Qualifying Facility Program Implementation Workshop Elizabeth Stoltzfus

Bob StraussMolly SterkelEnergy Division

San FranciscoNovember 14-15, 2007

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Agenda November 14th 10:00-10:15 Welcome 10:15-12:00 Market Heat

Rate (MHR) calculation 12:00-1:00 Lunch 1:00-2:00 TOU factors 2:00-2:30 Calculation of gas

price 2:30-3:00 Gas price data

sources 3:00-3:30 Electricity price

data sources 3:30-3:45 Updating O&M 3:45-4:00 SRAC posting 

November 15th

10:00-10:30 Extension of expiring contracts

10:30-11:00 As-available capacity payments

11:00-11:30 Method for rejection

11:30-12:00 Process of protesting

12:00-1:00 Lunch 1:00-1:15 EEI Master

Contract 1:15-1:45 CAC/EPUC draft

contract 1:45-2:15 IOU draft contract 2:15-4:00 SO contract

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Goal

The goal of this workshop is consensus building on the implementation of Decision 07-09-04.

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Format

Decision guidance Sample of perspectives CPUC recommendation Discussion

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After the workshop

Highlights of workshop Joint IOU tier 3 advice letter (AL)

Contains: Exact data sets Implementation methodology

Within 30 days of workshop (12/16/07) Individual IOU tier 3 advice letter

Standard offer contracts Within 60 days of workshop (1/15/08)

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Advice Letter process

20 day period for protests by parties 5 days for IOUs to reply to protests Energy Division (ED) considers AL within 30

days unless suspended Draft resolution sent to service list

10 day comment period 30 days on Commission calendar Resolution voted on by Commission

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Result

Adopted by Resolution: Finalized data sets and methodology Finalized standard offer contract for each IOU

Market Heat Rate (MHR) calculation

Rolling average of forward electricity price

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Decision guidance on MHR

“In calculating the [MHR] using NP15/SP15 indices, rather than using historical prices, we will use a 12-month rolling average of the weighted average price of the forward market prices for NP15 (for PG&E) or SP15 (for SCE and SDG&E)…variable O&M shall be deducted from the market prices used to calculate the market based heat rate” (p. 67)

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Decision guidance on weighted average “The monthly weighted average power price

is determined as follows. The monthly peak power price is weighted 57% and the off-peak power price is weighted 43%” (p. 7)

(Forward energy price – VO&M) / (Border gas price + Intrastate transportation)*1000 = HR MHR = (ΣHR1…HR12)/12

(Adapted from Table 3)

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Rolling average

A rolling average or simple moving average (SMA) is the mean of the previous n data points. For example, a 10-day simple moving average of closing price is the mean of the previous 10 days' closing prices. If those prices are pM, pM − 1... pM − 9 then the formula is:

http://en.wikipedia.org/wiki/Rolling_average

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MHR calculation proposals

Data collection Weekly Monthly

Polling Sample from 3 prior months Sample from prior month Sample from 12 prior months

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CPUC proposal on MHR calculation Data collection

Monthly average across sources Collect 12 months of forwards each month Average of samples from prior 12 months for

following month For example: Forward price for Jan ‘08 = Average(12 month

forward price as of Jan ‘07, 11 month forward price as of Feb ‘07, …1 month forward price as of Dec ‘07)

Time of Use (TOU) factors

SRAC TOU

MPR TOU

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Decision guidance on TOU factors “we believe that updating the IOUs’ TOU/TOD

factors and periods to be consistent with the TOU factors adopted in other procurement proceedings is reasonable…the TOD factors are too flat to adequately reflect the differential in prices in peak and off-peak periods. In light of this, we believe it is appropriate to adopt TOU factors that are consistent with the adopted TOU factors for the Market Price Referent (MPR).” (p. 74)

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TOU factors proposals

Map MPR TOU factors to SRAC TOU periods SCE same TOU periods Hour-to-hour mapping PG&E, SDG&E

TOU implementation Apply to both energy and capacity Apply to just energy Use only “energy component” of TOU factors

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Proposed TOU factors for PG&EPeak Partial

PeakOff-Peak Super

Off-Peak

Summer (May-Oct)

1.70 1.14 0.84 0.74

Winter (Nov-Apr)

NA 1.10 0.94 0.79

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Proposed TOU factors for SCE

On Peak Mid Peak Off-Peak Super Off-Peak

Summer (Jun-Sep)

3.28 1.28 0.67 NA

Winter (Oct-May)

