4. Sunrise Issues
In the decision authorizing a CPCN for Sunrise, we identified four proposals for possible consideration in our review of the 2009 RPS Procurement Plans. (D.08-12-058, at 263-268.) We directed that the assigned Commissioner issue a ruling with these proposals and seek comment. (Id., Ordering Paragraph 14.) The last proposal involved four issues. To facilitate consideration of these four issues, Energy Division developed a project viability evaluation methodology. The Energy Division proposed methodology was attached to the ruling for parties' consideration and comment.
Respondents and parties provided many useful comments. We first discuss the initial three proposals. We then address the last proposal and four issues in our discussion of the staff proposal.
4.1. Special Imperial County Bidders Conference
We said in the Sunrise decision that we expected approval of Sunrise to prompt proposals from RPS-eligible renewable developers for viable, competitively priced projects in the Imperial Valley. We also said we expected these proposals as early as in response to the 2009 RPS solicitation. To increase the likelihood of this outcome and to highlight the opportunities enabled by Sunrise, we proposed that each respondent utility hold a special bidders conference in Imperial County. (Id., at 266-267.)
Several parties support, or do not oppose, a special Imperial Valley bidders conference. Other parties contend it would be redundant and unnecessary. For example, IEP asserts that sophisticated bidders are well aware of the RPS process, and a special conference makes sense only if an IOU has already planned the 2009 solicitation without consideration of Imperial Valley resources. CalWEA says a bidder with any wherewithal will be able to travel to a utility's regular bidding conference. Reid is concerned that a special conference might give the impression that a preference will be given to Imperial Valley developers, and that projects in other areas need not apply. This is counterproductive to overall RPS development, according to Reid. SCE says that most developers who might build in Imperial Valley do not have their business development staff in that area. SCE points out that it did not find it necessary to have a special Tehachapi bidders conference, but has received significant bids from that area.12 SCE does not object to holding a special conference in Imperial Valley, but is uncertain that it is necessary.
Despite these concerns, we are convinced that a special Imperial Valley bidders conference has merit. A special bidders conference will highlight the unique opportunities created by Sunrise. We expect it to increase both the number and viability of proposed projects. The conference itself should not be unduly expensive, but it should help facilitate economically efficient and optimal use of the nearly $2 billion Sunrise investment. We also endorse SDG&E's proposal that the Commission encourage (but not mandate) utilities developing their own set of affirmative actions to increase awareness among Imperial Valley renewable developers.
We recognize the concerns of IEP and others, however, and permit the three IOUs to each schedule their special conference at a time and place that it believes is most efficient for the IOU and stakeholders. This may be on the same day and at the same place as the regular bidders conference, but held as a special part of that conference, in order to separately and uniquely highlight and discuss the new opportunities in the Imperial Valley. Alternatively, it may be held separately from the regular bidders conference at a time and place the IOU determines to be reasonable.
We also agree with CEERT regarding inclusion of certain subjects that highlight the special importance and unique expectations relative to Imperial Valley renewable resources and Sunrise. In particular, we expect each conference host to explain:
1. The key elements of the Commission's decision approving Sunrise, including our express intention to use all regulatory tools at our disposal so that the renewable resources enabled by Sunrise are developed;
2. The size, route, status and construction schedule of Sunrise;
3. The estimate of 1,900 megawatts (MW) of Imperial Valley renewables expected to be delivered over Sunrise by 2015, with more than half of that development from high capacity geothermal resources, and
4. SDG&E's commitments to:
a. Not contract for any length of term with conventional coal generators that deliver power via Sunrise,
b. Replace any approved renewable energy contract deliverable via Sunrise that fails with a viable contract with a renewable generator located in Imperial Valley (e.g., a minimum of 2,253 gigawatt-hours (GWh) per year), 13 and
c. Voluntarily raise its RPS goal to 33% by 2020.
