PGE_Reply_06-18-04 by hilen

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									BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Promote Consistency in Methodology and Input Assumptions in Commission Applications of Short-run and Long-run Avoided Costs, Including Pricing for Qualifying Facilities.

Rulemaking 04-04-025

PRE-WORKSHOP REPLY COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY ON AVOIDED COST METHODOLOGY As provided in the Order Instituting Rulemaking 04-04-025 (“OIR”), Pacific Gas and Electric Company (“PG&E”) submits its pre-workshop reply comments in response to the opening pre-workshop comments (“opening comments”) filed by the respondent utilities and interveners on June 4, 2004. Besides comments from the respondent utilities, four interveners with QF interests filed opening comments. Only two other sets of comments were submitted, one from an intervener representing large noncore customer interests and one from an environmental intervener. 1 Despite the OIR’s intent to consider avoided cost methodologies for a variety of applications that cross a number of Commission proceedings, the majority of the opening comments from non-utility interveners focused on just one avoided cost-related issue, payments to QFs. PG&E’s reply to other parties’ opening comments makes the following major points:  Avoided costs for planning purposes cannot lawfully be used to determine payments to QFs under existing contracts.

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The four interveners with QF interests are the Independent Energy Producers Association (“IEP”), the Cogeneration Association of California and the Energy Producers and Users Coalition (“CAC/EPUC”), the California Cogeneration Council (“CCC”), and the California Wind Energy Association (“CALWEA”). The only other two interveners to file comments were the California Large Energy Consumers Association (“CLECA”) and the Natural Resources Defense Council (“NRDC”).

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

Policy questions regarding what to do about QFs whose contracts will expire and QFs with lapsing fixed-price provisions in 2006-2007 are to be addressed in the long-term resource proceeding, R.04-04-003 and are beyond the scope of this OIR. The E3 avoided cost methodology is not useful for reforming QF SRAC pricing for existing contracts, which should be addressed in a bifurcated phase of this proceeding as soon as possible. The E3 avoided cost methodology would be appropriate to apply across various technologies for planning purposes with further refinement to provide more flexibility to better reflect the technology being evaluated and issue involved. The confidentiality of commercially sensitive utility information must be maintained and the issue of access to that information deferred, pending resolution in OIR.01-10-024 or its successor, R. 04-04-003. For purposes of energy efficiency program planning and evaluation, the draft E3 report and methodology should be utilized while litigation of avoided costs for planning purposes proceeds in this OIR. THE OIR MUST DISTINGUISH BETWEEN DEVELOPING AND HARMONIZING ELEMENTS OF AVOIDED COST FOR RESOURCE PLANNING AS OPPOSED TO CALCULATION OF MANDATED PAYMENT TO QFS The opening comments filed by the Independent Energy Producers Association

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I.

(“IEP”), the California Cogeneration Council (“CCC”), and the California Wind Energy Association (“CALWEA”) have the common theme of advocating increases in actual QF payments based on elements of avoided costs. The Cogeneration Association of California and the Energy Producers and Users Coalition (“CAC/EPUC”) concentrate their opening comments on arguing for access to confidential utility data in order to evaluate costs to be paid to QFs. And the respondent utilities by necessity also address the question of changes to QF payments, whether in the context of deterministic, avoided cost calculations like those in the January 8, 2004 Energy and Environmental Economics, Inc. (“E3”) draft report cited in the OIR or market-based mechanisms. The broader,

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philosophical questions of avoided cost methodologies for use in general planning and evaluation purposes outside the QF area received much less attention, except in comments from San Diego Gas and Electric Company/Southern California Gas Company (“SDG&E/SoCalGas”), Southern California Edison Company (“SCE”), the Natural Resources Defense Council (“NRDC”), and PG&E. This major divide in the opening comments should not be a surprise. Stakeholders in the QF area immediately translate the words “avoided costs” into potential dollar payments to QFs to fight for or against. In the other applications of avoided costs (energy efficiency, demand response, distributed energy resources, distributed generation resources and rate design), however, avoided costs are not used to set hard dollar payments to be made to third parties. Instead, avoided costs in the other applications are used to evaluate programs that may be offered through the utilities and to set limits for and within those programs. Even the Market Price Referent (“MPR”) developed for renewable power solicitations is not used to set the price a renewable resource will be paid for its power. The MPR, to be developed under statutory guidelines, sets the maximum the utilities may pay for renewable power and be assured cost recovery, but it certainly does not set a mandatory payment amount. Renewable power providers may seek Supplemental Energy Payments from the CEC to cover shortfalls between the MPR and their bid prices. And the renewable power suppliers may submit bids to the utilities with prices higher or lower than the MPR. The purpose of this OIR, to review and harmonize different elements of avoided costs that may arise in various proceedings involving future planning and cost forecasts, is a sensible, constructive philosophical objective. Harmonizing methodologies for