NA 1. 02 0.82 0.65

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Proposed TOU factors for SDG&E

On- Peak Semi- Peak

Off-Peak Super Off- Peak

Summer (May-Sep)

1.50 0.99 0.87 0.57

Winter (Oct-Apr)

1.34 1. 16 0.99 0.69

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CPUC proposal on TOU factors Extension of expiring contracts

Map MPR TOU factors to PG&E, SDG&E SRAC TOU factors

SCE TOU periods are the same Apply MPR TOU factors to energy payment

New contracts Apply MPR TOU factors to energy payment Use MPR TOU periods

Calculation of gas price

Intrastate gas transportation rates

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Decision guidance on gas prices “we adopt a burnertip gas price for use in calculating

SRAC. We will allow SDG&E and the other utilities to annually update the intrastate transportation rate to the most recent value in their gas tariffs, as necessary. For example, if border gas at Malin is $6.00/MMBtu and intra-state transportation is $0.50/MMBtu, the burner-tip gas price is $6.50/MMBtu…for SCE and SDG&E, SRAC shall be based on the Topock border price, while SRAC for PG&E shall be based on a 50/50 weighting of published border prices at Malin and Topock.“ (p. 72)

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Gas price proposals

Border price calculation already in effect Intrastate transportation costs

SCE follow current methodology Schedule G-AA, EG, and G-SUR for PG&E Schedule GT-F5 and G-MSUR for SCE Schedule EG and GP-SUR for SDG&E Firm Access Rights (FAR)

Update frequency of intra-state transportation costs Monthly Annually As needed

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SCE current methodology

(GT-F5) + (ITCS) + (G-MSUR) Where:

GT-F5 = Firm Intrastate Transmission Service, for electric generation, for customers using 3 million therms or more per year (Schedule GT-F)

ITCS = Interstate Transition Cost Surcharge (Schedule GT-F)

G-MSUR = Transported Gas Municipal Surcharge (Schedule G-MSUR) = Surcharge % outside the city of Los Angeles x (G-CPA) x Imputed Franchise Fee Factor

G-CPA = The rate used for purposes of calculating the municipal surcharge as defined in Schedule G-MSUR (Schedule G-CP, G-CPA)

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PG&E proposed methodology

(G-AFT ) + (G-EG) + G-SUR Where: G-AFT = Average (firm Redwood On-System

transmission rate, Baja On-System transmission rate) plus applicable shrinkage for the relevant delivery path (PG&E G-AFT and Gas Rule 21).

G-EG = Applicable variable transportation charge for electric generator service under the G-EG tariff.

G-SUR = Gas Franchise Fee Surcharge, in effect on the first day of the pertinent SRAC posting month.

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SDG&E proposed methodology (EG) + (GP-SUR) Where: EG = rate from tariff schedule EG for

customers using 3 million therms or more per year

GP-SUR = The rate used for purposes of calculating the municipal surcharge as defined in Schedule GP-SUR

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CPUC proposal on gas prices

Sum of applicable tariffs SCE: (GT-F5) + (ITCS) + (G-MSUR) SDG&E: (EG) + (GP-SUR) PG&E: (G-AFT) + (G-EG) + (G-SUR)

Update intra-state transportation costs annually or with changes in tariffs

Border price calculation already in effect

Gas price data sources

Border gas price

Gas forwards

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Decision guidance on gas price data sources “For PG&E in its May 2006 SRAC posting,

the utility takes (1) the average of three Malin bidweek gas indices as reported in Gas Daily, Natural Gas Intelligence, and Natural Gas Weekly…For SCE in its May 2006 SRAC posting, the utility takes (1) the average of three Malin bidweek gas indices as reported in Gas Daily, Natural Gas Intelligence, and Natural Gas Weekly…SDG&E makes the same calculation as SCE.” (p. 71)

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Proposals for gas price determination Border price

Gas Daily Natural Gas Intelligence Natural Gas Weekly Btu Daily Gas Wire

MHR uses burnertip gas price NYMEX for gas forwards

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CPUC proposal on gas price determination Border price

Gas Daily Natural Gas Intelligence Natural Gas Weekly

MHR uses burnertip price NYMEX for gas forwards

Electricity price data sources

Determine appropriate data sources

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Decision guidance on electricity price data sources “The forward market prices will be based on a

weighted average price of the forward market prices for North of Path 15 (NP15) or South of Path 15 (SP15), as reported in Platts Megawatt Daily and/or the Intercontinental Exchange (ICE)” (pp. 6-7)

