PUBLIC VERSION
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ENERGY DIVISION RESOLUTION E-3935
July 21, 2005
Resolution E-3935. Southern California Edison requests approval of four contract amendments to allow for the repowering of four existing wind power facilities. Southern California Edison's Advice Letter 1879-E is approved.
By Advice Letter 1879-E Filed on March 25, 2005.
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SUMMARY
Southern California Edison's (SCE) request to amend the contracts of four existing wind power facilities is approved.
SCE filed Advice Letter (AL) 1879-E on March 25, 2005, requesting Commission review and approval of four contract amendments which will allow for the repowering of four existing wind power facilities. Size, location, and expected incremental generation above contracted production for these facilities are included in the table below:
Project Name |
Location |
Contract Nameplate (MW) |
Estimated Incremental Annual Deliveries resulting from the Repower (GWh) |
CTV Power |
Tehachapi |
14 |
4.7 |
Windland, Inc. |
Tehachapi |
8 |
01 |
Karen Windfarm |
San Gorgonio |
11.66 |
13.6 |
Coram Energy |
Tehachapi |
3 |
6.41 |
36.66 |
24.71 |
The repowered wind facilities will either completely or partially replace existing turbines with state-of-the-art turbines that will result in increased electricity production of approximately 25 GWh. Confidential Attachment A discloses the technical upgrades associated with each facility.
The contract amendments limit the incremental energy and capacity payments, after the repower, to prices at avoided cost.
The wind facilities are each parties to existing Interim Standard Offer 4 (ISO4) contracts with SCE. The amendments limits the amount of incremental energy and capacity that SCE is obligated to purchase, after repower, to prices at avoided cost2, thus allowing the repowered facilities to qualify for the federal Production Tax Credit (PTC) for the incremental generation.
SCE demonstrated the contract amendments confer benefits to the ratepayers. The PRG did not oppose approval of the contract.
SCE made a sufficient showing that the amendments confer benefits to the ratepayer.
1. The amendments meet SCE's obligation to procure additional renewable power under a long-term contract.
2. The amendments maintain existing contract prices at or below the current Renewable Portfolio Standards (RPS) Market Price Referents (MPR) adopted in the Assigned Commissioner's Ruling dated February 4, 2005 for the existing expected energy production of these facilities until May of 2007. After this date, contract pricing for the existing expected energy production will be based on the Short-Run Avoided Cost (SRAC) for these facilities.3
3. The amendments will not change the existing contracted capacity payments for the current contract energy sales limit.
4. The amendments provide that there will be capacity payments for the incremental energy production generated above the contract energy sales limit after the repower based on the SCE's expected SRAC for capacity instead of the existing SO4 capacity pricing. Estimated potential capacity savings per facility is summarized in confidential Attachments B and C as a comparison of what the capacity payments are under the current contract energy sales limit and the expected SRAC for capacity.
5. The amendments provide that incremental energy production above the contract energy sales limit as a result of the repower will be paid SRAC for energy.
6. The amendments will result in 25 GWh of additional renewable energy that SCE can apply to its RPS annual procurement target.
7. SCE will obtain all the environmental attributes for the energy it purchases from these facilities.
The members of SCE's Procurement Review Group (PRG) did not oppose the approval of this contract.
AL 1879-E is approved effective today.
SCE requests that AL 1879-E be effective immediately. There were no protests to this AL. This resolution approves AL 1879-E effective today.
BACKGROUND
The amendments were the result of bilateral negotiations between the subject wind energy developers and SCE.
The subject amendments were negotiated bilaterally between SCE and the wind power generators. The Commission has provided guidance for negotiating bilateral contracts in a recently adopted decision approving the utility's long-term plan. D.04-12-048 specifically states, "Currently the only recourse for QFs whose contracts expire in 2006 and beyond is 1) to participate in any upcoming power solicitations, or 2) negotiate bilateral contracts with utilities. Though we expect QFs to continue to participate actively in these opportunities, thus, without contract extensions or a new long-term policy, QF contracts that lapse in 2006 could cause QF power to go off-line at that time." The procurement mechanism, whether by solicitation or bilateral negotiation, for repowered renewables will be further determined in R.04-04-026.
The RPS Program requires each utility to increase the amount of renewable energy in its portfolio, subject to requirements specified by the Legislature and the Commission.
