Details for: SDGE Protest Reply - AL 3605-E.pdf

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Clay Faber - Director
CA & Federal Regulatory
8330 Century Park Ct
San Diego, CA 92123

October 8, 2020
ED Tariff Unit
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, California 94102


In accordance with Section 7.4.3 of General Order 96-B, San Diego Gas & Electric Company (“SDG&E”)
hereby responds to the protests to its Advice Letter (“AL”) 3605-E (each a “Protest”) submitted by the
California Public Advocates Office (“Cal Advocates”), jointly by San Diego Community Power (“SDCP”)
and Clean Energy Alliance (“CEA”), and by the Alliance for Retail Energy Markets (“AReM”).
On September 11, 2020, SDG&E submitted AL 3605-E requesting California Public Utilities Commission
(“CPUC” or “Commission”) approval of two resource adequacy (“RA”) purchase agreements and one
power purchase agreement (“PPA”) with a third-party owned battery energy storage systems (together,
the “Contracts”), along with two utility-owned battery energy storage systems to be constructed by a thirdparty and owned and operated by SDG&E (the “EPC Agreements”; together with the Contracts, the
“Proposed Transactions”) resulting from SDG&E’s 2021-2023 Integrated Resource Planning (“IRP”)
Reliability Request for Offers (“RFO”). As discussed in AL 3605-E, SDG&E requests the following
Commission findings: (1) procurement under the Proposed Transactions complies with the requirements
set forth in Decision (“D.”) 19-11-016, (2) SDG&E is authorized to recover in rates the cost of the
Contracts, subject to their prudent administration, and the EPC Agreements, and (3) SDG&E’s interim
cost allocation methodology Resource Adequacy Procurement Memorandum Account (“RAPMA”) is
approved pending the Commission’s adoption of a modified Cost Allocation Mechanism (“CAM”) as
directed in D.19-11-016.
Protests to SDG&E’s AL 3605 were submitted on October 1, 2020. In its Protest, Cal Advocates
suggests a need for further documentation and justification of certain methodological assumptions used
by SDG&E.1 It requests information regarding Phase 2 of SDG&E’s RFO, as well as supplemental
information regarding the net impacts on greenhouse gas (“GHG”) and criteria air pollutant emissions of
new energy storage procurement for each of the proposed contracts.2 Finally, Cal Advocates asserts that
SDG&E should exclude the value of avoided curtailment from its bid evaluation methodology for all future
procurement pursuant to D.19-11-016 that is submitted for approval in an advice letter until such time that


Cal Advocates Protest, p. 4.
Id. at p. 10.


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Public Utilities Commission October 8, 2020 the methodology is sufficiently vetted in the IRP Rulemaking (“R.”) 20-05-003; it also proposes other refinements to be considered in the IRP proceeding.3 The Protest filed jointly by Community Choice Aggregators (“CCAs”), SDCP and CEA, proposes new RFO eligibility criteria that were not ordered by the Commission in D.19-11-016. Specifically, SDCP and CEA propose that while D.19-11-016 expressly authorizes SDG&E to procure, in pertinent part, existing as well as new resources including energy storage, and establishes minimum terms of ten years for new resource procurement contracts and three years for existing resources, the Commission should retroactively require SDG&E to “procure shorter-term resources” and should deny the Proposed Transactions on the grounds that they do not satisfy this newly-articulated requirement. 4 Further, SDCP and CEA argue that the Commission should impose as an additional condition for approval a new requirement for a contractual provision allowing assignment of the Contracts to a CCA. 5 Finally, AReM’s Protest requests that the Commission direct SDG&E to specify the exact MW amount of its 164 MW of proposed procurement that is attributable to load-serving entities (“LSEs”) that elected not to self-procure to meet their obligation established in D.19-11-016 (“Opt-Out LSEs”). AReM also asks the Commission to clarify that R.20-05-003 is the appropriate forum for determining the cost recovery applicable to utility bundled service customers and Opt-Out LSEs and their customers. 6 SDG&E’S RESPONSE TO PROTEST OF AL 3605-E I. Response to Cal Advocates Cal Advocates suggests that SDG&E should provide “additional information about its RFO and bid evaluation methodology,”7 asserting that SDG&E “does not provide sufficient explanation of the underlying assumptions of the methodology to allow the Commission to determine whether SDG&E’s calculation of final net scores is reasonable, and whether the inherit tradeoffs between [net market value (“NMV”)] and other factors result in selected bids that maximize ratepayer value.” 8 SDG&E notes that the information identified by Cal Advocates was provided to the Commission in a data request response provided on June 25, 2020 in support of AL 3605-E. The evaluation model along with a descriptive narrative was submitted to the Commission’s Energy Division. This information was also provided to Cal Advocates via separate data request responses on May 29, 2020 and September 22, 2020. All inputs and calculations affecting the final computation of the scores used in the bid evaluation were provided in these submittals. Thus, the Commission has the data and analysis necessary to evaluate SDG&E’s request. 3 4 5 6 7 8 Id. at p. 7. Joint Protest of SDCP and CEA, p. 5. Id. at p. 7. AReM Protest, p. 4. Cal Advocates Protest, p. 12. Id. at p. 8. 2
