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<title>California Public Utilities Commission Approves Revisions To Qualifying Facility
Contracts Enabling Market Sales By QFs</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
September 1999<br>
</u><font face="Arial"><big><big><big>California Public Utilities Commission
Approves Revisions To Qualifying Facility Contracts Enabling Market Sales By
QFs<br>
</big></big></big></font>
</b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
10/99</em>)</font></p><p ALIGN="JUSTIFY"><font face="Arial">On August 5,
1999, the California Public Utilities Commission (CPUC) voted unanimously to approve a
resolution introduced by Pacific Gas and Electric Company (PG&E) to offer two new
options for standard offer power purchase agreements. These new standard form agreements
will permit qualifying facilities (QFs) to sell excess energy and ancillary services to
the market. The CPUC found the new standard form agreements to be reasonable, and approved
them in the absence of any protests.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The new standard form agreements were introduced to
facilitate wider QF participation in the market, and also to stabilize and lower prices in
the market. Under the agreements, QFs may sell excess energy and ancillary services to
third parties, including the Independent System Operator, the Power Exchange (PX), and
direct access customers. A great majority of the over 300 power purchase agreements (PPAs)
PG&E has with cogenerators and small power production projects would be eligible to
choose the new standard offer agreements.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">PG&E will be offering two new standard form
agreements, an "Enabling Agreement" and a "Pro-Forma Amendment." The
Enabling Agreement will be offered to QFs who already have a PPA with PG&E which
permits sale of surplus and for which the scheduling, curtailing, and dispatch provisions
have not been amended from the standard provisions. Development of standard offer PPAs
under which QFs sell excess energy to third parties began late in the summer of 1998
through a joint effort of PG&E and the Independent Energy Producers group. QFs could
elect to sell surplus energy output under the prior standard agreements to third parties,
but the Enabling Agreement specifies the terms and conditions under which a QF may make
those sales to third parties, including terms for the sale of excess energy to PG&E.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The second new standard form agreement offered by
PG&E, the Pro-Forma Amendment, will be offered to QFs whose prior standard offer
agreement provided for the sale of all of the facility’s net energy output. Net
energy output is the facility’s gross output, less station use and line losses. The
Pro-Forma Amendment removes from the prior agreements the restriction against sales to
third parties and specifies the terms and conditions under which these sales may occur.
QFs whose PPAs permit them to make an annual election as to whether they wish to sell
surplus do not need the Pro-Forma Amendment, as this option can be exercised at the annual
election.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">A QF choosing the Enabling Agreement must identify
the amount of energy it will commit to PG&E. The energy amount must meet or exceed its
firm capacity commitment in the original PPA. Amounts above this commitment are excess
energy, which may be sold to PG&E or third parties. The Enabling Agreement further
sets the terms for sale of excess energy to PG&E. Rates for excess energy sold to
PG&E on or before June 30, 2000 will be based upon the PX Day-Ahead Zonal Market Price
for the zone in which the QF is located. Rates for excess energy for QFs being paid the
CPUC-approved PX-based short run avoided cost prices (as opposed to SRAC prices based on a
border gas index) will continue to receive the PX based SRAC price.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">After June 30, 2000, QFs may change the amount of
energy committed to PG&E, thereby raising or lowering the excess energy available for
sale in the market. This change would be in effect for a one-year period. The QF may elect
to terminate the Enabling Agreement on June 30, 2000. Otherwise, the Enabling Agreement
expires on June 30, 2001 or upon termination of the original PPA, whichever is sooner,
although the Enabling Agreement may be extended by mutual agreement.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">QFs eligible to choose the Pro-Forma Amendment are
those with Interim Standard Offer No. 4 PPAs. These PPAs do not permit annual election of
surplus sale of energy versus net energy output; rather, these PPAs are for QFs selling
essentially all their capacity beyond their own use to PG&E. Similar in operation to
the Enabling Agreement, under the Pro-Forma Amendment, the QF identifies the amount of
energy committed to PG&E and the excess energy that is available for sale in the
market. Under the Pro-Forma Amendment, however, all of the excess energy would be sold in
the market, with no provision for sale of excess energy to PG&E. Like the Enabling
Agreement, the QFs choosing the Pro-Forma Amendment make determinations annually as to the
PG&E sales level, or the amount of capacity committed to PG&E, the excess being
energy beyond this level. The Pro-Forma Amendment contains the same termination and
scheduling provisions as the Enabling Agreement.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Under the prior PPAs, PG&E estimated the
generation it must take from the QFs. Under the new standard form agreements, the QF must
identify the amount of must-take generation it proposes to deliver on the upcoming day by
delivering a schedule to PG&E. PG&E may recover in rates payments made under the
new standard form agreements, as it is permitted with the current PPAs. The resolution was
approved on and became effective on August 5, 1999.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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