The RPS Program, created by SB 1078 (Statutes of 2002, Chapter 516), requires each utility to increase the amount of renewable energy in its portfolio to 20 percent by 2017, increasing by a minimum of one percent per year. The Energy Action Plan (EAP) called for acceleration of this goal to reach 20 percent by 2010. R.04-04-026 encourages the utilities to procure cost-effective renewable generation in excess of their APTs, in order to make progress towards the goal expressed in the EAP.
In order for the output of a renewable resource to count toward a utility's RPS requirements, the resource must meet the requirements of an "eligible renewable energy resource" under the definitions of the program. Wind energy facilities, including facilities that are repowered with new turbines to increase their electricity output from the same or similar capacity, are eligible renewable energy resources.
The repowering of these facilities will make them eligible to receive the federal Production Tax Credit.
In 1992 the Energy Policy Act was signed into law and included enactment of a Production Tax Credit (PTC) under Section 45 of the Internal Revenue Code of 1986. This credit is available to corporate entities building new and repowering existing renewable energy production facilities such as solar, biomass, wood chip, geothermal, and wind electric power production plants. In the case of repowered facilities, PTC awards are based on the incremental energy generated from the repower. The credit is available to new and repowered renewable energy facilities in commercial service after enactment of the law, and prior to the latest deadline, December 31, 2005. All four of these repowered wind facilities qualify for the PTC on the incremental portion of the energy produced after the repower.
A key benefit of the PTC is that it provides substantial incentive for wind turbine manufacturers to improve the reliability and efficiency of their equipment since the PTC is provided only for electric power actually produced and transmitted. The subject wind energy generators would not be able to claim the federal production tax credits under the existing ISO4 contract. The contract amendments allows the developers to claim this credit.
SCE's PRG participated in review of the contract.
In D. 02-08-071, the Commission required each utility to establish a "Procurement Review Group" (PRG) whose members, subject to an appropriate non-disclosure agreement, would have the right to consult with the utilities and review the details of:
1. Overall transitional procurement strategy;
2. Proposed procurement processes including, but not limited to, RFO; and
3. Proposed procurement contracts before any of the contracts are submitted to the Commission for expedited review.
The PRG for SCE consists of: California Department of Water Resources, California Energy Commission, the Commission's Energy Division, Natural Resources Defense Council, the Union of Concerned Scientists, Office of Ratepayer Advocates (ORA), and The Utility Reform Network (TURN). SCE briefed its PRG regarding these contract amendments on May 27, 2005.
NOTICE
Notice of AL 1879-E was made by publication in the Commission's Daily Calendar. SCE states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.
PROTESTS
There were no protests to this AL.
DISCUSSION
The subject repower amendments settle a general disagreement between SCE and the wind energy generators.
The developers contend that they have the right under the SO4 PPA to sell the output of the repowered projects to SCE at the original SO4 pricing. SCE disagrees with this claim. However, all parties reached an agreement to execute the amendments, which would allow the developers to sell the output from the repowered facilities to SCE at SRAC pricing for energy and capacity produced above the contract energy sales limit.
The existing Qualifying Facility (QF) power purchase agreements (PPAs) will be amended to address the incremental energy generated as a result of the repowers. The terms and pricing for the original expected annual energy production of the contract will not change.
The existing Interim Standard Offer 4 (ISO4) contract contains both energy and capacity payments for the expected annual energy production prior to the repower. The amendments contain an SRAC energy and capacity payment for the incremental energy generated as a result of the repower, above the contract energy sales limit. The estimated capacity savings per facility is summarized in confidential Attachments B and C as a comparison of what the capacity payments are under the current contract energy sales limit and the expected SRAC for capacity. A general summary of the amendments for each wind facility is included below.
The CTV Amendment
On October 1, 2004, SCE and CTV Power Purchase Contract Trust ("CTV") executed an Amendment to their power purchase contract. The CTV Contract provides for 14 MW of installed capacity and an annual production estimate of 36.485 GWh. The CTV Contract is based upon ISO4. During the energy crisis, the parties entered into a settlement agreement providing for a fixed energy rate payable until May 2007 and thereafter at SRAC. This fixed rate is below the current RPS MPR adopted in the Assigned Commissioner's Ruling dated February 4, 2005. CTV receives a capacity payment for this baseline energy based upon the forecast as-available capacity option selected by the project.
CTV seeks to obtain PTC in connection with the replacement of its existing turbine technology with 1.5 MW General Electric turbines. The CTV Amendment does not increase the 14 MW installed capacity limit of the Contract. It provides for a Contract Energy Sales Limit for each TOU period which is the product of the estimated annual deliveries in the Contract (36.485 GWh) times a "Period Production Factor," the average percentage of annual deliveries allocable to that TOU period over the period from 1994-1998. Deliveries above the Contract Energy Sales Limit in each TOU period will be paid SRAC for energy and SRAC capacity charges. The project estimates that the repowering will result in approximately 4.7 GWh of deliveries above its Contract estimate on an annual basis.