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Public Utilities Commission October 8, 2020 Cal Advocates next asserts that a particular bid type received an advantage in the bid selection process due to overvaluation of a specific attribute.9 This assessment is erroneous. While specific details of the bid in question are confidential, SDG&E provides this generalized response to Cal Advocates’ claim. SDG&E notes that D.19-11-016 makes plain that the Commission’s objective in ordering additional procurement was to ensure grid reliability: “First, to avoid any further confusion as reflected in the comments of some parties, our decision here is entirely about resources for system reliability, which means resources that qualify to meet system resource adequacy requirements.” 10 Indeed, the decision references “system reliability” in thirty-two instances throughout the document. Accordingly, SDG&E designed its Least-Cost/Best-Fit methodology for this RFO to align with the Commission’s focus on grid reliability. It included specific methods designed to appropriately estimate all value streams, as demonstrated in SDG&E’s June 25, 2020 data request response. Cal Advocates cites an example bid to illustrate the effects of this purported overvaluation. However, the example provided by Cal Advocates excludes certain elements of SDG&E’s LCBF methodology, in particular those that address project risk and its application to the overall cost of bids. Specifically, SDG&E employed a metric, not recognized in Cal Advocates’ example, to address specific project attributes in the bid. This metric has an impact commensurate with bid cost, with the intent to protect ratepayers from additional risk. From this incomplete example, Cal Advocates incorrectly concludes that the methodology favors certain bids, however a review of scoring results 11 produced by the SDG&E evaluation model demonstrates that this is not the case. Cal Advocates further argues that a second valuation component is over-valued. 12 SDG&E contends that all valuation components utilized in its methodology used current market conditions as the starting point and provided future value trends based on conservative and reasonable assumptions. Finally, Cal Advocates asserts that the details provided regarding SDG&E’s avoided curtailment methodology are insufficient.13 While this concept may benefit from further consideration in the context of the IRP proceeding, SDG&E contends that the approach is a reasonable interpretation and implementation of the Commission’s intent expressed in D.19-11-016. In the decision, the Commission observes that “[o]ur success to date with procurement of renewable energy necessitates consideration of renewable integration needs to ensure reliability while continuing the transition to 2030.” 14 As a practical matter, one of the best ways to integrate renewable resources is to enable a state of full production whenever possible until such time that the long-term renewable portfolio standard (“RPS”) goals of the State are met. SDG&E believes that the typical NMV methodology does not account for the benefit of minimizing renewable generation curtailment. SDG&E applied this attribute conservatively, in limited fashion, using the IRP’s Reference System Portfolio to provide an upper limit to the attribute’s long-term potential. SDG&E contends that all renewable assets have a fixed life and unlocking lost output of those facilities while they are still in service is in the best interest of all ratepayers. Additionally, SDG&E believes that this is a reasonable interim approach given the online delivery dates required by D.19-11-016. Accordingly, the Commission should allow avoided curtailment value to be included in all remaining tranches of the RFO. 9 10 11 12 13 14 Id. at p. 4. D.19-11-016, p. 13 (emphasis added). See Advice Letter 3605-E, Appendix F (LCBF Scoring Results). Cal Advocates Protest, p. 6. Id. at p. 7. D.19-11-016, p. 13. 3
