Details for: PUBLIC SCE's Reply to Protests and Response to Advice 4373-E_Redacted.pdf


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Gary A. Stern, Ph.D.
Managing Director, State Regulatory Operations

January 14, 2021
CPUC, Energy Division
Attention: Tariff Unit
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, CA 94102

SUBJECT:

PUBLIC VERSION - Reply of Southern California Edison
Company to Protest and Response to Advice 4373-E

Dear Energy Tariff Division Unit:
Pursuant to Rule 7.4.3 of the California Public Utilities Commission’s (Commission or
CPUC) General Order (GO) 96-B, Southern California Edison Company (SCE)
respectfully submits this reply to the protest of the Public Advocates Office and the
response of the California Energy Storage Alliance (CESA) to SCE’s Advice 4373-E.
I.

INTRODUCTION

In Decision (D.) 19-11-016, the Commission required all load-serving entities (LSEs) to
procure at least their share of 3,300 MW of incremental system resource adequacy (RA)
capacity for system reliability and renewable integration, with at least 50% delivered by
August 1, 2021, 75% delivered by August 1, 2022, and 100% delivered by August 1,
2023.1 SCE and the other investor-owned utilities (IOUs) were also required to procure
on behalf of LSEs who opted out of self-providing their procurement or fail to perform,
with the costs of any such procurement allocated to their customers on a nonbypassable basis based on a modified cost allocation mechanism.2
On December 18, 2020, SCE submitted Advice 4373-E seeking Commission approval
of three energy storage contracts and two demand response (DR) contracts (Standard
Track Contracts) entered into as a result of the Standard Track of SCE’s System
Reliability Request for Offers (SRRFO) to meet SCE’s procurement requirements for
August 1, 2022 and 2023 deliveries of RA capacity pursuant to D.19-11-016, as well as
the procurement requirements of LSEs in SCE’s Transmission Access Charge (TAC)
area that opted out of self-procuring.

1
2

See D.19-11-016 at Ordering Paragraph (OP) 3.
See id. at OP 5.

