Interim CPUC Policy Allows QF Payments

The California Public Utilities Commission on December 1 unanimously approved extending contract payment terms for expiring qualifying facilities as well as the Department of Water Resources' 2006 revenue requirements. The commission, however, deferred a decision on how to allocate the savings from DWR's low-cost gas contract with Williams. It also postponed a decision on allowing nearly $700 million to be invested in Southern California Edison's San Onofre nuclear power plant. Until a final ruling is in place regarding payment and contract terms between QFs and the investor-owned utilities, the CPUC approved continuing the current five-year agreement for deals that expire before the regulators agree on a revised QF pricing policy. "It is a bridging mechanism that allows QFs to get paid under the current CPUC-determined formula," said Steven Kelly, policy director for the Independent Energy Producers. The current pricing formula is essentially tied to the price of natural gas. The revised formula is expected to be in place by next June or July. QFs are smaller electric generating plants, largely cogeneration, owned by private developers under contract with utilities. QF owners and utilities have fought long and hard over confidentiality issues, nondisclosure agreements, and data requests. "The Commission recognizes that there is a tension between the federal and state policies encouraging and supporting QF resources and the investor-owned utilities' concern over pricing structure," states the adopted opinion on QF pricing. Cogenerators and renewable QFs insist on contract security to secure financing. Utilities resist signing long-term interim agreements because the federal Energy Policy Act may change utilities' obligation to buy QFs' output. Under the federal law, once it is determined that a functioning competitive market is in place, utilities would no longer be obligated to sign QF agreements. In other action, on a 5-0 vote, the CPUC carried out its largely ministerial task of approving the Department of Water Resources' revised power and bond costs for 2006, estimated at $5.36 billion - a $375 million increase. Its 2005 revenue requirements, arising from buying power for the state when the investor-owned utilities were cash-strapped, were $700 million less. The "main driver is the gas cost," noted CPUC member Geoffrey Brown. Because the department?s cost estimates are "conservative," Brown said, DWR?s final tab for 2006 could be lower. Later on Thursday, Governor Arnold Schwarzenegger announced the closing of the refinancing of $2.6 billion in bonds issued to repay the state's general fund for energy bought during the crisis. The net present savings spread over 17 years are estimated at $144.9 million, said DWR spokesperson Oscar Hidalgo. The improved power market led to lower interest rates on DWR bonds (Circuit, Nov. 18, 2005). The commission put off a decision on how to allocate among the sparring three private utilities the cost savings from the DWR-Williams natural gas deal. Administrative law judge Peter Allen sided with Pacific Gas & Electric, concluding that the allocation was unique because the favorable deal was the outcome of a settlement between DWR and Williams. The cost savings from the must-take deal signed during the 2000-01 crisis are $99 million. This amount will be used to offset DWR?s revenue requirements. Allen's tentative decision would allow PG&E to reap 42 percent of the savings arising from the difference between the market price of gas and the contract's below-market price. Southern California Edison would receive 47.5 percent of the financial benefit and San Diego Gas & Electric 10 percent. In another delayed decision, approval of the $680 million that Edison is seeking for investing in new steam generators for its San Onofre nuclear plant was put off until the next commission meeting in order for commission president Mike Peevey to prepare an alternate decision. Edison sent a letter to commissioners last week saying that it would not recommend the investment if forced to accept commission terms (Circuit, Nov. 28, 2005). The CPUC voted 3-2 to limit the Office of Ratepayer Advocates' scope and budget for auditing utilities. The advocate uses audits to make sure utilities are spending customers' money as agreed. Regulators butted heads over capping ORA's audit costs. Brown and commissioner Dian Grueneich opposed the approved decision to fix audit payments, asserting that it eliminated ORA flexibility. The audit at issue involved Pacific Bell and Verizon, but audits and ORA's associated budget have long been a contentious issue. The two dissenting commissioners objected largely because of their faith in ORA director Dana Appling, and because utilities have far greater access to resources. Brown was especially concerned that the ORA audit budget could be drained when given the runaround by a utility. "Anyone who thinks the ORA has too many resources is misguided," Brown fumed. Commissioner John Bohn, who voted for the cap on ORA's audit budget, said he was "not prepared to say we need to stand up to the utilities." He said he believes the commission itself, not ORA, should be the auditors and that he's unprepared "to give a blank check to anybody." If problems arise during an audit of any utility, he wants to hear about them, he said. An agreement on transmission planning authority being developed among the CPUC, the grid operator, and the California Energy Commission is expected to be released after press time, according to Grueneich. Please check Circuit's Web site for developments prior to the next issue.

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Interim CPUC Policy Allows QF Payments

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