Energy Resource Recovery Account (ERRA) 2018 Forecast of Operations Rebuttal Testimony Public Version

Transcription

1 Application No.: Exhibit No.: Witnesses: A SCE-0 R. Sekhon D. Wong (U -E) Energy Resource Recovery Account (ERRA) 01 Forecast of Operations Rebuttal Testimony Public Version Before the Public Utilities Commission of the State of California Rosemead, California August 1, 01

2 I. INTRODUCTION (Wong) Southern California Edison Company (SCE) submits this Rebuttal Testimony in response to the August, 01, Testimony of the California Choice Energy Authority and Public Agency Coalition ( Joint Parties ) on its Application for Approval of its Forecast 01 ERRA Proceeding Revenue Requirement. 1

3 II. SCE S FORECAST OF TOTAL PORTFOLIO COSTS IS CONSISTENT WITH COMMISSION GUIDANCE (Wong) The Joint Parties inappropriately seek to change Commission policy and precedent in this SCEspecific ERRA proceeding. If the Joint Parties positions were accepted which they should not for all the reasons discussed below the departing load charge methodology for SCE s customers would be fundamentally different than for the other Investor-Owned Utilities ( IOUs ). The Joint Parties assert that the Commission has given relatively little guidance as to which IOU costs are to be included in the Total Portfolio Costs for calculating the Indifference Amount, 1 and use the lack of recent guidance on Total Portfolio Costs as an opportunity to introduce a new definition of what costs and resources should be included in departing load customers Cost Responsibility Surcharge ( CRS ). The Joint Parties create a new category of Avoidable Resources, which they define as conventional fossil-fueled Utility-Owned Generation ( UOG ) and Power Purchase Agreements ( PPAs ), propose that the fuel and variable costs associated with such Avoidable Resources be excluded from the Total Portfolio Costs used to calculate the Indifference Amount Charge (defined as the sum of the Competition Transition Charge ( CTC ) and Power Charge Indifference Adjustment ( PCIA )), and conclude that SCE s Total Portfolio Costs should be reduced by $1 million. The Commission should disregard the Joint Utilities testimony on the departing load charge methodology as outside of the scope of this SCEspecific proceeding. Moreover, as described in detail below, the Joint Parties calculations are incorrect, their proposal is wholly inconsistent with the Commission-adopted methodology for calculating the Indifference Charge, and their characterization of CAISO markets and dispatch practices is fundamentally flawed. 1 CCEA Testimony at p.. In many cases, parties refer to the full Indifference Charge simply as the PCIA.

4 A. SCE s CRS Calculation Already Excludes All Costs Associated with Cost Allocation Mechanism (CAM)-Eligible Resources and Gas Hedging Costs Pursuant to Decision ( D. ) 0-0-0, the net costs of any resources that are considered CAM-eligible are recovered from all customers through a separate non-bypassable charge known as the New System Generation Charge ( NSGC ). The Commission later clarified in D that the CRS and the [NSGC] should therefore be calculated and billed as separate items. In other words, the costs of any resources that are considered CAM-eligible, which are specified in Table VIII- of SCE s Opening Testimony, are considered ineligible for recovery through CRS and are already excluded from SCE s Indifference Calculation. As can be seen by comparing Table Joint Parties-1 with Table VIII- in Exhibit SCE-01, six of the eight resources identified by the Joint Parties as Avoidable Resources are already excluded from SCE s Indifference Calculation. As such, no adjustment associated with CAM-eligible Avoidable Resources is necessary. Additionally, SCE has also already excluded all gas hedging costs from the Total Portfolio Costs because these costs are discretionary. Correcting the Joint Parties obvious calculation errors results in the correction of the Joint Parties $1 million reduction in portfolio costs to approximately $ million, as shown in the table immediately below. However, SCE has correctly included the remaining $ million in resource costs shown in the Currently Included in CRS Indifference Calculation column in the Total Portfolio Costs. Removing them as the Joint Parties propose is inconsistent with the long-standing Commission-adopted methodology. As modified by D , D.-1-0 and D.-0-00, among others. D at p.. The six CAM-eligible resources specified in Table Joint Parties-1 are: Blythe Energy, CPV Sentinel, Walnut Creek Energy, Wellhead Power Delano, El Segundo, and SCE Peakers.

