4. Price Recommendations by Parties and Staff

In the March 2011 briefs filed in R.08-08-009, July and August 2011 comments, and November 2011 comments on the Renewable FiT Staff Proposal, parties provided proposals for a pricing methodology under § 399.20. Generally, these proposals can be described as being based on the following price characteristics: (1) the MPR without adders, (2) the MPR with various adders, (3) costs of specific technologies, (4) a net energy metering surplus compensation methodology, (5) California Independent System Operator (CAISO) Gen Hub plus a renewable energy credit (REC) value and adjustment, (6) RAM contracts with a locational adder plus adjustments, and (7) other options. In the discussion that follows, we summarize the proposals.

4.1. Market Price Referent Without Adders

PG&E, SDG&E, The Utility Reform Network (TURN), and California Utility Employees (CUE) support a price based on the MPR, adjusted based on time-of delivery factors, as permitted by the language in § 399.20(d)(2). These parties do not support any adders to the MPR.

While PG&E and SDG&E support reliance on the MPR, they also continue to question the legality of the Commission's adoption of the MPR for the FiT Program under federal avoided cost law and PURPA. They, therefore, support the utilities' voluntary reliance on the MPR, as updated for 2011 in Resolution E-4442. Voluntary reliance is preferred by the utilities because, according to the utilities, mandatory provisions of wholesale service can only be required by the Commission when the Commission authorizes the utilities to offer such mandatory wholesale service at avoided cost, as defined under federal law. Because the utilities do not view the Commission's MPR as an avoided cost for renewables under federal law, the utilities suggest that, if the Commission only allows utilities to voluntarily offer the § 399.20 FiT Program price at the MPR, legal disputes initiated by the utilities could be potentially avoided.

In further support of the continued reliance on the MPR, PG&E, SDG&E, TURN, and CUE point to the following: (1) continued reliance on the MPR is transparent since the MPR calculation has been repeatedly vetted, and (2) the MPR is a familiar standard within the industry and, accordingly, continued reliance on the MPR will promote administrative ease and market stability.

4.2. Market Price Referent with Solar Photovoltaic Adder

California Solar Energy Industries Association (CALSEIA) supports reliance on the MPR adjusted for time-of-delivery factors and a "solar PV" adder. CALSEIA suggests that solar photovoltaic (PV) systems provide significant value to ratepayers above and beyond the threshold costs of the natural gas-fired proxy plant quantified in the MPR. According to CALSEIA, these additional value components include avoided transmission and distribution costs, the value of increased reliability, blackout avoidance and power quality, avoided air emission associated with natural gas combustion and the associated general societal health benefits.

4.3. Market Price Referent with Forest Biomass Adder

Placer County Air Pollution Control District (Placer County) supports using the MPR adjusted for time-of-delivery factors plus an adder for small forest biomass generation projects on the basis that small forest biomass projects sited in medium and high-risk fire hazard areas could provide significant value by (1) mitigating fire suppression costs; (2) reducing fire settlement awards; (3) reducing health costs from forest fire emissions; (4) protecting utility transmission and distribution assets from fire damage; and (5) protecting the water supply and personal property from fire-related damages.

Placer County's specific proposal consists of a $0.055 per kWh "Wildfire Hazard Reduction Adder" and a 50 MW carve-out for small forest biomass. The adder includes the five-year average (2006-2010) annual cumulative cost to the California Department of Forestry and Fire Protection, the U.S. Forest Service, and the U.S. Bureau of Land Management for statewide wildfire suppression of $1.201 billion. Placer County states that not all the adder costs are paid by ratepayers of the utilities but instead are paid by federal and state taxpayers generally, which consists of a larger segment of the population than the utilities' ratepayers. Placer County calculates the ratepayer share of the total taxpayer amount is $900,782,000.

