VI. Discussion
A. Compliance With Rule 47(d)
In the event more than one year has elapsed from the effective date of the decision sought to be modified, Rule 47(d) of the Commission's Rules of Practice and Procedure requires an explanation of why the petition to modify could not have been presented within one year of the decision's effective date.
Edison explains that it could not have presented this petition within the one year timeframe because no disputes with QFs arose during that period and Edison was thus unaware that a QF might interpret the Operating Options language contrary to Edison's understanding of them. Also, until April 2000, when the D.C. Circuit affirmed FERC's holding in Connecticut Valley grandfathering certain pre-Turners Falls QF contracts, it appeared possible that these issues would be resolved as a matter of federal law.
Edison has justified its late submission of this petition under Rule 47(d).
B. Should the Commission Address the Merits of this Petition for Modification?
Commerce concedes that the Commission has jurisdiction over this petition, but requests that the Commission defer to the courts on what it characterizes as a case of contract interpretation. Edison opposes this request, and ORA and PG&E agree that we should address this petition.
The Commission and the courts have concurrent jurisdiction to resolve contract disputes between utilities and QFs. (D.91-06-048, Conclusion of Law 1, 1991 Cal. PUC LEXIS 375 at 8.)
"There may be no precise line dividing disputes between utilities and QFs that should more appropriately be resolved by the Commission from those more fitting for civil litigation. The array of potential actions may form a continuum with purely policy matters on one end and limited contract disputes on the other." (D.92-02-014, 1992 Cal. PUC LEXIS 936 at 7.)
The parties are currently before the Superior Court regarding their contract dispute on a nonstandard offer contract. What Edison requests here is for the Commission to confirm that its standard SO2 and ISO4 contracts do not contemplate "simultaneous buy-sell" as defined above. Although our resolution of this issue may impact the specific contract dispute between the parties, the issue also impacts the Commission's policies regarding the implementation of PURPA. The Commission has also recognized the importance of the "simultaneous buy-sell" issue when it intervened before FERC in the Connecticut Valley proceeding.
This petition presents overriding policy issues regarding the Commission's implementation of PURPA. Moreover, there is a need for a uniform and consistent manner of resolving the issues presented, which resolution could impact generic terms and clauses embedded in numerous standard offer contracts. Therefore, we will address the merits of Edison's petition.
C. The Commission's Basic Policy Governing Standard Offers is Uniformity
The Commission's basic policy governing these standard offer contracts is uniformity, with very few exceptions due to different operating characteristics among utilities.
"Our basic policy governing the form and terminology used in the standard offer contract is that they should be uniform among the utilities except for the very few aspects that must be utility-specific due to different operating characteristics. See D.83-09-054, ordering paragraph 5; D.83-10-093, ordering paragraph 20. This ensures evenhanded treatment of QFs and promotes a common understanding of the standard offer provisions." (D.88-09-026, 29 CPUC2d 263, 283.)
D. Edison's SO2 Contract Does Not Permit "Simultaneous Buy-Sell"
In D.82-12-120, one of the decisions Edison seeks to modify, we approved the utilities' SO2 contract pursuant to the Guidelines Decision, and subject to the utilities incorporating the principles and provisions reflected in the decision.
The Guidelines Decision and D.82-12-120 reference a "simultaneous purchase and sale" option, but these decisions, when read together, show that the Commission defined such an option as applying to the QF selling to the utility its output, less that necessary for the QF's station use.
In the Guidelines Decision, the Commission adopted a staff recommendation to be included in the standard offer contracts concerning a "simultaneous purchase and sale" Operating Option. The Commission generally described this option.
"Simultaneous purchase and sale is a regulatory convention that allows a QF simultaneously to sell its own generation to the utility while purchasing its requirements from the utility. It is intended to respond to the situation where the retail rate is less than the avoided cost, by providing that the QF receives the full benefit of avoided cost pricing principles. The QF is not required to separate its load from its resources to qualify. The electricity flow is the same regardless. The difference is cash flow." (D.82-01-103 8 CPUC2d at 71.)
In the Guidelines Decision, the Commission discussed this concept generally, and did not state all the details of this arrangement, such as defining whether the QF "load" refers to station use, or an independent electrical host on the QF's site, such as a manufacturing operation at a cogeneration plant.
