Resolution E-4816 DRAFT March 23, 2017
Pacific Gas & Electric Company AL 4882-E/ED4
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
AGENDA ID #15549
ENERGY DIVISION RESOLUTION E-4816
March 23, 2017
RESOLUTION
Resolution E - 4816. Pacific Gas and Electric Company (PG&E) requests approval to convert a QF Contract into a Resource Adequacy (RA) Contract for the Sanger Power Facility (Sanger Facility)
PROPOSED OUTCOME:
· This resolution approves the Sanger contract conversion proposed by PG&E without modification.
SAFETY CONSIDERATIONS:
· There is no impact on safety. The Sanger Facility is an existing and operating generating facility, and approval of this contract conversion would not implicate safety.
ESTIMATED COST:
· This resolution is expected to lead to decreased ratepayer costs.
By Advice Letter 4882-E, filed on July 29, 2016.
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Summary
This Resolution by the California Public Utilities Commission (Commission or CPUC) would grant Pacific Gas & Electric Company (PG&E) permission to convert the existing agreement with Sanger Power, LLC (Sanger Power) into the proposed resource adequacy (RA) capacity agreement for 47 MW from the existing Sanger Facility. The contract would be for 50 months from contract approval (Sanger Contract). Sanger is not in a Local Capacity Area. The Sanger Contract does not include flexible RA attributes, local RA attributes, or any energy tolling capacity.
The Sanger Facility is a combined cycle cogeneration facility located in Sanger, California, southeast of Fresno. The facility currently operates under a Standard Offer 2 Power Purchase Agreement (PPA) that was executed in the 1980s as part of the Qualifying Facilities (QF) program pursuant to the Public Utility Regulatory Policies Act of 1978 (PURPA). Absent approval by the Commission, the QF contract would run through April 30, 2021, when the PPA expires.
For the reasons discussed below, the Commission approves AL 4882-E, without modification.
BACKGROUND
The Public Utility Regulatory Policies Act of 1978 (PURPA) was created, in part, to improve efficiency in the use of facilities and resources by electric utilities through the establishment of a new class of generating facilities which would receive special rate and regulatory treatment. The Sanger Facility met the criteria under PURPA as a qualifying cogeneration facility,[1] and thus is considered a qualifying facility (QF).[2] As such, the Sanger Facility has been providing power to PG&E under a Standard Offer 2 Power Purchase Agreement (SO2 PPA) that was executed in the 1980s, set to expire in 2021. The cogeneration facility uses steam for Dyna Fiber to produce hydromulch.
The Sanger Facility submitted proposals to PG&E to participate in the 2013 Combined Heat and Power Request for Offers (CHP RFO), but was not selected for the shortlist. Decision (D.)15-06-028 modified certain aspects of the QF/CHP settlement and resulted in PG&E not needing the Sanger Facility to meet its GHG reduction target or MW counting target. Thereafter, PG&E undertook bilateral negotiations to find a potential mutually beneficial agreement.
The negotiation process was monitored by an independent evaluator (IE), Merrimack Energy Group, with the IE’s observations and recommendations included in the IE Report attached to AL 4882-E.
Because the Sanger Facility is not within any Local Capacity Areas, it can provide system RA only, and not local RA. The Sanger Contract does not include any energy tolling capacity.
Since the contract is for less than 5 years, the Interim Emissions Performance Standard in D.07-01-039 does not apply. Sanger does exceed the performance standard in P.U. Code section 8341, but since that code section applies to baseload power, it is not applicable to Sanger.
NOTICE
Notice of AL 4882-E was made by publication in the Commission’s Daily Calendar. PG&E states that a copy of the Advice Letter was mailed and distributed to the service list for Rulemaking (R.) 13-12-010 in accordance with Section 4 of General Order 96-B.
PROTESTS
Advice Letter AL 4882-E was not protested.
DISCUSSION
Decision 06-12-009 directed that any amendments to existing QF contracts with less than five years in contract duration must be submitted to the Commission for approval via a Tier 3 advice letter. The Sanger Contract is for 50 months, therefore, PG&E sought approval of the Sanger Contract through a Tier 3 advice letter, AL 4882-E.
