UNITED STATES OF AMERICA
Before the
FEDERAL ENERGY REGULATORY COMMISSION
)
) / Docket No. RM06-10-000
INItial comments of
Southern California Edison Company
on PURPA Section 210(m)
NOTICE OF PROPOSED RULEMAKING
February 27, 2006
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table of contents
Page
I. summary and statement of issues 1
II. Treatment of contracts entered into after August 8, 2005 5
III. proposed generic findings under Section 210(m)(1) subparagraphs (A)-(C) 9
A. Subparagraph (A) 9
B. Subparagraph (B) 13
1. Subparagraph (B)(i) 13
2. Subparagraph (B)(ii) 20
IV. “obligation” must be defined and must be defined narrowly to reflect congressional intent 26
A. The Legislative History 28
B. The Commission Should Define “Obligation” Narrowly 29
V. Miscellaneous Issues 30
A. Notice Requirement 30
B. Section 210(m)(7) 32
C. Fee 33
VI. communications 33
VII. conclusion 34
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UNITED STATES OF AMERICA
Before the
FEDERAL ENERGY REGULATORY COMMISSION
)
) / Docket No. RM06-10-000
INItial comments of
Southern California Edison Company
on PURPA section 210(m)
NOTICE OF PROPOSED RULEMAKING
Pursuant to the Commission’s Notice of Proposed Rulemaking (NOPR) dated January 19, 2006, Southern California Edison Company (SCE) hereby submits its Initial Comments in the above-referenced proceeding.[1]
I. summary and statement of issues
By encouraging the development of qualifying facilities (QFs) at a time when few opportunities existed for independent energy producers, the Public Utility Regulatory Policies Act of 1978 (PURPA) advanced the idea that third-party generation could be successfully integrated into utility power systems. The resulting effect on the electric industry was profound, particularly in the State of California. As a direct result of PURPA, SCE entered into hundreds of QF contracts and currently has over 200 such contracts in effect representing over 4,700 MW of capacity. PURPA clearly served as a powerful inducement for QFs to enter and obtain a very large share of the electric generation market in California. Congress has now recognized that the special inducements contained in PURPA for QFs are no longer necessary, if the Commission makes certain findings regarding the existence of competitive markets. In other words, Congress has found that QFs should compete with other wholesale power producers where there are competitive markets for their power. This policy shift is consistent with the robust development of the QF sector in California and elsewhere. Any “infant industry” justification for continuing to protectively foster the development of QFs through subsidies and quotas is no longer valid.
The recently enacted Energy Policy Act of 2005 (EPAct 2005) adds to PURPA a Section 210(m),[2] which allows a utility to be relieved of its PURPA purchase obligation upon the Commission making certain findings. The intent of Congress in repealing the PURPA purchase obligation will be implemented through the rules developed in this proceeding and thus it is crucial that such rules reflect and carry out Congressional intent. With only a very few exceptions, the NOPR plainly does reflect Congressional intent and signals that the Commission is quite serious about eliminating the PURPA purchase obligation in regions where competitive markets exist. SCE is pleased to see that the Commission has adopted reasoned interpretations of Section 210(m) that will allow many utilities to make use of the statute’s provisions.
SCE largely supports the NOPR. The primary purpose of these Initial Comments is to obtain clarifications of the proposed rules and suggest means by which the Commission can ensure that the implementation process is efficient, effective, and not the cause of pervasive litigation that frustrates Congressional intent. However, there is one proposal in the NOPR that causes SCE serious concern: the treatment of QF contracts entered into after August 8, 2005 (the date of enactment of the EPAct 2005). As specified below, this proposal requires additional clarity to ensure that QFs are not able to subvert the clear intent of Congress through state regulatory mandates and/or create a “gold rush” of contracting activity prior to the time that the Commission can act on any petition for relief submitted by SCE under Section 210(m).