5 B. SCE s CRS Calculation is Consistent with the Commission-Adopted Methodology The Joint Parties proposal to exclude the fuel and variable costs ( marginal operating costs ) associated with operating SCE s CRS-eligible fossil-fueled resources is directly contrary to existing Commission direction and inconsistent with the Commission-adopted methodology for setting the Indifference Charge, and should be rejected. Joint Parties "To Be Excluded" The Indifference Charge is calculated based on the current above-market methodology established in D.0--0 ( Current Methodology ). The Current Methodology defines departing load customers cost responsibility ( Indifference Amount ) as the difference between the annual forecast cost of the generation portfolio procured by SCE ( Total Portfolio Costs ) and the annual forecast market value of that portfolio (defined as the forecast output of the resources in the generation portfolio multiplied by the Market Price Benchmark ( MPB )). Currently Included in CRS Indifference Calculation $000 UOG Fuel Costs not recovered in CAM PPA Fuel Costs not recovered in CAM Direct and Tolling Contract GHG Costs Gas Hedging Fuel Transportation (Carrying) Total $ 1,0 $, While the Joint Parties correctly note that the Commission has issued several decisions refining the MPB portion of the Current Methodology since it was first established, the Commission s lack of specific guidance on the specific buckets of particular costs that should be included in the Total Portfolio Costs should not be interpreted as ambiguity. D.0--0, D , D , and D all specify that the total costs of all CRS-eligible resources, with no arbitrary exclusions Subsequently modified by D , D , D , D.-1-01, and Resolution E-.

6 for marginal operating costs, are to be compared to the market value of the CRS-eligible resources to determine departing load customers cost responsibility. Indeed, D specifies the following: To derive the indifference amount, the market value of the IOU s supply portfolio is subtracted from the total portfolio cost The IOU total portfolio includes IOU-owned generation, purchased power, DWR contracts, fuel costs, and [non-load-based] California Independent System Operator (CAISO) costs. More recently, in its approval of the Joint IOU Protocol for determining the above-market costs of storage resources, the Commission confirmed that the marginal operating costs associated with operating a CRS-eligible storage resource and enabling its discharge of energy into the market should be included in the Indifference Amount. The Joint Parties assertion that their proposed exclusion of fuel and variable O&M costs is consistent with Commission precedent has no merit. In addition to being directly contrary to the Commission s direction in D to include fuel costs in the Total Portfolio Costs, the Joint Parties proposal is also nonsensical given the construct of the Current Methodology. As described above and in additional detail in Chapter IX of SCE s Opening Testimony, the Indifference Amount is defined as the difference between the forecast cost of the resources and the market value of the resources. The market value of each resource is determined by The Joint Parties cite the exclusion of forecasted load-related CAISO costs from the Total Portfolio Costs as evidence to support their proposal. However, the Commission made clear in D that only CAISO load-related costs, such as load-based congestion costs, should be excluded from the calculation. The corollary, of course, is that any CAISO supply-related costs should continue to be included in the Total Portfolio Costs because they are necessary for the operation of the CRS-eligible resources. See Exhibit A in the Testimony of the Joint Parties, served on January 1, 0 in R and adopted in D.-1-01, for the list of load-related CAISO charge codes to be excluded from the Total Portfolio Costs. Examples of supply-related CAISO costs that were not identified in Exhibit A and thus deemed by D to be CRS-eligible include: Forecasting Service Fees (ISO Charge Code 01) and No Pay Settlements (ISO Charge Codes 1,,, etc). However, please note that for purposes of administrative simplicity, SCE excludes all CAISO costs from the Total Portfolio Costs. See generally D.0--0 at p., D at p., D at p., D at p.. D at pp. - (emphasis added). D at pp. 1-.

7 multiplying its forecast energy output by the Energy MPB ( energy value ), its forecast RPS-eligible energy by the Renewable MPB, and its net qualifying capacity by the Capacity MPB. As such, the exclusion of the marginal operating costs necessary for the dispatch of fossil-fueled resources (i.e., fuel costs, GHG costs, or fuel transportation costs) from the Total Portfolio Costs, as the Joint Parties propose, would necessarily require a corresponding exclusion of the fossil-fueled resources energy value from the market value side of the equation failure to exclude the energy value while excluding the marginal operating costs is fundamentally asymmetrical. It simply does not make any sense to exclude the marginal operating costs of a fossil-fueled resource and still assume that it would generate energy to be sold in the market. SCE opposes the Joint Parties proposal even if it is modified to exclude both marginal operating costs as well as the market revenues because such a change would be inconsistent with the Current Methodology adopted by the Commission, and this is not the proceeding in which to determine changes to the Current Methodology. 1 C. The Joint Parties Incorrectly Characterize CAISO Market Operations (Sekhon) Notwithstanding the points articulated above, SCE notes that the Joint Parties have also fundamentally mischaracterized the basic structure of the CAISO market 1 and the procedures required by the Commission s Standard of Conduct (SOC ) for Least-Cost Dispatch ( LCD ). The Joint Parties state that SCE s Avoidable Resources are dispatched solely to meet the demands of bundled [service] customers. 1 That is simply wrong. As stated in Chapter IV of SCE s Opening Testimony, SCE forecasts the energy output of its generation portfolio based on a forecast of power, gas, and GHG prices, physical constraints of each generating unit, and contractual limitations. SCE s forecast methodology mirrors the CAISO day-ahead and real-time market operations by economically Based on the Joint Parties workpapers, a corresponding exclusion of the fossil-fueled energy-related market value is not a part of their proposal. 1 The Commission recently issued R (the PCIA OIR) to consider changes and reforms of the Current Methodology. 1 See Section. of the CAISO Business Practice Manual for Market Operations, available at 1 Joint Parties at p..