P.O. Box 800

8631 Rush Street

Rosemead, California 91770

(626) 302-9645

Fax (626) 302-6396





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Energy Division Tariff Unit Page 2 January 14, 2021 The Standard Track Contracts, totaling 590 MW of nameplate capacity, are expected to provide 260 MW of incremental system RA capacity to come online by August 1, 2022, and 330 MW to come online by August 1, 2023.3 With the Fast Track Contracts approved in Resolution E-5101 and the Standard Track Contracts, SCE has satisfied its D.19-11-016 procurement requirements for August 1, 2021, 2022, and 2023 deliveries, as well as the procurement requirements of opt-out LSEs in SCE’s TAC area.4 Moreover, the Standard Track Contracts meet all other requirements of D.19-11-016 and represent the least-cost, best-fit solution for satisfying SCE’s 2022 and 2023 procurement requirements.5 On January 7, 2021, Public Advocates Office submitted a protest to Advice 4373-E and CESA submitted a response. CESA responded “in support of timely Commission approval of the proposed contracts included in SCE’s Advice Letter” and states the Standard Track Contracts “advance the state’s decarbonization goals while providing reliability and flexibility at the same time.”6 As discussed herein, the Commission should reject Public Advocates Office’s protest to Advice 4373-E. SCE’s consideration of debt equivalence in the SRRFO Standard Track was appropriate and consistent with its treatment of debt equivalence for contracts previously approved by the Commission in SCE’s SRRFO Fast Track. As such, the Commission should reject Public Advocates Office’s recommendation that it require SCE to negotiate a tolling agreement in lieu of an RA with Put Option contract for the energy storage contract between SCE and Sonoran West Solar Holdings, LLC for the Crimson project (Crimson Contract). Additionally, SCE properly accounted for local RA value and ancillary services (AS) benefits, appropriately determined that the capacity contributions from the Sunrun Inc. (Sunrun) DR contracts are incremental, and procured non-emitting resources that meet all requirements of D.19-11-016. The protest to SCE’s Advice 4373-E does not provide a justification for rejecting the Standard Track Contracts or any other relief requested by SCE. Accordingly, the Commission should approve Advice 4373-E on the expedited schedule set forth in the Advice Letter. 3 4 5 6 See SCE Advice 4373-E at 5. See id. at 5-7. See id. at 26-27. CESA Response at 2.
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Energy Division Tariff Unit Page 3 January 14, 2021 II. SCE’S REPLY TO PUBLIC ADVOCATES OFFICE’S PROTEST A. SCE’s Consideration of Debt Equivalence Was Appropriate and Consistent With the SRRFO Fast Track In the SRRFO Standard Track, SCE executed two energy storage tolling agreements for a total of 385 MW (i.e., the Desert Peak Contract and the Eldorado Valley Contract). For the Crimson project, SCE executed an RA with Put Option contract, i.e., an RA contract where the seller also has the option to put the dispatch rights to SCE. Public Advocates Office argues that SCE’s consideration of the debt equivalence (DE) costs imputed by rating agencies in determining which contract form to execute for the Standard Track Contracts was unreasonable.7 In particular, Public Advocates Office asserts that SCE’s methodology for considering DE was arbitrary and that the Commission should require SCE to negotiate a tolling agreement for the Crimson project in lieu of the proposed RA with Put Option contract.8 This protest should be rejected. SCE has actively and successfully explored ways in which it can enter into tolling agreements that would not be subject to financing lease accounting treatment, and thus not be imputed 100% DE. As mentioned in Public Advocates Office’s protest,9 for three of the five RA with Put Option contracts signed in the SRRFO Fast Track, SCE was able to negotiate modified tolling agreements that did not require the use of a 100% DE factor. In the Standard Track, using lessons learned from the SRRFO Fast Track, SCE made contract selection decisions with the goals of delivering the most customer value while supporting SCE’s financial health and addressing to the extent possible the DE concerns that Public Advocates Office raised regarding the Fast Track Contracts. As noted above, SCE executed two of the three energy storage contracts in the Standard Track as tolling agreements. As explained in Advice 4373-E, SCE used a 20% DE risk factor as provided in D.04-12048 and D.08-11-008 for purposes of shortlisting projects in its SRRFO.10 However, contract form affects DE treatment and costs to customers; therefore, similar to the SRRFO Fast Track, SCE also weighed the financial implications of DE as a qualitative consideration in deciding the final contract structures for the Standard Track Contracts.11 In particular, because the impacts of DE have real financial consequences to SCE that are not fully reflected through consideration of a 20% DE risk factor for all contracting structures, SCE considered the costs of the likely imputed debt by rating agencies in determining the final contract form for the Standard Track Contracts.12 7 8 9 10 11 12 See Public Advocates Office Protest at 4-7. See id. See id. at 6. See also Resolution E-5101 at 12-13. See SCE Advice 4373-E at 14, 18. See id. at 18-20, Confidential Attachment C at C-12-C-16. See id.
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Energy Division Tariff Unit Page 4 January 14, 2021 In Resolution E-5101 approving SCE’s Fast Track Contracts, the Commission “recognize[d] SCE’s responsibility to evaluate realistic costs of contracts that it proposes to enter into” and observed that “[i]t is appropriate for SCE to try to minimize costs, and to consider all real costs when doing so.”13 The Commission “appreciate[d] SCE’s efforts on this point” to negotiate modified tolling agreements, but recognized that may not always be possible: Additionally we understand that SCE’s ability to modify these contracts in a way that did not require use of the 100% DE factor was dependent on characteristics of the individual contracts and resources, and that this treatment may not be applicable to future procurement options. Because of the unique and new nature of tolling agreements with energy storage resources and the individual contracts in question, future treatment and valuation of such procurement options may not always be able to use this modified tolling agreement.14 The Commission also approved the two remaining RA with Put Option contracts executed in the Fast Track, reasoning that “[n]o comprehensive consideration of [DE] has been undertaken for quite some time” and that “[o]ver the period since those determinations on [DE] much has changed in the realm of utility balance sheets and in the characteristics of resources and contracts that are being procured.”15 Given “efforts SCE has made to reduce the number of contracts that would have been subjected to the 100% DE treatment in the bid comparisons,” and the fact that there were no utilityowned generation bids being compared, the Commission found it reasonable to approve the RA with Put Option Contracts and “recognize[d] the need to review how DE should be applied in comparing bid structures in procurement solicitations” in the future.16 SCE’s consideration of DE in the SRRFO Standard Track is fully consistent with the Commission’s findings in Resolution E-5101. For battery energy storage contracts, one of the critical factors that determines whether a power purchase agreement (PPA) is a financing lease, and therefore imputed 100% DE, is whether the present value of the minimum lease payments represents substantially all of the fair value of the asset at the commencement of the lease. In particular, if the present value of the minimum lease payments is 90% or more of the fair market value of the asset at the commencement of the lease, the lease is considered a financing lease. The final accounting determination is made when the project comes into commercial operation. Accordingly, because the final determination of the lease classification using the 90% test will be completed a year and a half or more from the execution of the contracts, it is 13 14 15 16 Resolution E-5101 at 12. Id. at 12-13. Id. at 13. Id.
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