14. Assignment of Proceeding

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

1. D.09-12-042 established a feed-in-tariff price and approved a standard
AB 1613 contract for use by all eligible CHP systems up to 20 MW.

2. D.09-12-042 approved a simplified AB 1613 contract for use by CHP systems that export no more than 5 MW.

3. The pricing formula adopted by D.09-12-042 is based on the costs associated with a proxy natural gas generation resource. Several inputs into the pricing formula come from the MPR, established in accordance with Pub. Util. Code § 399.15.

4. The Energy Division updates the cost inputs and recalculates the MPR annually.

5. The AB 1613 pricing formula adopted by D.09-12-042 included four inputs from the 2008 MPR, including a Fixed Component, Variable Operations and Maintenance, Heat Rate, and Time of Delivery periods and factors.

6. The 2008 MPR was the most current calculation available when the Commission issued D.09-12-042.

7. The fixed price component of the contract price does not escalate during the entire term of the contract.

8. The fixed price component is based on the year in which a project is expected to come online.

9. The "Term Start Date" is the date that the project starts, not the year in which the contract is signed.

10. The fixed component of the MPR, upon which AB 1613 pricing was based, does not include a GHG adder. GHG compliance costs in the MPR calculation are embedded in the variable component of the MPR.

11. GHG compliance costs are not being paid for twice but the adopted contract language created ambiguity.

12. The fixed components of the MPR do not include a GHG adder and GHG compliance costs are not reflected in any way in the adopted pricing formula. Therefore, no additional subtraction is necessary to ensure compliance costs are not paid for twice.

13. The arguments raised by the Joint Utilities to reduce the AB 1613 price to reflect pricing for an as-available product were considered and rejected by the Commission in D.09-12-042 and D.10-04-055. The Joint Utilities do not raise any new issues of law or fact in their petition for modification related to the issue of whether AB 1613 pricing should be reduced to reflect pricing for an as-available product.

14. Sellers that are already obligated to comply with GHG regulations may be better suited to procure allowances for emissions associated with their exported electricity because it is a function they will already be performing for emissions associated with their heat needs and on-site electricity consumption.

15. D.09-12-042 established that GHG compliance costs should be paid for by the Buyer.

16. The AB 1613 contracts are primarily the result of negotiated terms and conditions submitted by the working group and parties to this proceeding.

17. The AB 1613 form contracts adopted by D.09-12-042 contain some drafting errors that create internal inconsistencies.

18. Some of the "clean-up" proposed by the Joint Utilities goes beyond correcting drafting errors.

19. Because facilities participating in the AB 1613 program are small (under
20 MW) and will generally be serving local loads, we expect in most cases the line loss factor to be one.

20. The FERC Declaratory Order found that the AB 1613 program is not preempted by the FPA or PURPA as long as: (1) the CHP generators from which the CPUC is requiring the Joint Utilities to purchase energy and capacity are QFs pursuant to PURPA; and (2) the rate established by the CPUC does not exceed the avoided cost of the purchasing utility.

21. The record of this proceeding reflects that the MPR-based AB 1613 price is an avoided cost price, notwithstanding the fact that the price was adopted prior to the FERC Declaratory Order and FERC Clarification Order.

22. The FERC Declaratory Order states that any ruling on the extent of federal preemption of the CPUC's AB 1613 program does not apply to public agency Sellers that are exempt from Commission jurisdiction under Section 201(f) of the FPA.

1. The AB 1613 program implemented by D.09-12-042 should be modified where necessary to comply with PURPA and avoided cost principles.

2. It is reasonable to use the most up-to-date price inputs in the pricing formula for the AB 1613 contract.

3. Since the MPR is updated annually, it is reasonable to use the inputs from the most current MPR in the pricing formula.

4. Neither CCDC nor San Joaquin provided a sufficient basis to make use of the most current MPR contingent upon a de minimus change in the total MPR value.

5. As long as the MPR is calculated based on the costs of a proxy natural gas generation resource, it is reasonable to use the MPR components in the AB 1613.

6. Updated pricing inputs should only apply prospectively to new contracts executed after the effective date of this decision. The pricing for executed contracts should be based on the pricing inputs at the time the contract was executed and for the life of the contract.

