6. Non-Contract Issues

6.1. Applicability to Electrical Corporations with Less Than 100,000 Service Connections

Section 2841(h) permits the Commission to "modify or adjust the requirements of [AB 1613] for any electrical corporation with less than 100,000 service connections, as individual circumstances merit." In its initial comments to this OIR, the California Association of Small and Multi-jurisdictional Utilities (CASMU)⁸⁷ requested that the Commission defer implementing AB 1613 for CASMU members and focus implementation only on the IOUs.⁸⁸ CASMU subsequently filed a motion on February 17, 2009, requesting that the proceeding be bifurcated to defer implementation of AB 1613 for the CASMU members. In its motion, CASMU presented two reasons to support its request. CASMU first contends that implementing the AB 1613 program for the IOUs would provide experiences that the Commission could draw upon when implementing the program for the smaller electrical corporations. It also asserts that implementing the AB 1613 program for the CASMU members would be burdensome, especially since it would be unlikely that an eligible CHP system would be located within any CASMU member's service territory. CASMU's motion was denied by an ALJ Ruling issued on August 10, 2009. In denying the motion, the ALJ Ruling stated:

I am not persuaded that the terms and conditions for purchase of power from eligible CHP systems will vary based on the size of the electric corporation. The reduction of waste heat depends more on the individual facility than the service territory that facility is located in. Further the Energy Division's final staff proposal appears to address the concerns raised by CASMU, as it includes a simplified contract for CHP exporting up to 5 MW and proposes and interim program cap that would be allocated proportionally between utilities based on 2008 peak demand.⁸⁹

In comments to the Final Staff Proposal, Sierra Pacific continues to advocate that the Commission not require it to implement AB 1613 until there is an indication that a customer would seek interconnection of an eligible project. Sierra Pacific contends that if it is required to implement AB 1613, this will result in additional costs for its ratepayers. It further asserts that its current customer base has relatively small demands that are "not suitable for CHP systems."⁹⁰ Sierra Pacific states that if it is required to implement AB 1613, then it should only be required to offer the simplified contract, since its proportional share of the recommended statewide cap of 500 MW would be approximately .81 MW. However, even under that scenario, Sierra Pacific notes that the simplified contract would have to be modified, since it is not part of the CAISO-controlled grid. PacifiCorp also maintains that it should only be required to offer the simplified contract in light of its proportionate share of the 500 MW interim cap and the composition if its customer base.⁹¹ Further, PacifiCorp states that it is located outside of the CAISO control area and therefore requests that the simplified contract be modified to eliminate any mandatory contract provisions specific to the CAISO.⁹²

Mountain Utilities requests that it be excused from participating in AB 1613 altogether. In support of this request, Mountain Utilities states that its total generation requirements are less than 5 MW for most of the year and it is not connected to transmission of any sort.⁹³ As such, it asserts that even the simplified contract would need to be modified to meet its unique characteristics. Finally, Mountain Utilities notes that its proportional share of the 500 MW interim program cap would be "miniscule" and would not advance the intent of AB 1613. BVES echoes many of the arguments raised by Mountain Utilities. It further contends that requiring BVES to offer 20 MW and 5 MW contracts would be misleading in light of its allocation under the interim 500 MW cap.⁹⁴ Further, it notes that not only are there no significant thermal hosts in its service territory, but there also is no room in its current resource stock for significant CHP generation.⁹⁵

We are unpersuaded by arguments that an electrical corportation should not be required to participate in the AB 1613 program because no CHP systems are currently located in its California service territory. As we have repeatedly stated in this decision, the purpose of AB 1613 is to encourage development of small CHP systems in California. As such, the fact that CHP is not currently located in an electrical corporation's service territory is an insufficient reason to determine that it should not be required to participate in AB 1613. Furthermore, since there shall be no initial program cap, there is currently no limitation on the amount of excess electricity that may be purchased under the program in an electrical corporation's service territory. Nonetheless, we are persuaded that the program should be modified for the CASMU members.

We find that Sierra Pacific and PacifiCorp should not be required to offer the standard contract. Instead, Sierra Pacific and PacifiCorp shall offer one of the following contracts:

1. The simplified contract adopted in this decision (Attachment B). Should Sierra Pacific and/or PacifiCorp offer this contract, they may include, as part of their Tier 3 Advice Letter filing, proposed modifications in light of their relationship to the CAISO. This filing shall include both a clean version of the simplified contract, a redline version of the simplified contract showing the proposed modifications, and an explanation of why these modifications are needed.

2. A more simplified contract for eligible CHP systems exporting 500 kW or less, as discussed in Section 5.1 above. If Sierra Pacific and/or PacifiCorp wish to offer this contract, they must file a Tier 2 Advice letter proposing this more simplified contract within six months of the effective date of this decision. If such a filing is not made within the six month period, Sierra Pacific and/or PacifiCorp shall offer the simplified contract (Attachment B).