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various types of avoided costs, e.g. capacity, energy, emissions, etc., for consistency and efficiency in different Commission proceedings that all involve evaluation and planning measures would be beneficial. Differences in the uses of avoided costs (such as its role to inform the development of an energy efficiency portfolio or an electric rate design versus setting the purchase price for a service or commodity) require retaining flexibility in the future applications of avoided cost methodologies. Harmonizing methodologies for avoided costs and identifying the potential building blocks to capture costs avoided by different technologies is a far cry from adopting the same avoided cost for all possible applications, which should be avoided. 2 Moreover, the applications for these uses differ in terms of underlying law, precedents, progress of proceedings, and the degree of market development. For all these reasons, this proceeding must accept that avoided cost forecasts are imperfect tools that may be adequate for general planning purposes, but should not displace market mechanisms in setting actual payments to be made. 3 II. THE SCOPE OF QF ISSUES FOR THIS OIR A. Setting Policies For Expiring QF Contracts And Existing QF Contracts With Fixed Price Provisions Lapsing in 2006-2007 Is Beyond The Scope Of This OIR

The second question poised in the OIR identifies review of the “existing avoided cost pricing methodologies applicable to QFs that determine (1) the SRAC energy payments, and (2) As-Delivered Capacity Prices.” This proceeding is intended to update and reform SRAC and as-delivered capacity pricing for existing QF contracts. To facilitate understanding, the second question invites parties to comment on differences

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In this respect, PG&E shares reservations expressed by SDG&E/SoCalGas about use of the methodology developed here across a broad range of technologies (SDG&E/SoCalGas opening comments, at page 4.) 3 Retreating to a fully deterministically, administratively based avoided cost mechanism that sets prices to be paid for resources or services would lead to repeating the Biennial Resource Plan Update experience.

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between short-run and long-run methodologies and prices. However, policy issues regarding QF contracting and pricing for the long-term, including QFs with expiring contracts or fixed price terms lapsing in 2006-2007, are part of the long-term planning proceeding, R.04-04-003, where utility resource needs for the longer-term are at issue. Based on their opening comments, CCC and CALWEA apparently have assumed otherwise. Both CCC and CALWEA’s opening comments urge giving QFs currently receiving fixed energy payments of 5.37 cents per KWh (agreed to during the energy crisis of 2000-2001) new 5-year fixed price periods in 2006-2007, when their existing fixed payment provisions end. PG&E does not support the proposition that SRAC reform means institution of new, mandated fixed prices. First, there is no nexus between any such fixed price and “FERC’s mandate that SRAC energy payments not exceed avoided costs.” (D.02-02-028, folio at p. 13.) Second, mandated fixed prices would not be consistent with Pub. Util. Code § 390(b). Avoided cost estimates and projections determined for utility planning are different than the actual costs utilities avoid incurring for power that the “utility would generate itself or purchase from another source” (18 C.F.R. § 292.101(b)(6).) This Public Utilities Regulatory Policy Act of 1978 legal requirement (“PURPA”) can best be measured by actual competitive solicitations, which will result from implementation of the utilities’ long term resource plans to acquire new power resources. CCC and CALWEA’s attempts to end run R.04-04-003 by setting new rules for QF pricing for the longer term here are beyond the scope of this OIR.

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B.

