Title: D-R-A-F-T
Author: Kerry Hattevik
Last saved by: Lynne Mosley
Company: CPUC

Resolution E-3652		February 3, 2000
SCE AL 1410-E / KTH

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION					        RESOLUTION E-3652
								        FEBRUARY 3, 2000

R E S O L U T I O N

Resolution E-3652. Southern California Edison (SCE) requests approval to: 1) Revise Rule 21 to allow third-party non-qualifying facility generation sources to interconnect with SCE’s system; and 2) establish Schedule S-2 for the new customers that are able to take service under SCE’s revised Rule 21. SCE’s Rule 21 Revision is approved. SCE’s Standby rate Schedule, S-2, is denied without prejudice. 
 
By Advice Letter 1410-E, Filed on October 19, 1999.

SUMMARY

Advice Letter 1410-E requests revisions to Rule 21, Non-SCE Owned Generating Facilities Interconnection Standards (Rule 21) to allow third-party non-qualifying facilities to interconnect with SCE’s system. SCE also proposes to establish Schedule S-2, which it claims will establish rates for the new customers that are able to interconnect with SCE under its revised Rule 21. 

This Resolution approves SCE’s revision to Rule 21 to expand applicability to non-qualifying facility generators, but directs SCE to seek authorization for its new Standby Schedule, S-2, in the ongoing Commission investigation, Order Instituting Rulemaking into Distributed Generation, R.99-10-025, dated October 21, 1999. 

BACKGROUND

SCE claims that only Qualifying Facilities (QFs) are currently allowed to interconnect and operate in parallel with SCE’s system and take service on Schedule S, Standby. Decision 99-10-065, states that SCE should remove provisions prohibiting non-QF generators from operating in parallel with SCE as soon as possible. Conclusion of Law No. 9 states:

Generating Facilities that satisfy the Public Utility Regulatory Policy Act (PURPA) criteria under the Code of Federal Regulations, Title 18, Chapter 1, part 292, subpart B of the Federal Energy Regulatory Commission (FERC) regulations are referred to as Qualifying Facilities.

Schedule S by its own terms is applicable to Qualifying Facilities. It is also applicable to customers wishing to take standby or breakdown service where the entire electrical requirements on the customer’s premises are not regularly supplied by SCE and the generation serving the customer is 1)  not a qualifying facility, and 2) not in parallel with the service of SCE.

SCE’s tariff provision that prohibits non-PURPA qualified generators from operating in parallel with SCE’s system and taking standby service should be eliminated at the earliest opportunity.

On October 19, 1999, SCE filed Advice Letter 1410-E proposing to expand the applicability of its Rule 21 for interconnection with non-QF generators. SCE also proposes to establish a new standby Schedule, S-2, which it states will apply to new customers that are able to interconnect under the revised applicability of Rule 21. 

SCE contends that interconnected customers that take standby service on Schedule S frequently do not fully compensate SCE for costs it incurs to meet the maximum demand the generators can potentially place on SCE’s system. SCE states that this condition occurs due to a “netting” problem that currently exists in Schedule S. Under this provision, when a customer’s generation source does not fail, the customer pays for Standby Demand charges and no Facilities-Related Demand charges where the result of subtracting the Standby Demand from the Facilities-Related Demand is less than or equal to zero.

In Advice Letter 1410-E, SCE proposes an alternate method to recover the Facilities-Related Demand charge.  SCE’s proposal does not change the stated standby rates themselves. However, Schedule S-2 applies the current standby rate in a different manner than Schedule S in order to recover the Facilities-Related Demand charge. While the standby rate under Schedule S-2 is no different than under Schedule S, customers on Schedule S-2 will pay higher standby charges due to the different calculation of the demand to which the standby rate is applied.  SCE states that due to the rate freeze mandated by AB 1890, SCE is unable to address the netting problem with respect to the customers currently taking service on Schedule S. However, it contends that no prohibition exists preventing the creation of a new standby rate schedule, S-2, for the newly eligible generation entities. 

NOTICE

In accordance with Section III, Paragraph G, of General Order No. 96-A, SCE mailed copies of this Advice Letter to other utilities and interested parties.  Public notice of this filing has been made by publication in the Commission's daily calendar.

PROTESTS

On November 8, 1999, timely protests were filed by Calpine Corporation (“Calpine”), Enron Energy Services and Enron North America (“Enron”), California Cogeneration Council (“CCC”), and Independent Energy Producers (“IEP”). 

Protests were also received from the City of Palm Springs on November 19, 1999, AlliedSignal on November 12, 1999, Strategic Resource Solutions (SRS) on November 11, 1999, Capstone Turbine Corporation on November 16, 1999, Coast Intelligen, Inc. on November 29, 1999, The Office of Ratepayer Advocates (ORA) on November 16, 1999, and Energy Solution Group, Inc. on December 8, 1999. In addition, on November 22, 1999, University of California and California State University (UC/ CSU) filed a letter supporting the protests of Enron and Calpine, and IEP. 