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Proposals on electricity price data sources Platts MW Daily Platts and ICE Tullet Prebon Amerex TFS Energy Kiodex

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CPUC proposal on electricity price data sources Platts MW Daily

Updating O&M

Timing

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Decision guidance on O&M adder “SDG&E proposes to use the 2004 value for

the variable cost of a CCGT adopted in Phase 1…We concur with this approach and adopt it for use in the SRAC energy formulae for the three utilities. However, the O&M shall be escalated by 2% per year” (p. 70)

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Proposals for updating O&M adder Escalate by 2% on January 1st of each year Use four significant digits

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CPUC proposal on O&M adder Escalate by 2% on January 1st of each year Use four significant digits

SRAC posting

Day of month

Format

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Decision guidance on SRAC posting “IOUs should post the monthly SRAC

energy prices and annual capacity prices on their websites and file the prices with the Commission’s Energy Division and DRA.” (p.150)

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Proposals for SRAC posting

Spreadsheet template of data Posted on first business day of the month Electronic copy to ED

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CPUC proposal on SRAC posting Posted on the Web and mailed/emailed to ED

and DRA on the first business day of the month

Electronic copy to ED

Extension of expiring contracts

Notifying and securing the extension termsCapacity and energy price provisions Term of the extensionProcess for moving to the new Standard Offer

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Decision guidance on expiring or expired contracts “Two Standard Contract Options for

Expiring or Expired QF Contracts and New QFs: One- to Five-Year As-Available Power Contract. One- to Ten-Year Firm, Unit-Contingent Power

Contract.

QFs will also continue to have the option of either participating in Investor-Owned Utilities (IOU) power solicitations, or negotiating bilateral contracts with the IOUs.” (p. 2)

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Decision guidance on contract extensions “D.04-01-050 also put parties on notice that certain

renewed contracts would be subject to subsequent changes in pricing methodologies that may result from this rulemaking. D.05-12-009, continued the interim relief provided in D.04-01-050 for QFs with expired or expiring contracts until the Commission issues a final decision in the combined dockets, R.04-04-003 and R.04-04-025. We issue that final decision today…we opt to make it available to QFs that are, or were, on contract extensions approved in D.02-08-071, D.03-12-062, D.04-01-050, and D.05-12-009. “ (p. 18)

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Decision guidance on expiring contracts continued “The QF may extend the non-price terms and

conditions of the expiring contract and continue service with the pricing set forth in this Decision until the final contract is available.” (p. 126)

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Proposals for expiring contracts Option to shift to firm capacity terms and pricing if

previously under a firm capacity contract Process for notifying and securing the extension

terms Precise designation of capacity and energy price

provisions Term of the extension Process for moving to the new Standard Offer

contract

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CPUC proposal on expiring contracts MIF goes into effect on first business day of

the month following finalized Resolution for Joint IOU Tier 3 AL

Capacity and energy price provisions based upon the Resolution for Tier 3 Joint IOU AL

Initiate SO contract as soon the resolution for the applicable individual IOU Tier 3 AL is finalized

Extension term ends when new contract is in place

As-available capacity payments

Escalation

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Decision guidance on as-available capacity payments “Using a levelized nominal dollar value to compute the CT cost

would overstate the avoided capacity cost as well as present additional cost and risk for utilities and ratepayers.

Using an economic carrying charge rate, escalated for inflation over the life of the contract, allows us to provide more flexibility in contract terms, from one year up to ten years with the same CT cost estimate.For purposes of calculating payments for as-available capacity, it is reasonable to adopt the CT cost and real economic carrying charge rate calculations proposed by TURN as presented in Exhibit 149, Appendix B, with an ancillary services adjustment and an energy benefit adjustment subtracted from the adopted value as suggested by SDG&E and TURN. ” (pp. 146-147)

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Proposals for as-available capacity pricing escalation Escalate CT annual capital cost on Jan. 1 of

each year Inflation rate

US Army Corps of Engineers 2.5%

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CPUC proposal on as-available capacity pricing escalation Escalate CT annual capital cost on Jan. 1 of

each year Use US Army Corps of Engineers index

Method for rejection

Criteria

Notification

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Decision guidance on method for rejection “We do not want to see erosion of the utilities’ QF

supplies, therefore we expect that as old QF contracts expire, new or renewed QF contracts will replace them. However, if a QF over 20 MW seeks access to one of the contract options described above, the IOU must determine if it would be inconsistent with the existing need determination from the Long-Term Procurement Plan (LTPP) proceeding. Further, the utility must consult with its Procurement Review Group (PRG) within 20 days of receiving a contract request from a QF. The PRG consultation period shall be initiated within 20 days of receiving a contract offer from a QF.” (p. 123)