The Commission Needs To Address SRAC For Current QF Contracts Promptly By Bifurcating This Proceeding And Proceeding On Parallel Tracks

The actual QF pricing issue identified for this proceeding is the review and updating of the short run avoided cost formula (SRAC) for the SRAC energy payments and the as-delivered capacity prices for current QF contracts. 4 The OIR correctly

described the current SRAC energy and as-delivered capacity pricing as yielding above market prices. These create a significant inequity for the utilities and their ratepayers. The prospect of reviewing and overhauling SRAC for QF pricing policies drew numerous reactions in the opening comments. CCC and IEP want to see the existing SRAC methodology continue, apparently indefinitely. SDG&E/SoCalGas suggest keeping the current SRAC approach for now. SCE, as well as PG&E, agrees with the OIR that review and reform are needed for QF SRAC pricing policy. Due to this pressing need, the review of SRAC and as-delivered capacity pricing for existing QFs should move forward expeditiously. Question 4 in the OIR asks, “What should be the next procedural steps in this proceeding”. 5 Opening comments filed by SCE and CCC suggested either addressing SRAC in a separate proceeding dedicated to update QF pricing issues or establishing a separate SRAC phase in this OIR, respectively. PG&E continues to support bifurcation of this proceeding into 1) one phase to address SRAC and as-delivered capacity pricing for existing QFs and 2) a separate phase to consider avoided cost methodology for use in general planning across Commission proceedings in time to inform critical decision in

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OIR, questions 2 and 3, mimeo at page 15. OIR, mimeo, at page 15.

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particular proceedings.6 As the Commission has recognized, this OIR will extend well beyond 18 months. 7 SRAC and as-delivered capacity pricing reform, however, is needed promptly. Therefore, PG&E continues to urge bifurcation of this OIR Bifurcation is further supported by the recognition of all parties commenting on the issue that the E3 methodology does not provide a useful basis for reforming QF avoided cost pricing for existing contracts. III. THE E3 REPORT METHODOLOGY IS NOT USEFUL FOR REFORMING QF AVOIDED COST PRICING FOR EXISTING CONTRACTS PG&E’s opening comments discuss the reasons the E3 report is not an appropriate basis for modifying QF avoided cost pricing. All parties commenting on this issue came to the same conclusion. SDG&E/SoCalGas express concern “that the E3 methodology may be inappropriate for QF pricing. 8 SCE characterizes the E3 methodology as “ . . . particularly unsuitable for QF pricing.” 9 IEP characterizes the E3 methodology as a challenge to harmonize with legal requirements of QF pricing, and instead proposes to retain the current SRAC formula unchanged, ostensibly because California Public Utilities Code section 390 defines how SRAC energy prices are to be determined. 10 CALWEA simply ignores the E3 report and proposes renewed five-year fixed energy prices as the “solution”. CCC endorses using the existing SRAC methodology for QF pricing.11 The virtual unanimity of opinion against use of the E3 methodology for QF

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In particular, new avoided costs are needed early in 2005 for designing energy efficiency programs in 2006 and thereafter. 7 OIR, mimeo, at page 16. 8 SDG&E/SoCalGas Opening Comments, at page 9. 9 SCE Opening Comments, at page 11. 10 IEP Opening Comments, at pages 3, 11. 11 CCC Opening Comments, at page 17.

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pricing underscores the fact that the E3 report is not useful for reforming QF avoided cost pricing for existing contracts. IV. THE E3 REPORT AND METHODOLOGY DO NOT ADEQUATELY CAPTURE AVOIDED COSTS ASSOCIATED WITH NON-GENERATION APPLICATIONS FOR WHICH AVOIDED COST IS UTILIZED Apart from the SRAC QF issue, several other parties’ opening comments also discuss specific shortcomings with individual elements of the E3 methodology that need to be modified or corrected for building general frameworks for planning purposes. PG&E’s reply comments on other parties’ opening comments concerning specific elements and adjustments to avoided cost building blocks in the E3 methodology follow. A. E3’s Proposed Adders For Controlled Emissions Are Not Appropriate Since The Costs Of Control Are Incorporated In The Avoided Resource. Recognition Of Policy Concerns For Carbon Dioxide, An Unregulated Emission, May Be Appropriate For Resource Planning Purposes

SCE, SDG&E/SoCalGas and NRDC’s opening comments discuss E3’s treatment of emissions of NOx, PM10 and carbon dioxide for avoided cost purposes. For

emissions that are now controlled, such as NOx and PM10, generators already must limit emissions or obtain offsets. Hence, controlling these emissions is part of the cost of production and would be reflected in market prices. In addition, to the extent that E3’s methodology incorporates the capital costs of a proxy generation resource, such as a combined cycle gas turbine (“CCGT”), SCE’s and SDG&E/SoCalGas opening comments point out that the cost of environmental compliance and pollution offsets would already be captured for controlled emissions. 12 Consequently in the context of the E3 methodology, adders for emissions that must be controlled today are not appropriate for planning purposes.
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SCE Opening Comments, at page 10; SDG&E/SoCalGas Opening Comments, at pages 5, 6.

