Bill to Set QF Prices

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, April 25, 2003 Share this on FacebookTweet thisEmail this to a friend

A bill allowing the California Public Utilities Commission (CPUC) to establish and adjust prices paid toqualifying facilities (non-utility generators) is moving through the Senate.

SB 173, by Senator Joseph Dunn (R-Garden Grove) allows the CPUC to set prices for qualifying facilities (QFs) if it determines that gas price indexes are not "reliable and verifiable". The bill was approved recently by the Senate Energy, Utilities and Communications Committee and will be heard in the Senate Judiciary Committee on Tuesday, April 29.

During the 2000-01 energy crisis, some gas price indexes were later shown to be unreliable. Since then, both the gas industry and the Federal Energy Regulatory Commission (FERC) have worked to improve the reliability of the indexes. FERC is expected to issue a ruling this summer dealing with the problem.

SB 173 will cause more problems than it solves, and won't get at the main problem identified by the author: the reliability of gas price indexes. Instead, it will make the indexes unworkable. The bill makes it easy for the CPUC to step in and set the prices themselves by simply finding that the indexes are not "reliable and verifiable".

While SB 173 attempts to address market manipulation, the remedies contained in the bill are overly broad and will result in an inequitable outcome for QFs.

Pursuant to the Federal Public Utility Regulatory Policies Act, QFs are entitled to be paid the utility's avoided cost (i.e., what the utility would have charged to generate power to serve incremental load absent the availability of the QF). SB 173 undermines the avoided cost principle by allowing the CPUC to establish and adjust the prices paid to QFs based on a natural gas price that may not reflect prices actually available in the market.

SB 173 will cause unnecessary regulatory uncertainty in determining prices paid to QFs and have an adverse effect on both the continuing operation of existing QF and cogeneration facilities and investment in and development of new facilities.

Meanwhile, on the same day this bill is heard in the Senate Judiciary Committee, Dunn's electric "re-regulation" bill will be heard in the Senate Energy Committee. SB 888 repeals AB 1890, the landmark electric restructuring law, and repeals retail direct access. It also authorizes new utility investment and generation and cost-of-service ratemaking.
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