We also acknowledge the view of CalWEA that projects outside Imperial Valley may create significant flows on Sunrise.14 The special bidders conference should accept those possible effects and, as such, should be open to, and welcome, any bidder within the region of the Western Electricity Coordinating Council (WECC) whose project might create this type of important flow on Sunrise.
Finally, as part of their 2010 RPS Procurement Plans, IOUs should report on their experience with the special Imperial Valley bidders conference in 2009, and the reasonableness of a special Imperial Valley bidders conference in 2010. We will use this information in deciding how to proceed with future special bidders conferences, if any.
4.2. Specific Monitoring of Imperial Valley Proposals
In the Sunrise decision, we also discussed a role for Energy Division in determining whether attractive Imperial Valley projects make it through the 2009 solicitation. We suggested that Energy Division specifically monitor Imperial Valley proposals submitted in response to each IOU's 2009 solicitation. The ACR stated that utilities, and other entities as appropriate, should be required to provide certain information and updates, so that Energy Division might reasonably fulfill this role.
Several parties endorse this proposal. Other parties express concerns. The IOUs state that creation of reports for Energy Division would be reasonably easy.
Sunrise is an important project in California. It deserves reasonable attention to ensure that it is used efficiently, equitably and wisely. We conclude that specific monitoring of proposals and projects for transmission over Sunrise has merit.
Utilities and other entities should, therefore, work with Energy Division to identify the necessary data and manner of reporting that is most efficient and effective. We also expect this information to be updated, particularly with bids in 2010 and thereafter. To ease the burden on reporting entities, Energy Division should seek to include this Imperial Valley information, to the extent feasible, as part of routine compliance or other reports. As discussed more below, this may also include information on why certain projects are not selected.
We consider the concerns of, but are not persuaded by, those who oppose this special monitoring. For example, Reid is concerned that special reporting may be counterproductive because it will discourage other bidders, and create the impression that a preference is being given to Imperial Valley developers. We disagree. Bidders will participate in RPS solicitations from all locations within the California and the WECC based on their abilities and interests. There is no credible evidence that monitoring will discourage bidders. Monitoring does not mean that preference is given to Imperial Valley developers.
CalWEA believes specific monitoring of Imperial Valley bids will create pressure on utilities to select these bids even when contrary to LCBF evaluation. We are not persuaded. The nearly $2 billion investment in Sunrise warrants special monitoring to assess results and consider remedial measures when appropriate. To obtain Commission approval of contracts, utilities must disclose their LCBF evaluation of projects. Along with the Commission, parties monitor LCBF results. Parties may comment on advice letters, and make recommendations on approval or rejection of particular projects. The Commission will approve advice letters only for projects that have merit, and will reject advice letters seeking approval of contracts with Imperial Valley projects if they are unreasonable. Monitoring will not create undue pressure to select or approve bids when otherwise contrary to LCBF evaluation.
SDG&E says extensive resources in East San Diego County and Northern Mexico are facilitated by Sunrise and should not be ignored. CalWEA asserts that the specific monitoring, if adopted, should be expanded to include any bids for projects in the WECC system that would create significant flows on Sunrise. We decline to make this a requirement. CalWEA claims the power flows can be determined "using a simple shift factor calculation." (Sunrise Comments, at 6.) We are not convinced that such analysis is simple when there are many variables (e.g., number of projects, different sizes, different locations, varying on-line dates). The monitoring should initially focus on Imperial Valley projects. We encourage utilities, other entities and Energy Division to broaden the monitoring to include other projects when appropriate (e.g., when a project with a significant effect on the flow of power over Sunrise is sufficiently known relative to other projects).
4.3. Remedial Measures for 2010 Solicitation
We stated that if Imperial Valley projects resulting from the 2009 solicitation are not approved by the Commission prior to our approval of the 2010 RPS Procurement Plans that we will consider remedial measures for the 2010 Plans. We identified three:
· Require utilities to automatically shortlist all Imperial Valley proposals that are received in the solicitation so that the projects receive special consideration;
· Include an Imperial Valley bid evaluation metric in the LCBF methodology to give preference to Imperial Valley resources, and;
· Require each utility to conduct a special Imperial Valley RPS solicitation.