7. The language added by D.09-12-042 to Exhibit C, Section 3 of the standard contract and to Exhibit B, Section 3 of the simplified contract should be modified to state that the fixed price component does not escalate during the term of the contract.

8. The fixed price component should be based on the year in which a project is expected to come online, which is synonymous with the "Term Start Date," rather than the year in which the contract is signed.

9. The language of Section 3 of Exhibit C to the standard contract and Section 3 of Exhibit B to the simplified contract should be amended to read, "The Fixed Price Component, FPC, for all TOD Periods shall be the amount in the following table for the year of the Term Start Date."

10. The language adopted in Table 2 of D.09-12-042 should be clarified to reflect the Commission's intent that GHG compliance costs are not being paid for twice.

11. Because Joint Utilities provided no new authority or facts for the Commission to consider reducing the feed-in tariff price to reflect that CHP resources are as-available, this proposed modification should be denied. However, modifications should be made to D.09-12-042 consistent with the discussions in Sections 7 and 12 herein to provide clarity on this point.

12. Modifications should be made to D.09-12-042 or to the form contracts to allow the Sellers have the option to purchase GHG allowances for GHG compliance or to have the utilities procure the allowances on behalf of the Sellers. The contracts should allow the Seller the option to either elect to manage its own allowances and request payment from the utilities or to have the utility purchase allowances for the emissions associated with the excess electricity purchased by the utility.

13. Modifications should be made to D.09-12-042 and the form contracts to cap GHG compliance cost reimbursements to the sellers at the cost to procure such allowances for the proxy CCGT unit. If the seller elects to have the utility procure GHG allowances for it, modifications should be made to D.09-12-042 and the form contracts to cap the utility's obligation to procure GHG allowances to the number of allowances necessary to operate the proxy CCGT unit.

14. If the Sellers choose to purchase allowances, the payment should be tied to the most recent public index price, identified by Energy Division with input from stakeholders.

15. Contract language which is in error or which creates internal inconsistencies should be modified to correct such errors as set forth in Attachment A.

16. Contract language should be updated to ensure that facilities obtain Qualifying Facility status from the FERC.

17. Modifications requested by the Joint Utilities that materially change the contracts or alter the intent of D.09-12-042 should be denied.

18. Because the form contracts adopted by D.09-12-042 represent negotiated terms and conditions submitted by parties to this proceeding, they should not be modified where there is disagreement among parties.

19. Line losses for the AB 1613 program are best calculated as part of a project's interconnection process.

20. All California IOUs must file amended tariffs to reflect the revisions adopted in this decision.

21. The changes to the form contracts shown in Attachment A of this decision should be implemented in the contracts filed by each utility.

22. The FERC Clarification Order supports a wide degree of latitude for the Commission to establish a utility's avoided cost rates and finds that the concept of a multi-tiered avoided cost rate structure is consistent with the avoided cost requirements set forth in Section 210 of PURPA and FERC regulation.

23. The FERC Clarification Order recognizes that full avoided cost need not be the lowest possible avoided cost and can properly take into account real limitations on alternate sources of energy imposed by state law.

24. D.09-12-042 should be clarified to reflect the avoided cost basis for the 10% location bonus.

25. D.09-12-042 should be clarified to reflect the avoided cost basis for the MPR-based price.

26. D.09-12-042 should be modified to cap GHG compliance cost reimbursements to the AB 1613 CHP sellers at the avoided costs of the MPR's CCGT proxy unit.

ORDER

IT IS ORDERED that:

1. The petition to modify of Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company is granted in part with modifications and denied in part, as set forth the Ordering Paragraphs below.

2. Inputs from the most recently adopted Market Price Referent must be used in the pricing formula for the Assembly Bill 1613 standard and simplified contracts, as long as the Market Price Referent is calculated based on the costs of a proxy natural gas generation resource. Only new contracts executed after the effective date of this decision are impacted by updated pricing inputs. The pricing for executed contracts continues to be based on the pricing inputs in the contract at the time the contract was executed and for the life of the contract.

