CPUC Proposes Longer-Term Standard Contracts for Small QFs

Since August 2018, the California Public Utilities Commission (CPUC) has been working on the development of a new standard offer contract for small power projects to sell their power to California investor-owned utilities (IOUs) at avoided cost-based rates. The proceeding stems from the CPUC's implementation of the Public Utility Regulatory Policies Act (PURPA) following Winding Creek Solar LLC v. Michael Peevey, et al. and the CPUC’s prior suspension of the Renewable Market Adjusting Tariff (Re-MAT) program. See prior blog post on these topics here.

On April 2, 2020, the CPUC issued a Proposed Decision adopting a new qualifying facility (QF) standard offer contract (QF Contract) that will be available to all small power projects of 20 MWs or less and will allow them to sell their electric output to a CPUC-jurisdictional utility at a rate based on avoided cost. The QF Contract would essentially guarantee a QF’s right to enter into a contract to sell electricity to California IOUs and guarantee a contract if a developer can build and interconnect a QF energy project in California under 20 MWs in size. A wide range of power projects can qualify as QFs, including solar, wind, geothermal, biomass, hydroelectric, and co-generation facilities.

Longer-Term Contracting

Notably, the Proposed Decision finds that a three-year maximum contract duration for new facilities, as proposed by Joint Parties in the proceeding, is not consistent with PURPA and instead implements a maximum 12-year term for new QFs and a maximum seven-year term for existing QFs, with the seller designating the start and end dates.

The contract term may be shorter than these maximum periods, at the discretion of the seller. The maximum terms of the QF contract will be available to QFs of 20 MWs or less until suspended by the CPUC’s Executive Director. A future suspension could result from changes to PURPA, rulemakings related to PURPA, changes FERC makes to PURPA implementation, or any determination by the CPUC’s Executive Director that the new QF Contract is not necessary under PURPA.

Pricing Options

The QF Contract includes two pricing options for both capacity and energy for a total of four avoided cost price options for QFs seeking a contract:

• A capacity rate determined at the time of contract execution – Calculated by use of a five-year weighted average of publicly available resource adequacy prices for the next five years, shaped to time periods based on generation capacity allocation factors adopted by the CPUC and applied to up dated time-of-use periods, with a 2.5 percent escalation factor for each year of the contract term after the last year included in the average.
• An energy rate determined at the time of contract execution – Calculated by use of a five-year average of publicly available CAISO locational marginal prices (LMPs) for the APNode specific to a QF, calculated on a monthly basis with periods based on the CPUC’s most recently approved time-of-use periods specific to a utility, and a collar based on prices at the relevant Energy Trading Hub.
• A capacity rate determined at the time of product delivery – Set by the same methodology used for capacity price at time of execution, but with the price recalculated each March based on charges in the cost of resource adequacy (if a new Resource Adequacy Report is available) and/or capacity allocation factors, and time-of-use factors.
• An energy determined at the time of product delivery – Calculated using locational marginal prices from the CAISO’s day-ahead market for the APNode specific to a QF.

The Proposed Decision also adopts an available energy price to be paid at the time of delivery where a QF has opted to sell as-available energy to the utility without a contract. The price for as-available energy is based on the same pricing methodology adopted for energy price at time of delivery: hourly LMPs from the CAISO day-ahead market.

Procedural Steps

Comments on the Proposed Decision are due on April 23, 2020, and reply comments are due on April 28, 2020.

If the Proposed Decision is adopted, each IOU must file a Tier 2 advice letter within 30 days of the decision with its new QF Contract, including a redline version comparing the new contract with the superseded prior contract.

This proceeding remains open to consider whether any further action is required to comply with PURPA, particularly in light of the pending Notice of Proposed Rulemaking issued by FERC to modernize PURPA regulations.