Several parties support some or all remedial measures if there are an inadequate number of Imperial Valley projects resulting from the 2009 solicitation. For the reasons explained below, however, we are persuaded by CalWEA, SCE and others that it is premature to adopt remedial measures now. We encourage parties to recommend remedial measures later if the 2009 solicitation produces an unacceptable result.
We decline to adopt remedial measures now because each of the three measures has the potential to conflict with the objectives of efficiency and selecting projects in LCBF order. Automatically shortlisting Imperial Valley proposals so that they proceed to contract negotiation may lead to inefficient use of limited utility and party time. Providing a preference for Imperial Valley resources (which is denied to others) generally conflicts with LCBF principles. An Imperial Valley-only solicitation provides no information about the cost and fit of non-Imperial Valley resources. It potentially handicaps the ability of IOUs and the Commission to select the optimal mix of resources from all bids, similarly violating the LCBF concept. Favoring development in one area undermines the fundamental objective of fair competition on a level playing field.
In its Sunrise comments, SCE states:
The proper way to value the contribution of Sunrise to the viability of Imperial Valley projects is to appropriately value the transmission benefits of Sunrise, not to require selection of all Imperial Valley proposals or to artificially constrain competition. (Sunrise Comments, at 12.)
Reid supports this point saying:
The proposals are unnecessary because Imperial Valley RPS projects already have a build-in advantage (access to transmission) in the contract evaluation process." (Sunrise Comments, at 7.)
We agree. Instead of limiting competition or creating a preference for Imperial Valley projects, the best approach is to allow the benefits of projects locating near approved transmission infrastructure to be considered within the LCBF analysis, similar to how SCE treats Tehachapi area resources. This approach considers the availability of and access to transmission, not simply the project's location within a geographic area.
Nonetheless, we will consider remedial measures if future evidence shows the LCBF methodology fails to properly value Imperial Valley resources and their unique access to transmission, or that there are other infirmities. Those measures might include automatic shortlisting, a special bid evaluation metric, special solicitation, or other remedies a party may propose. The expense and environmental consequences of Sunrise, just as with any significant infrastructure project, demand nothing less. We will not hesitate to use all regulatory tools at our disposal so that reasonable, cost-effective renewable resources enabled by Sunrise are developed. (See D.08-12-058, at 263.)
CEERT recommends that each IOU be required to report in its 2010 RPS Procurement Plan why Imperial Valley projects were not selected if such projects are bid into the 2009 solicitation but the contracts are not signed. We decline to make that order here because we expect this information to be collected by Energy Division, and be available to parties (subject to proper confidentiality treatment) as part of the Imperial Valley monitoring noted above. If it deserves additional treatment as part of the 2010 Plan review, the assigned Commissioner may elect to include this as a specific item when issuing the Ruling setting the schedule and details for the 2010 Plan.
While we decline to adopt a special solicitation only for Imperial Valley resources, we note that SDG&E is in a unique position. SDG&E committed, as a condition of the authorization to build Sunrise, to replace any currently approved renewable energy contract deliverable via Sunrise that fails, with a viable contract for electricity from a renewable generator located in Imperial Valley. This is important and binding. To honor this commitment, SDG&E says it is prepared to hold Imperial Valley-specific solicitations for replacement energy if a Commission-approved project to be carried via Sunrise fails to materialize.
SDG&E may conduct Imperial Valley-only solicitations or take other reasonable action to fulfill its commitment. We do not adopt any policies here which prevent SDG&E from doing so. SDG&E proposes to begin this process with an Imperial Valley-specific solicitation within its 2009 general RPS solicitation. We address this proposal below in the chapter regarding limited issues specific to each plan.