The specific issues addressed in SCE’s Initial Comments are the following:
1. The Commission should clarify in the Final Rule that when a utility is granted relief from the PURPA purchase obligation, the utility shall not be required to honor any QF contracts entered into after August 8, 2005. See PURPA § 210(m)(1). In the alternative, the utility should not be required to enter into any QF contracts (or honor any QF contracts entered into) as of the date of the utility’s filing of a petition for relief from the PURPA purchase obligation. This determination is necessary to protect against a QF contracting “gold rush” that would undermine the intent of Congress in authorizing an end to the PURPA purchase obligation;
2. SCE supports the Commission’s proposed generic finding that PURPA Section 210(m)(1)(A) should, upon a ministerial finding, exempt utilities from the PURPA purchase obligation in regions where Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs) administer day-ahead and real-time markets, and bilateral long-term contracts for the sale of capacity and electric energy are available to participants/QFs in those markets. SCE urges the Commission to make the further generic finding that, once market redesign is implemented by the California Independent System Operator Corporation (CAISO) with the day-ahead market described in the recent Market Redesign and Technology Upgrade Tariff filing of the CAISO, then SCE (and all other CAISO-member utilities) should qualify for the ministerial exemption provided in Section 210(m)(1)(A);
3. The Commission can and should make a generic finding that all QFs interconnected with Commission-jurisdictional utilities – or at the very least those QFs interconnected with California’s investor owned utilities – have nondiscriminatory access to “transmission and interconnection services that are provided by a Commission-approved regional transmission entity and administered pursuant to an open access transmission tariff that affords nondiscriminatory treatment to all customers,” as required under PURPA Section 210(m)(1)(B)(i);
4. SCE supports the Commission’s proposed “case-by-case” approach to determining whether a utility has met the requirements of PURPA Section 210(m)(1)(B)(ii), i.e., that the market in which the utility operates is “competitive” and affords QFs a “meaningful opportunity” to sell. However, the Commission should make certain generic findings in connection with these requirements, namely that: (a) markets should be deemed “competitive” where the Commission has authorized market-based rate authority for any seller in that market; and (b) the existence of an organized procurement process in a given market indicates that QFs have access to wholesale markets that provide a meaningful opportunity for the QFs to sell power;
5. The Commission should not adopt a nationwide size exemption that would continue the PURPA purchase obligation for all QFs under a certain size. Rather, exemptions should be determined on an appropriate regional basis. With respect to SCE’s service territory, given that SCE regularly issues solicitations open to generators as small as 1 MW (pursuant to the California Renewables Portfolio Standard), the exemption in SCE’s service territory should be for QFs smaller than 1 MW;
6. The Commission should provide additional guidance to utilities that intend to seek relief from the PURPA purchase obligation pursuant to a petition under Section 210(m)(1)(B) as to the evidentiary showing necessary to meet the statute’s requirements;
7. The term “obligation,” as used in Section 210(m) should be narrowly defined, consistent with Commission precedent, case law, and the legislative history of Section 210(m). The Final Rule should define “obligation” to refer only to those mutual arrangements that were sufficiently developed to include all relevant terms and mutual commitments of the parties and be in effect, or awaiting state commission approval, as of August 8, 2005;
8. The Final Rule should clarify that the notice requirements applicable to petitioners seeking relief from the PURPA purchase obligation require notice only to certified QFs in the utility’s service territory that have the characteristics identified in the NOPR; and
9. The Final Rule should clarify that there is no Filing Fee required to be submitted with a filing seeking relief from the PURPA purchase obligation.
II. Treatment of contracts entered into after August 8, 2005
The treatment of QF contracts entered into after August 8, 2005 should be clarified significantly to avoid both disputes and a race by QFs to the utilities’ doors (or state utility regulatory commission chambers). SCE is highly concerned that QFs with expiring contracts and/or new QFs may seek, by any means possible, to obtain a contract prior to the Commission making the requisite finding under Section 210(m)(1) that would relieve SCE of its PURPA purchase obligation. Section 210(m)(6) is quite clear that the only QF contracts/obligations that are subject to this savings provision are those already in effect on August 8, 2005. This fact leaves open the question of what happens to contracts/obligations not in effect by August 8, 2005, but in effect prior to the date that the Commission makes a Section 210(m)(1) finding as to a particular utility (thereby relieving that utility of its PURPA purchase obligation).
A ruling by the Commission allowing such contracts and/or obligations to be honored likely will result in a stream of extraordinary demands being placed on state commissions to impose contracting obligations, and/or a rush by QFs to the utilities to get new contracts or extensions in place, while the window for obtaining or extending contracts is perceived to be still open. Such actions would completely undermine Congressional intent to eliminate the PURPA purchase obligation for appropriately qualified utilities.