8 dispatching its resources in a least-cost manner, 1 rather than force-dispatching resources to meet SCE s forecast of its bundled service customers demand. Under both the SCE forecast model and CAISO operations, a generating resource or contract is selected to dispatch (on a market-wide basis) if its marginal operating cost is less than the market price of power in a given hour, while simultaneously observing all operating constraints. 1 Because dispatchable resources are only selected to dispatch when their marginal operating costs are less than the market price of power in that hour, by definition those resources only incur incremental marginal operating costs when they are in the money, regardless of the demands of bundled [service] customers in the period that the resources are dispatched. Put simply, fossil-fueled generators cannot generate energy without incurring marginal operating costs, and they would not generate energy unless they are able to recoup those costs. Accordingly, all of their avoidable costs -- as the Joint Parties define those -- are already avoided because the revenues, or energy value, received in the CAISO market for the generated energy exceed the marginal operating costs needed to generate that energy (i.e., revenues received in the CAISO market in that hour for the energy exceed the marginal operating costs needed to generate the energy). Pursuant to the Current Methodology used to determine departing load customers cost responsibility, the Indifference Calculation estimates the energy value of the resource using an administratively-set Energy MPB in lieu of using forecast CAISO revenues, which may vary by hour. As described in Chapter IX of SCE s Opening Testimony, this administratively-set Energy MPB uses load-weighted on- and off-peak energy price forecasts instead of hourly energy price forecasts an approach that the Commission deemed as a reasonable and transparent way to estimate the energy value of the generation portfolio. 1 As such, the estimated energy value using the Energy MPB may exceed, or be below, the forecast CAISO revenues. Moreover, the forecasts of marginal operating costs and 1 As directed by the Commission in its guidance on the Least Cost Dispatch (LCD) principle adopted in D Although SCE s testimony focuses on the CAISO energy market, the CAISO also operates an ancillary services market that also utilizes economic dispatch principles. 1 See generally D at pp. -.

9 energy value under the Current Methodology are not trued up for actual results. It is for these reasons that SCE is advocating, in the appropriate procedural forum and not in a utility-specific ERRA proceeding, that the Commission move away from all administratively-set MPBs. However, unless and until the Commission modifies the Current Methodology for all IOUs, or adopts an entirely new methodology for determining departing load customers cost responsibility for all IOUs, SCE s Indifference Charges must continue to be set using the methodology set forth in D

10 III. SCE S 01 RENEWABLE MPB SHOULD BE CALCULATED BASED ON THE METHODOLOGY ADOPTED IN D AND RESOLUTION E- (Wong) As described in SCE s Opening Testimony, pursuant to D and Resolution E-, the Renewable MPB is calculated by the Energy Division in October using the following data, which is submitted by each utility in an October 1 Tier 1 advice letter filing: 1. Most recent 1 months figures derived from the US Department of Energy survey of Western US renewable energy premiums compiled by the National Renewable Energy Laboratory (NREL), weighted at % (DOE Green Adder);. Average cost of the utilities newly-delivering (defined as projects starting deliveries in year n and n-1) RPS-compliant resources, weighted at % (IOU RPS Premium). 1 The Joint Parties recommend that the Commission abandon the weighted-average methodology (presumably just for SCE and not the other IOUs) outlined in Resolution E- by eliminating the use of the DOE Green Adder, and relying solely on the IOU RPS Premium to set the Renewable MPB. This proposal is procedurally improper and should be rejected, and the Commission should continue to rely on the methodology approved in D and Resolution E- to set the 01 CRS Indifference Charges. As noted in SCE s Opening Testimony, SCE used the 01 DOE Green Adder, which was reviewed and approved by the Energy Division, 1 as a proxy input pending the Energy Division s verification and finalization of the data submitted in the October 1, 01 Tier 1 advice letter filing. Pursuant to Resolution E-, the final Renewable MPB is calculated by the Energy Division using data included in the advice letters submitted by the three electric IOUs. As such, any factual dispute related to the validity of any individual Utility Green Pricing Programs used to calculate the 01 1 Resolution E- at p. and Exhibit A. 1 See Energy Division s November 1, 01 approval of SCE s Advice -E.