3. Each year, upon adoption by this Commission, of a new Market Price Referent calculation, each California investor-owned utility must file a Tier-1 Advice Letter updating its Assembly Bill 1613 tariffs and standard contracts with the new Market Price Referent inputs. The advice letters must be filed and served within five days of the date that the order adopting the Market Price Referent is mailed. This advice letter must also include a summary table of information about resources procured as a result of this program in the previous year and over the life of the program and updates on Location Bonus areas. Energy Division staff will provide the utilities with a template for the information to be provided in this table prior to the end of the program's first implementation year.

4. The California investor-owned utilities must revise the standard and streamlined contracts to reflect the fact that, when entering into the contract, the Combined Heat and Power Seller can (1) elect to manage its own allowances (and request payment from the California investor-owned utilities according to the terms outlined in this reimbursement methodology) or (2) elect to have the California investor-owned utility purchase allowances for the emissions associated with their electricity exports. Energy Division staff must determine an appropriate publically available index for use in determining the price to be paid for the allowances after seeking input from stakeholders by January 31, 2012. Energy Division will make this information available to stakeholders in an appropriate manner. The contracts shall also reflect that any reimbursement to generators for greenhouse gas compliance costs shall be capped at the compliance costs of the Market Price Referent's proxy unit.

5. Modified contract language for the contracts approved by Decision
09-12-042, as set forth in Attachment A to this decision is adopted. Attachment A also shows modifications we reject in this order. The approved changes must be implemented in the contracts filed by each California investor-owned utility.

6. The California investor-owned utilities must revise the standard and streamlined contracts to reflect that line losses from the Delivery Point to the Interconnection Point are determined as part of the interconnection process.

7. The California investor-owned utilities must revise the standard and streamlined contracts to reflect that in the case that a facility is decertified from participating in the Assembly Bill 1613 program, the combined heat and power generator should still be provided with the established short-run avoided cost rate at the time of decertification and the utility should offer the combined heat and power generator the standard offer contract associated with that rate unless the Federal Energy Regulatory Commission were to revoke the Qualifying Facility status of the facility.

8. D.09-12-042 shall be modified as follows:

9. Within 45 days of the date this order is mailed, Pacific Gas and Electric Company shall file a supplemental advice letter to update Advice Letter 3696-E. The advice letter must include revised tariff sheets to implement the standard contract and the simplified contract adopted in Decision 09-12-042 as modified by Attachments A of this decision and other Ordering Paragraphs. The tariff sheets shall become effective on filing subject to Energy Division determining that they are in compliance with this order.

10. Within 45 days of the date this order is mailed, Southern California Edison Company shall file a supplemental advice letter to update Advice Letter 2485-E. The advice letter must include revised tariff sheets to implement the standard contract and the simplified contract adopted in Decision 09-12-042 as modified by Attachments A of this decision and other Ordering Paragraphs. The tariff sheets shall become effective on filing subject to Energy Division determining that they are in compliance with this order.

11. Within 45 days of the date this order is mailed, San Diego Gas & Electric Company shall file a supplemental advice letter to update Advice Letter 2179-E. The advice letter must include revised tariff sheets to implement the standard contract and the simplified contract adopted in Decision 09-12-042, as modified by Attachments A of this decision and other Ordering Paragraphs. The tariff sheets shall become effective on filing subject to Energy Division determining that they are in compliance with this order.

12. Consistent with Decision (D.) 09-12-042 and any approved extensions granted by the Commission, within six months of the date this order is mailed, Sierra Pacific Power Corp. and PacifiCorp must file an advice letter in compliance with General Order 96-B. The advice letter must include tariff sheets to implement either:

a. the simplified contract approved by D.09-12-042 as modified herein (Attachment A) with proposed modifications to account for their location outside of the California Independent System Operator-controlled grid, or

b. a proposed simplified contract for eligible combined heat and power systems less than 500 kilowatts, as discussed in
D.09-12-042, Ordering Paragraph 6 by to October 18, 2010.

13. Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company must negotiate with the parties to develop a simplified contract for less than 500 kilowatt hour systems; if desired, Energy Division will host a workshop to establish guiding principles.

14. All changes proposed by Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company that would materially alter the contracts adopted in Decision 09-12-042 are denied.

15. Rulemaking 08-06-024 remains open to address the "pay-as-you-save" program.66

This order is effective today.

Peevey Attachment A

66 Implementation of a "pay-as-you-save" program was addressed in D.11-01-010 and this proceeding was closed pursuant to that decision.

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