In D.82-12-120, the Commission again discussed this same "simultaneous purchase and sale" option. In this decision, the Commission distinguished the Operating Options described therein from the "simultaneous buy-sell" arrangement at issue in this decision. In D.82-12-120, the Commission addressed PG&E's (and not Edison or SDG&E's) contracts on this issue by way of example. The Commission described PG&E's Operating Options as "simultaneous purchase and sale" and "surplus only." (10 CPUC2d at 600.) (The actual names for these options in PG&E's SO2 are "net energy output" and "surplus energy output." (See PG&E SO2, Article 2(a)(2) at p. 3 and n. 2, attached as Appendix I to Edison's Petition.) )
PG&E's "surplus energy output" Operating Option, which corresponds to the "surplus only" option discussed by the Commission, corresponds to Edison's Operating Option III, which provides for the QF's sale to the utility of the facility's output net of auxiliary load and any other use by the QF (i.e., host load).11 PG&E's "net energy" option, which corresponds to the "simultaneous purchase and sale" option the Commission discusses in D.82-12-120, expressly provides for the sale of only the facility's net output, i.e., its output net of station use or auxiliary load.12 Under this option, a QF can purchase from the utility energy to supply its independent electrical load at the QF's site, such as the load of a manufacturing operation at a cogeneration facility.13
The difference between these two PG&E options is that in the "net energy" option, the QF serves its own auxiliary load and dedicates its net output to the utility while under the latter, the "surplus energy output", the QF sells only its surplus generation after additionally serving another load, such as an industrial load. Thus, when the Commission referred to "simultaneous purchase and sale" in D.82-12-120 and the Guidelines Decision, it was referring to sales net of auxiliary load and we did not authorize the type of "simultaneous buy-sell" arrangement at issue in this decision.
Given that our basic policy governing standard offer contracts is uniformity among utilities, with exceptions granted only when necessary to address different operating characteristics, we do not agree with Commerce that somehow we authorized different Operating Options for PG&E than we did for Edison, simply because PG&E's option explicitly states "net energy output," whereas Edison's corresponding option speaks in terms of a QF selling its "entire generator output." If we were authorizing a different policy for each utility on this important issue, we would have explicitly said so. Consistent with our basic policy of uniformity governing standard offer contracts, Operating Options I and II in Edison's SO2 should correlate with PG&E's "net energy output," while Operating Option III should correlate with PG&E's "surplus energy output."14
Specific language in Edison's SO2 also supports this uniform treatment. Operating Option II of this contract provides for sale by the QF to Edison of the QF's entire generator output. However, the same standard offer contract contains a recital explaining that Operating Option II contemplates power purchases by QFs from Edison of "that portion of the electrical requirements of the [QF's] Facility which are not supplied by the generating facility... ."15 This recital would have no meaning if Operating Option II was intended to provide for gross sales by the QF to Edison.
E. Edison's ISO4 Contract Does Not Permit "Simultaneous Buy-Sell"
As stated above, the Commission approved Edison's, PG&E's, and SDG&E's ISO4 in D.83-09-054, less than a year after the Commission approved Edison's SO2. Edison's ISO4 adopted the language of the Operating Options in Edison's SO2 almost verbatim. (See the section discussing the language of the Operating Options above.) The Commission did not separately discuss or analyze the Operating Options in D.83-09-054. The Commission intended Edison's ISO4 Operating Options to have the same meaning as those in Edison's SO2 contract, and did not intend to approve a significant change that would permit a QF to engage in "simultaneous buy-sell."
This conclusion is supported by D.83-09-054 which, in approving the utilities' ISO4 contracts, recognized that the contracts were "consistent in substance"16 notwithstanding differences in format and contract language. (D.83-12-054, 12 CPUC2d at 618.) Neither PG&E nor SDG&E's ISO4 contracts permit a QF to engage in "simultaneous buy-sell" as defined in this decision. Rather, the Operating Options in PG&E and SDG&E's contract specifically exclude the sale of power necessary for "station use" (for PG&E) or "station load" (for SDG&E).17 This conclusion is also consistent with avoided cost policies underlying PURPA, where a QF should be paid a price equal to the costs it enables the utility to avoid. A QF's actual contribution to the utility's system is its output, excluding station use, since such load (i.e., station use) would not be available for the utility to serve its load in absence of the QF.18
F. Commerce's Additional Arguments
Commerce's additional arguments do not persuade us to reach a different result. First, we reiterate that we do not here interpret the specific nonstandard contract between Edison and Commerce, but rather, confirm our intent on the "simultaneous buy-sell" issue in approving Edison's SO2 and ISO4 contracts. For this reason, we also reject Commerce's argument that we should grandfather all contracts entered into before June 1991 from the effect of this decision.
