4. Updating Pricing Formula to Use 2009 MPR Inputs
The pricing formula adopted in D.09-12-042 is based on the utilities' avoided costs associated with a combined cycle gas turbine. Several inputs in the adopted pricing formula come directly from the 2008 MPR. The MPR is set annually by the Commission in accordance with Pub. Util. Code § 399.15(c) and represents the long-term market price of electricity. The MPR is used as a benchmark in the Renewables Portfolio Standard Program.
The methodology for calculating the MPR was first developed in
D.04-06-015. The methodology has been revised several times since, in
D.05-12-042, D.07-09-042, and most recently in D.08-10-026. Each year the Energy Division updates the cost inputs and recalculates the MPR based on this methodology.
The AB 1613 pricing formula utilizes several inputs from the 2008 MPR. These inputs include:
· Fixed Component = MPR fixed component for 10 year contract;
· Variable Operations & Maintenance = MPR variable Operations & Maintenance;
· Heat Rate5 = MPR average heat rate for a combined cycle gas turbine; and
· Time of Delivery periods and factors.
Joint Utilities argue that the 2009 MPR, which was adopted by the Commission at the same meeting as D.09-12-042, is more up-to-date and therefore contains the most appropriate inputs to be used in the pricing formula for the AB 1613 contracts.
TURN and DRA agree with the proposed modification to use the 2009 MPR inputs instead of the 2008 MPR inputs. TURN and DRA suggest that this will reduce the cost to ratepayers.
San Joaquin generally opposes the Joint Utilities' request to modify the
AB 1613 pricing formula. San Joaquin contends the Joint Utilities are simply rearguing the same points that the Commission considered and rejected in
D.09-12-042. Although San Joaquin does not oppose the Joint Utilities' proposal to use pricing inputs from the 2009 MPR, it questions why this request was not made when the decision was pending. San Joaquin believes the Commission should only approve the proposed modification with the following conditions:
_ Modification should only be allowed when the resulting change to the pricing formula is material (more than 5%);
_ All MPR values used in the AB 1613 pricing formula should be updated, not just the limited values proposed by the Joint Utilities;
_ The Commission should clarify that all updates to AB 1613 prices will occur regardless of whether the update results in an increase or decrease of the price; and
_ Updates of AB 1613 prices should have prospective application only.
San Joaquin argues that there is no need to change the pricing option to use the 2009 MPR because the resulting price change would be immaterial. However, San Joaquin does not oppose future changes to the adopted MPR values if they result in a material impact.
FCE opposes the Joint Utilities' proposals to alter the pricing approach adopted by the Commission in D.09-12-042. It states that the Joint Petition does not offer any new legal argument or cite changing facts warranting the proposed changes. Specifically, FCE opposes the Joint Utilities' proposal to replace the 2008 MPR adopted in D.09-12-042 with the 2009 MPR because the Joint Utilities have failed to provide any substantive discussion in support of their proposal.
CCDC states that the simplified contract is the product of extensive collaborative efforts by the parties and characterizes the Joint Utilities' request as a unilateral attempt to modify certain provisions. CCDC contends it is not clear whether the Joint Utilities propose replacing the entire 2008 MPR or just the fixed component. Regardless, CCDC does not support replacing the 2008 MPR with the 2009 MPR. If however, the Commission decides to update the MPR, CCDC argues it should do so only if other than a de minimus change in the total MPR value has occurred and only if all the components are updated - not just those that result in a better price for the Joint Utilities.
4.1. Discussion
As discussed in D.09-12-042, the adopted pricing formula utilizes components of the MPR, as the cost of a proxy natural gas generation resource is a reasonable proxy for the marginal unit avoided by an eligible CHP facility. At the time the Decision was adopted, the most current MPR available was the 2008 MPR.6
Given our determination that the cost of a proxy natural gas generation resource should serve as a basis for determining the price to be offered to eligible CHP facilities under the AB 1613 program, it is reasonable that the pricing formula reflects the most current cost of a proxy natural gas generation resource. Since the MPR itself is not static, but is updated to reflect the dynamics of the market, it logically follows that the most current MPR inputs should be used in the pricing formula adopted in D.09-12-042. Therefore, going forward, the pricing formula in the form contracts shall be updated to reflect the most current MPR.7
We decline all proposals to make the use of the most current MPR contingent upon a more than de minimus change in the total MPR value. Neither CCDC nor San Joaquin has provided a sufficient basis to impose this requirement. If the pricing formula is to be based upon the most up-to-date inputs available, then the amount of change from the previous value (up or down) is irrelevant to our determination to utilize to the most current MPR.
As long as the MPR is calculated based on the costs of a proxy conventional natural gas generation resource, the four pricing components identified above from the most recent MPR shall be used in the AB 1613 pricing formula in order to determine the utilities' avoided cost for this program. Each year, upon adoption by this Commission of a new MPR calculation, each California investor-owned utility (IOU) shall file a Tier 1 Advice Letter updating its AB 1613 tariffs and standard contracts with the new MPR inputs. The advice letters shall be filed and served within five days of the date that the order adopting the MPR is mailed. If, however, the MPR ceases to be based on a proxy natural gas generation resource or ceases to exist entirely, then the most recent MPR inputs that were developed using a proxy conventional natural gas generation resource shall continue to apply to AB 1613 contracts until otherwise modified by this Commission.
Updated pricing inputs shall only apply to new contracts executed after the effective date of this decision. The pricing for executed contracts shall be based on the pricing inputs in effect at the time the contract was executed. We do not require parties to modify contracts that have already been executed because it is important to protect contract stability and the expectations of the contracting parties.
5 Heat Rate is expressed as the number of British Thermal Units required to generate a kilowatt hour of electricity.
6 The Commission adopted the 2009 MPR on the same day that it adopted D.09-12-042.
7 New contracts would utilize the 2009 MPR until the 2010 MPR is adopted by the Commission.