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In contrast to NOx and PM10, carbon dioxide is not currently subject to pollution controls, but debate continues over how it should be treated in the future. Since its emission is not regulated, there are no actual carbon dioxide related costs incurred or paid by the utilities at present, regardless of the source of their power supplies. The fact that carbon dioxide emissions are not regulated at this time, however, means that carbon dioxide is not captured in current market prices or the existing avoided cost proxies, unlike NOx and PM10. To the extent that the current debate over carbon dioxide indicates its potential importance for general planning purposes, PG&E would agree that carbon dioxide should be recognized as a factor in evaluating resource options. One potential way to incorporate carbon dioxide into planning would be through an adder such as recommended by the E3 report and supported by NRDC’s opening comments. However, if the Commission adopts an adder for resource planning, any resource planning results should be compared to analyses performed without consideration of a carbon dioxide adder, so that the quantification of public benefit from carbon dioxide reductions may be compared with the cost. With respect to placing a value on carbon dioxide, NRDC endorses the cost of carbon dioxide emissions in the E3 report. 13 For purposes of energy efficiency analyses, PG&E is comfortable using this single value stream, subject to the caveat identified in the preceding paragraph, but PG&E also reserves the right to use variations or enhancements in other proceedings as the market evolves and planning tools become more sophisticated. A full risk analysis in a portfolio setting may be preferable to setting specific values now for a little understood future contingency. Ultimately, a portfolio risk analysis will be more robust than use of values quantified now.
13

NRDC Opening Comments, at page 3.

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B.

Transmission And Distribution Are Examples Of Potential Avoided Costs That Require Flexibility In Application To Different Technologies

SCE’s opening comments noted that “It is not appropriate to use generic avoided transmission and distribution cost estimates, because the ability of a resource to avoid transmission and distribution investments is location-dependent and case-specific. 14 In contrast, CCC “supports the use of adopted marginal transmission and distribution values (irrespective of the methodology used)”. 15 PG&E agrees with SCE and takes strong exception to CCC’s position. Whether transmission and distribution costs are avoided, increased, or unaffected by a particular resource is heavily dependent on the actual transmission and distribution facilities affected as well as the characteristics of the resource itself. For instance, if a DG facility were being considered as an alternative to a central plant, there may be no distribution upgrade avoided, especially if the DG facility relies on utility standby service. Moreover, if a cogeneration or DG facility is located where there is adequate transmission or distribution capacity, it would not cause transmission or distribution costs to be avoided. In general, distribution costs are not avoided by DG, except under very narrow circumstances articulated by the Commission in D. 03-02-068. Consequently, PG&E does not agree with CCC’s blanket assertion that cogeneration QFs and DG should always be assumed to avoid transmission or distribution capacity and costs. The ability of a specific resource to actually avoid such costs should be determined in the proceeding addressing that resource—not this one. CCC points out that marginal transmission and distribution costs are adopted and used in the rate design phases of electric utility general rate cases (“GRC”). In that

14 15

SCE opening comments, at page 10. CCC opening comments, at page 12.

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context, they are used as inputs in the allocation of revenue requirements and the design of rates. For those GRC purposes, marginal transmission and distribution costs are used to allocate costs between ratepayer classes. For PG&E, the GRC transmission and distribution marginal costs reflect the general idea of considering geographic differences in the need to invest in capacity as a function of demand growth, but their development is still based on large geographic areas. Although GRC revenue allocation rolls up to a rate design applicable to customer classes over the whole service area on a postage stamp basis, that fact does not make the GRC marginal transmission and distribution costs appropriate for similar application in resource planning. When used for planning resource additions, the presence or absence of transmission and distribution avoided costs (as well as the possible amount) varies greatly depending on the specific resource under evaluation, as pointed out by SCE. Consequently, transmission and distribution avoided costs are a prime example of an avoided cost building block that requires flexibility in its utilization depending on the particular application involved. C. CCGT Is Not The Most Appropriate Avoided Cost New Resource For All Applications