The CTV Amendment contains a covenant by CTV that it will not convey environmental attributes associated with production from the Wind Facility to anyone other than SCE for the term of the Contract and will maintain compliance with California Energy Commission certification requirements related to the RPS Legislation.
The Boxcar Amendment
On December 30, 2004, SCE and Windland, Incorporated executed an Amendment to their power purchase contract for the Boxcar II wind facility. The Boxcar Contract provides for 8 MW of installed capacity and an annual production estimate of 20 GWh. The Boxcar Contract is based upon ISO4. During the energy crisis, the parties entered into a settlement agreement providing for a fixed energy rate payable until May 2007 and thereafter at SRAC. This fixed rate is below the current RPS MPR adopted in the Assigned Commissioner's Ruling dated February 4, 2005. Windland, Incorporated receives a capacity payment for this baseline energy based upon the forecast as-available capacity option selected by the project.
Windland seeks to obtain the PTC in connection with the replacement of its existing turbine technology. The Boxcar Amendment does not increase the 8 MW installed capacity limit of the Contract. It provides for a Contract Energy Sales Limit for each TOU period which is the product of the estimated annual deliveries in the Contract (20 GWh) times a "Period Production Factor," the average percentage of annual deliveries allocable to that TOU period over the period from 1994-1998. To the extent that there are any deliveries above the Contract Energy Sales Limit in each TOU period, such deliveries will be paid SRAC for energy and SRAC capacity charges. The project's historical production was well below its contract estimate, and the project currently does not anticipate any appreciable deliveries above that estimate on an annual basis even after the repowering.
The Boxcar Amendment contains a covenant by Windland that it will not convey environmental attributes associated with production from the Wind Facility to anyone other than SCE for the term of the Contract and will maintain compliance with California Energy Commission certification requirements related to the RPS Legislation.
Karen Windfarm Amendment
On November 12, 2004, SCE and Energy Development & Construction Corporation (EDCC) executed an Amendment to their power purchase contract. The Karen Windfarm Contract provides for 11.665 MW of installed capacity and an annual production estimate of 22 GWh. The Karen Windfarm Contract is based upon ISO4. During the energy crisis, the parties entered into a settlement agreement providing for a fixed energy rate payable until May 2007 and thereafter at SRAC. This fixed rate is below the current RPS MPR adopted in the Assigned Commissioner's Ruling dated February 4, 2005. EDCC receives a capacity payment for this baseline energy based upon the forecast as-available capacity option selected by the project.
EDCC seeks to obtain PTC in connection with the installation of six 1.5 MW General Electric turbines. The Karen Windfarm Amendment does not increase the 11.655 MW nameplate capacity of the Contract. It provides for a Contract Energy Sales Limit for each TOU period which is the product of the estimated annual deliveries in the Contract (22 GWh) times a "Period Production Factor," the average percentage of annual deliveries allocable to that TOU period over the period from 1995-1998.4 Deliveries above the Contract Energy Sales Limit in each TOU period will be paid SRAC for energy and SRAC capacity charges. The project estimates that the repowering will result in approximately 13.6 GWh of deliveries above its Contract estimate on an annual basis.
The Karen Windfarm Amendment contains a covenant by EDCC that it will not convey environmental attributes associated with production from the Wind Facility to anyone other than SCE for the term of the Contract and will maintain compliance with California Energy Commission certification requirements related to the RPS Legislation.
Coram Amendment
On October 1, 2004, SCE and Coram Energy Group, Ltd. executed an Amendment to their power purchase contract. The Coram Contract, as previously amended, provides for 3 MW of installed capacity. The Coram Contract contains an annual production estimate of 2.625 GWh which was not previously amended. The Coram Contract is based upon ISO4. During the energy crisis, the parties entered into a settlement agreement providing for a fixed energy rate payable until May 2007 and thereafter at SRAC. This fixed rate is below the current RPS MPR adopted in the Assigned Commissioner's Ruling dated February 4, 2005. Coram Energy Group receives a capacity payment for this baseline energy based upon the forecast as-available capacity option selected by the project.
Coram seeks to obtain PTC in connection with the replacement of its existing turbine technology with 1.5 MW General Electric turbines. The Coram Amendment does not increase the 3 MW installed capacity limit of the Contract.
