9. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Amy Yip-Kikugawa is the assigned ALJ in this proceeding.

1. Under the Federal Power Act, only the FERC may set rates for wholesale power sales to and by public utilities.

2. PURPA authorizes state commissions to set the price for power purchased by utilities from qualifying facilities.

3. AB 1613 does not require CHP facilities participating in the program to have QF status.

4. AB 1613 was enacted to encourage the adoption of energy efficient generators with beneficial environmental attributes.

5. Eligibility to participate in the AB 1613 program is based on size limitations and efficiency standards set by the CEC.

6. CHP systems must maintain or exceed the standards set by the CEC throughout the term of the contract in order to participate under AB 1613.

7. In order to achieve the objectives of AB 1613, the Commission is directing the electrical corporations to incorporate systems certified by the CEC as meeting certain efficiency and environmental standards into their procurement obligations.

8. The FERC has recognized the authority of the states to regulate in the area of GHG emissions reduction.

9. The FIT under AB 1613 is an option provided by the retail electrical utilities to eligible CHP systems selling excess electricity as an incentive to meet California's environmental goals.

10. Customer indifference is achieved when ratepayers not utilizing the CHP systems are no worse off, nor any better off, as a result of power purchased under AB 1613.

11. CHP systems participating under AB 1613 will provide environmental and locational benefits in addition to power.

12. Since AB 1613 seeks to encourage development of a certain type of CHP system, the price paid under the contract will include incentives to encourage development of these systems.

13. All customers will receive the environmental and locational benefits produced by CHP systems participating under AB 1613.

14. Prior Commission decisions have allocated the costs of power to all retail end-use customers because the power provided overall benefits to the state.

15. Pub. Util. Code § 2841.5 requires POUs to establish their own programs for purchase of power under AB 1613.

16. POU customers would bear all responsibility for costs associated with the POU's implementation of AB 1613.

17. Once a POU develops its own power purchase program under AB 1613 and enters into contracts under the program, there is a risk that POU customers could be subject to double payment for the benefits derived under AB 1613.

18. The costs for GHG compliance and locational benefits are directly related to the benefits received by all benefiting customers.

19. Because the benefits under AB 1613 will be received equally by all benefiting customers, the costs associated with GHG compliance and any adder for locating within certain load areas should be allocated on an equal cents/kWh basis.

20. An electrical corporation should file an application seeking authorization to establish a maximum kilowatt hours limitation on the amount of excess electricity it must purchase under this program electrical corporation before a maximum MW limitation is set.

21. The Final Staff Proposal offered two options for the pricing of power purchased under AB 1613.

22. Pricing Option 1 is based on the costs of a new combined cycle gas turbine and uses many of the inputs from the 2008 MPR.

23. The operating profile of a CHP facility most closely resembles that of a CCGT.

24. Power provided under AB 1613 would be a function of the thermal requirements of the host customer.

25. The MPR assumes a fully baseload CCGT.

26. An eligible CHP facility is likely to operate as if it were a firm resource in order to provide consistent thermal and electrical output to the host.

27. Since the thermal requirements of the host customer may vary, the excess electricity produced by an eligible CHP facility may also vary.

28. Pricing Option 2 is based on the generation component of the retail rate tariff applicable to the host customer where the eligible CHP is installed.

29. Pricing Option 2 may not sufficiently reflect the cost of energy avoided and may not hold non-participating ratepayers indifferent.

30. IOU retail rates are often the result of settlements.

31. The Final Staff Proposal's pricing options include a 10% location bonus for eligible CHP systems located in a distribution or transmission constrained area.

32. The Final Staff Proposal proposes a standard contract for eligible CHP systems that are less than or equal to 20 MW and a simplified contract for eligible CHP systems that export no more than 5 MW.

33. All parties, except SCE, agreed to a 5 MW maximum export size for the simplified contract.

34. SCE failed to provide sufficient justification to adopt a lower cutoff point for the simplified contract.

35. CCDC requested an even more simplified contract for CHP systems less than 500 kW.

36. There may be some terms in the simplified contract that are inappropriate and burdensome for very small CHP systems.

37. SCE has failed to provide convincing evidence that entities that develop multiple CHP systems under AB 1613 may not utilize the simplified contract.

38. Allocation of responsibility for GHG compliance costs and green attributes must take into consideration unit efficiencies, operational and dispatch control, and the size of the facility.