4.4. Project Viability Evaluation Methodology
We also identified four issues that more generally apply to renewable resource procurement throughout the state, but which could encourage the development of the most viable resources facilitated by Sunrise. These issues involve changes in rules and criteria regarding (1) contract failure, (2) assessment of continuing contract viability after contract approval, (3) assurance that projects with demonstrated indicia of viability are given appropriate weight, and (4) milestone requirements along with provisions for credit, collateral and deposits to ensure selection of the most viable projects.
Energy Division staff quickly developed a proposal for unified treatment of these four issues via a Project Viability Evaluation Methodology. The proposal involves three key components of the RPS Program:
· Procurement process,
· Commission process for contract review and approval, and
· Flexible compliance provisions.
We address each of these three key components in turn and, for the reasons discussed below, we adopt the Energy Division staff proposal in part.
Staff makes three proposals regarding the procurement process: (a) standardized methodology and criteria to assess project viability, (b) increased transparency regarding an IOU's project viability assessment, and (c) linking project viability and development security. We address each in order.
Staff proposes that the IOUs employ a standardized methodology to assess the viability of each proposed project. The proposed methodology uses a minimum set of criteria, and the criteria are weighted to calculate a total project viability score. The tool is referred to as the Project Viability Calculator.
In comments, parties generally support using a standardized project viability methodology and calculator. Parties argue, however, for more individualized treatment, non-binary weighting factors, and the use of the project viability calculator as a screening and indicative (not dispositive) tool. We first put the proposal in perspective by examining the current consideration of project viability in the review of bids.
Each IOU now includes project viability assessment as part of its LCBF methodology.15 The categories and criteria are not uniform, however, and the weighting (if any) of individual criteria is not entirely clear. Energy Division considers project viability in its evaluation of advice letters seeking approval of contracts. In particular, Energy Division requires each utility to use a specific template when submitting an advice letter. The template for the 2008 RPS solicitation includes a project viability matrix, which is substantially similar to the project viability calculator.16
We agree with staff and parties that the current project viability assessment tools can be improved by adopting a requirement for a more transparent and uniform approach. Among other things, this will increase the public's confidence that projects with demonstrated indicia of viability are given appropriate weight.
Therefore, we require that each IOU include a project viability methodology and calculator in its amended 2009 Procurement Plan and solicitation package filed pursuant to this order. The project viability calculator should contain at least three separate, major categories: (a) developer experience; (b) technical viability; and (c) development milestones. Within each category, the project viability calculator must contain criteria used to measure and evaluate the category.17 The criteria should be specific and exactly stated because, as DRA and others correctly point out, the criteria can otherwise be vague and subject to interpretation. Thus, definitions or descriptions of each criterion must be included in the solicitation documents in order to minimize ambiguity while increasing understandability and transparency in the use of this tool. We agree with CalWEA and others that the scores for each criteria should not be binary (e.g., 0 or 1), but should be in a range (e.g., 1 to 10).
Subsequent to the February 3, 2009 ACR, Energy Division has refined its proposal based on parties' comments, held a workshop, and taken another round of comments. Parties and staff have continued to develop the calculator. We appreciate this effort to respond expeditiously to the Sunrise order. Energy Division will conclude its work shortly, and serve the final product for use in the 2009 solicitation. IOUs should include the final calculator in their amended 2009 Procurement Plans and solicitation materials. This will permit bidders to understand one of the important tools that will be used in the LCBF assessment of bids. It will also provide a uniform approach so that over time we can assess how well this tool is working.
While we expect the project viability calculator to be a useful tool, we also acknowledge the comment of PG&E that the project viability calculator "attempts to predict a qualitative state." (Sunrise Comments, at 10.) This is echoed by SCE, who says there "is no perfect project viability calculator that will determine whether a project will ultimately come on-line." (Sunrise Reply Comments, at 8.) The project viability calculator seeks to create a numerical score for a future event (i.e., project success) that involves judgment (e.g., assessing the relative amount of developer experience) and may include predicting the future outcome of numerous variables (e.g., if a permit is granted). It cannot, and we do not expect it to, perfectly predict the future. Moreover, parties correctly point out that the project viability calculator score is measured at a moment in time, but may change (for better or worse) with the passage of time.