Commission review of procurement decisions is based on criteria established in previous Commission decisions and in California Public Utilities Code, Section 454.5, which provide guidance to the utilities and the Commission for the procurement of electricity and electricity-related products. Advice Letter 4882-E, however, is not for the procurement of power or capacity from a new facility, nor is it a new contract from a pre-existing facility with which a relationship does not exist. Rather, this advice letter seeks to change the terms of an existing contract, a contract that owes its existence to national policies set forth in PURPA. Absent Commission action, the QF contract would continue on unchanged until 2021. Thus, this procurement was not part of a public request for offers, nor undertaken to meet a policy goal set by the state of California, but to alter the terms of an existing agreement. We therefore will consider the Advice Letter under the usual criteria and then discuss how the criteria should be altered, when necessary.
The criteria to analyze IOU procurement include whether the procurement:
1. is in compliance with the Energy Action Plan (EAP) Loading Order;
2. is in compliance with once-through cooling Procurement Rules;
3. was discussed with the Procurement Review Group (PRG);
4. is in compliance with PG&E‘s Public Utilities Code Section 454.5 Bundled Procurement Plan;
5. meets residual energy and capacity needs; and
6. is at a reasonable price.
The EAP Loading Order Does Not Apply.
The EAP Loading Order, published on May 8, 2003, and endorsed in D.04-12-048, contains explicit direction regarding California’s preferences for meeting identified resource needs, and directs the Investor Owned Utilities (IOUs) to prioritize their resource selections accordingly. The EAP prioritizes resources in a “loading order” of policy preference and directs IOUs to procure resources in the following order of priority: Energy Efficiency (EE) and Demand Response (DR), renewable fuel resources, clean fossil-fired Distributed Generation (DG), and clean central-station generation. Sanger is an existing natural gas-fired combined-cycle cogeneration facility.
The Sanger Contract will provide a greater capacity at no additional cost, which will offset PG&E’s need for additional CPUC-mandated system RA capacity.
The Advice Letter is not requesting authorization for new resources, but exchanging an existing QF contract for a less expensive capacity contract. Since no new energy would be procured, the Loading Order does not apply. Therefore, the Sanger Contract is not inconsistent with the EAP Loading Order.
The Sanger Contract complies with OTC Procurement Rules.
The Sanger Facility is not a Once-Through-Cooling ( OTC) facility, and therefore the rules in D.12-04-046 are not applicable.
Consistent with D.02-08-071, PG&E’s Procurement Review Group (PRG) was notified of the Sanger Contract.
The Commission established PRGs to oversee the procurement activities of IOUs and mandated that each IOU maintain and routinely consult with its PRG. The purpose of the PRG is to review and assess the details of the IOUs’ overall procurement strategy and specific proposed procurement contracts and processes prior to submitting filings to the Commission. PG&E briefed the PRG on the Sanger Contract negotiations on April 19, 2016, and on July 11, 2016, PG&E presented an update reflecting changes in the agreement. Merrimack Energy Group also presented at the PRG on April 19, 2016. The negotiations and agreement were not presented to the CAM group because the agreement does not fall within the MW counting or GHG reduction goals of the QF/CHP settlement.
The Sanger Contract is in compliance with PG&E‘s Public Utilities Code Section 454.5 Bundled Procurement Plan.
A Commission-approved AB 57 Bundled Procurement Plan establishes the limits and criteria that guide utility procurement activities. All transactions and actions that fall within the boundaries of a Commission-approved AB 57 procurement plan are compliant and are assured cost recovery.
In D.15-10-031, the Commission adopted PG&E’s 2014 Bundled Procurement Plan compliance filing. This Decision required PG&E to file a conformed version of the 2014 Bundled Procurement Plan through a Tier 2 advice letter, which was approved by Resolution E-4750 on October 22, 2015.
Among other things, PG&E’s Bundled Procurement Plan specifies electrical capacity position limits and transaction rate limits (referred to as “ratable rates”) that apply to electrical capacity transactions for delivery months that occur two or more calendar years beyond the transaction year. The construct of ratable rates prevents PG&E from procuring too much of its forward requirements too far in advance and thereby constraining future procurement.
