COM/CXW/mnt Mailed 7/16/01

Decision 01-07-027 July 12, 2001

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

(See Appendix A for List of Appearances)

TABLE OF CONTENTS

Page

INTERIM DECISION ADOPTING STANDY RATE DESIGN POLICIES 1

1. Summary 2

2. Background 3

3. Procedural History 5

4. Standby Rates Today 7

5. Positions of the Parties 12

5.1 Pacific Gas and Electric Company 12

5.2 Southern California Edison Company 15

5.3 San Diego Gas & Electric Company 18

5.4 Sierra Pacific Power Company 20

5.5 Federal Executive Agencies 21

5.6 Office of Ratepayer Advocates 23

5.7 The Utility Reform Network et al. 25

5.8 State Consumers 27

5.9 California Independent System Operator 29

5.10 Enron Energy Service Inc. and Enron North America Corp. 31

5.11 Capstone Turbine Corp., Inc. et al. 32

5.12 Cogeneration Association of California/ Energy Producers and Users Coalition 33

5.13 City and County of San Francisco 35

6. Major Issues 36

6.1 Nature of Costs to Serve Standby Customers 36

6.2 Types of Standby Service 37

6.3 Diversity and Reliability 40

6.4 Should Distribution Costs be Recovered through Fixed or Variable Charges? 46

6.5 Should Standby Rates Reflect Embedded or Incremental Costs? 48

6.6 Transmission Charges/Gross Load Metering 50

6.7 Interruptible or Non-Firm Standby Rates 51

6.8 Valuation 54

7. Discussion and Summary of Adopted Standby Rate Design Framework 55

8. Independent Clean Energy Tariff 68

8.1 Background 68

8.2 Discussion 72

9. Comments on Proposed Decision 76

Findings of Fact 77

Conclusions of Law 80

INTERIM ORDER.................................................................................83

INTERIM DECISION ADOPTING STANDBY RATE DESIGN POLICIES

1. Summary

This decision is part of a broader consideration of rules and policies affecting the deployment of onsite generation facilities. Such facilities are "onsite" in the sense that they are located on or in close proximity to the property of the customer or customers whose load the facilities are designed to serve. Here, we adopt interim standby rate design policies for onsite generation facilities that are interconnected to and operate in parallel with the distribution system in accordance with Rule 21.

During the pendency of this proceeding, the context for setting standby rates has changed in several fundamental ways. Most basic has been the continually-expanding disaster in wholesale electric markets, permanently altering our expectations for the functioning of electric markets, and shaking many of the assumptions underlying the record in this proceeding.

In addition, the Legislature has spoken decisively by establishing short term policy for the application of standby charges to onsite generation. Most onsite generators going into operation in the next two years are exempt from standby charges for at least the next ten years.¹ The exceptions are diesel-fired generators and facilities with capacity in excess of five megawatts (MWs).

Further, the Legislature has expanded the previously more-limited net metering program to apply to renewable onsite generators of one MW or less, in all customer classes. This not only allows such customers to net unneeded power against power supplied by the utility at retail prices, but also shields those customers from the imposition of any additional charges, including standby fees.

We are left with the need to implement these legislative directives and to define a broader policy to apply to those facilities not included within the statutory exemption due to size, fuel choice, or date of initial operation.

We direct the utilities to file standby rate design applications consistent with the interim policy guidelines within 60 days; we will adopt permanent rates within utility-specific proceedings. The rate design policy we approve today provides guidelines for rate design of the standby rates charged to non-exempt customers employing onsite generation to cover all or some portion of their load. These policies will apply to any non-exempt onsite generation facility requiring some level of standby service, whether for supplemental, backup, or maintenance purposes. Such facilities include self-generation, cogeneration, microcogeneration, and qualifying facilities (QFs). We also adopt the Independent Clean Energy Tariff (ICE-T) proposal recommended by the California Solar Energy Industry Association (CalSEIA). Respondent utilities are directed to submit advice letters to implement the ICE-T proposal within 15 days of the effective date of this order. While consistent with the Legislature's recent expansion of the net metering program, ICE-T extends the protection from standby charges to solar generators not taking advantage of net metering.