The Coram Contract originally provided for an installed nameplate of .875 MW. A previous amendment to the Coram Contract increasing the Contract nameplate from .875 MW to 3 MW, was executed in September 2004, less than two months after the original Coram Contract execution date creating a disagreement about the parties' intentions concerning the Contract estimate which the parties have resolved in the current Amendment
In this current amendment, the parties compromised on a revised annual delivery estimate, for purposes of developing the Contract Energy Sales Limit, of 4.752 GWh. The parties reached this number by applying the observed capacity factor of Coram's installed equipment during the 1994-1998 period (18.1%) to the Contract nameplate of 3 MW.5 The parties reasoned that this level of production, 4.752 GWh, was what Coram would have produced during the 1994-1998 period had its project been fully installed to the 3 MW nameplate based upon its pre-repowering technology. Deliveries above the Contract Energy Sales Limit in each TOU period will be paid SRAC for energy and SRAC capacity charges. The project estimates that the repowering will result in approximately 6.4 GWh of deliveries above this compromise Contract estimate on an annual basis.
Like the other amendments, the Coram Amendment contains a covenant by Coram that it will not convey environmental attributes associated with production from the Wind Facility to anyone other than SCE for the term of the Contract and will maintain compliance with California Energy Commission certification requirements related to the RPS Legislation.
Energy Division examined SCE's request in AL 1879-E on multiple grounds:
_ accordance with the Commission's expressed preference for renewable resource repowering;
_ contingencies contained in the contract;
_ value to ratepayers conferred by the ISO4 contract amendments;
_ reasonableness of the contract;
_ fulfillment of SCE's requirements under the Renewables Portfolio Standard (RPS);
_ PRG involvement.
The Energy Division found that there are several benefits conferred to ratepayers as a result of these repower amendments which are detailed below.
The proposed contract amendments are in accord with the Commission's policy preference for repowering existing renewable energy.
SCE states that the contracting parties were encouraged by the Commission to pursue wind repowering. D.03-06-071 specifically encouraged repowering of renewable energy facilities:
"TURN argues that the Commission should specifically require prompt negotiation to resolve what it characterizes as a stalemate around repowering of existing wind facilities. (TURN Opening Brief, p. 51.) We endorse this goal, as the repowering of existing wind facilities in prime locations is a common-sense approach to increasing procurement of renewable energy, with costs that should be lower than for new greenfield projects." (Decision at p. 57)
D.03-06-071 stated that the Commission "will look at this broader issue of repowering renewable facilities on a going-forward basis." R.04-04-026 identified repowering as an issue that will be addressed in that Rulemaking.
The proposed amendments confer potential cost savings for ratepayers
As demonstrated in Confidential Attachments B and C, the proposed amendments could create potential cost savings for ratepayers for the incremental energy produced by the repowering. Specifically, the capacity payments for the incremental energy will be based on SRAC prices that replace the existing SO4 capacity pricing.
SCE claims all "Environmental Attributes" associated with the projects output.
The contract amendments explicitly convey any environmental attributes associated with the output from the facilities to SCE. Thus, SCE retains all environmental attributes necessary to count the output of the resource toward its RPS requirements.6
The output of the wind facilities under the existing contracts and the amendments thereof, counts toward SCE's RPS requirements.
The subject wind facility repowers will result in an additional 25 GWh of energy production. Any deliveries above the historical baseline level attributed to this resource (i.e. the contract energy sales limit) will count toward the incremental portion of SCE's Annual Procurement Target. The total output from these resources will count toward SCE's Annual Procurement Target, regardless of whether it is used to maintain renewable baseline or meet incremental targets.
Repowered facilities must meet specific conditions set forth in Pub. Util. Code Section 383.5(d)(3) in order to receive State sponsored Supplemental Energy Payments ( SEPs) in the RPS Program. In accordance with the P.U. Code, the subject wind facilities will not receive SEPs. Therefore, the conditions of that section do not apply.
The PRG did not oppose the contract amendments.
SCE briefed its PRG regarding these contract amendments on May 27, 2004. The PRG did not oppose these amendments. We clarify, however, that Energy Division reserved its conclusions for review and recommendation on the amendments to the resolution process. Energy Division reviewed the modifications independently, and allowed for a full protest period before concluding its analysis. No protests to this AL were filed.
The Commission may vote to make public certain confidential information if it is deemed in the public interest.
Certain contract details were filed by SCE under confidential seal. Attachments to this resolution have been redacted due to the confidential nature of SCE's filing.7 However, the Commission may vote to unredact the Attachments in full or in part.
