&E recommends that we adopt the Malin index only when its use would result in a price lower than use of Topock. SDG&E asks that we modify its factor in the same way that we modify SCE's factor.
In general, parties' comments focus on the draft decision's proposal of a Transition price for payments to QFs. Commenters representing QFs unanimously oppose adoption of a price Transition as inconsistent with PURPA, Section 390, and the December 15, 2000 FERC Order. SDG&E also opposes adoption of a price Transition comparing the imposition of a Transition to setting a cap on retail rates without addressing wholesale pricing issues. PG&E and SCE support adoption of a cap. We have made modifications to respond to comments throughout the decision.
Comments on this Revised Proposed Decision may be submitted to the Commission by 4:00 p.m. on Friday, March 23, 2001.
Findings of Fact
1. Avoided cost postings are based on the Transition Formula adopted in D.96-12-028, which incorporates various California natural gas border price indices.
2. Each Transition Formula contains a utility specific "factor" designed to compare historical SRAC prices to historical gas border prices for that utility.
3. The Commission has filed a complaint (Docket No. RP00-241-000) at FERC seeking recission of certain contracts entered into by El Paso Natural Gas Company and its affiliates.
4. The starting energy price for the Transition Formula was calculated using 1995 values for the incremental system heat rate, average border gas prices and average interstate and intrastate gas transportation costs (collectively, the burnertip gas price), and a variable operations and maintenance adder.
5. D.96-12-028 set the factor for SCE at 0.7067.
6. The factor is the product of a linear regression comparing historical SRAC prices and historical gas prices at the California border.
7. The facts relied upon in SCE's Petition are verifiable by taking official notice of the tariffs of Southern California Gas as approved by the Commission.
8. The index methodology was developed during a time that utilities owned gas-fired generating facilities and operated those plants on the margin.
9. To meet incremental electricity needs, SCE no longer turns to its own generating facilities as it did in the past, but instead turns to the electricity market.
10. With the exception of the IER and variable O&M, all elements of the monthly factor formula can be calculated based on tariffed rates or published indices.
11. We do not have a sufficient record to update the IER or variable O&M components.
12. No party has proposed that PG&E or SDG&E factors require updating.
13. The gas prices used to calculate SCE and SDG&E short-run avoided costs rely on published border prices for gas traded at Topock.
14. In a given month, a utility's avoided cost of fuel will differ from the proxy relied upon in the Transition Formula.
15. In 93 FERC ¶ 61,294 (December 15, 2000), FERC found that California's market was yielding unjust and unreasonable rates
16. In 93 FERC ¶ 61,294 (December 15, 2000), FERC found that an average of historical utility embedded cost of generation would represent an appropriate benchmark for determining the prudency and reasonableness of forward contracts.
17. $67.45/MWh represents an average of historical utility embedded cost of generation prior to restructuring.
18. The California Department of Water Resources has purchased energy in a fully shaped portfolio of contracts with average prices of $79 dollars per megawatt hour for the period through May 2006, $61 per megawatt hour for the period between May 2006 and 2011. The ten-year average is $69 per megawatt hour.
19. The Federal Energy Regulatory Commission (FERC) has found that $74 is a reasonable price for long term energy in its Order Directing Remedies for California Wholesale Electric Markets, issued December 15, 2000.
20. QFs have not been paid for several months for energy delivered during November 2000 through March 2001 by SCE and PG&E.
1. Modification of the factor in the manner proposed by SCE more closely ties the resulting avoided costs to the IER methodology used prior to D.96-12-028.
2. It would be unfair to modify any component of the Transition Formula based on changes to only one underlying component.
3. The Petition should not be rejected on the basis of lack of declarations.
4. There are no disputed facts at issue regarding SCE's proposed modification to the factor that require evidentiary hearings.
5. The Commission's invitation to parties in D.96-12-028 to petition to modify the border indices does not preclude parties from seeking modification of D.96-12-028 on any other grounds.
6. Section 1708 provides the Commission with the discretion to "rescind, alter, or amend any order or decision made by it."
7. The Transition Formula can be updated periodically.
8. All elements of the proposed monthly factor, not just the intrastate gas cost component, should be updated.
9. SCE's fixed factor should be converted to a formula, updated periodically, effective with the next regularly scheduled SRAC posting.
10. Changes to the factor should be subject to possible upward adjustment based on our review of the IER and variable O&M components.
11. Parties should serve concurrent opening and reply testimony on how to calculate the incremental system heat rate and variable O&M for SCE on May 1 and May 21 respectively.
12. FERC has the ultimate authority and responsibility to provide relief to California ratepayers should it concur with our complaint that market power abuse has artificially raised gas prices at the California border.
13. The Topock index is no longer sufficiently robust to be utilized in the Transition Formula.
14. Over time, setting avoided cost based on a robust border price index can reasonably represent gas procurement costs under a portfolio procurement strategy and therefore will generally meet the requirements of PURPA.