Opening comments from several parties point out that E3’s use of a CCGT as the avoided generation resource is not adequate for use across all planning applications of avoided cost. The use of a CCGT as E3’s avoided cost proxy in the longer term assumes that CCGT generation costs are the avoided generation costs at all times. Generation costs, however, actually vary significantly by periods such as peak and non-peak. Some Commission and utility initiatives, such as demand-side measures and demand response

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programs, target reductions in peak loads and ignore loads in other periods. For this reason, the SDG&E/SoCalGas opening comments state We are not convinced that the substitution of the CCGT for the traditional standard of a peaking unit, such as a Combustion Turbine, is appropriate. Moreover we believe that the choice of units for calculating avoided generation costs may vary with the technology being evaluated. The peaking unit seems clearly the more appropriate standard for demand response programs. 16 SCE also questions use of a CCGT as a generic avoided resource, because such a resource would not be a cost-effective choice for valuing resources which only operate a few hours a year or that operate as base load resources. 17 PG&E agrees with the essential point of these criticisms, i.e., that the choice of units for calculating avoided generation costs should vary with the technology being evaluated and the issue to be decided. The touchstone for that choice must be governed by comparing the resource under consideration to the resource being avoided to ensure that they are meeting the same need. D. E3’s Proposal For A Price Elasticity Adder Should Not Be Used As An Avoided Cost For All Resource Planning Applications The E3 methodology calculates a price elasticity of demand adjustment to reflect an assumption that a reduction in demand for energy benefiting an individual will also benefit all energy users by reducing the market price for energy. Both SCE and SDG&E/SoCalGas have objected to E3’s inclusion of price elasticity of demand in avoided cost. SCE points out that such a benefit, to the extent it is even measurable, is likely to be either short-term in nature or a result of suppliers exercising market power to

16 17

SDG&E/SoCalGas opening comments, at pages 8, 9. SCE opening comments, at pages 9, 10.

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raise prices above competitive levels. 18 SDG&E/SoCalGas describes the price elasticity effect as a pecuniary externality that would be inappropriate to include as an avoided cost because such externalities only affect income distribution among market participants and do not result in a misallocation of resources. 19 PG&E also has strong reservations about E3’s demand elasticity adder for different reasons, but does not rule demand elasticity out completely as a consideration in a full risk assessment on a portfolio basis. PG&E notes that the same beneficial effect is attributable to the avoided resource, such as a CCGT in E3’s proposed methodology. Since the avoided generation resource also changes the load/resource balance in a beneficial way, it can claim the price elasticity benefits. For example, if QF generation displaces a CCGT that would otherwise be added to meet a 15 percent planning reserve margin, then the system reserve margin is 15 percent with or without the QF, and there is unlikely to be a price elasticity effect. In that case, when avoided costs are based on the cost of a new resource like a CCGT, a price elasticity adder would double count a value already inherent in the avoided resource. Similarly, when the market is in capacity surplus, the existing capacity also can claim the same beneficial effect of increasing energy supply. Thus, in this latter situation, too, a price elasticity adder may double count a value already attributable to the avoided generation resource. In other words, when one supply source would substitute for another, such as a QF source for an avoided power source, there is no change in the supply-demand balance or curves, and no elasticity effect.

18 19

SCE opening comments, at page 10. SDG&E/SoCalGas opening comments, at pages 6, 7.

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V.

