Qualifying Facility Program Implementation Workshop

1
Qualifying Facility Program Implementation
Workshop

• Elizabeth Stoltzfus
• Bob Strauss
• Molly Sterkel
• Energy Division
• San Francisco
• November 14-15, 2007

2
Agenda

• November 14th
• 1000-1015 Welcome
• 1015-1200 Market Heat Rate (MHR) calculation
• 1200-100 Lunch
• 100-200 TOU factors
• 200-230 Calculation of gas price
• 230-300 Gas price data sources
• 300-330 Electricity price data sources
• 330-345 Updating OM
• 345-400 SRAC posting 

• November 15th
• 1000-1030 Extension of expiring contracts
• 1030-1100 As-available capacity payments
• 1100-1130 Method for rejection
• 1130-1200 Process of protesting
• 1200-100 Lunch
• 100-115 EEI Master Contract
• 115-145 CAC/EPUC draft contract
• 145-215 IOU draft contract
• 215-400 SO contract

3
Goal

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

4
Format

• Decision guidance
• Sample of perspectives
• CPUC recommendation
• Discussion

5
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)

6
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

7
Result

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

8
Market Heat Rate (MHR) calculation

• Rolling average of forward electricity price

9
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 PGE) or SP15 (for SCE and
  SDGE)variable OM shall be deducted from the
  market prices used to calculate the market based
  heat rate (p. 67)

10
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 VOM) / (Border gas price
  Intrastate transportation)1000 HR MHR
  (SHR1HR12)/12
• (Adapted from Table 3)

11
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
12
MHR calculation proposals

• Data collection
• Weekly
• Monthly
• Polling
• Sample from 3 prior months
• Sample from prior month
• Sample from 12 prior months

13
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)

14
Time of Use (TOU) factors

• SRAC TOU
• MPR TOU

15
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 reasonablethe 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)

16
TOU factors proposals

• Map MPR TOU factors to SRAC TOU periods
• SCE same TOU periods
• Hour-to-hour mapping PGE, SDGE
• TOU implementation
• Apply to both energy and capacity
• Apply to just energy
• Use only energy component of TOU factors

17
Proposed TOU factors for PGE
18
Proposed TOU factors for SCE
19
Proposed TOU factors for SDGE
20
CPUC proposal on TOU factors

• Extension of expiring contracts
• Map MPR TOU factors to PGE, SDGE 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

21
Calculation of gas price

• Intrastate gas transportation rates

22
Decision guidance on gas prices

• we adopt a burnertip gas price for use in
  calculating SRAC. We will allow SDGE 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/MMBtufor SCE and
  SDGE, SRAC shall be based on the Topock border
  price, while SRAC for PGE shall be based on a
  50/50 weighting of published border prices at
  Malin and Topock. (p. 72)

23
Gas price proposals

• Border price calculation already in effect
• Intrastate transportation costs
• SCE follow current methodology
• Schedule G-AA, EG, and G-SUR for PGE
• Schedule GT-F5 and G-MSUR for SCE
• Schedule EG and GP-SUR for SDGE
• Firm Access Rights (FAR)
• Update frequency of intra-state transportation
  costs
• Monthly
• Annually
• As needed

24
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)

25
PGE 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 (PGE 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.

26
SDGE 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

27
CPUC proposal on gas prices

• Sum of applicable tariffs
• SCE (GT-F5) (ITCS) (G-MSUR)
• SDGE (EG) (GP-SUR)
• PGE (G-AFT) (G-EG) (G-SUR)
• Update intra-state transportation costs annually
  or with changes in tariffs
• Border price calculation already in effect

28
Gas price data sources

• Border gas price
• Gas forwards

29
Decision guidance on gas price data sources

• For PGE 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
  WeeklyFor 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
  WeeklySDGE makes the same calculation as SCE.
  (p. 71)

30
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

31
CPUC proposal on gas price determination

• Border price
• Gas Daily
• Natural Gas Intelligence
• Natural Gas Weekly
• MHR uses burnertip price
• NYMEX for gas forwards

32
Electricity price data sources

• Determine appropriate data sources

33
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)

34
Proposals on electricity price data sources

• Platts MW Daily
• Platts and ICE
• Tullet
• Prebon
• Amerex
• TFS Energy
• Kiodex

35
CPUC proposal on electricity price data sources

• Platts MW Daily

36
Updating OM

• Timing

37
Decision guidance on OM adder

• SDGE proposes to use the 2004 value for the
  variable cost of a CCGT adopted in Phase 1We
  concur with this approach and adopt it for use in
  the SRAC energy formulae for the three utilities.
  However, the OM shall be escalated by 2 per
  year (p. 70)

38
Proposals for updating OM adder

• Escalate by 2 on January 1st of each year
• Use four significant digits

39
CPUC proposal on OM adder

• Escalate by 2 on January 1st of each year
• Use four significant digits

40
SRAC posting

• Day of month
• Format

41
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 Commissions Energy
  Division and DRA. (p.150)

42
Proposals for SRAC posting

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

43
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

44
Extension of expiring contracts

• Notifying and securing the extension terms
• Capacity and energy price provisions
• Term of the extension
• Process for moving to the new Standard Offer

45
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)

46
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
  todaywe 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)

47
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)

48
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

49
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

50
As-available capacity payments

• Escalation

51
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 SDGE and TURN. (pp. 146-147)

52
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

53
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

54
Method for rejection

• Criteria
• Notification

55
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)

56
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)

57
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 IOUs QF capacity greater
  than that listed in D.07-09-040
• LTPP doesnt include unfilled need for additional
  generation
• For small QFs, reject if LTPP doesnt include
  unfilled need for additional generation

58
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 IOUs QF capacity greater
  than that listed in D.07-09-040
• LTPP doesnt include unfilled need for additional
  generation
• For small QFs, reject only if LTPP doesnt
  include unfilled need for additional generation
  and above small QF cap

59
Process of protesting

• QF options

60
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)

61
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

62
CPUC proposal on protests

• QFs have same protest rights as prior to
  D.96-12-028
• File protests under R.06-02-013 proceeding

63
Contract presentations

• EEI Master Contract
• CAC and EPUC draft contract
• Joint IOU draft contract

64
Standard Offer (SO) contract

• Decision guidance

65
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 contractSecond, we will
  make available a one-to-ten-year contract for
  firm unit-contingent power (p. 8)

66
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)

67
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)

68
Decision guidance on SO contracts continued

• New contracts must explicitly take the existence
  of the CAISO and its tariff requirements into
  account. We adopt PGEs recommendation that QFs
  one MW or greater should be required to comply
  with the CAISO tariffs. (p.135)

69
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

70
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

71
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 sellers
  completion of necessary preparations
• Designated by seller

72
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

73
Proposals for SO contracts continued

• Environmental costs
• Buyer pays costs incurred after 9/20/07
• Seller pays
• Force majeure provisions

74
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