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Public Utilities Commission October 8, 2020 The Commission should reject Cal Advocates’ proposal to require SDG&E to use “an existing bid evaluation methodology.”15 While a common foundational approach such as the underlying Net Market Value framework utilized in this RFO is appropriate, each procurement obligation imposed by the Commission has differing priorities. For example, as previously noted, the Commission stressed the importance of “system reliability” and “grid integration” in establishing the procurement mandates set forth in D.19-11-016. As such, SDG&E requires a measure of flexibility in order to meet the objectives underlying the Commission’s procurement directives, as well as to ensure “best-fit” for bundled service customers. A one-size-fits-all approach is not appropriate and does not serve the public interest. Thus, the Commission should continue to allow flexibility in SDG&E’s evaluation methodology. II. Response to SDCP and CEA SDCP and CEA argue that the Commission should reject the proposed Contracts on the grounds that SDG&E “should have given priority to short-term contracts with existing resources because of impending bundled customer departures beginning in 2021.” 16 The arguments offered by SDCP and CEA to support this contention lack merit and must be rejected. As a threshold matter, the claim by SDCP and CEA that they are “in a position similar to an LSE that optsout or fails to meet its obligations . . .” is plainly untrue.17 When SDG&E procures to meet the obligations of an Opt-Out LSE, it is procuring on behalf of that LSE’s customers; this is not the case with SDCP and CEA since neither CCA is currently serving any customers. Leaving aside the procurement undertaken on behalf of customers of Opt-Out LSEs, SDG&E’s procurement in the instant case is on behalf of its current bundled service customers. While some portion of these customers may depart utility bundled service in the future to be served by a non-IOU LSE such as SDCP or CEA, they remain bundled service customers until that time. As discussed in AL 3605-E, SDG&E’s procurement process sought to achieve the most favorable outcome for bundled service customers (which includes future departed load customers) and Opt-Out LSE customers, which resulted in procurement of the lowest-cost, best fit resources available through the solicitation. Procuring these resources benefits all customers, including those who eventually choose to depart utility bundled service. SDCP and CEA fail to show otherwise. SDCP and CEA are correct that a portion of the costs of the proposed Contracts will be allocated to customers who choose to depart utility bundled service in the future (along with a portion of the benefits), 18 but SDCP and CEA fail to explain why this fact alone should operate to require the Commission to reject the Contracts proposed by SDG&E or how such action would serve the public interest in maintaining system reliability. From a policy perspective, the approach advocated by SDCP and CEA makes little sense and is unlikely to result in the best outcome for customers. Short-term contracts are often more expensive than longer term contracts. Thus, mandating short-term contracts in an effort to match the contracting period with the anticipated date of load migration would likely result in increased costs borne by both bundled service customers and departing load customers. SDG&E’s effort to protect ratepayers from unnecessary cost burden is appropriate and consistent with Public Utilities Code § 451. 15 16 17 18 Cal Advocates Protest, p.10. Joint Protest of SDCP and CEA, p. 6. See id. Id. at p. 5. 4
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Public Utilities Commission October 8, 2020 In addition, a requirement to engage only in short-term contracting would interfere with the State’s clean energy goals. Short-term contracts do not support development of the type of resources needed by the State to meet its GHG mitigation targets. Similarly, the proposal by SDCP and CEA to limit SDG&E’s contracting ability to existing resources fails to recognize the need for incremental clean resources to achieve the State’s environmental objectives and fulfill the Commission’s directive in D.19-11-016. Accordingly, the policy proposal offered by SDCP and CEA to limit SDG&E’s procurement to short-term contracting with existing resources should be rejected as ill-conceived and contrary to the public interest. The Commission should instead establish LSE procurement obligations based on individual LSEs’ longterm needs or deficiencies based on annual load forecasts. SDCP and CEA’ Protest is equally flawed from a procedural perspective. The proposal by SDCP and CEA is essentially a request to modify D.19-11-016 to retroactively impose new procurement requirements solely on SDG&E. This manifestly unreasonable suggestion is an impermissible collateral attack on D.19-11-016 that cannot be countenanced by the Commission. 19 Retroactive adoption of the requirements proposed b SDCP and CEA would violate basic tenets of fairness and would significantly undermine regulatory certainty. The Commission did not include in D.19-11-016 a requirement that SDG&E or any LSE prioritize procurement of existing resources over new resources. Nor did the Commission require all contracts procured to be short-term. Rather, the Commission required the IOUs “to conduct an all-source solicitation in a non-discriminatory manner . . .,” 20 and set minimum contract terms for different types of resources: three years for incremental existing resources, five years for energy efficiency resources, and ten years for new resources. SDG&E’s solicitation complied with these requirements. In accordance with the non-discrimination requirement articulated in D.19-11-016, the