SCE’s concerns are well-founded. These concerns are based on SCE’s long experience in what is certainly the most robust QF market in the nation – California. As SCE previously stated in testimony provided to the Commission (in connection with a potential merger of SCE and San Diego Gas & Electric Company), SCE experienced a well-known QF “gold rush” in the 1980s.[3] In 1985, QFs drastically accelerated contracting activities with SCE, due to a widespread perception (which later proved accurate) that the California Public Utilities Commission (CPUC) was going to take actions to restrict QF contracting, including potential suspension of certain lucrative Standard Offer contracts. Between April 1 and April 17, 1985 (the date upon which the CPUC was scheduled to act), 94 QFs executed contracts with SCE, with projects totaling 1,300 MW of effective dedicated capacity. SCE is concerned that a similar, if not more extensive, “gold rush” by QFs will occur in the time period leading up to the Commission’s decision on a petition for relief filed by SCE. Thus, the Commission should take action – consistent with the intent of the EPAct 2005 – to prevent such unintended consequences.
It appears that the Commission attempted to address the post-August 8, 2005 contract issue in the NOPR, but it did so in a manner that does not address SCE’s concerns. In the NOPR, the Commission indicates that “if a contract is entered into after August 8, 2005, the date of enactment, but before the Commission has determined that an electric utility is entitled to relief from the obligation to purchase from a QF, the contract already entered into will be treated as though it was in effect on August 8, 2005 for purposes of section 210(m)(1).” NOPR at ¶ 32. Section 210(m)(1), however, simply states in relevant part that “[a]fter the date of enactment of this subsection, no electric utility shall be required to enter into a new contract or obligation to purchase electric energy from a qualifying cogeneration facility or a qualifying small power production facility under this section if the Commission finds ....” The Commission plainly did not rule, nor could it given the plain language of Section 210(m)(6), that a contract entered into after August 8, 2005 was subject to the savings provision of Section 210(m)(6). The Commission’s proposal – that a post-August 8, 2005 contract will be treated as though it was in effect on August 8, 2005 for purposes of Section 210(m)(1) – appears to be meaningless because Section 210(m)(1) does not provide any discernable protection to contracts deemed to be in effect on August 8, 2005. To the extent that the Commission intends to deem a contract in effect on August 8, 2005 to be subject to the protection of Section 210(m)(6), such an action would directly contradict and would subvert clear Congressional intent. SCE thus strongly urges the Commission to delete this proposed finding.
Section 210(m)(1) reflects the clear intent of Congress that August 8, 2005 is the end date of the PURPA purchase obligation for utilities that can make the requisite showing. Certainly, Congress understood that putting together evidentiary showings and making such findings would take some time, but nonetheless it included an effective date for the release from the PURPA obligation of August 8, 2005. In short, Congress placed all QFs on notice that it would be risky to attempt to contract with any utility after August 8, 2005 pursuant to a utility obligation to purchase, rather than on a mutually voluntary basis. Specifically, if that utility was later able to meet the standard for relief from the PURPA purchase obligation, such a contract might not stand. This intent should be implemented.
There are several means by which the Commission can ensure that the intent of Congress is carried out. For example, the Commission could find post-August 8, 2005 contracts are terminable upon the date a finding is made or that any Section 210(m)(1) finding will be retroactive to August 8, 2005. SCE strongly urges the Commission to adopt such an approach in the Final Rule.
Alternatively, if the Commission believes that some contracts entered into after August 8, 2005 must be honored, it should adopt a rule that ensures that utilities either: (1) are not compelled by their state commissions to enter into new contracts or extend existing contracts after a petition for relief is filed pursuant to Section 210(m) (PURPA Petition) until and unless the Petition is denied; or (2) are not required to honor contracts (or contract extensions) entered into after a PURPA Petition is filed, if the PURPA Petition is subsequently granted. Under this approach, contracts entered into between August 8, 2005, and the filing of a PURPA Petition would be honored, but there would be no “gold rush” incentive created by the filing of the utility’s PURPA Petition.