Out of the ashes of the federal law regulating utility cogeneration deals rose a long-awaited state regulatory phoenix this week. The California Public Utilities Commission announced Nov. 29 that all hurdles had been cleared for the beefy and complex settlement between cogenerators, investor-owned utilities, and consumer advocates. The final agreement--more than two-and-a-half years in the making--largely replaces with state regulation the federal law governing utility deals for combined heat and power (cogeneration), or qualifying facilities (QFs). It also ends years of litigation. “We finally have a path forward,” Beth Vaughn, Cogeneration Council executive director told Current. “It is going to be scary as to who will make the cut,” she added. “QF and renewable deals in California are now competitively bid,” said Steven Kelly, Independent Energy Producers’ policy director. Many QFs were in limbo because their utility contracts had expired or were close to expiration. Under the settlement, California’s three investor-owned utilities agree to each hold three solicitations over a four-year period for a total 3,000 MW of new, existing, or upgraded cogeneration power. The settlement was deemed effective Nov. 23. The deal sets out a variety of contract parameters covering, among other things, energy and capacity price and greenhouse gas emission reduction targets to comply with the state’s climate protection law, AB 32. It applies to qualifying facilities with capacity over 20 MW. For the last three decades under the federal law--the Public Utility Regulatory Policies Act--utilities and generators debated prices at the state level. This deal excises the rancor over remuneration for energy under PURPA, known as SRAC or “short run avoided costs.” The final settlement “clears away the underbrush and uncertainty for investors,” said CPUC general counsel Frank Lindh. Utilities have three months to launch the first solicitation for combined heat and power. The bids are to be “open, competitive and transparent,” IEP’s Kelly said, “at least, in theory.” Southern California Edison plans to launch its first solicitation “much sooner” than 90 days, according to Marc Ulrich, Edison vice president, renewable and alternative power. He added the settlement “is anticipated to benefit customers via lower cost of CHP power.” Pacific Gas & Electric also expects to issue its first round of “requests for offers” well before the settlement’s February 23, 2012, deadline, according to Roy Kuga, PG&E vice president of energy supply. San Diego Gas & Electric plans to launch its first bid for 60 MW of cogeneration on Feb. 21, said Art Larson, SDG&E spokesperson. Utility bids are expected to be similar to utility renewable energy solicitations. Edison is to sign 1,402 MW worth of deals, PG&E 1,387 MW, and SDG&E 160 MW the first four years. Subsequently San Diego is to sign for an additional 51 MW by 2020. The final agreement for the first time allows cost recovery for cogeneration facilities’ compliance with greenhouse gas emissions reductions, as called for by the state climate protection law, AB 32. The details are to be determined later. AB 32 lent momentum to the new cogeneration regulatory scheme because of the sizable role it gave to the alternative energy industry in helping slash the electricity sector’s carbon emissions. Power plants are the second largest greenhouse gas emitter after transportation. Initially the California Air Resources Board’s AB 32 scoping plan called for 4,000 MW of new combined heat and power facilities. There are about 3,000 MW of existing utility QF deals. Under the new agreement, the Air Board’s 7,000 MW target was replaced with an overall greenhouse gas emission reduction goal of 6.7 million metric tons by 2020 attributed to efficient cogeneration plants. Part of the cogeneration carbon reductions are to come from public power agencies because they too are governed by AB 32. How much of the cogeneration sector’s emission reductions are to be associated with the private utilities--which account for more than 70 percent of electricity retail sales--is to be worked out over the next four years by stakeholders in accordance with complex mathematical formulas set forth in the agreement, Vaughn said The size of the facilities under the new deal varies widely, from 10 MW to 100 MW, as do the interests of the various independent industrial power producers, including oil refiners, food processors, and hospitals. The commission’s general counsel notified the settling parties Nov. 29 of the earlier effective date because the Thanksgiving holiday delayed a decision. The CPUC had to ensure that the settlement faced no future challenges before the Nov. 23 appeals deadline. Regulators initially approved the cogeneration settlement in December 2010, but it was subsequently appealed. The final cogen agreement provides a state alternative to the 1978 federal Public Utilities Regulatory Policies Act. The law now only applies in California to qualifying facilities smaller than 20 MW, as directed by the 2005 Energy Policy Act. New facilities are set for 12-year contracts. Existing or upgraded cogeneration plants are to receive seven year deals. Under state law, cogeneration plants 20 MW or less may also qualify for feed-in tariffs, which provide standard open contracts that include transparent prices (see sidebar on page 2). In addition to the utilities, Cogeneration Council, and IEP, other parties to the deal include the Cogeneration Association of California, The Utility Reform Network, Division of Ratepayer Advocates, and Energy Producers and Users Coalition. Cogeneration facilities use excess power plant heat for their industrial processes in order to increase energy efficiency. While more efficient than single- or combined-cycle fossil-fueled power plants, they also use natural gas as a feedstock.