solicitation did not exclude existing resources from participation. In its RFO protocols, SDG&E solicited three-year contracts for incremental existing resources; no offers were received. It solicited five-year contracts for energy efficiency resources; no conforming offers were received. It solicited ten-year contracts for new resources; the successful offers from this resource category are presented in Advice Letter 3605-E. The notion advanced by SDCP and CEA that SDG&E’s adherence to the Commission’s direction was unreasonable and that SDG&E should have procured short-term contracts simply to avoid a future need to allocate costs is misguided. It ignores the obvious fact that no short-term bids for existing resources were received by SDG&E and fails to acknowledge that a policy of limiting procurement to short-term contracts with existing resources does not serve the public interest. As discussed above, SDG&E’s procurement approach effectively protects both bundled service customers and future departing load customers who will be allocated the costs of such procurement. 19 20 The Commission has defined a collateral attack as “an attempt to invalidate the judgment or order of the Commission in a proceeding other than that in which the judgment or order was rendered.” D.0704-017, p. 8. Section 1709 of the Public Utilities Code establishes that “[i]n all collateral actions or proceedings, the orders and decisions of the commission which have become final shall be conclusive.” Collateral attacks on Commission decisions are prohibited. See, e.g. D.08-04-063, D.0710-015, D.07-04-017, D.07-03-047. D.19-11-016, Conclusion of Law 23. 5
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Public Utilities Commission October 8, 2020 Finally, the request by SDCP and CEA that the Commission “ensure that the proposed [c]ontracts are accessible and can be assigned to SDCP or CEA, or resources can be allocated to SDCP and CEA at a later date,”21 is inapposite. It is not clear what SDCP and CEA means by “accessible,” however with regard to allocation, all eligible LSEs in the SDG&E service territory will be allocated the benefits of the proposed Contracts during the term of each since the Commission has directed that the capacity procured by the IOUs in response to D.19-11-016 be allocated through the modified CAM mechanism and not PCIA.22 The Commission is currently considering proposed CAM methodologies; a final Commission decision regarding the modified CAM will impact how each LSE receives its share of the eligible benefits. The suggestion by SDCP and CEA that the Commission require the proposed Contract to address assignability is unnecessary; the contractual terms do address the assignability of the contracts to a CCA. III. Response to AReM AReM requests that the Commission direct SDG&E to specify the exact quantity of capacity that was procured on behalf of the Opt-Out LSEs. It is not possible to do so because this calculation will depend upon the modified CAM methodology adopted by the Commission. Thus, AReM’s request is premature. AReM also takes issue with SDG&E’s conclusion that the cost of procurement on behalf of both bundled customers and Opt-Out LSEs are recoverable through Modified CAM.23 AReM requests that the Commission clarify in R.20-05-003 whether the Modified CAM methodology will be applicable only to customers of Opt-Out LSEs or also to bundled customers of the IOUs. SDG&E notes that the Commission has already addressed the question raised by AReM. In response to a similar concern raised by SDG&E, the Commission directed in D.19-11-016 that the cost of all procurement, whether undertaken on behalf of customers of Opt-Out LSEs or bundled service customers, be allocated through a modified CAM methodology: We also clarify that the capacity procured by the IOUs in response to this decision will be allocated on a non-bypassable basis through a modified CAM mechanism and not PCIA. In other words, we will not reduce the cost allocation amounts to be recovered by the IOUs after load migrates. Thus we do not make the modifications suggested by SDG&E, in its comments, to account for load migration before or after the CCA or ESP elects whether it will self-provide or for PCIA vintaging. 24 Thus, further clarification of this point is not necessary. SDG&E’s RAPMA properly captures all relevant costs associated with the procurement for all impacted customers. 21 22 23 24 Joint Protest of SDCP and CEA, p. 7. D.19-11-016, p. 67. AReM Protest, p. 2. D.19-11-016, p. 67. 6
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Public Utilities Commission October 8, 2020 CONCLUSION SDG&E respectfully requests that the Protests be rejected for the reasons stated above and that SDG&E’s Advice Letter 3605-E be approved as written. Sincerely, ________________________ CLAY FABER Director – CA & Federal Regulatory cc: Edward Randolph – Energy Division Director Julie Halligan – Program Manager – Cal Advocates Ty Tosdal – Attorney for SDCP and CEA Sue Mara – Consultant to AReM Service List R.16-02-007 & R.20-05-003 7
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