Proposed Decision in the CHP (AB 1613) Case

In the PUC’s effort to implement AB 1613 (2007) the “Waste Heat and Carbon Emissions Reduction Act, which will provide a feed-in tariff for combined heat and power (CHP) projects up to 20 MW in output, a new Proposed Decision (PD) was issued November 16 th . The new PD will settle the issues that have been up in the air since the “Joint Utilities,” (PG&E, SCE, and SDG&E) filed a motion to modify and stay Decision D.09-12-042 (issued December 2009) last January. The case is Rulemaking 08-06-024 . The PD grants in part, and denies in part, the request by the Joint Utilities to modify D.09-12-042. Among other things, the PD proposes to revise the methodology for setting the price to be offered by the electrical corporations to utilize pricing inputs from the most recent Market Price Referent (MPR). The MPR is the mechanism developed for the Renewables Portfolio Standard program that is a proxy for long-term avoided cost - designed to mimic the cost factors of a combined cycle gas turbine generator set. The PD corrects language in the previously-adopted form contracts to clarify that the “Fixed Price Component” of the price is to be a constant value during the entire contract term and is to be based on the pricing inputs at the time the contract was executed and for the life of the contract. The PD allows either party to procure the greenhouse gas allowance at the option of the “Seller” (the CHP project). The utilities’ request to reduce the price to be offered to reflect an as-available price is denied. Furthermore, the PD modifies D.09-12-042 in order to be consistent with two subsequently issued orders by the Federal Energy Regulatory Commission (FERC). The FERC orders clarified that under the Public Utility Regulatory Policies Act of 1978 (PURPA), the Commission could require California utilities to offer contracts at Commission-determined wholesale rates to eligible CHP systems which participate in the AB 1613 (Ch. 713, Stats. 2007) program, provided that the rates did not exceed the purchasing utilities’ avoided costs and that the CHP systems had obtained Qualifying Facility (QF) status under the FERC’s regulations. In this order, FERC clarified that the state has a wide degree of latitude in setting avoided cost, can utilize a multi-tiered avoided cost rate structure, and that this approach is consistent with the avoided cost requirements set forth in Section 210 of PURPA. The FERC Clarification Order recognizes that full avoided cost need not be the lowest possible avoided cost and can properly take into account real limitations on alternate sources of energy imposed by state law. Other issues settled in the PD include line loss calculations (to be determined by CAISO in the interconnection process); contractual Term Start Date (commencement of commercial operation, not contract signing date); and decertification of a project from eligibility under AB 1613 program (will be offered short-run avoided cost unless QF status also lost). The PD also makes other modifications to the form contracts to clean up contractual language including denying modifications sought by the Joint Utilities in that clean-up language but deemed to be substantive. Modified contract language is attached to the PD, and utilities are ordered to implement the changes and adopt them by filing Advice Letters, updating their Assembly Bill 1613 tariffs and standard contracts with the new Market Price Referent inputs. Annual advice letters must be filed and served within five days of the date that the order adopting the Market Price Referent is mailed - an annual event. The advice letter must also include a summary table of information about resources procured as a result of this program in the previous year and over the life of the program and updates on Location Bonus areas. Energy Division staff will provide the utilities with a template for the information to be provided in this table prior to the end of the program’s first implementation year. The Joint Utilities are ordered to negotiate with the parties to develop a simplified contract for less than 500 kW systems, a process the Commission expects to take six months. The Energy Division will likely conduct a workshop to establish guiding principles. Barring any further motions for rehearing, stays of execution, or rabbits pulled from hats, this PD, when approved by the Commission, should finally put in place a viable program that will allow the development of significant numbers of CHP projects. The PD sets in motion a round of comments and reply comments. Opening comments are due December 6 th , and replies December 13 th .

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Proposed Decision in the CHP (AB 1613) Case

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