39. The point of compliance does not necessarily determine which party should bear the compliance cost.

40. Benefiting customers should only pay for GHG compliance costs once.

41. Under AB 32, GHG compliance costs for electricity will commence in 2012.

42. Pricing Option 1 does not have GHG compliance costs embedded in the price.

43. If there is no direct compliance obligation, there will be no GHG costs.

44. If a CHP facility has a direct GHG compliance cost, the Buyer should compensate the facility for this cost.

45. The Buyer should only be responsible for compliance costs up to the emissions associated with operating the facility at the minimum efficiency level determined by the CEC.

46. GHG emissions reductions that the facility experiences (compared to generating heat and electricity separately) cannot be isolated to delivered electricity but must be calculated on a facility-wide basis.

47. Pricing Option 1 includes the value of green attributes associated with the excess electricity delivered to the grid.

48. The utilities do not explain why setting the delivery point as the first point of interconnection between the facility and the utility grid, rather than the point of interconnection with the CAISO-controlled grid presents more risk.

49. The risk associated with utility distribution system failure should be borne by the utility.

50. The utility's proposed buyer termination clause would create too much uncertainty and compromise AB 1613's objectives.

51. An indemnity clause against failure to deliver electricity, capacity or resource adequacy benefits is not appropriate for an as-available contract.

52. In order to be eligible to participate under AB 1613, a CHP facility must obtain and maintain certification from the CEC throughout the contract period.

53. The IOUs' proposed credit and collateral requirements are based on a QF contract that contemplates systems larger than 20 MW.

54. Parties agreed to remove the credit and collateral provision for the simplified contract as a result of the reduced level of risk associated with systems exporting less than 5 MW.

55. The CEC guidelines and certification process will ensure that a participating CHP system will not upgrade its facility above 20 MW or alter the facility beyond what is allowed under AB 1613.

56. Pub. Util. Code § 2841(h) permits the Commission to modify the requirements of AB 1613 for any electrical corporation with less than 100,000 service connections.

57. CASMU's motion to bifurcate the proceeding and defer implementation of AB 1613 for the CASMU members was appropriately denied by an ALJ Ruling.

58. Based on the composition of Sierra Pacific's and PacifiCorp's customer base, it is unlikely that an eligible CHP system exporting more than 5 MW would locate in the service territory of either of these electrical corporations in the immediate future.

59. The costs imposed on Mountain Utilities' and BVES' ratepayers to implement either of the contracts adopted in this decision would likely be excessive, especially in consideration of the number of eligible CHP systems that might locate within their service territories.

60. Since AB 1613 requires the price paid to eligible CHP for excess electricity represent fair compensation for that electricity, the price is not a subsidy.

61. AB 1613 does not prohibit an eligible CHP facility or host customer from receiving ratepayer funded incentives, provided the facility is eligible for them.

1. Purchase of electricity under AB 1613 would serve the public interest by encouraging additional efficient use of energy and the reduction of GHG emissions.

2. Since AB 1613 seeks to incorporate more efficient CHP systems that would provide environmental benefits into a utility's procurement portfolio, it would be within the Commission's authority to implement all aspects of AB 1613, including the price offered by the electric utility.

3. Ratepayer indifference is maintained if the price for excess electricity sold under AB 1613 includes costs reflecting the environmental and locational benefits provided by these systems.

4. It would be reasonable to allocate the costs to encourage development of eligible CHP systems to all retail end-use customers as they will receive environmental and locational benefits from the systems.

5. Pub. Util. Code § 2841(e) does not include any language that expressly limits the term "benefiting customer" to three categories of customers.

6. It would be unreasonable to include POU customers within the term "benefiting customer" since the POU is mandated to implement its own program for purchase of power under AB 1613.

7. Consistent with Pub. Util. Code § 2841(a), program cap should not be imposed until the Commission first determines that the number of eligible CHP systems participating in this program has an adverse impact on an electrical corporation's long-term resource planning or system reliability.

8. Staff's Pricing Option 2 should not be adopted.

9. Staff's Pricing Option 1 should be adopted.

10. Staff's proposal to include a 10% location bonus to encourage optimal siting of CHP facilities should be adopted.

11. The 10% location bonus should be applied if an eligible CHP system locates in an area with local Resource Adequacy (RA) requirements.

12. Parties should continue working together to develop an even more simplified contract for eligible CHP systems that export 500 kW or less.

13. It would be unreasonable to impose a limit on the number of contracts entered into by a single entity, as such a limitation could prevent successful project developers or host customers from installing multiple projects.

14. It would be reasonable to require the Buyer to share in the GHG compliance cost for electricity delivered to the grid under AB 1613.

15. It would be reasonable to have the Buyer manage the GHG risk on behalf of the Seller, as the Buyer will likely be in a better position to negotiate more advantageous deals in the carbon allowance markets.

16. The utility should not be required to pay for GHG compliance costs if the CHP operator decides to operate its plant in a sub-optimal manner.