15. Identifying the appropriate gas price indices and finding an appropriate method of averaging them for purposes of the Transition Formula should be addressed in a workshop and report by the Energy Division.
16. To fulfill our obligations under PURPA that payments to QFs be just and reasonable, we should retain the Transition Formula as our primary QF pricing methodology but establish a Consumer Transition Price limit on prices posted at the California Department of Water Resources portfolio reasonableness benchmark ($ 79/MWh).
17. The Consumer Transition Price limit of $79 is just and reasonable for the electric consumers.
18. Offering long term stable prices of $79 per megawatt hour for five years and $69 per megawatt hour for ten years is just and reasonable for electric consumers.
19. In the longer run, the statutory requirement to base energy payments on gas prices must be modified to more accurately reflect utility's positions in the electricity market.
20. We should grant the petitions of CE, Tractebel, and TEMI to intervene with respect to the petition to modify the Transition Formula and Phase 2. However, this participation should not extend to commenting or participating on issues established as Phase 1 issues in the Scoping Memo for this proceeding.
21. Pursuant to Rule 77.7(f)(9), the public review and comment period has been shortened.
22. In order to preserve the status quo, we should affirm and continue the temporary moratorium on QF's ability to switch pursuant to D.99-11-025 until we have addressed PG&E's January 10, 2001 motion on its merits.
23. Until we make a determination on the merits of PG&E's January 10, 2001 motion, we should adopt a cap on payments to switching QFs of $79/MWh, consistent with the Consumer Transition Price adopted for QFs paid under the Transition Formula.
24. Utility payments to QFs who have delivered energy on a timely basis going forward constitute adequate service.
25. Utilities should pay for energy delivered on a going forward basis within 15 days of delivery. Failure to make payments constitutes inadequate service and is subject to penalty.
26. An appropriate penalty is a fine in the amount owing to the QF for energy delivered and not paid for by the utility.
ORDER
Therefore, IT IS ORDERED that:
1. The factor adopted for Southern California Edison Company (SCE) in Decision (D.) 96-12-028, Attachment 1, shall be modified to a calculation where:
Factor = (((IER * (GPN + GTN))/10,000) + O&M) - Pbase
Pbase * ((GPN - GPbase)/GPbase)
2. Pbase and GPbase shall remain fixed as set forth in D.96-12-028, Attachment 1; all other factor inputs shall be updated periodically as subsequently ordered by this Commission effective with the next regularly scheduled short-run avoided cost posting.
3. Parties shall serve concurrent opening and reply testimony on how to calculate the incremental system heat rate and variable operations and maintenance (O&M) for SCE on May 1 and May 21, respectively.
4. Until such time as the Commission adopts a revised incremental system heat rate or variable O&M component for SCE, SCE shall use 9,140 Btu/kWh and $0.2¢/kWh as inputs to the monthly factor formula.
5. Revisions to the incremental system heat rate and variable O&M for SCE that increase the monthly factor shall be effective with the first posting that includes the monthly factor.
6. Revisions to the incremental system heat rate and variable O&M for SCE that decrease the monthly factor shall be effective with the first posting following the decision that revises those elements.
7. The Energy Division shall conduct a workshop on the use of indices of natural gas costs at the California border and report to the commission not later than May 15, 2001.
8. Southern California Edison, Pacific Gas and Electric Company and San Diego Gas and Electric Company shall offer QFs long term pricing options for five-year and ten-year terms consistent with the discussion in this decision.
9. Payments to qualifying facilities paid short run avoided cost or based on the short run avoided cost formula, shall be made consistent with the Transition Formula as modified today but shall not exceed $79/MWh, effective as of the date of this order.
10. Southern California Edison, Pacific Gas and Electric Company and San Diego Gas and Electric Company shall pay QFs for energy deliveries made on and after the date of this order within 15 days of delivery, at the rate of $79 per megawatt hour consistent with the Consumer Transition Price, subject to true-up to reflect a ten year price election and subject to variance for performance incentives as approved by the commission, as discussed in the Decision.
11. A failure by Southern California Edison, Pacific Gas and Electric Company and San Diego Gas and Electric Company to pay a QF for energy within 15 days of delivery, subject to true up for measurement, will result in a fine in the amount owed to the QF.
12. The petitions of CE Generation, LLC, Tractebel Power, Inc., and Tractebel Energy Marketing, Inc. to intervene with respect to the petition to modify the Transition Formula and Phase 2 are granted. However, this participation shall not extend to commenting or participating on issues established as Phase 1 issues in the Scoping Memo for this proceeding.
13. A temporary moratorium on the ability of qualifying facilities to switch to Power Exchange prices pursuant to D.99-11-025 shall be effective as of January 11, 2001.
14. Payments to qualifying facilities paid on the basis of Power Exchange prices shall not exceed $79/MWh, consistent with the Consumer Transition Price, until the merits of PG&E's January 10, 2001 motion is addressed.
This order is effective today.
Dated _____________________, at San Francisco, California.
