Comments on Revised Draft Decision
A Revised Draft Decision was issued on March 21, 2001 for an additional opportunity to comment. Timely comments were received from SCE, PG&E, SDG&E, jointly by Catihness and FPL (Caithness/FPL), EWC, IEP, CCC, CAC, Tractebel, Calpine, CE, The Utility Reform Network (TURN), TriDam Power Authority, Los Angeles, Dynamis, and Sunray Energy Inc. (Sunray).16 Comments centered almost entirely on the CTP, which virtually all parties understand as a cap on monthly QF payments.
Parties also comment on the structure and operation of the long-term price offers based on the CDWR portfolio price. Utility commenters addressed the mechanics of the payment order provision. In response to comments, we have made the modifications to the Revised Draft Decision throughout the body of the decision. The rationale for the remaining provisions of the revised draft decision are as expressed in the body of the decision. The changes we have made are: (1) withdrawing the long term price offers; (2) limiting the scope of the CTP to provide a reasonableness benchmark and not applying it as a ceiling on payments; (3) the payment obligation of the utilities will be relaxed to the extent that utilities will pay invoices within 15 days of receipt and QFs may present invoices every 15 days.
The effect of these modifications will be that the current transition formula, as modified in the text of the decision, will remain in place. April QF SRAC postings will reflect the replacement of Topock with the Malin border price and intrastate transportation. The May posting should reflect the outcome of the workshop on gas prices at the California border and a subsequent order of the Commission. June postings should reflect the cumulative changes to the transition formula decided after presentation of testimony and, if necessary, hearings.
As a result of these revisions a QF can expect to be paid existing capacity payments and energy payments calculated in accordance with the transition formula approved by the Commission pursuant to PU Code Section 390(b) as modified, and all applicable contract terms. This does not constitute a significant pricing reform but it does take us part of the way out of the impasse that has developed and should prove less challenging to the expectations of the QFs than the Revised Draft Decision would have been.
Findings of Fact
1. Avoided cost postings are based on the Transition Formula adopted in D.96-12-028, which incorporates various California natural gas border price indices.
2. Each Transition Formula contains a utility specific "factor" designed to compare historical SRAC prices to historical gas border prices for that utility.
3. The Commission has filed a complaint (Docket No. RP00-241-000) at FERC seeking rescision of certain contracts entered into by El Paso Natural Gas Company and its affiliates.
4. The starting energy price for the Transition Formula was calculated using 1995 values for the incremental system heat rate, average border gas prices and average interstate and intrastate gas transportation costs (collectively, the burnertip gas price), and a variable operations and maintenance adder.
5. D.96-12-028 set the factor for SCE at 0.7067.
6. The factor is the product of a linear regression comparing historical SRAC prices and historical gas prices at the California border.
7. The facts relied upon in SCE's Petition are verifiable by taking official notice of the tariffs of Southern California Gas as approved by the Commission.
8. The index methodology was developed during a time that utilities owned gas-fired generating facilities and operated those plants on the margin.
9. To meet incremental electricity needs, SCE no longer turns to its own generating facilities as it did in the past, but instead turns to the electricity market.
10. With the exception of the IER and variable O&M, all elements of the monthly factor formula can be calculated based on tariffed rates or published indices.
11. We do not have a sufficient record to update the IER or variable O&M components.
12. No party has proposed that PG&E or SDG&E factors require updating.
13. The gas prices used to calculate SCE and SDG&E short-run avoided costs rely on published border prices for gas traded at Topock.
14. In a given month, a utility's avoided cost of fuel will differ from the proxy relied upon in the Transition Formula.
15. In 93 FERC ¶ 61,294 (December 15, 2000), FERC found that California's market was yielding unjust and unreasonable rates
16. In 93 FERC ¶ 61,294 (December 15, 2000), FERC found that an average of historical utility embedded cost of generation would represent an appropriate benchmark for determining the prudency and reasonableness of forward contracts.
17. $67.45/MWh represents an average of historical utility embedded cost of generation prior to restructuring.
18. The California Department of Water Resources has purchased energy in a fully shaped portfolio of contracts with average prices of $79/MWh for the period through May 2006, $61/MWh for the period between May 2006 and 2011. The ten-year average is $69/MWh.
19. FERC has found that $74 is a reasonable price for long term energy in its Order Directing Remedies for California Wholesale Electric Markets, issued December 15, 2000.
20. QFs have not been paid for several months for energy delivered during November 2000 through March 2001 by SCE and PG&E.
1. Modification of the factor in the manner proposed by SCE more closely ties the resulting avoided costs to the IER methodology used prior to D.96-12-028.
2. It would be unfair to modify any component of the Transition Formula based on changes to only one underlying component.
3. The Petition should not be rejected on the basis of lack of declarations.
4. There are no disputed facts at issue regarding SCE's proposed modification to the factor that require evidentiary hearings.
5. The Commission's invitation to parties in D.96-12-028 to petition to modify the border indices does not preclude parties from seeking modification of D.96-12-028 on any other grounds.
6. Section 1708 provides the Commission with the discretion to "rescind, alter, or amend any order or decision made by it."