On November 8, 1999, Southern California Gas Company (SoCalGas) filed a letter stating that it does not wish to protest Advice Letter 1410-E. However, it wished to note that due to concerns raised by SCE’s new standby proposal, SoCalGas submitted data requests to SCE. SoCalGas accepts SCE’s comments as reassurance that adoption of Advice Letter 1410-E will not prejudice an ultimate determination concerning Standby charges in R.99-10-025. 

In response to protests, SCE states that untimely protests should be rejected pursuant to General Order 96-A, Section III (H). 

Since the Commission was still in the process of assessing SCE's proposal in Advice Letter 1410-E when untimely protests were filed, we accepted the filings. We reached this determination because the untimely protests did not raise additional substantive issues and would not delay a determination on this matter. To assure that SCE would have ample opportunity to address all protests, SCE was notified on December 15, 1999 that it may file an additional response to protests within 5 business days. 

All protesting parties oppose SCE’s proposal for Schedule S-2. Parties argue that a new standby schedule that results in higher charges is not appropriate to the informal Advice Letter process. Parties contend that the ongoing R.99-10-025 is the appropriate venue to address standby rates because standby issues have already been earmarked for discussion in that proceeding. In addition, parties argue that SCE’s proposal is unreasonable because it would apply standby costs that serve to hinder distributed generation. Protesting parties also raise various substantive objections to the method that SCE proposes for calculating Standby and Facilities-Related Charges under Schedule S-2. 

Enron and Calpine are the only protesting parties that object to SCE’s Rule 21 revisions that permit expanded interconnection applicability. Enron and Calpine believe that an Advice Letter is an inappropriate process to address interconnection matters. They argue that handling interconnection issues in an Advice Letter constitutes a piecemeal approach to interconnection issues that are designated for discussion in the ongoing R.99-10-025.  

Enron and Calpine contend that if the Commission decides to accept SCE’s revisions to Rule 21, it should modify the proposal to address broader interconnection standards and policies. They suggest a modification to specify that SCE shareholders finance the added facilities referred to in Rule 21 D.5. Enron and Calpine also want SCE to incorporate the clause from its existing Rule 21 which reads “If SCE is able to make use of these facilities to serve a customer, the producer shall receive fair market value…”

On November 19, 1999, SCE responded to the protests of Calpine and Enron, IEP, AlliedSignal, CCC, ORA, Capstone, and SoCalGas. On November 20, 1999, SCE responded to the City of Palm Springs’s protest. On November 29, 1999, a response to UC/CSU and Intelligen, Inc. was filed by SCE. On December 8, 1999, SCE responded to Energy Solutions Group’s protest. In addition, SCE filed a supplemental response to untimely protests on December 22, 1999.

In its responses, SCE acknowledges that ongoing Rulemaking R.99-10-025 will address interconnection and standby issues. However, it states that an Advice Letter is an appropriate process to propose tariff changes for interconnection because D.99-10-065 states that SCE should remove provisions prohibiting non-QF generators from operating in parallel with SCE’s system. SCE states that removing the non-QF restriction is only an interim measure to allow interconnection under the existing rules while broader interconnection issues are contemplated in R.99-10-025.  

SCE addresses the issue raised by Enron and Calpine that the financing proposed under Rule 21, Section D.5, be provided at shareholder risk. SCE states that the ratemaking treatment for financing added facilities is already contained in Rule 2, Section H. The revision of Rule 21, Section D.5 was only intended to clarify that new non-QF generating facilities are bound by the same provisions. 

SCE responded to Enron and Calpine’s request to reinstate the provision in the current Rule 21, which provides that producers will receive the fair market value of facilities that SCE can use to serve customers. SCE notes that deletion of this provision was made in error and that it will re-institute the language in Rule 21, Section D.6.

In response to parties’ objection to Schedule S-2, SCE states that it is not adopting new rates, but is proposing a new method to recover Facilities-Related charges. It argues that the only difference between Schedule S and Schedule S-2 is that Schedule S-2 eliminates a netting problem in Schedule S. The problem results in a Standby customer not paying any demand charges for its supplemental demand when its self-generation system does not fail during a billing cycle.

DISCUSSION
 
Energy Division believes SCE’s proposed changes to its Rule 21 for interconnection are reasonable and should be adopted. 