Thus, we agree with PG&E and other parties that the project viability calculator is to be used as a screening tool, not to determine the exact merit of a particular project or contract. The output of the project viability calculator should be just one factor in the evaluation of projects for LCBF ranking. Utilities ultimately remain responsible for the recommendations they make regarding projects to meet their RPS Program targets.
We adopt the project viability calculator as a useful tool promoting increased transparency, consistency and objectiveness in the initial selection process. At the same time, we note that unless the score is updated as the project is developed, the project viability calculator will not fully address the second issue identified by the Commission (i.e., assessment of continuing viability after contract approval). The project viability calculator may or may not be the best or only tool to assess projects in the development queue. For example, there are already contract provisions that address project delays or failures. We encourage staff and parties to give further consideration to assessment of continuing project viability after contract approval, and to make relevant recommendations to improve program results, when appropriate.
In comments on the proposed decision, SCE and PG&E argue for allowing each IOU to further modify the final staff methodology and calculator. We clarify that we expect each IOU to use the staff final product in its amended 2009 RPS Procurement Plan without further amendment but applied within the guidelines provided by staff. For example, the final staff product may allow IOUs to set category weighting factors as long as the factors sum to 100%. IOUs may not add a category and may not change or delete criteria within a category, but the final staff product may allow an IOU to add criteria within a category. This approach reasonably balances the benefits of the project viability tool being transparent and uniform (thereby increasing the public's confidence that projects with demonstrated indicia of viability are given appropriate weight) with the ability of each IOU to apply unique elements, if necessary and appropriate. This allows California to gain experience with an essentially uniform tool while permitting room for limited unique application. This is a proper balance given that the calculator is a screening, not dispositive, tool while permitting room for judgment. We will consider further refinements over time as necessary.
4.4.1.2. Increased Transparency Regarding Assessment of Bids
Staff proposes changes designed to increase the transparency of an IOU's assessment of project viability. In particular, staff proposes that certain project viability data be identified in public versions of advice letters, along with the Report of the Independent Evaluator (IE). Staff would require additional project viability data to be included in the confidential version of the IE Report. Parties generally do not oppose increased transparency, but disagree on what should be made public. For the reasons explained below, we adopt part of the staff proposal.
We direct that each contract submitted for approval by advice letter contain in the public version of the advice letter certain aggregate results for the solicitation as a whole. The results are to be solicitation-wide, not project specific, for the solicitation from which the particular project emerged. The reportable aggregate variables are to be identified by Energy Division, and should be included in Energy Division's template. For example, they may include minimum, maximum, mean and median results for (a) the total project viability calculator score and (b) each specific criterion within the project viability calculator. We are convinced by staff and others that this will increase the transparency of project viability as measured overall in the market, and provide benchmarks against which project-specific results may be judged.
We are convinced by SCE and others, however, that project-specific information must not be made public. We have directed that result in our confidentiality decision. (D.06-06-066, Appendix 1, Item VII.G (Score Sheets) and Item VIII.B (Specific Quantitative Analysis of Bids).)
Nonetheless, we agree with staff that project-specific project viability information should be included in the confidential appendices to advice letters and validated by the IE in the confidential versions of IE reports. Moreover, upon request from Energy Division, we expect each IOU to provide project viability scores for each project bid into a solicitation, with an explanation of why projects with high project viability scores did or did not make the shortlist. We need not make that order here, but Energy Division may solicit the data when and as needed, and IOUs must comply.
4.4.1.3. Linking Project Viability Score and Development Security
Energy Division proposes that development security be linked to the project viability score. In this way, projects that are determined to be highly viable would pay a reduced development security cost, while less viable projects would pay a higher development security. This provides an incentive for projects to increase their viability, thereby promoting an increase in the overall success of the RPS program.
