Calif. PUC Orders Utilities to Procure CHP Resources on Behalf of Competitive Suppliers

The California PUC has ordered that Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company shall procure Combined Heat and Power resources on behalf of electric service providers (ESPs) and community choice aggregators (CCAs), with costs recovered from such customers on a nonbypassable basis, as part of a revised CHP mandate (Application 08-11-001).

The PUC said having the utilities acquire CHP resources on behalf of ESPs is appropriate given concerns about the ability of ESPs to undertake such procurements themselves.

"The administrative burden for the Commission would also be reduced since it would only need to monitor the IOUs for compliance. We remain open to consideration, in a future proceeding, of proposals whereby ESPs and CCAs may opt out of IOU procurement and procure CHP resources on their own behalf," the PUC said.

Several direct access parties had earlier warned that the proposed decision for such a mandated procurement run by utilities, essentially adopted without modification to the ESP provisions, "will undermine in lasting and irrevocable ways, the success of retail choice markets and the benefits that competitive markets can bring."

CHP requirements for the utilities and ESPs will be based each's percentage of total retail sales.

The utilities are authorized to recover "net capacity costs" from all bundled, direct access (DA) and CCA customers on a nonbypassable basis. Net capacity costs are the total costs paid by the utility under the QF/CHP program less the value of the energy and ancillary services supplied to the utility under the program. Direct access parties have argued that this recovery mechanism allows the utilities to recover from competitive customers costs related to the competitive customers' procured share and part of the share attributable to bundled service customers, since the PUC decision is deeming the CHP resources to have a "reliability" benefit.

The PUC dismissed protests from direct access parties regarding a lack of notice of the scope of the proceeding, and legal arguments that the procurement mandate with respect to competitive suppliers exceeds the PUC's authority.