COM/JLN/hkr DRAFT Item 1

10/5/2000

Decision PROPOSED DECISION OF COMMISSIONER NEEPER
(Mailed 9/5/2000)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking into Implementation of Pub. Util. Code § 390.

Rulemaking 99-11-022 (Filed November 18, 1999)

O P I N I O N

(See Appendix A for List of Appearances.)

TABLE OF CONTENTS

Title Page

OPINION 2

1. Summary 2

2. Procedural History 3

3. Outstanding Procedural Matters 4

4. History of Qualifying Facility Contracts 5

5. Administration of QF Contracts in the Restructured Market 7

6. Short Run Avoided Cost of Energy 8

6.1 Options 8

6.1.1 QFs-In/QFs-Out 8

6.1.2 New Entrant 8

6.1.3 Heat Rate Cap/Collar 9

6.1.4 PX Day-Ahead Price 9

6.1.5 Intermittent Resources 10

6.2 Discussion 11

7. Value of Capacity 14

7.1 Statutory Construction of Section 390(d) 15

7.2 As-Available Capacity Payments 18

7.3 Other Measures of Capacity 19

8. Line Loss Methodology 22

8.1 Background 22

8.2 Parties' Positions 25

8.3 Discussion 28

9. Functioning Properly Criteria 33

10. Reopener Provision 38

11. Implementation Issues 39

12. Sierra Pacific and Pacificorp 40

Findings of Fact 41

Conclusions of Law 43

ORDER 45

Appendix A

OPINION

1. Summary

This decision adopts the framework for implementing Pub. Util. Code § 390,¹ which governs payments to qualifying facilities (QFs) receiving short-run avoided cost (SRAC) energy payments. We adopt the day-ahead zonal Power Exchange (PX) market-clearing price as the SRAC energy price, once the Commission makes required findings under Section 390. We conclude that for QFs, whose energy production is a must take resource delivered exclusively to the PX, the PX price represents an "all-in" price, containing both energy and capacity value. Consistent with this finding, we eliminate as-available capacity payments to QFs holding as-available contracts. For QFs receiving firm capacity payments, forecast as-available capacity payments, or forecast as-delivered capacity payments, Section 390(d) governs removal of the value of capacity from the PX price. The statutory language limits our ability to develop a "capacity subtracter" that accurately represents the capacity value in the market. Therefore we adopt the value of capacity definition established by Section 390(d) but we also identify the capacity value we would have adopted, were it not for the statutory limitation.

This decision adopts Generation Meter Multipliers (GMMs) as the transmission line loss factor to be used in calculating QF payments once QFs are paid the PX day-ahead zonal market-clearing price. While QFs continue to receive payments under Section 390(b), we adopt a modified GMM formula for the transmission loss factor of GMM _QF/GMM _SYS, to be implemented with the first posting following the effective date of this decision.

This decision concludes that if the PX is the market where the utilities procure the majority of their energy requirements and it reasonably represents the costs of other utility purchases, then the PX represents the utilities' avoided cost and is functioning properly for the limited purpose of paying QFs. This decision passes no judgment on whether the electricity market as a whole is functioning properly or efficiently. We will address whether the criteria for determining if the PX is functioning properly for these limited purposes in phase 2.