Placer County's analysis also relies on a recent study by the U.S. Forest Service and sponsored by the California Energy Commission (CEC),35 finding that strategic placement of small forest biomass facilities across Northern California could reduce the number of acres burned by wildfire in California by 23.5% per decade, or approximately 2.3% annually.

4.4. Market Price Referent with Environmental and Locational Adders

Silverado Power LLC (Silverado Power), the Solar Alliance, and Vote Solar Initiative generally support using the MPR, adjusted for time-of-delivery factors, as the base price but also suggest a locational adder based on avoided costs for distribution losses, transmission losses, congestion, and transmission and distribution investments. They suggest that § 399.20(d)(1) ("the payment ...shall include current and anticipated environmental compliance costs for facilities in local air pollution control or management districts") could require an environmental pricing component but state that no further environmental adjustments are warranted because the MPR already includes an environmental component. In response to this proposal, TURN points out that the Commission modified the 2009 MPR model to include an escalating annual cost of carbon dioxide (CO2) and other environmental inputs that capture costs related to nitrogen oxides (NOx), sulfur oxides (SOx), particulate matter (PM10), and volatile organic compounds (VOC).36

Clean Coalition also supports continued reliance on the MPR adjusted to reflect time-of-delivery payments per § 399.20(d)(3), all current and anticipated environmental compliance costs per § 399.20(d)(1), and locational benefits per § 399.20(e). Regarding environmental benefits, Clean Coalition acknowledges that the MPR currently captures some environmental costs but suggests that under § 399.20(d)(1) the Commission has authority to make further adjustments. Specifically, Clean Coalition recommends that the MPR be adjusted to capture current or future additional environmental compliance costs, including those costs noted by a report cited in CALSEIA's comments37 on the value to ratepayers of avoided methane, NOx, CO2, SOx, VOCs, and PM10 emissions. Clean Coalition suggests this value could be represented by the addition of 1 cent/kWh to the MPR. Regarding locational benefits, Clean Coalition suggests this value could be represented by the addition of 35% of the MPR based on the type of grid support provided, such as avoided transmission, avoided line losses, reliability and blackout prevention, and improved power quality.

4.5. Technology-Specific Pricing

In the March 2011 briefs and comments filed in July, August, and November 2011, parties, including CEERT, Agricultural Energy Consumers Association and the Inland Empire Utilities Agency, California Wastewater Climate Change Group (CWCCG), Sustainable Conservation, Green Power Institute (GPI), FuelCell Energy, Renewables 100, Sierra Club California (Sierra Club), and Solar Alliance, recommend unique prices for different types of renewable resources.

CEERT supports a § 399.20 FiT Program price that reflects the resource and technology used to generate electricity, as well as the locational attributes of the generation site.38 CEERT finds that, under existing federal and state law, it is possible for each generation project under the § 399.20 FiT Program to be given a different market price of electricity because according to CEERT, avoided cost can be defined under the law as specific to each resource, technology, and location. CEERT does not, however, recommend that pricing be developed for each individual project. Rather, CEERT recommends that the market price of electricity under § 399.20(d)(1) be differentiated according to resource types, with an avoided cost price determination that reflects the cost of the resource, including the environmental, locational, and supply characteristics of each resource. In this manner, CEERT suggests that the applicable avoided cost price can be tailored to the market segment targeted in § 399.20, which includes projects uniquely situated closer to load centers and sized to interconnect at the distribution level. CEERT claims this approach is appropriate because such projects have not been effectively incorporated into any other RPS procurement mechanism.

Sustainable Conservation and GPI also suggest that the Commission adopt technology-specific pricing based on the costs of each technology. According to Sustainable Conservation and GPI, the "market price of electricity" in § 399.20 is an imprecise term and the Commission has significant latitude to set tariff prices. Sustainable Conservation and GPI further suggest that their cost-based pricing proposal be differentiated based on more than just the three electricity product types (baseload, peaking, and as-available) listed in the statute because some generators provide services to the utilities beyond those three types. For example, these parties point out that lagoon systems for dairy farms can be equipped with gas storage at low cost, which allows operations that are not just simple baseload, as is typical for biogas generators, but baseload with the capability of providing load-following services if the appropriate incentives are included in the contract. For these reasons, Sustainable Conservation and GPI support cost-based pricing as a means to diversify California's renewable energy portfolio to include a greater share of biomass, biogas, and other gasification technologies.