CONFIDENTIALITY AND ACCESS TO CONFIDENTIAL UTILITY INFORMATION ARE PENDING DECISION IN OIR. 01-10-024 AND ITS SUCCESSOR, R. 04-04-003, AND FURTHER LITIGATION OF THE QUESTION HERE WOULD BE DUPLICATIVE In their opening comments, CAC/EPUC focus on the single issue of access to

commercially sensitive, confidential utility cost information to support parties’ participation in determining avoided cost methodology. The issue of access to confidential utility data has been a contentious one in numerous Commission proceedings. Recently it has been debated in the SCE Mountainview and SDG&E Grid Reliability proceedings, as well as in the long-term plan case, OIR. 01-10-024 and its successor, R. 04-04-003. Confidential treatment of utility information is also the subject of legislation in the current session of the California Legislature (SB 1488). In D. 04 -01050, issued in OIR.01-10-024, the question of access to confidential utility procurement and cost data was a persistent issue for which Ordering paragraph 11 directed parties to file additional comments. The parties to OIR.01-10-024 and its successor proceeding R. 04-04-003 are now awaiting Commission decision on the issue based on that record. Undertaking the same fight over access to confidential, commercially sensitive utility data in this OIR would be duplicative and unproductive, especially since the record and arguments have been much more fully developed in OIR.01-10-024. Therefore, this proceeding should defer any questions about access to confidential utility information until the Commission decision on the topic has been issued in OIR.01-10-024 or R.04-04003.

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VI.

THE E3 DRAFT REPORT AND METHODOLOGY WERE DEVELOPED IN THE CONTEXT OF ENERGY EFFICIENCY UPDATING FOR PLANNING PURPOSES AND SHOULD BE USED IN 2005 IN PLACE OF THE EXISTING OLD, OUTDATED INPUTS FOR EVALUATING ENERGY EFFICIENCY PROGRAMS IN 2006 AND BEYOND The E3 draft report and methodology were developed in the Commission’s energy

efficiency rulemaking (Rulemaking (R.) 01-08-028) in order to update current costeffectiveness inputs used in evaluating energy efficiency programs, and to provide a method for updating the inputs on an ongoing basis. Updating cost-effectiveness inputs for energy efficiency program evaluation is long overdue, because the inputs in current use have not been subject to review in a number of years. NRDC’s opening comments recognize the need for prompt review and updating of avoided costs for use in energy efficiency program evaluation. NRDC states “We urge the Commission to ensure that updated avoided costs are available for energy efficiency by early 2005”.20 In the context of energy efficiency, PG&E agrees with this NRDC position. Current program authorization for energy efficiency ends in December 2005. Consequently, the program selection and planning process must be completed in a timely manner in 2005 to avoid a hiatus or disruption of energy efficiency programs in 2006. Although the E3 methodology does require refinement, PG&E supports utilizing the E3 methodology in 2005 for purposes of energy efficiency planning and evaluation, while avoided cost issues for general planning purposes are litigated in this OIR.

20

NRDC opening comments, at page 2.

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VII.

CONCLUSION PG&E appreciates the opportunity to file comments responding to the opening

comments in this OIR and looks forward to further discussion and exploration of the issues at the avoided cost workshops on June 30, July 1 and July 2, 2004. Respectfully Submitted, CHRISTOPHER J. WARNER ANDREW L. NIVEN SHIRLEY A. WOO MARK R. HUFFMAN

By: SHIRLEY A. WOO Pacific Gas and Electric Company 77 Beale Street San Francisco, CA 94105 Telephone: (415) 973-2248 Facsimile: (415) 973-0516 E-mail: mrh2@pge.com Attorneys for PACIFIC GAS AND ELECTRIC COMPANY June 18, 2004

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BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Rulemaking to Promote Consistency in Methodology and Input Assumptions in Commission Applications of Short-run and Long-run Avoided Costs, Including Pricing for Qualifying Facilities.

Rulemaking 04-04-025

PRE-WORKSHOP REPLY COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY ON AVOIDED COST METHODOLOGY

CHRISTOPHER J. WARNER ANDREW L. NIVEN SHIRLEY A. WOO MARK R. HUFFMAN Law Department Pacific Gas and Electric Company 77 Beale B30A San Francisco, CA 94105 Telephone: (415) 973-2248 Fax: (415) 973-5520 saw0@pge.com Attorneys for PACIFIC GAS AND ELECTRIC COMPANY June 18, 2004

TABLE OF CONTENTS Page

I.