Energy Division recommends that all material filed under seal pursuant to Public Utilities (Pub. Util.) Code Section 583 and General Order (G.O.) 66-C remain confidential upon Commission approval of this resolution.
COMMENTS
Public Utilities Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission. Section 311(g)(2) provides that this 30-day period may be reduced or waived upon the stipulation of all parties in the proceeding:
The 30-day period may be reduced or waived in an unforeseen emergency situation, upon the stipulation of all parties in the proceeding, for an uncontested matter in which the decision grants the relief requested, or for an order seeking temporary injunctive relief.
All parties in the proceeding have stipulated to reduce the 30-day comment period required by PU Code section 31l(g)(1) to 16 days. Accordingly, this matter will be placed on the first Commission's agenda six days following the mailing of this draft resolution. By stipulation of all parties, comments shall be filed no later than 13 days following the mailing of this draft resolution. No reply comments will be filed.
FINDINGS
1. SCE filed Advice Letter 1879-E on March 25, 2005, requesting approval of amendments to four existing wind energy contracts.
2. The amended contracts will allow for the repowering of these wind facilities.
3. The proposed contract amendments are in accord with the Commission's policy preference for repowering existing renewable energy.
4. The incremental energy and capacity produced by these repowers will be paid at SRAC pricing.
5. The RPS Program requires each utility, including SCE, to increase the amount of renewable energy in its portfolio to 20 percent by 2017, increasing by a minimum of one percent per year. The Energy Action Plan (EAP) called for acceleration of this goal to reach 20 percent by 2010.
6. The incremental output from the repowered facilities will count toward SCE's annual RPS target.
7. The Commission required each utility to establish a Procurement Review Group (PRG) to review the utilities' procurement needs and strategy, proposed procurement process, and selected contracts.
8. The PRG does not oppose the contract amendments.
9. Certain material filed under seal pursuant to Public Utilities (Pub. Util.) Code Section 583 and General Order (G.O.) 66-C should remain confidential.
10. The contract amendments provide value to SCE's ratepayers.
11. The terms of the proposed contract amendments are reasonable and should be approved.
12. AL 1879-E was not protested.
13. AL 1879-E should be approved.
THEREFORE IT IS ORDERED THAT:
1. The request of the Southern California Edison to amend four SO4 wind energy contracts, as requested in Advice Letter AL 1879-E, is approved.
This Resolution is effective today.
I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on July 21, 2005 ; the following Commissioners voting favorably thereon:
_______________
STEVE LARSON
Executive Director
MICHAEL R. PEEVEY
PRESIDENT
GEOFFREY F. BROWN
SUSAN P. KENNEDY
DIAN M. GRUENEICH
JOHN A. BOHN
Commissioners
Confidential Attachment A
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Confidential Attachment - B
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Confidential Attachment - C
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Confidential Attachment - C (Coram Energy) Page 2 |
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Confidential Attachment - C
Page 3
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Confidential Attachment - C (Energy Development) Page 4 |
REDACTEDConfidential Attachment - C
Page 5
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Confidential Attachment - C (CTV) Page 6 |
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1 This facility has historically delivered at levels significantly below the annual estimate in its Contract and does not presently anticipate exceeding this estimate even after the repowering. A contract amendment establishing a cap on deliveries to be paid for at above-the-avoided cost rates is required in order for the facility to obtain PTC for the repowering.
2 The Public Utilities Regulatory Policies Act (PURPA) requires utilities to purchase energy from QFs at a rate which does not exceed the utility's avoided cost. Avoided Costs are the incremental costs to an electric utility of electric energy or capacity or both, which but for the purchase from the QF, such utility would generate itself or purchase from another source. (18 C.F.R. § 292.101(b)(6)).
3 On March 27, 2001, the Commission adopted D.01-03-067 modifying D.96-12-028 which adopted a transition formula for each utility to calculate its SRAC energy payments to QFs.
4 The Karen Windfarm project was not operating during much of the summer of 1994. For this reason, the parties considered 1994 to be an aberrational year and therefore elected to base the Period Production Factor for the Karen Windfarm Amendment upon production by the facility during the 1995-1998 period.
5 This observed capacity factor is based upon an installed capacity of 1.88 MW and average annual production during the 1994-1998 period of 2.978 GWh.
6 SCE already counts the output from these existing facilities towards its baseline under the RPS legislation.
7 SCE filed attachments to AL 1879-E subject to Pub. Util. Code Section 583, General Order 66-C.