We are also persuaded that Mountain Utilities' and BVES' unique characteristics warrant excusing it from offering either the standard contract or the simplified contract. We agree that the potential costs imposed on these corporations' ratepayers to implement either of these contracts would likely be excessive, especially in consideration of the number of eligible CHP systems that might locate within their service territories. However, even though Mountain Utilities and BVES shall not be required to offer either of these contracts, they are not excused from complying with AB 1613. Thus, if an eligible CHP system were to locate in either Mountain Utilities' and/or BVES' service territory and seek to sell its excess electricity, Mountain Utilities and/or BVES shall negotiate and enter into a contract with that eligible CHP system if the system does not have an adverse effect on Mountain Utilities' or BVES' long-term resource planning, is cost effective, technologically feasible, and environmentally beneficial. Any such contract reached shall be filed as a Tier 3 advice letter for Commission approval.

6.2. Ratepayer Funded Incentives

Several parties have proposed that this proceeding address whether or not CHP participating in this program would be eligible for incentives from the Self Generation Incentive Program (SGIP). The Final Staff Proposal sought to address this issue by clarifying that although nothing about this program would prohibit a CHP system from receiving incentives from a ratepayer funded program such as the SGIP, the issue of SGIP eligibility is outside the scope of this proceeding. Based on parties' comments, there seems to be some confusion about this.

6.2.1. Parties Comments

DRA does not believe CHP participating in this program should be eligible to receive SGIP incentives. DRA suggests striking the following language from the staff proposal, "We clarify that nothing from the AB 1613 program would prohibit a CHP system from receiving incentives from a ratepayer funded incentive program such as the Self Generation Incentive Program as long as the system meets all requirements of such program."

CCDC and Fuel Cell argue that CHP under this program should be eligible for SGIP incentives and disagree that this issue should not be addressed in this proceeding. CCDC suggests that the Commission, in this proceeding, require that the SGIP Handbook be modified to ensure that CHP participating in this program be eligible for SGIP incentives.

SCE notes that Fuel Cell's and CCDC's requests are outside the scope of this proceeding and also notes that their requests are contrary to the current rules of the SGIP. SCE cites the SGIP Handbook which states that, "Agreements that entail the export and sale of electricity from the Host Customer do not constitute on-site use of the generated electricity and therefore are ineligible for the SGIP."⁹⁶

SCE goes on to cite several other examples in the SGIP Handbook which preclude an SGIP customer from receiving double incentives. PG&E and TURN also argue that a CHP system should not be eligible for subsidies from more than one program. They imply that the pricing options in the staff proposal represent subsidies. PG&E and TURN seem to suggest that only their pricing proposal based on the CAISO market price would not be a subsidy and therefore is the appropriate price. It is unclear if by extension they are suggesting that a CHP customer should be eligible for SGIP if the price paid under this program does not represent a subsidy.

6.2.2. Discussion

We first want to clarify the misconception highlighted in several parties' comments that the program being adopted here represents a subsidy. It is not a subsidy. AB 1613 requires that this program and the price paid to eligible CHP for excess electricity represent fair compensation for that electricity and will hold ratepayers indifferent.

Furthermore, AB 1613 does not prohibit an eligible CHP facility or host customer from receiving ratepayer funded incentives. In fact, customer participation in energy efficiency and other demand-side management programs is encouraged, assuming that the facility and/or customer meets the eligibility requirements of those other programs. The state is committed to the efficient and cost-effective use of energy resources and has created a number of complementary programs and policies intended to maximize resource efficiency and reduce emissions of GHG. However, those programs are completely separate and distinct from this program and wholly outside the scope of this proceeding. Therefore, staff correctly stated that eligibility for incentives from any other program will not be addressed in this proceeding.

Regarding SGIP specifically, we note that SGIP was developed to provide incentives for self-generation, as the name implies. There are specific requirements of SGIP that prohibit customers from exporting power to the grid, except under limited circumstances. However, it is conceivable that SGIP eligibility requirements may change or that there may be future programs adopted by this Commission or this state to provide incentives for CHP technologies. Such programs may provide an appropriate complement to this one. Therefore, we clarify that nothing about this program would prohibit a system from receiving incentives from another program if the system meets all requirements from that other program and the system were otherwise eligible to receive the incentive.

⁸⁷ The CASMU members include: Sierra Pacific, Bear Valley Electric Service (BVES), Mountain Utilities and PacifiCorp.

⁸⁸ CASMU Comments, July 31, 2008, at 3.

⁸⁹ Administrative Law Judge's Ruling Denying Motion of the California Association of Small and Multi-jurisdictional Utilities to Bifurcate Rulemaking 08-06-024, August 10, 2009, at 2.