7. The Transition Formula can be updated periodically.
8. All elements of the proposed monthly factor, not just the intrastate gas cost component, should be updated.
9. SCE's fixed factor should be converted to a formula, updated periodically, effective with the next regularly scheduled SRAC posting.
10. Changes to the factor should be subject to possible adjustment based on our review of the IER and variable O&M components.
11. Parties should serve concurrent opening and reply testimony on how to calculate the incremental system heat rate and variable O&M for SCE on May 1 and May 21 respectively.
12. FERC has the ultimate authority and responsibility to provide relief to California ratepayers should it concur with our complaint that market power abuse has artificially raised gas prices at the California border.
13. The Topock index is no longer sufficiently robust to be utilized in the Transition Formula.
14. Over time, setting avoided cost based on a robust border price index can reasonably represent gas procurement costs under a portfolio procurement strategy and therefore will generally meet the requirements of PURPA.
15. Identifying the appropriate gas price indices and finding an appropriate method of averaging them for purposes of the Transition Formula should be addressed in a workshop and report by the Energy Division.
16. To fulfill our obligations under PURPA that payments to QFs be just and reasonable, we should retain the Transition Formula as our primary QF pricing methodology.
17. It is reasonable to establish a Consumer Transition Price as a benchmark for prices consistent with the California Department of Water Resources portfolio.
18. We should grant the petitions of CE, Tractebel, TEMI, Berry, Los Angeles, and Dynamis to intervene with respect to the petition to modify the Transition Formula and Phase 2. However, this participation should not extend to commenting or participating on issues established as Phase 1 issues in the Scoping Memo for this proceeding.
19. Pursuant to Rule 77.7(f)(9), the public review and comment period has been shortened.
20. Utility payments to QFs who have delivered energy on a timely basis going forward constitute adequate service.
21. Utilities should pay for energy delivered on a going forward basis within 15 days of the end of the billing period. Failure to make payments constitutes inadequate service and is subject to penalty.
22. An appropriate penalty is a fine in the amount owing to the QF for energy delivered and not paid for by the utility.
ORDER
Therefore, IT IS ORDERED that:
1. The factor adopted for Southern California Edison Company (SCE) in Decision (D.) 96-12-028, Attachment 1, shall be modified to a calculation where:
Factor = (((IER * (GPN + GTN))/10,000) + O&M) - Pbase
Pbase * ((GPN - GPbase)/GPbase)
2. Pbase and GPbase shall remain fixed as set forth in D.96-12-028, Attachment 1; all other factor inputs shall be updated periodically as subsequently ordered by this Commission effective with the next regularly scheduled short-run avoided cost posting.
3. Parties shall serve concurrent opening and reply testimony on how to calculate the incremental system heat rate and variable operations and maintenance (O&M) for SCE on May 1 and May 21, respectively.
4. Until such time as the Commission adopts a revised incremental system heat rate or variable O&M component for SCE, SCE shall use 9,140 Btu/kWh and 0.2¢/kWh as inputs to the monthly factor formula.
5. Revisions to the incremental system heat rate and variable O&M for SCE that increase the monthly factor shall be effective with the first posting that includes the monthly factor.
6. Revisions to the incremental system heat rate and variable O&M for SCE that decrease the monthly factor shall be effective with the first posting following the decision that revises those elements.
7. The Energy Division shall conduct a workshop on the use of indices of natural gas costs at the California border and report to the commission within 35 days.
8. Payments to qualifying facilities paid short run avoided cost or based on the short run avoided cost formula, shall be made consistent with the Transition Formula as modified today.
9. The Topock index adopted in D.96-12-028 shall be replaced with a simple average of Malin, Oregon indices plus Pacific Gas and Electric Company's (PG&E) G-AAOFF (Redwood to Off-System Path) tariffed rate effective with the next regularly scheduled avoided cost posting for SCE, PG&E, and San Diego Gas & Electric Company (SDG&E) following the effective date of this decision.
10. SCE, PG&E, and SDG&E shall pay QFs for energy deliveries made on or after the effective date of this decision within 15 days of the end of the QF's billing period. QFs may establish a fifteen-day billing period.
11. A failure by SCE, PG&E, and SDG&E to pay a QF for energy within 15 days from the end of the billing period will result in a fine in the amount owed to the QF.
12. SCE and PG&E shall have the option to either (1) make payment for April no later than April 16 based on an estimate of April production using historical April production or (2) make payments for actual April production within two days of the end of the 15-day billing period.
13. The petitions of CE Generation, LLC, Tractebel Power, Inc., Tractebel Energy Marketing, Inc., Berry Petroleum Company, County of Los Angeles, and Dynamis Incorporated to intervene with respect to the petition to modify the Transition Formula and Phase 2 are granted. However, this participation shall not extend to commenting or participating on issues established as Phase 1 issues in the Scoping Memo for this proceeding.
This order is effective today.
Dated March 27, 2001, at San Francisco, California.
LORETTA M. LYNCH
President
HENRY M. DUQUE
RICHARD A. BILAS
CARL W. WOOD
GEOFFREY F. BROWN
Commissioners
16 Sunray does not appear to be a party to this proceeding at this time.