11 DOE Green Adder calculation is premature and procedurally belongs as a protest to SCE s October 1, 01 Tier 1 advice letter filing. However, as a general matter, SCE agrees with the Joint Parties that the DOE Green Adder is not reflective of current market prices 0 and acknowledges that certain data that was on the National Renewable Energy Laboratory (NREL) website, which was maintained by NREL and simply accessed by SCE and the other IOUs annually for purposes of the October 1 Tier 1 advice letter filing, may be out of date. 1 Moreover, it appears as though the NREL website accessed by SCE on September 1, 01 for its October 1, 01 Tier 1 advice letter filing is no longer available. For these reasons, SCE does not disagree with the Joint Parties that the DOE Green Adder is fatally flawed. Indeed, as articulated in the Joint Utilities July 1, 01 Comments to Rulemaking (R.)1-0-0, it is SCE s position that the Commission wholly replace the Current Methodology and abandon the use of any administratively-set MPBs. However, the procedural venue to propose any changes to the Current Methodology, including any modifications to the MPBs, is R (i.e., the PCIA OIR), not an individual utility s ERRA Forecast proceeding. Until the Commission modifies the Current Methodology for all the IOUs in that Rulemaking, SCE s Renewable MPB must be calculated using the methodology outlined in D and Resolution E-. Specifically, pursuant to D.-1-01, the DOE Green Adder portion should be determined using the most recent 0 SCE noted its agreement with parties on this point at the December 1, 01 PCIA Working Group meeting. 1 Joint Parties Testimony at p.. SCE will access the NREL and DOE websites prior to its October 1, 01 Tier 1 advice letter filing to locate a list comparable to that filed and approved in SCE s Advice -E. If no comparable list is available, SCE will re-file the most recently reported list, which is that filed and approved in Advice -E. D at p. 1. See Comments of Pacific Gas and Electric, San Diego Gas and Electric, and Southern California Edison to R.1-0-0, filed July 1, 01, at pp. -. See R.1-0-0, the Order Instituting Rulemaking to Review, Revise, and Consider Alternatives to the Power Charge Indifference Adjustment. R identifies updates and alternative methods to the MPB as an issue to be considered in the proceeding. See R at p..

12 DOE [Green Adder] or figures of reported contract premiums for renewable energy in the Western U.S., which is the DOE Green Adder approved in 01, if no alternative data source is available. The Joint Parties proposal to replace the DOE Green Adder (currently effective value of $1./MWh) with the IOU RPS Premium (01 estimated value of $1./MWh) would eliminate the weighted average approach adopted by the Commission in D and Resolution E- and reduce the vintage Indifference Charges by %. 0 Such a modification is procedurally improper and ignores the direction provided by the Commission in D Specifically, in the discussion approving the weighted average approach, the Commission explained that setting the Renewable MPB equal to the IOU RPS Premium, as Direct Access parties had proposed in R.0-0-0, would be unacceptable because the IOU RPS Premium does not reflect all California-delivered RPSeligible wholesale supply and excludes RPS costs of [Energy Service Providers], [Community Choice Aggregators], [Community Aggregators], and publicly-owned utilities that make up more than % of California load. 1 The Commission concluded that, despite the questions and concerns that had been raised regarding the usefulness of the DOE data, some recognition of the DOE data sources [was warranted to offer] a broader measure of the California RPS market compared with exclusive reliance on IOU resource data. As such, pending Commission resolution of the necessary replacement of the Current Methodology in R.1-0-0, the only reasonable means to comply with the existing Commission direction and guidance on this matter is to use the 01 DOE Green Adder. D at p. (emphasis added). SCE notes that the DOE Green Adders effective in have ranged between $1./MWh and $1./MWh. See SCE Advice -E, 1-E, 0-E, and -E. SCE notes that despite proposing to eliminate the weighted average approach entirely and replacing it with the IOU RPS Premium, the Joint Parties continue to characterize the Renewable MPB as the Weighted Average Green Benchmark. 0 Estimates based on Joint Parties proposed Weighted Average Green Benchmark of $./MWh. 1 D at p. 1. D at p..