Energy Division understands Enron’s and Calpine’s concern that adoption of Advice Letter 1410-E will constitute a piecemeal approach to the broader interconnection issues earmarked for consideration in R.99-10-025.  However, we believe that the revisions to SCE’s Rule 21 will allow interim relief for those generation entities that are currently unable to interconnect with SCE’s system.  We believe this is consistent with the intent of Decision 99-10-065, which directed SCE to remove provisions prohibiting non-QF generators from operating in parallel with SCE’s system. 

Energy Division agrees that SCE’s proposed revisions to Rule 21 are interim measures designed to provide greater flexibility to generation entities that currently are unable to interconnect with SCE. We want to be clear that this Resolution will in no way limit or prejudice the Commission’s determination on broader and more fundamental changes to interconnection standards and procedures in R.99-10-025.  Nor will it prejudice the Commission’s potential adoption of different rates and different rate schedules for those customers who become newly eligible to receive service under Schedule S during the interim between today and the Commission’s decision in R.99-10-025.

Since SCE conceded to Enron’s and Calpine’s request to reinstate the provision that states producers will receive the fair market value of facilities that SCE can use to serve customers, this issue is moot.

Energy Division agrees that SCE is not proposing new ratemaking treatment for added facilities, which is currently governed by Rule 2, Section H. The revision of Rule 21, Section D.5 simply states that the current ratemaking treatment applies to the newly eligible non-QF generating facilities. We recommend that this Resolution should only address the very narrow issue of removing QF specific language from Rule 21 in order to allow a broader range of entities to interconnect with SCE’s system. We believe this is consistent with the intent of D.99-10-065.  Enron’s and Calpine’s recommendation regarding the ratemaking treatment for added facilities as well as broader interconnection policies and standards is beyond the scope of this Resolution. These matters are earmarked for the ongoing Rulemaking, R.99-10-025, and should be addressed in that proceeding. 

While Energy Division supports SCE’s proposed revisions to Rule 21, we recommend rejecting without prejudice SCE’s proposed Schedule S-2. While D.99-10-065 suggests immediate changes to Rule 21, it made no such recommendation with regard to standby issues. D. 99-10-065 simply states:

In the new rulemaking [R.99-10-025] on distributed generation, there will be an opportunity for interested parties to submit testimony on the various rate design issues that confront us. Parties should provide testimony on whether standby charges are appropriate, and, if so, how the standby charge should be structured (mimeo, pp. 50).

Finding of Fact No. 23 states:

Several considerations must be carefully balanced by the CPUC in the design of the standby charge.

SCE’s proposed Schedule S-2 is more appropriately addressed in the ongoing Rulemaking R.99-10-025. This is especially so given the fact that an Advice Letter is not suited to making a determination on a new rate schedule that involves higher overall charges for the customers placed on the new schedule than would otherwise be applied under the current rate schedule. We believe that any new standby proposal should be addressed by the Commission in a proceeding where the wider implications, such as the possible implications for distributed generation, can be fully and fairly explored. 

Therefore, SCE should modify Rule 21 to allow non-QF generating entities to interconnect, and should allow the non-QF entities to take service on Schedule S until a final determination is reached in R.99-10-025. 
 
SCE’s revision to Rule 21 should be approved. SCE’s Standby Schedule, S-2, should be denied without prejudice. 

 COMMENTS

The Energy Division mailed the draft resolution in this matter to parties in accordance with PU Code Section 311(g).  Comments were received from SCE on January 24, 2000, Energy Solutions Group on January 11, 2000, and Independent Energy Producers Association on January 21, 2000.

The comments by Energy Solutions Group and Independent Energy Producers simply state their support for Resolution E-3652.

In its comments, SCE reiterates its argument that Schedule S-2 should be approved. SCE does not make new legal or technical arguments. SCE simply restates its position that Schedule S-2 can be approved by Advice Letter and that under the netting provision of Schedule S it is sometimes not fully compensated for costs incurred to meet the maximum demand that generators can place on its system. We will afford no weight to those comments made by SCE that reargue positions that was already put forth and resolved by this Resolution.
 
SCE does, however, make one specific technical comment. It objects to language contained in Finding of Fact No. 5, which states that all protesting parties oppose SCE’s proposal for Schedule S-2 because it would result in higher standby charges than under the current Schedule S. SCE states that not all protestants made that point. SCE also states that there is no evidence that higher standby charges could hinder the development of distributed generation. 

Accordingly we have changed Finding of Fact No.5 to read ‘All protesting parties oppose SCE’s proposal for Schedule S-2. Many protesting parties argue that Schedule S-2 would result in higher standby charges than under the current Schedule S. Protesting parties claim that higher charges could hinder the development of distributed generation.’ 

FINDINGS

1.	Advice Letter 1410-E requests revisions to Rule 21, Non-SCE Owned Generating Facilities Interconnection Standards (Rule 21) to allow third-party non-qualifying facilities to interconnect with SCE’s system. SCE also proposes to establish Schedule S-2, which it claims will establish rates for the new customers that are able to interconnect with SCE under its revised Rule 21.