Staff correctly identifies one important relationship with regard to development security. Nonetheless, for the following reasons we decline to adopt this approach.
Deposits, and development security in particular, serve several purposes and balance many competing interests.18 For example, SCE points out that one important function of development security is to offset the replacement costs of a failed project. SCE states that projects with different viability scores but similar output characteristics (e.g., capacity, energy, on-line date) have similar replacement costs. For the purpose of offsetting replacement costs, SCE's example supports the assessment of similar development security even if the project viability scores are different.
PG&E says the staff proposal should be rejected:
... because it does not properly address the purpose of project development security. After a PPA [Power Purchase Agreement] has been signed, the purpose of the seller's security is to encourage the development to reach commercial operation date and deliver on schedule. It does this by creating a financial incentive to discourage the seller from pursuing an economic alternative to performing under the PPA. Under the Staff's formula, the more viable the project, the lower the security. The formula makes it easier for highly viable projects to breach their PPAs, if the market price for renewable power increases, and subsequently sell their power elsewhere." (Sunrise Comments, at 13.)
That is, development security not only addresses replacement costs, it creates financial incentives for desirable results beyond project viability. We agree that this can also be an important function.
Even if we set aside these two factors (i.e., replacement cost and financial incentives) and focus only on project viability, we lack data on the degree to which project viability is materially changed based on changes in development security. Moreover, as noted above, the score from the project viability calculator is indicative, not determinative. We hesitate to adopt a precise relationship based on a qualitative tool.
Nonetheless, the concept in general has merit and may be applied within our current structure. That is, development security is a negotiable term.19 Projects with high viability may seek a reduced development security. If reasonable, the IOU may agree, and the Commission may approve an advice letter with this provision in the proposed contract. This reasonably meets the underlying objective (i.e., providing an incentive for projects to increase their viability, thereby increasing the overall success of the program). On the other hand, a project with low viability may voluntarily propose to increase its development security as a method to increase its attractiveness compared to other projects. If reasonable, the IOU may agree, and the Commission may approve an advice letter. This relationship may also be captured in the project viability calculator. It may provide a powerful way for some projects to proceed when they might otherwise not be selected, while at the same time providing an offset for replacement costs or compensation to ratepayers if the project fails. We encourage parties to work with Energy Division staff to explore this further.
Finally, SCE points out that development security is not a significant barrier to project development. In support, SCE cites a CEC report which identifies eight primary factors in the failure of renewable energy projects, none of which were related to development security.20 IEP (representing RPS projects) says: "deposit provisions do not appear to be the problem." (Sunrise Comments, at 14.) We expect deposit amounts and policies to be subject to change over time based on changing market conditions, including barriers to entry. (D.07-02-011, at 19.) We do not oppose reasonable changes to deposit amounts and policies. Under the right conditions, it may be reasonable to modify development security to increase its relationship with project viability. Our current approach is sufficiently flexible to allow application of the staff's proposal. We need not adopt anything more specific at this time.
4.4.2. Commission Review and Approval of Contracts and Amendments
Staff proposes that contracts be placed in one of three categories based on project viability score.21 In the lowest project viability category, contracts would not be considered for approval. In the middle project viability category, contracts would be considered for approval but only limited contract amendments would be considered. In the highest project viability category, contracts would be considered for approval and major amendments would be considered. Staff says this approach will increase transparency, increase uniformity in the process, and ensure that projects with demonstrated indicia of viability are given appropriate weight. In summary, the proposal is:
Line No. |
Category (Project Viability Score) |
Eligible for Commission Approval |
Contract Amendments Permitted |
1 |
A |
No |
Not Applicable |
2 |
B |
Yes |
Limited amendments permitted |
3 |
C |
Yes |
Major amendments permitted |
We decline to adopt this proposal. We are convinced by many parties that the project viability calculator needs further development and testing before it is adopted for such a strict, serious and final purpose. For example, we agree with DRA that "the PVC [project viability calculator] is not developed sufficiently at this time to serve the purpose of invalidating bids." (DRA Sunrise Comments, at 6.)