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Decision guidance on method for rejection continued “For small QFs, the IOUs may not deny one of

the two contracting options described herein on the basis of oversubscription unless the total capacity of QF power would, with the proposed contract, exceed 110% of the utilities QF capacity as of the date of this decision.” (p. 150)

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Proposals for method of rejection Written notification that includes detailed

reasoning for rejection based on the LTPP For large QFs, reject QF only if

Addition would make the IOU’s QF capacity greater than that listed in D.07-09-040

LTPP doesn’t include unfilled need for additional generation

For small QFs, reject if LTPP doesn’t include unfilled need for additional generation

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CPUC proposal on methods for rejection Written notification to the CPUC and QF that

includes detailed reasoning for rejection based on the LTPP

For large QFs, reject QF only if Addition would make the IOU’s QF capacity greater than

that listed in D.07-09-040 LTPP doesn’t include unfilled need for additional

generation For small QFs, reject only if LTPP doesn’t include

unfilled need for additional generation and above small QF cap

Process of protesting

QF options

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Decision guidance on protests “If a QF believes that a contract is being

unreasonably withheld, it may file a complaint with the Commission.” (p. 123)

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Proposals for protests

Clear methodology for protests QFs have same protest rights as prior to

D.96-12-028 File protests under R.06-02-013 proceeding

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CPUC proposal on protests

QFs have same protest rights as prior to D.96-12-028

File protests under R.06-02-013 proceeding

Contract presentations

EEI Master Contract

CAC and EPUC draft contract

Joint IOU draft contract

Standard Offer (SO) contract

Decision guidance

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Decision guidance on SO contracts “The EEI contract will be the basis for our

Prospective QF Program contract options, however, a simplified version of the EEI contract shall be utilized for Small QFs.” (p. 3)

“First, QFs who choose only to provide non-firm, as-available power will have access to a one- to five-year as-available contract…Second, we will make available a one-to-ten-year contract for firm unit-contingent power” (p. 8)

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Decision guidance on SO contracts continued “the firm power contact option adopted in this

decision establishes a higher level of performance by imposing penalties to the capacity payment for failure to deliver 95% of the contract power during on-peak months and 90% of the contract power during off-peak months (not counting scheduled outages).” (p. 97)

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Decision guidance on SO contracts continued “QFs with expiring contracts seeking to sign

new unit-firm contracts shall not have to provide additional credit support, nor should they be required to perform additional interconnection studies. QFs larger than one megawatt are responsible for scheduling coordination, although the utilities must offer scheduling service to QFs at a reasonable cost.” (p. 122)

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Decision guidance on SO contracts continued “New contracts must explicitly take the

existence of the CAISO and its tariff requirements into account. We adopt PG&E’s recommendation that QFs one MW or greater should be required to comply with the CAISO tariffs.” (p.135)

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Proposals for SO contracts

Energy Metered Net electrical output

Payment Change to reflect current SRAC pricing MIF

Capacity Established by seller Established by seller subject to demonstration

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Proposals for SO contracts continued Capacity payment

Reduced for failure to meet performance standards

Seasonal availability payment No payment intervals in which seller fails to

deliver Net Contract Capacity Forecasts

Seller provides Provided on day and intraday basis

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Proposals for SO contracts continued CAISO charges

Seller pays imbalance charges Buyer pays all charges

Seller must enter into a Participating Generator Agreement with CAISO

Term commencement date 1st day of the month following seller’s completion

of necessary preparations Designated by seller

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Proposals for SO contracts continued Scheduled outages

Advance notice annually Advance notice annually and quarterly No outages June-Sept. Buyer coordinates outages with CAISO Seller coordinates outages with CAISO

Buyer sole recipient of resource adequacy attributes

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Proposals for SO contracts continued Environmental costs

Buyer pays costs incurred after 9/20/07 Seller pays

Force majeure provisions

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CPUC proposal on SO contracts Comply with D.07-09-040

Include renewables and cogen Firm and as-available contracts QFs responsible for scheduling if sufficiently large Simplified contract for small QFs Penalty for failure to meet firm performance

requirements