17. The utility should only be responsible for paying for GHG compliance costs up to the emissions associated with operating the facility at a minimum efficiency level.

18. It would be unreasonable for a CHP generator under the simplified contract to be required to indemnify the utility against potential penalties for failure to deliver any benefits.

19. Since the standard contract transfers all benefits of the power product to the utility, it would be reasonable to require CHP generators to ensure that those benefits can be used by the utility to meet its obligations and indemnity the Buyer against potential penalties for failure to deliver any benefits.

20. A CHP system participating under AB 1613 that fails to maintain its certification through the contract period should be considered in default under the contract.

21. Credit and collateral provisions in the AB 1613 contracts should balance the financial risk between Buyer and Seller.

22. It would be appropriate to reduce the level of credit and collateral provisions for CHP systems participating under AB 1613 because the projects and project developers participating in this program are likely to be smaller than those contemplated by the QF contract.

23. It would be reasonable to adopt a performance assurance of 5% of expected revenue for both contracts.

24. It would be reasonable to adopt a development security of $20/kW, not to rise over the project development timeline.

25. If the capacity of CHP helps the utility meet its Resource Adequacy obligations, the Seller should be obliged to commit its output for this purpose.

26. The assignment provision in the Standard Contract should apply equally to both the Buyer and the Seller.

27. The Energy Division staff's Final Staff Proposal, submitted on July 31, 2009 should be adopted, as modified.

28. Sierra Pacific and PacifiCorp should offer either the simplified contract or the even more simplified contract for eligible CHP systems exporting 500 kW.

29. Mountain Utilities and BVES should comply with the requirements of AB 1613, but should not be required to offer either of the contracts adopted in this decision.

ORDER

IT IS ORDERED that:

1. A standard contract for eligible combined heat and power systems up to 20 megawatts (Attachment A) and a simplified contract for eligible combined heat and power systems that export up to 5 megawatts (Attachment B) are adopted. The California electrical corporations should offer these contracts only to combined heat and power systems that are certified by the California Energy Commission as meeting the requirements of Assembly Bill 1613.

2. Energy Division staff's recommendation to base pricing on the costs of a combined cycle gas turbine is adopted.

3. Within 45 days of the date this order is mailed, Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company shall file an advice letter in compliance with General Order 96-B. The advice letter shall include tariff sheets to implement the standard contract (Attachment A) and the simplified contract (Attachment B) adopted herein. The tariff sheets shall become effective on filing subject to Energy Division determining that they are in compliance with this order.

4. Within 6 months of the date this order is mailed, Sierra Pacific Power Corp. and PacifiCorp shall file an advice letter in compliance with General Order 96-B. The advice letter shall include tariff sheets to implement either:

5. Mountain Utilities and Bear Valley Electric Service shall be required to comply with the requirements of Assembly Bill 1613. If a combined heat and power system that is certified by the California Energy Commission under Assembly Bill 1613 wishes to locate in Mountain Utilities' or Bear Valley Electric Service's service territory, Mountain Utilities and Bear Valley Electric Service shall negotiate and enter into a contract with that eligible combined heat and power system if the system does not have an adverse effect on Mountain Utilities' or Bear Valley Electric Service's long-term resource planning, is cost effective, technologically feasible, and environmentally beneficial.

6. Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, Sierra Pacific Power Corp. and PacifiCorp shall convene a working group with combined heat and power parties to establish a further simplified contract for eligible CHP system less than 500Kw. Within 6 months of the effective date of this decision, each investor-owned utility shall file an advice letter in compliance with General Order 96-B. The advice letter shall include tariff sheets to implement a further simplified contract for very small combined heat and power less than 500 Kw. The tariff sheets shall become effective on filing subject to Energy Division determining that they are in compliance with this order.

7. The costs and benefits arising from power received under Assembly Bill 1613 shall be allocated among bundled service customers of the electrical corporation, customers of the electrical corporation that receive their electric service through a direct transaction, as defined in Public Utilities Code Section 331(c), and customers of an electrical corporation that receive their electric service from a community choice aggregator, as defined in Public Utilities Code Section 331.1. The costs to be allocated, if any, shall consist of the 10% location bonus and any greenhouse gas compliance costs passed from the eligible combined heat and power system (Seller) to the electrical corporation (Buyer). These costs shall be allocated on an equal cents per kilowatt-hour basis. The calculation of the costs to be allocated, if any, shall be included in each electric corporation's annual Energy Resource Recovery Account proceeding.

8. Rulemaking 08-06-024 remains open to address implementation of a "pay-as-you-save" program.

This order is effective today.

Dated December 17, 2009, at San Francisco, California.

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