While supporting cost-based pricing, Sustainable Conservation and GPI also recognize that data on the costs of these resources is minimal because these industries are largely in the early commercialization phase. To support their position, they suggest two sources of publicly available price data: (1) a CEC-funded study39 and (2) a State Water Resources Control Board study.40

CWCCG suggests that technology-specific pricing is critical to appropriately provide an incentive for renewable generation at water and wastewater facilities. CWCCG claims that many wastewater agencies already generate some or all of their electrical power, much of this using biogas, but without a technology specific cost-based price that is higher than the current and past MPRs, water and wastewater facilities lack a financial incentive to sell electricity to the utilities.

FuelCell Energy acknowledges that, under the existing legal framework, "there is more than one way the Commission can calculate a price"41 for the § 399.20 FiT Program. FuelCell Energy supports technology-specific pricing that reflects the value of stationary fuel cells using renewable fuels. FuelCell Energy points to several sources of data for the Commission to calculate a technology-specific price for stationary fuel cells: a study by the University of California and the record of the Commission's proceeding in Application (A.) 09-02-013 and A.09-04-018.42 FuelCell Energy explains that this data quantifies the incremental value of fuel cell-specific attributes over and above the MPR. These values include avoided capital, operation and maintenance, fuel costs, water use, transmission and distribution, inputs for use of digester gas, cogeneration applications, and general societal benefits provided by fuel cells, including job creation and ease and speed of deployment.

The Division of Ratepayer Advocates (DRA) suggests that the pricing for the § 399.20 FiT Program be derived from the net energy metering net surplus compensation rate. DRA points out that the net surplus compensation rate is an established tariff based on market prices adjusted for renewable attributes. The Commission adopted the net surplus compensation rate in D.11-06-016 to apply to the excess generation from net-energy metered customers. Specifically, the net surplus compensation rate is derived from an hourly day-ahead electricity market price known as the "default load aggregation point" (DLAP) price. In 2009, this average DLAP price for PG&E was approximately four cents per kWh. Net surplus generators may also be compensated at the net surplus compensation rate plus an adder for their renewable attributes based on an interim proxy rate derived from the Western Electricity Coordinating Council average renewable energy premium, published by the Department of Energy. DRA suggests that such a rate could provide price stability to future FiT participants and creates transparency because the price is based on publicly available information.

4.7. CAISO Gen Hub plus REC Pricing with Adjustment Mechanism

SCE supports a market-based pricing approach on the basis that it would enable the Commission to price the program outside of the restrictions imposed by PURPA and avoided cost limitations. SCE claims that its market-based proposal has many benefits. According to SCE, its proposal avoids the need for a time-consuming and contentious examination of avoided cost. In addition to a Gen Hub base price, it also includes a market-based pricing adjustment mechanism where the price adjusts based on market response. Thus, unlike the administratively-determined prices, such as the MPR, the price will not remain static, at a point potentially too high or too low. Instead, the price could move higher or lower in response to supply and demand of renewable energy in the market. According to SCE, in contrast to a static price, this more flexible proposal offers potential benefits to ratepayers because ratepayers will not have to pay excessive costs for renewable energy if the market price drops. Similarly, sellers would potentially benefit by being able to accept a contract at a price sufficient to develop their projects.

As set forth in its August and November 2011 comments, the main points of SCE's proposal are as follows:

(1) SCE would publish an initial FiT price the first day of each month;

(2) The initial FiT price would be based on an average of the historical one-year day-ahead South Path-15 EZ Gen Hub price published by the CAISO plus the Department of Energy established price for renewable attributes in the Western United States;

(3) A portion of the overall program capacity will be allocated for procurement each month.