We also are disinclined to adopt a tool that limits our discretion to consider a range of projects. For example, in recommending against a minimum project viability calculator score for Commission approval, DRA convincingly states:
The PVC [project viability calculator] score is only one element of the LCBF methodology, and to the extent that other factors weigh into that assessment, the PVC alone should not override all other considerations. The reality is that less viable contracts will be disfavored in the LCBF process even without setting a threshold PVC score." (Sunrise Comments, at 6.)
In its objection to a rigid requirement that contracts have a minimum score to justify Commission approval, PG&E correctly says:
It would be imprudent to automatically reject any PPA that does not meet the minimum project viability score because other benefits of the PPA may outweigh its viability risk." (PG&E Sunrise Comments, at 14.)
For the same reasons stated above, we similarly decline to adopt related rules regarding contract amendments.22
Finally, staff proposes to align flexible compliance rules with project viability, thereby assisting the Commission determine the reasonableness of a utility's request to use flexible compliance. In particular, since projects in Category A already face significant development risk, staff proposes that such projects not be eligible to be used for flexible compliance (e.g., may not be used to defer a deficit due to seller non-performance). Staff proposes that projects in Categories B and C may cite seller non-performance as a basis for deferring a deficit. Among other reasons, staff asserts that aligning the use of flexible compliance with project viability increases the incentives for utilities to do the best possible job of screening and selecting the most viable projects.
Some parties support and others oppose this proposal. We decline to adopt this proposal at this time. The score from the project viability calculator is not necessarily a precise or exact predictor of outcomes. Also, flexible compliance provisions are already quite complicated. We decline to make them even more complicated for a modest increase in incentive to select viable projects. A brief background on flexible compliance helps put this in context.
Utilities are required each year to procure an APT, with the APT growing each year by the IPT, and equaling 20% by 2010. Flexible compliance provisions allow some leeway in meeting each APT, and the 20% by 2010. These provisions include the banking of surpluses for later use, and the allowance of a deficit for up to three years. Our rules for deficit allowance permit a retail seller to:
1. defer up to 100% of its IPT (for the first year in which the retail seller has an IPT) for up to three years without stated reason,
2. defer up to 0.25% of its prior year sales for up to three years after the year of the deficit without stated reason, and
3. carry a deficit greater than 0.25% of prior year sales for up to three years after the year of the deficit upon a convincing showing, which may include the following:
a. insufficient response to a solicitation,
b. contracts already executed will provide future deliveries sufficient to satisfy current year deficit (earmarking),
c. inadequate public good funds to cover above-market costs,
d. seller non-performance,
e. lack of effective competition,
f. deferral promotes ratepayer interests and RPS objectives,
g. insufficient transmission, or
h. showing of other good cause.
Within this framework, utilities already have substantial incentive to select viable projects. Flexible compliance provides flexibility within a window of time, but inadequate procurement in one year may be deferred "to no more than the following three years." (§ 399.14(a)(2)(C)(i).) A deficit thereafter is not excused as an element of flexible compliance protocols.
We have made clear that success is not measured by contracts or promises but by actual deliveries of energy. Deficit deferral permitted for up to three years pursuant to flexible compliance provisions must ultimately be filled by actual deliveries no later than at the end of three years. Failure to do so exposes the utility to a penalty up to $25 million.23 This gives each utility a strong incentive to select viable projects, but permits a three-year window to allow for various contingencies. Moreover, we have consistently stated that each utility must include a reasonable margin of safety in its procurement in order to build a buffer against contingencies, and should build and operate its own plants, if necessary, to meet RPS Program targets. (See, for example, D.08-02-008, at 26, 32.)
