2. Procedural History
On April 1, 2004, we issued an Order Instituting Rulemaking (OIR) to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning. Among other procurement issues, Rulemaking (R.) 04-04-003 indicated that the development of a long term policy for handling QFs with expiring contracts and procurement policies for new QFs would be among the key issues to be addressed (OIR, p. 4, pp. 18-19). R.04-04-003 also indicated the Commission's intent to issue a separate rulemaking to address avoided cost issues, including the need for a complete review of the pricing methodology applicable to QFs.
On April 22, 2004, the Commission issued R.04-04-025 to develop avoided costs in a consistent and coordinated manner across Commission proceedings, including QF pricing issues. In this rulemaking, we reiterated certain goals that were adopted in both D.03-12-062 and D.04-01-050, issued in our initial procurement rulemaking (R.01-10-024):
... [I]n our view, there is a pressing need to revisit the SRAC pricing system, which will accurately and fairly set utility avoided cost prices both under current and expected future market conditions and with an eye toward diverse utility resource portfolios.
As the foregoing discussion demonstrates, the SRAC energy pricing formula is now out of date. The capacity pricing component of the SRAC formula is also problematic, because the QFs receive capacity payments in addition to energy payments. With SRAC energy prices that can now be above market prices, the additional capacity payments that QFs receive could compound any inequity to the utilities and their ratepayers of the current SRAC pricing formula.
We have a two-year window until most existing QF contracts begin to expire, and we should craft a remedy in the new OIR that better matches QF contracts with the actual needs and economic alternatives of the IOUs. Because it is so important that the current methodologies to establish SRAC be modified, we are directing the Commission staff to immediately begin work on a draft Instituting Rulemaking (OIR) that will examine and propose appropriate modifications to the SRAC methodology.9
The initial prehearing conference (PHC) was held on November 9, 2004. On January 4, 2005, the assigned Commissioner issued the first assigned Commissioner's Ruling and Scoping Memo (ACR) in R.04-04-025 that separated the various issues to be addressed in R.04-04-025 into three phases: (1) Phase I of this rulemaking was to address an immediate need to adopt avoided costs for use in evaluating potential energy efficiency programs; (2) Phase II was to address all SRAC issues; and (3) Phase III would consider long run avoided costs (LRAC) issues.
The January 4, 2005 ACR also noted that the QF pricing issues in R.04-04-025 must be carefully coordinated with the QF policy issues to be addressed in R.04-04-00310 and scheduled a joint PHC. In response to concerns expressed by many of the parties at the January 24, 2005 PHC, a second ACR was issued on February 18, 2005, combining the two rulemakings for purposes of testimony and evidentiary hearings on QF policy and pricing issues. The second ACR also modified the January 4, 2005 scoping memo such that all QF pricing issues would be addressed in Phase II of R.04-04-025.
The two dockets have been combined for evidentiary hearings to reduce duplication and for the efficiencies that one round of evidentiary hearings can provide to the parties and the Commission.11 In addition, a joint Administrative Law Judge (ALJ) ruling in R.99-11-022 and R.04-04-025 transferred certain SRAC issues from R.99-11-022 to R.04-04-025, including the determination of an IER and an Operation & Maintenance (O&M) adder, but excluded other issues that remain in R.99-11-022.
Testimony was served on August 31, 2005. Rebuttal testimony was served on October 28, 2005. Evidentiary hearings were conducted from January 18, 2006 through February 2, 2006.
Concurrent opening and reply briefs were filed on March 3, 2006, and March 17, 2006. Opening Briefs were filed by Davis Hydro, CAISO, PG&E, TURN, the Cogeneration Association of California and the Energy Producers and Users Coalition (CAC/EPUC), the IEP, the California Biomass Energy Alliance, L.L.C., the California Landfill Gas Coalition and the California Wind Energy Association (jointly, the "Renewables Coalition"), Division of Ratepayer Advocates (DRA),12 the County of Los Angeles, SCE, RCM Biothane (RCM), SDG&E, Californians for Renewable Energy (CARE), and the California Cogeneration Council (CCC). Reply Briefs were filed by Davis Hydro, the County of Los Angeles, CAC/EPUC, TURN, IEP, PG&E, CCC, SCE, RCM, and SDG&E. Finally, at the request of CCC, final oral argument was held on July 10, 2007 before a quorum of the Commissioners.
9 D.03-12-062, pp. 58-59. See also D.04-01-050, pp. 155-156.
10 The September 30, 2004, ACR in R.04-04-003 designated R.04-04-003 as the forum for considering long-term policies for new QFs and QFs with expiring contracts.
11 The two proceedings are not consolidated.
12 DRA had formerly been called the Office of Ratepayer Advocates (ORA).