Since the conversion of the Sanger QF contract into an RA contract would be a minimal increase in capacity, approval would not violate the BPP limitations on procurement for 2017.
The Sanger Contract slightly affects residual capacity needs for PG&E’s bundled customers.
Since the conversion of the Sanger QF contract into an RA contract would be a net increase in capacity at no increased cost, there would be a slight reduction in the residual capacity needs for PG&E’s bundled customers for system RA.
The Sanger Contract is reasonably priced.
The cost of energy from Sanger was set by the QF contract over 40 years ago. Thus, the determination of reasonableness can be based on whether the proposed contract price improves upon the existing contract. This comparison is aided by the fact that both contracts have the same end date.
Since the proposed RA contract with Sanger Power would be for additional capacity at the current price, ratepayers would benefit, and the cost is, therefore, reasonable. PG&E, as stated by the Independent Evaluator, identified an opportunity to reduce ratepayer costs by gaining additional capacity and foregoing the cost of power at the contracted rates, which are above average. We agree with the Independent Evaluator that the negotiation process was fairly conducted and that the Sanger Contract would benefit ratepayers.
Since the relevant comparison for our decision is whether the proposed change is superior to the existing contractual price, we find the price to be reasonable. These findings and determination are confirmed by the Independent Evaluator Report.
The Sanger Contract does not violate safety concerns.
Since the existing QF contract would continue in the absence of approval, the question is whether the proposed RA contract conversion would affect safety at the Sanger Facility. We find that the proposed change would not affect safety.
We note that the Algonquin Power Company, parent company of Sanger Power, LLC, has a health and safety charter which includes:
1) a vision for a workplace with zero workplace injuries and illnesses;
2) embedding a safety culture via safety leadership and by continually improving occupational health and safety practices;
3) thoroughly investigating all accidents and incidents to ensure corrective actions, preventative measures and program changes are properly identified and implemented to prevent reoccurences.
The disclosure of the Sanger Contract is subject to the Public/Confidential treatment specified in D.06-06-066 and other relevant precedent. The Sanger Contract begins after approval by the Commission, and the confidential terms of these contracts will become public after three years, unless D.06-06-066 is modified to amend the current confidentiality treatment.
COMMENTS
This is an uncontested matter in which the resolution grants the relief requested. Accordingly, pursuant to PU Code 311(g)(2), the otherwise applicable 30-day period for public review and comment is being waived.
FINDINGS
1. Decision 06-12-009 directed that any amendments to existing QF contracts with less than five years in contract duration should be submitted to the Commission for approval via advice letter.
2. On September 20, 2016, Pacific Gas & Electric Company (PG&E) submitted Advice Letter 4882-E seeking Commission approval to convert a QF contract with Sanger Power to an RA contract (Sanger Contract) for capacity from the Sanger Facility, a combined-cycle cogeneration facility.
3. The Sanger Contract is for 47 MW of system RA capacity.
4. The Sanger Contract will provide PG&E with resource adequacy benefits for a term of 50 months, beginning after Commission approval, and ending on April 30, 2021.
10. The Sanger Contract would be a net financial gain for PG&E’s bundled customers.
11. Consistent with Decision 02-08-071, PG&E’s Procurement Review Group was notified of the negotiations with Sanger Power and the changes to the proposed Sanger Contract on April 19, 2016, and on July 11, 2016.
12. The Sanger Contract does not exceed PG&E’s approved Assembly Bill 57 bundled procurement authority for 2017.
THEREFORE IT IS ORDERED THAT:
1. The request of Pacific Gas and Electric Company (PG&E) that the Commission approve the resource adequacy (RA) agreement between PG&E and Sanger Power, LLC, as requested in Advice Letter AL 4882-E, is granted.
This Resolution is effective today.
I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on March 23, 2017; the following Commissioners voting favorably thereon:
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TIMOTHY SULLIVAN
Executive Director
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[1] Cogeneration is an older term for Combined Heat and Power, or CHP.
[2] In order to be considered a qualifying cogeneration facility, a facility must meet all of the requirements of 18 C.F.R. §§ 292.203(b) and 292.205 for operation, efficiency and use of energy output, and be certified as a QF pursuant to 18 C.F.R. § 292.207.