UCS recommends that seller non-performance be eliminated as an excuse for deferring procurement deficits. According to UCS, the best and most straightforward way to promote program success is to ensure that compliance rules are aligned with incentives to procure the most viable projects. UCS recommends this be done by eliminating seller non-performance. We decline to make this change.
Seller performance is not certain, and it is reasonable to provide some measure of flexibility. At the same time, however, we have made no provisions for failure to reach program targets after the flexible compliance period. As a result, the existing penalties ultimately align flexible compliance with results, and provide substantial incentive for buyers to select viable projects.
Staff's proposal is creative. It seeks to reasonably build on the existing incentives for each utility to select viable projects. The probable benefits, however, do not at this time appear to outweigh the additional complexities and related costs. While we decline to adopt the proposal now, we welcome additional proposals from staff and parties that will continue to build proper incentives into the program. We especially invite additional comprehensive proposals that address the entire flexible compliance regime (not individual pieces), particularly if able to moderate (not exacerbate) program complexity.
12 SCE notes that it achieved significant bids by stating within its RPS solicitation a preference for projects within the Tehachapi area, and properly valuing the benefits of projects sited near approved transmission infrastructure, without giving unfair preference to non-viable or uncompetitive Tehachapi projects.
13 D.08-12-058, at 265, footnote 680. We note that 2,253 GWh per year is about 500 MW at 50% capacity factor (CF).
14 CalWEA points to "2,600 MW of proposed wind projects in Baja California ... [which] are very likely to produce power flows on Sunrise that are essentially equal to those created by Imperial Valley resources." (Sunrise Comments, at 6.)
15 For example, PG&E assesses project viability using two categories: (a) project status (including 16 criteria) and (b) technology viability and participant experience (including eight criteria). (PG&E Solicitation Protocol, Attachment K, Section II.B.4.) SCE assesses project viability using three categories: (a) seller's capability to perform (with four criteria), (b) technical viability (with three criteria) and (c) project viability (with seven criteria). (SCE Procurement Plan, Appendix B, at B-5 to B-6.) SDG&E assesses project viability using four categories: (a) project status (with seven criteria), (b) transmission availability (with three criteria), (c) technology (with seven criteria), and (d) developer experience (with three criteria). (SDG&E Plan, Appendix C, at 4-5.)
16 The project viability matrix has three key categories, and essentially uses binary scores for each of 13 criteria, totaling to a final result in the range of 0-15. The project viability calculator also has three key categories, and essentially uses binary scores for each of 14 criteria, totaling to a final viability score in the range of 0-17. (See February 3, 2009 ACR, Attachment B, for the project viability calculator.)
17 For example, criteria for developer experience might include experience with projects, financing, ownership and operations; criteria for technical viability might include technology development; criteria for development milestones might include site control, permitting, and interconnection progress.
18 The competing interests include "the desire to stimulate the RPS market; the interest of ratepayers and the state in having viable projects bid, develop and operate in a reasonable, reliable and safe manner; and a reasonable balance of risks between all parties." (D.07-02-011, at 19.)
19 The Commission specifically identifies four terms as non-modifiable. (See D.08-04-009.) The remaining terms are modifiable, including credit, deposit and collateral.
20 SCE Sunrise Comments, at 17, citing "Building a `Margin of Safety' Into Renewable Energy Procurements: A Review of Experience with Contract Failure," at 24-25, CEC-300-2006-004 (January 2006).
21 The proposal primarily focuses on projects that rely on commercially demonstrated technologies. As proposed, the rules may not apply to projects using an emerging technology.
22 We may still deny an amendment (e.g., a requested price increase for a project with a medium project viability score) but decline to make that outcome automatic by denying the project the ability to seek our consideration of an amendment.
23 See, for example, D.03-12-065, Attachment A at 52; D.05-07-039, Findings of Fact 12 and 13, Conclusion of Law 5 and Ordering Paragraph 13; D.08-02-008 at 17, 19 and 27, Findings of Fact 10 and 12, and Conclusion of Law 10.