THE OIR MUST DISTINGUISH BETWEEN DEVELOPING AND HARMONIZING ELEMENTS OF AVOIDED COST FOR RESOURCE PLANNING AS OPPOSED TO CALCULATION OF MANDATED PAYMENT TO QFS ................................................................................................. 2 THE SCOPE OF QF ISSUES FOR THIS OIR ....................................................... 4 A. Setting Policies For Expiring QF Contracts And Existing QF Contracts With Fixed Price Provisions Lapsing in 2006-2007 Is Beyond The Scope Of This OIR................................................................... 4 The Commission Needs To Address SRAC For Current QF Contracts Promptly By Bifurcating This Proceeding And Proceeding On Parallel Tracks ..................................................................... 6

II.

B.

III.

THE E3 REPORT METHODOLOGY IS NOT USEFUL FOR REFORMING QF AVOIDED COST PRICING FOR EXISTING CONTRACTS ............................................................................................................ 7 THE E3 REPORT AND METHODOLOGY DO NOT ADEQUATELY CAPTURE AVOIDED COSTS ASSOCIATED WITH NONGENERATION APPLICATIONS FOR WHICH AVOIDED COST IS UTILIZED .................................................................................................................. 8 A. E3’s Proposed Adders For Controlled Emissions Are Not Appropriate Since The Costs Of Control Are Incorporated In The Avoided Resource. Recognition Of Policy Concerns For Carbon Dioxide, An Unregulated Emission, May Be Appropriate For Resource Planning Purposes ......................................................................... 8 Transmission And Distribution Are Examples Of Potential Avoided Costs That Require Flexibility In Application To Different Technologies................................................................................ 10 CCGT Is Not The Most Appropriate Avoided Cost New Resource For All Applications .................................................................................... 11 E3’s Proposal For A Price Elasticity Adder Should Not Be Used As An Avoided Cost For All Resource Planning Applications................ 12

IV.

B.

C. D. V.

CONFIDENTIALITY AND ACCESS TO CONFIDENTIAL UTILITY INFORMATION ARE PENDING DECISION IN OIR. 01-10-024 AND ITS SUCCESSOR, R. 04-04-003, AND FURTHER LITIGATION OF THE QUESTION HERE WOULD BE DUPLICATIVE ..................................... 14

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TABLE OF CONTENTS (continued) Page VI. THE E3 DRAFT REPORT AND METHODOLOGY WERE DEVELOPED IN THE CONTEXT OF ENERGY EFFICIENCY UPDATING FOR PLANNING PURPOSES AND SHOULD BE USED IN 2005 IN PLACE OF THE EXISTING OLD, OUTDATED INPUTS FOR EVALUATING ENERGY EFFICIENCY PROGRAMS IN 2006 AND BEYOND ....................................................................................................... 15 CONCLUSION ........................................................................................................ 16

VII.

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CERTIFICATE OF SERVICE BY MAIL I, the undersigned, state that I am a citizen of the United States and am employed in the City and County of San Francisco; that I am over the age of eighteen (18) years and not a party to the within cause; and that my business address is Pacific Gas and Electric Company, Law Department, PO Box 7442, San Francisco, CA 94120. I am readily familiar with the business practice of Pacific Gas and Electric Company for collection and processing of correspondence for mailing with the United States Postal Service. In the ordinary course of business, correspondence is deposited with the United States Postal Service the same day it is submitted for mailing. On the 18th day of June 2004, I served a true copy of:

PRE-WORKSHOP REPLY COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY ON AVOIDED COST METHODOLOGY by email, or by placing it for collection and mailing, in the course of ordinary business practice, with other correspondence of Pacific Gas and Electric Company, enclosed in a sealed envelope, with postage fully prepaid, addressed to: All parties on the official service list for Rulemaking 04-04-025 I certify and declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on the 18th day of June 2004.

KAREN THERESA ABALOS

June 18, 2004 VIA HAND DELIVERY Docket Office State of California Public Utilities Commission 505 Van Ness Avenue, Room 2001 San Francisco, CA 94102 Re: Rulemaking 04-04-025

Dear Sir/Madam: Enclosed for filing are the original and five copies of the Pre-Workshop Reply Comments Of Pacific Gas And Electric Company On Avoided Cost Methodology. I request that you file-stamp a copy of this document and return the file-stamped copy in the self-addressed, stamped envelope for PG&E’s records. Thank you for your assistance. Very truly yours,

Shirley A. Woo SAW:ka cc: Commissioner Susan P. Kennedy ALJ Julie Halligan All Parties to A. 04-04-025 (via electronic mail)


								
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