IEP Protests Edison’s Free Developer Proposal

Southern California Edison Co (SCE) in its 2012 General Rate Case filed November 23, 2010, requested, among other things, that they be allowed to include in rates $6.55 million per year to fund the Project Development Division (PDD). SCE also requested in that application to terminate the Project Development Division Memorandum Account (PDDMA), which allows the Commission to track costs for activities that the PDD is authorized to pursue while excluding recovery of “costs associated with actual proposed projects.” SCE also requests that these costs be included in rates. The Independent Energy Producers Association (IEP) filed a protest December 29 th , saying that this freebee would unbalance the marketplace in an era of open competition. In the Commission’s hybrid market structure, IEP says, utility owned generation (UOG) projects are supposed to compete directly and fairly with projects offered by Independent Power Producers (IPPs). If the development of UOG projects is subsidized by ratepayers while IPPs must bear their own costs of project development, the competition promised under the hybrid market structure will be skewed in favor of UOG projects. The nearly $20 million total funding the application seeks for the PDD, for example, is roughly 4% of the total cost of a large, $500 million generation project, a large enough margin to tilt a competitive solicitation toward a UOG proposal. SCE has tried this maneuver before. In SCE’s 2006 GRC application (A.04-12-014), for example, IEP objected to the use of ratepayer money to perform project development activities. The Commission had just issued Decision (D.) 04-12-048, which called for head-to-head competition between UOG and projects sponsored by IPPs, and IEP noted that SCE’s proposal for a PDD conflicted with the Commission’s policy goals. As IEP and other parties pointed out, there cannot be fair head-to-head competition between PPAs and utility-sponsored, turnkey, or buyout proposals if nonutility project sponsors are required to reflect their project development costs in their bids while utilities’ corresponding costs are subsidized by ratepayers, outside of the bid evaluation process of the solicitation. Nonutility project sponsors can recover the costs of project development only through sales of electricity generated from the facility; there simply is no other source of revenue to offset these and other costs. For nonutility sponsors, the revenues from power sales must cover all the costs of developing, constructing, operating, and maintaining the power plant. The Commission responded to these concerns in D.06-05-016 and declared: .”… we find it necessary to subject SCE to the same cost recovery risks as faced by independent producers. Independent producers’ development costs associated with unsuccessful projects are not recoverable from ratepayers. It is a matter of fairness that SCE assume that same risk, if it chooses to participate.” Three years later, in D.09-03-025, the Commission rejected SCE’s request to add $21 million of research, development, and demonstration costs to the PDD funding. The Commission was concerned about “the potential to create an uneven playing field for competitors” and concluded that “from a policy perspective, we feel it is important that the project development costs for proposed new projects should not be specifically included in rates.” For similar reasons, the Commission rejected SCE’s request, repeated in the current application, to recover the costs of the PDD through conventional ratemaking rather than through the PDDMA. Use of the PDDMA allows the Commission to track costs for activities that the PDD is authorized to pursue while excluding recovery of “costs associated with actual proposed projects.” IEP concludes by requesting that the funding for PDD be denied, and that the PDD Memorandum Account not be eliminated.

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IEP Protests Edison’s Free Developer Proposal

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