2.	Protests were received from Calpine, Enron, California Cogeneration Council,  Independent Energy Producers, City of Palm Springs, AlliedSignal, Strategic Resource Solutions, Capstone Turbine Corporation, Coast Intelligen, University of California and California State University, The Office of Ratepayer Advocates, and Energy Solution Group. 

3.	SoCalGas did not protest, but intervened to state its understanding that any determination regarding new standby charges shall not prejudice the Commission’s final determination on such matters in R.99-10-025.

4.	Untimely protests were accepted because they did not raise new substantive issues and would not delay a determination on this matter. SCE was given an additional 5 days to address untimely protests. 

5.	All protesting parties oppose SCE’s proposal for Schedule S-2. Many protesting parties  argue that Schedule S-2 would result in higher standby charges than under the current Schedule S. Protesting parties claim that higher charges could hinder the development of distributed generation. Protesting parties argue that the ongoing R.99-10-025 is the appropriate proceeding to address standby rate changes. 

All protesting parties with the exception of Independent Energy Producers raised this point.

6.	The revisions to SCE’s Rule 21 will allow interim relief for those generation entities that are currently unable to interconnect with SCE’s system.  This is consistent with the intent of D.99-10-065 which directs SCE to remove provisions prohibiting non-QF generators from operating in parallel with SCE’s system.

7.	This Resolution will in no way limit or prejudice the Commission’s determination on broader and more fundamental changes to interconnection standards and procedures in R.99-10-025. Nor will it prejudice the Commission’s potential adoption of different rates and different rate schedules for those customers who become newly eligible to receive service under Schedule S during the interim between today and the Commission’s decision in R.99-10-025.  
 
8.	Enron and Calpine’s joint protest requesting that revisions to Rule 21 be deferred to R.99-10-025 is denied.

9.	Since SCE acceded to Enron’s and Calpine’s request to reinstate the provision that states producers will receive the fair market value of facilities that SCE can use to serve customers, this issue is moot.

10.	SCE is not proposing new ratemaking treatment for added facilities, which is currently governed by Rule 2, Section H. The revision of Rule 21, Section D.5 simply states that the current ratemaking treatment applies to the newly eligible non-QF generating facilities. 

11.	This Resolution should address the very narrow issue of removing QF specific language from Rule 21 in order to allow a broader range of entities to interconnect with SCE’s system. This is consistent with the intent of D.99-10-065.  

12.	Enron’s and Calpine’s joint protest regarding the ratemaking treatment for added facilities as well as broader interconnection policies and standards is beyond the scope of this Resolution and is denied. These issues should be addressed in R.99-10-025.

13.	SCE’s revisions to Rule 21 should be adopted. 

14.	An Advice Letter is not suited to making a determination on a new standby schedule that involves higher overall charges for customers taking service on the new schedule than would be applicable under the current standby tariff provisions. 

15.	Any new standby proposals should be addressed in a proceeding where the wider implications can be fully and fairly explored. 

16.	Standby proposals should be raised in R.99-10-025.

17.	The protests of all parties recommending that SCE’s Schedule S-2 be deferred to the ongoing R.99-10-025 are granted.

18.	SCE’s proposed new standby schedule should be rejected without prejudice. 

19.	SCE should modify Rule 21 to allow non-QF generating entities to interconnect and allow the non-QF entities to take service on Schedule S until a final determination is reached in R.99-10-025. 

THEREFORE, IT IS ORDERED THAT:

1.	SCE’s revisions to Rule 21 are approved, subject to the modifications set forth below. SCE’s Standby rate Schedule, S-2, is denied without prejudice. If SCE accepts the findings of this Resolution, it should supplement its Advice Letter within 10 days of the effective date of this Resolution to modify its proposed tariff language as follows:

i)	SCE shall reinstate the provision in the current Rule 21 which provides that producers will receive the fair market value of facilities that SCE can use to serve customers.

ii)	SCE shall remove all references to Schedule S-2.

iii)	SCE should revise Schedule S to reflect its interim applicability to the additional generation facilities described in revised Rule 21. 

this supplemental Advice Letter shall be effective upon filing subject to Energy Division determining that it is compliant with this Resolution.

2.	This Resolution is effective today.

3.	The protests to Advice Letter 1410-E are resolved as described in the findings of this Resolution.
   
I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on February 3, 2000. The following Commissioners voted favorably thereon:

			    					    _____________________
   WESLEY M. FRANKLIN     
         Executive Director

     RICHARD A. BILAS
	   President
     HENRY M. DUQUE
     JOSIAH L. NEEPER
     CARL W. WOOD
     LORETTA M. LYNCH
           Commissioners