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<title>California PUC Permits QFs A One-Time Election To Base Payments On The PX
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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="70%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
December 1999<br>
</u>
</b><font size="6"><b>California PUC Permits QFs A One-Time Election To Base
Payments On The PX Market Price<br>
</b></font><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/01</em>)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">On November 4, 1999, the California
Public Utilities Commission (CPUC), by a 3 - 2 vote, granted with
modifications a motion by several qualifying facilities requesting the
CPUC to permit short-run avoided cost (SRAC) energy payments to be based
upon the California Power Exchange (PX) market-clearing price for
qualifying facilities (QFs) who elect this option. Under California law,
SRAC energy prices paid to QFs are based upon a benchmark energy price
which is adjusted for changes over time by a gas index. California law,
however, also permits QFs to make a voluntary, unilateral, one-time
election to choose SRAC payments based upon the PX market-clearing price
rather than the benchmark price. Considering this motion in the context of
a more comprehensive proceeding related to nonutility generators in the
context of electricity restructuring (the restructuring proceeding), the
CPUC’s approval was granted on an interim basis, pending the adoption of
a permanent methodology based on the market-clearing price, and is subject
to true-up for possible inclusion of capacity value in the market-clearing
price.<br>
<br>
</font>T<font face="Arial">he CPUC ruling applies to QFs in the service
territories of Pacific Gas and Electric Company (PG&E), Southern
California Edison (SCE), and San Diego Gas & Electric Company (SDG&E).
These QFs may elect to receive PX market-clearing price-based payments
rather than the benchmark price under California statute. The PX
market-clearing price is the hourly energy price by zone as published by
the PX for its day-ahead energy market. The applicable zone is determined
by the location of the QF.<br>
<br>
Utilities and QFs differed on whether the PX market-clearing price
includes capacity value. Under California law, QFs under certain power
purchase contract provisions cannot receive capacity value from both the
contract and the PX-based pricing. The CPUC stated it needed more time to
study the inclusion of capacity value, and will address any adjustments in
a true-up mechanism. The CPUC also stated it will study the impact of line
losses on the PX-based price, but will not include line losses in the
true-up mechanism.<br>
<br>
The CPUC intends to initiate a proceeding in the near future to consider
the issues raised by a switch from SRAC pricing to PX pricing. This
proceeding may conclude with the establishment of a permanent pricing
methodology based on PX pricing, which may be used for purposes of the
true-up. If that proceeding has not produced a permanent pricing
methodology by December 31, 2000, then the CPUC will adopt one at that
time to avoid multiple true-ups or no true-up for an indefinite period.
The CPUC found that, in comparison with the price methodology it may adopt
in the comprehensive restructuring proceeding, payments using the interim
market-clearing price should not over-compensate or under-compensate QFs.
Utilities are to track payments made under the interim PX-based pricing
and separate capacity payments made to QFs. If a particular price is
adopted in the restructuring proceeding, the tracking information is to be
compared with the data from the PX for true-up. True-up adjustments are to
earn interest at the short-term commercial paper rate.<br>
<br>
The CPUC ruled that a QF’s election to switch to PX-based pricing will
be irrevocable, with the exception that QFs which have provided notice to
their purchasing utilities prior to October 20, 1999 of their election to
switch to PX-based pricing may revoke their election if notice is provided
within ten days of the CPUC’s order. QFs who provided notice prior to
the CPUC’s decision may specify that the date the election takes place
commences on the date of the CPUC’s order or at any later date the QF
specifies. The CPUC determined that the election to invoke the option may
not take place prior to the effective date of the CPUC’s order, which
takes effect immediately.<br>
<br>
The CPUC also determined that a QF must provide at least 15 calendar days’
advance notice to its purchasing utility of its election to convert its
payments for SRAC energy to a PX-based market-clearing price. This advance
notice period was deemed adequate to allow the utility time to modify its
billing and payment systems. The CPUC stated, however, that it may make
future adjustments to the notice period in the restructuring proceeding.<br>
<br>
The CPUC further determined that the payments made pursuant to PX-based
market-clearing prices are reasonable and therefore are recoverable by the
utilities in rates. However, the order does not provide for utilities to
recover in rates the costs that they will incur related to the one-time
switch-over. The CPUC, however, will address that issue in the more
comprehensive restructuring proceeding. Specifically, the CPUC must
determine whether such costs are already covered in the rates recovering
the cost of annual proceedings conducted to review the reasonableness of
administrative costs associated with QF contracts. The CPUC’s order
directs PG&E, SCE, and SDG&E to file within fifteen days
compliance advice letters reflecting the necessary tariff and preliminary
statement changes required by the decision.</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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