COM/MP1/gd2 Date of Issuance 12/21/2009

Decision 09-12-042 December 17, 2009

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on the Commission's Own Motion into Combined Heat and Power Pursuant to Assembly Bill 1613.

Rulemaking 08-06-024
(Filed June 26, 2008)

DECISION ADOPTING POLICIES AND PROCEDURES FOR PURCHASE OF EXCESS ELECTRICITY UNDER ASSEMBLY BILL 1613

Table of Contents

Title Page

DECISION ADOPTING POLICIES AND PROCEDURES FOR PURCHASE OF EXCESS ELECTRICITY UNDER ASSEMBLY BILL 1613 1 1

1. Summary 2 2

2. Background 2 2

3. Threshold Issues 6 6

3.1. Commission Authority to Establish AB 1613 Purchase Price 6 6

3.2. Indifference 14 14

3.2.1. Parties' Positions 14 14

3.2.2. Discussion 16 16

3.3. Benefiting Customers 17 17

3.3.1. Parties' Positions 18 18

3.3.2. Discussion 21 21

3.4. Program Cap 25 25

3.4.1. Parties' Positions 25 25

3.4.2. Discussion 27 27

4. Pricing 28 28

4.1. Pricing Option 1 29 29

4.2. Pricing Option 2 31 31

4.3. Objections to Both Proposed Pricing Options 32 32

4.4. Location Bonus 33 33

4.5. Discussion 34 34

5. Contract Terms and Conditions 40 40

5.1. Contract Sizing and Overview 40 40

5.2. Maximum Contracting Under Simplified Contract
(Simplified Contract Term 7.02(c)) 42 42

5.3. Green Attributes and GHG Compliance Costs (Simplified Contract Terms 3.01, 3.03 and Definitions; Standard Contract Term 3.01(b),
3.03 and Definitions) 43 43

5.3.1. Parties' Positions 44 44

5.3.2. Discussion 45 45

5.4. Delivery Point, (Simplified Contract Term 1.06;
Standard Contract Term 1.03) 51 51

5.5. Termination Rights of Buyer (Simplified Contract and
Standard Contract Term 2.02(a)) 52 52

5.6. Indemnity (Simplified Contract Term 7.03(d);
Standard Contract Term 9.03 (f)) 54 54

5.7. Eligible CHP Facility Status (Simplified Contract Terms 3.14;
Standard Contract Terms 2.01(a) & 3.16) 54 54

5.8. Qualifying Facility Status (Standard Contract Terms 1.02(f), 2.01(b), 3.10(a)(v), 3.16, 6.01(c)(xviii) & 9.02(h) and Exhibit O) 55 55

5.9. Credit and Collateral (Standard Contract Term 1.06 and Exhibit D) 56 56

5.10. Conveyance of the Power Product (Standard Contract Term 3.01) and Resource Adequacy Benefits (Standard Contract Term 3.02) 58 58

5.11. Generating Facility Modifications (Standard Contract Term 3.07(b)) 59 59

5.12. Assignment (Standard Contract Term 9.04) 60 60

6. Non-Contract Issues 62 62

6.1. Applicability to Electrical Corporations with
Less Than 100,000 Service Connections 62 62

6.2. Ratepayer Funded Incentives 66 66

6.2.1. Parties Comments 66 66

6.2.2. Discussion 67 67

7. Conclusion 68 68

8. Comments on Proposed Decision 70 70

9. Assignment of Proceeding 72 72

Findings of Fact 72 72

Conclusions of Law 77 77

ORDER 81 81

Attachments:

A. Standard Contract for Eligible CHP Facilities

B. Standard Contract for Eligible CHP Facilities with Net Output not
Greater than 5 MW

DECISION ADOPTING POLICIES AND PROCEDURES FOR PURCHASE OF EXCESS ELECTRICITY UNDER ASSEMBLY BILL 1613

1. Summary

This decision adopts the policies and procedures for purchase of excess electricity from eligible combined heat and power (CHP) systems by an electrical corporation under Assembly Bill (AB) 1613. The decision adopts two separate contracts for the purchase of excess electricity from eligible CHP systems. A standard contract will be available to all eligible CHP systems up to 20 megawatts (MW) and a simplified contract will be available to CHP systems that export no more than 5 MW. Investor-owned utilities' (IOUs) offers under the AB 1613 contracts will be based on the costs of a new combined cycle gas turbine, and a location bonus shall be applied to eligible CHP systems located in high-value areas. Unless otherwise excepted, all California electrical corporations shall be required to offer these contracts. This rulemaking remains open to address implementation of a "pay-as-you-save" program.