(4) The FiT price would increase at an escalating rate each consecutive month in which there is no program subscription (e.g., $2/MWh, then $4/MWh, then $6/MWh, etc.)43

(5) The FiT price would decrease at an escalating rate each consecutive month in which there is full subscription (e.g., $2/MWh, then $4/MWh, then $6/MWh, etc.)

(6) If there is partial subscription in any given month, the FiT price would stay the same for the next month.

(7) Any program capacity not subscribed in a month would roll over into the next month.

4.8. RAM Pricing with Locational Adder and Adjustment Mechanism

In their July and August comments, Interstate Renewable Energy Council (IREC), Silverado Power, Vote Solar Initiative, and SunEdison LLC (SunEdison) suggest the Commission set a revised FiT price based on the results of the RAM auction adjusted for time-of-delivery factors. In the Renewable FiT Staff Proposal, the Commission's Staff endorsed this proposal and offered expanded details on how to implement it. The following pricing methodology was presented by Staff:

Base Price Calculation:

(1) Use the results of the RAM auction (with the first RAM auction closing November 15, 2011) to set the price for the § 399.20 FiT Program.44 At the time the Commission's Staff issued its proposal, the first RAM auction had not yet closed. The first auction has since closed. The individual bid prices are confidential.

(2) Set a price for three product types: baseload, peaking as-available, non-peaking as-available.

(3) Use the RAM market clearing price from each product type, which will be the highest RAM executed contract price.

(4) Add to the price the project's share of the transmission costs for the particular RAM contract. If the generator triggers transmission costs, then the generator should not receive any payment for avoided transmission.

(5) Adjust price for time-of-delivery factors to capture the value of the product to ratepayers.

Price Adder and Adjustments:

The Renewable FiT Staff Proposal also recommends a locational adder for generation located in so-called "hot spots." Hot spots are defined in the Staff Proposal as "areas where distribution and transmission system upgrades can be deferred if new generation is located in that area."45 Lastly, the Staff Proposal recommends a price adjustment mechanism for each product type for each utility after a certain subscription level (or lack thereof). Staff did not recommend a particular adjustment mechanism but rather referred to CALSEIA, SCE, Clean Coalition, and Vote Solar Initiative's recommendations.

35 USDA Forest Service, Pacific Southwest Research Station. 2009. Biomass to Energy: Forest Management for Wildfire Reduction, Energy Production, and Other Benefits. California Energy Commission, Public Interest Energy Research (PIER) Program, CEC-500-2009-080.

36 See Resolution E-4298 (issued December 18, 2009). This resolution formally adopted the 2009 MPR values for use in the 2009 RPS solicitations.

37 http://calseia.org/wp-content/uploads/2010/05/pv-above-mpr-methodology-final-20100423.pdf.

38 CEERT July 21, 2011 comments at 2.

39 Cheremisinoff, Nicholas, Kathryn George, and Joseph Cohen, 2009. Economic Study of Bioenergy Production From Digesters at California Dairies. California Energy Commission, PIER Program. CEC-500-2009-058.

40 California Regional Water Quality Control Board, Central Valley Region, Economic Feasibility Of Dairy Manure Digester And Co-Digester Facilities In The Central Valley Of California, May 2011.

41 FuelCell Energy March 7, 2011 brief at 15.

42 FuelCell Energy cites to a 2008 study issued by the National Fuel Cell Research Center at the University of California-Irvine, Build-Up of Distributed Fuel Cell Value In California: Background and Methodology.

43 SCE changed this aspect of its proposal in its November 2011 comments from its initial presentation in its August 2011 comments.

44 At the time the Commission's Staff issued its proposal, the first RAM auction had not yet closed. The first auction has since closed. The individual bid prices are confidential.

45 Renewable FiT Staff Proposal at 7 (attached to ALJ Ruling dated October 13, 2011).

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