We are also not persuaded by Commerce's argument that FERC and this Commission's discussion of standby and backup service call for a different result. Commerce makes a detailed argument that FERC statements regarding standby and backup power are not applicable to QFs engaging in simultaneous purchase and sale show that this Commission intended the utility, and not the QF, to supply the QF's station use. However, when these statements are read in context, they address the rate treatment to be afforded the independent site load (i.e., host load) associated with a QF, not a QF's station use.19
11 PG&E's SO2 defines "surplus energy output" as the "Facility's gross output, in kilowatt-hours, less station use, and any other use by the Seller, and transformation and transmission losses to the point of delivery into the PG&E system." (Edison's Petition, Appendix I at p. A-4.) 12 In PG&E's SO2, "net energy output" is defined as the "gross output the Facility produces in kilowatt-hours, less station use and transformation and transmission losses to the point of delivery into the PG&E system." The SO2 defines "station use" as energy "used to operate the Facility's auxiliary equipment. The auxiliary equipment includes, but is not limited to, forced and induced draft fans, cooling towers, boiler feed pumps, lubricating oil systems, plant lighting, fuel handling systems, control systems, and sump pumps." (Edison's Petition, Appendix I at pp. A-3 and A-4.) 13 FERC has a regulation called the "simultaneous buy-sell" rule (18 C.F.R. § 292.303(a)-(b) (1997), which FERC has interpreted as permitting QF facilities to sell their entire output, less station use, (and not the QF's gross output) to the utility. (See generally Connecticut Valley.) 14 Commerce states that Edison inconsistently argues for uniform treatment here, whereas Edison advocated for different treatment from PG&E and SDG&E regarding its truncation period in D.98-09-040. That decision involved the reasonableness of Edison's decision to use a different truncation period than that advocated by ORA, and that used by PG&E and SDG&E. (A truncation period is a period of time use to calculate firm and bonus capacity payments to a QF. The capacity factor of a QF is measured by the amount of energy delivered during a specified period. A QF is paid for firm capacity only up to its contract capacity level. Depending on the time interval chosen, energy delivered above the QF's contract capacity level is excluded (or truncated) in the firm capacity payment calculation.) In D.98-09-040, the Commission found Edison's contract administration practice on the truncation issue reasonable, even though Edison's truncation period was different from PG&E and SDG&E's. In that decision, the Commission addressed an exception to its general policy of uniformity due to different operational characteristics among utilities. None of the utilities' contracts specified a truncation period, and Edison uniformly administered its truncation period over a 15-year period. These facts are not similar to the instant case, and do not cause us to deviate from our policy of uniformity in this case. 15 See Edison's Petition, Appendix G at Section 2.2) 16 The ISO4 contracts the Commission approved in D.83-09-054 were developed as a result of a Commission-sponsored negotiating conference. Following the conference, all three utilities submitted proposed ISO4 contracts. The Commission expressed its disappointment that time did not permit all three utilities to draft uniform contract language, but noted that each "utility chose its own format and contract language, with the goal, however, of all being consistent in substance (with the exception of certain agreed to utility terms such as curtailment.)" (D.83-09-054, 12 CPUC2d at 618.) 17 "Station load" is defined as the load related to operation of the plant's auxiliary equipment. 18 As stated by FERC in Connecticut Valley, 82 FERC ¶ 61,116 at p. 61,418, it "is clear to us that a QF facility can only sell energy and capacity from its facility which is actually available, and that, given our interpretation of what a QF is able to sell from its facility, this capacity is limited to the net output of the QF." 19 Also, Commerce does not address how this argument applies, for example, to PG&E's SO2 and ISO4 contracts, which explicitly provide for the QF to sell to the utility its gross output, less station use.
