3. The PPAs are Just and Reasonable
3.1. PPA Description
The PPAs will replace the sellers' current contracts and provide for deliveries through December 31, 2016. Under the proposed PPAs, sellers' deliveries are subject to 30-day and day-ahead forecasts and subject to scheduling deviation adjustments. Sellers are required to meet performance an outage standards that exceed those of their current contracts. Sellers are subject to higher operating standards, and more stringent scheduling and forecasting requirements, than those under existing QF PPAs. The sellers must comply with North American Electric Reliability Corporation requirements, as well the requirements of the CAISO tariff. The capacity and energy pricing is consistent with the forms of the PPAs under the QF/CHP Settlement.1
3.2. Market Value
Under the QF/CHP Settlement, existing CHP QFs with an expiring standard offer contract may convert it to a transition power purchase agreement (Transition PPA) that will expire by no later than July 1, 2015.2 The utilities will conduct competitive solicitations for CHP resources as a means of achieving their MW and GHG emissions reduction targets.3 The QF/CHP Settlement also contemplates that the utilities may enter into bilaterally negotiated PPAs for CHP resources.4
The PPAs will provide approximately $5 million greater market value than the Transition PPAs that the sellers could receive under the QF/CHP Settlement Agreement, due to PG&E's greater curtailment rights under the proposed power purchase contracts.5
3.3. Operational Benefits
The proposed PPAs provide for more detailed and reliable seller forecasts of deliveries, greater curtailment rights, and more structured outages, as compared to the sellers' current contracts and the Transition PPAs. The PPAs provide greater clarity regarding the role and responsibility of the scheduling coordinator, and mandate compliance with CAISO tariff and metering requirements consistent with the Commission's policy to better integrate QF resources into the CAISO tariffs and deliverability standards. (See, e.g., D.07-09-040 at 210-211.)
The proposed PPAs give PG&E greater curtailment rights as compared to the sellers' current contracts and the Transition PPAs. Depending on GHG emissions reduction and compliance costs, PG&E may decide to use these greater curtailment rights to reduce GHG emissions from the sellers' facilities. This is consistent with Commission policy encouraging the utilities to consider GHG emissions and costs when making procurement and scheduling decisions. (See, e.g., D.07-12-052 at 243-245.)
3.4. Emissions Performance Standard Requirements
Under the Emissions Performance Standard adopted by the Commission in D.07-01-039, long-term (five years or greater) contracts for generating facilities designed and intended to provide electricity at an annualized capacity factor of 60% must provide for a maximum carbon dioxide emissions rate of no more than 1,100 pounds per megawatt-hour (MWh). The proposed PPAs comply with this requirement because their emissions rates are significantly less than 1,100 pounds per MWh.
3.5. Consistency with QF/CHP Settlement and PG&E's MW and GHG Emissions Reduction Targets
The QF/CHP Settlement establishes MW and GHG emissions reduction targets to increase the diversity, reliability, and environmental benefits of the energy resources available to the State's electricity consumers. Section 4.3.1 of the QF/CHP Settlement provides that bilaterally negotiated and executed CHP PPAs are part of the CHP Program procurement options, and Section 5.2.2 provides that PPAs executed during the stated interval count towards the MW and GHG emissions reduction targets. Accordingly, the proposed PPAs count toward PG&E's MW and GHG emissions reduction targets.
3.6. Consistency with Policy Preference to Maintain Current Level of QF Capacity
In D.07-12-052, as modified by D.08-09-045, the Commission indicated its policy preference for utilities to maintain their current level of QF capacity through new or renewed contracts, subject to the limitations of the Public Utilities Regulatory Policy Act of 1978 (PURPA).6 One of the expressed purposes of the QF/CHP Settlement, which D.10-12-035 affirmed as consistent with state and Commission policy and law, is to encourage the continued operation of the state's existing CHP facilities. The proposed PPAs allow for the continued operation of four existing CHP QF facilities that have provided reliable energy and capacity to PG&E since the 1980s. This is consistent with the Commission's policy preference that the utilities maintain currently existing QF capacity in their resource mix.
3.7. Consistency with Obligations to Sellers under Section 3.4.4 of the QF/CHP Settlement
PG&E requests that the Commission determine that the proposed PPAs satisfy PG&E's obligations to sellers under Section 3.4.4 of the QF/CHP Settlement Term Sheet. Section 3.4.4 provides that certain named QFs, including the sellers, can elect to sign a firm capacity Transition PPA and shall be paid under such PPA as if deliveries started on January 1, 2010. Under the proposed PPAs presented in this application, sellers will likewise be paid a true-up amount for firm capacity for the period starting January 1, 2010 as if deliveries had started at that time. PG&E asserts that the proposed PPAs therefore satisfy its obligations as imposed by Section 3.4.4.
However, PG&E does not have any obligation to sellers under Section 3.4.4. By its terms, Section 3.4.4 imposes the obligation to pay for firm capacity as if deliveries started on January 1, 2010, if the sellers elect to sign a Transition PPA. Instead, sellers have elected to sign bilaterally negotiated PPAs which, pursuant to Section 3.1.4, makes the Transition PPA unavailable to them. Therefore, the QF/CHP Settlement does not impose on PG&E the obligation to pay as if deliveries started on January 1, 2010. As PG&E has no such obligation, it is meaningless to attempt to ascertain whether the proposed PPAs meet it.
1 PG&E asserts that the capacity prices under the proposed PPAs are consistent with D.07-09-040, in which the Commission determined that QFs that were operating under current firm capacity contracts at that time would be eligible to execute new firm capacity contracts with a firm capacity price of $91.97 per kilowatt per year. As the sellers were not eligible for those contracts (see D.09-04-034, denying petition to modify D.07-09-040 to extend the eligibility to QFs with expired firm capacity contracts), this comparison is not determinative of the reasonableness of the proposed power purchase contracts. However, under the QF/CHP Settlement, QFs with existing standard offers are eligible to enter into Transition PPAs with this same firm capacity price. (See D.10-12-035, Appendix A, Transition Standard Offer Contract for Existing Qualifying Cogeneration Facilities, Section 1.06.)
2 D.10-12-035, Appendix A, Term Sheet, § 3.
3 Id., § 4.2.
4 Id., § 4.3.
5 PG&E notes that the proposed PPAs represent a compromise of claims made by the sellers' representative, Cogeneration Association of California, in its petition to modify D.07-09-040, which "made it possible for" the QF/CHP Settlement to include the withdrawal of that petition. As these proposed PPAs were not before the Commission in its consideration of the QF/CHP Settlement, the withdrawal of that petition as part of the settlement is not informative or determinative of the reasonableness of the proposed PPAs.
6 The United States Congress passed PURPA in 1978, as codified in the United States Codes (U.S.C.) at 16 U.S.C. Section 824a-3, and 18 Code of Federal Regulations (CFR) Sections 292.301 et seq.
