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.
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.
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.
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 facilitys net energy output. Net energy output is the facilitys 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.
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.
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.
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.
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.