ALJ/MEG/hkr Mailed 4/28/2004
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Promote Consistency in Methodology and Input Assumptions in Commission Applications of Short-run and Long-run Avoided Costs, Including Pricing for Qualifying Facilities. |
FILED PUBLIC UTILITIES COMMISSION APRIL 22, 2004 SAN FRANCISCO OFFICE RULEMAKING 04-04-025 |
ORDER INSTITUTING RULEMAKING
1. Introduction and Summary
We open this rulemaking in order to continue our ongoing efforts to develop avoided costs in a consistent and coordinated manner across Commission proceedings. Avoided costs have been part of this Commission's regulatory landscape since the late 1970's. The term refers to the incremental costs avoided by the investor-owned utility (IOU) when it purchases power from qualifying facilities (QFs),1 implements demand-side management, such as energy efficiency or demand-response programs, or otherwise defers or avoids generation from existing/new IOU supply-side investments or IOU energy purchases in the market.
Avoided costs are applicable to a variety of regulatory issues, including the pricing of QF power and cost-effectiveness evaluations of distributed generation and demand-side energy resource options. Avoided costs have also been used to establish the value of achieved energy savings in performance incentive mechanisms. In addition, the "marginal costs" used for revenue allocation and rate design purposes in Commission proceedings are a close derivative of avoided cost calculations.
As discussed further below, this rulemaking serves as the Commission's forum for developing a common methodology, consistent input assumptions and updating procedures for avoided costs across our various proceedings, and for adopting avoided cost calculations and forecasts that conform to those determinations. It is the forum for considering similarities as well as appropriate differences in methods and inputs for specific applications of avoided costs, including QF avoided cost pricing. Our goal is to establish "apples to apples" comparisons across resource options, to the greatest extent possible. We will strive for consistent methodologies and assumptions across applications of avoided costs, while recognizing that statutory directions for specific programs may require some other considerations.2
The four major energy IOUs, Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company (SDG&E), and Southern California Gas Company (SoCalGas) are respondents to this rulemaking.3
1 Qualifying facilities, or QFs, are qualifying non-utility cogeneration and small power production facilities under the Public Utility Regulatory Policies Act of 1978 that sell electric power to the IOUs. 2 For example, the Renewable Portfolio Standard (RPS) program has specific statutory requirements (e.g., Pub. Util. Code § 399.11 through § 399.16). Parties interested in development of the RPS program should be sure to participate in that proceeding, and should not attempt to use this proceeding as a forum for litigating issues more properly addressed in the RPS proceeding. 3 PG&E, SDG&E, SCE, and SoCalGas are hereinafter referred to collectively as "IOUs," "utilities," or "respondents."
