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?PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Agenda ID# 19305ENERGY DIVISION RESOLUTION E-5140 April 15, 2021RESOLUTIONResolution E-5140. Pacific Gas and Electric Company’s Request for Approval of Tranche 2 and Tranche 3 System Reliability Contracts Pursuant to Decision 19-11-016.PROPOSED OUTCOME: This Resolution approves six contracts for Incremental system reliability resources that Pacific Gas and Electric Company procured via a competitive solicitation, pursuant to D.19-11-016.SAFETY CONSIDERATIONS:All contracts approved by this Resolution require sellers to develop safety plans and to demonstrate compliance with those plans. Projects must also comply with local authorities responsible for permitting and enforcement of the California building, fire, life safety, and electrical codes.ESTIMATED COST: Contract costs are confidential at this time. The Commission finds that the selected contracts represent a net benefit to ratepayers over their terms.By Advice Letter 6033-E, Filed on December 22, 2020.__________________________________________________________SummaryThis Resolution approves six contracts for incremental system reliability resources that Pacific Gas and Electric Company procured through its System Reliability Request for Offers – Phase 2 solicitation in 2020. Pacific Gas and Electric Company undertook this procurement to meet its 2022 and 2023 incremental procurement requirements pursuant to Decision 19-11-016 in the Integrated Resource Plan Rulemaking, 16-02-007. This Resolution approves the contracts without modification.BackgroundDecision (D.)19-11-016 in the Integrated Resource Plan Rulemaking, (R.)16-02-007, ordered Pacific Gas and Electric Company (PG&E) to procure 716.9 megawatts (MW) of system resource adequacy (RA) capacity, at least 50% of which must come online by August 1, 2021, 75% by August 1, 2022, and 100% by August 1, 2023. In the event that a Community Choice Aggregator (CCA) or Electric Service Provider (ESP) opted not to procure its total allocation, D.19-11-016 required the relevant investor-owned utility (IOU) to procure the remaining portion of the allocation. The Commission directed the IOUs to conduct all-source solicitations that would consider “existing as well as new resources, demand-side resources, combined heat and power, and storage,” provided that selected resources were incremental to baseline resource assumptions included in the Preferred System Plan that the Commission adopted in D.19-04-040. Finally, the Commission required the IOUs to file Tier 3 advice letters (AL) for approval of contracts no later than January 1, 2021 and specified that the advice letters must include:Metrics used to compare bids received in the solicitation;Metrics used to compare utility-owned resource options, using Appendix A, Section 2c, of Decision 19-06-032 as a guide;Demonstration of incrementality to the baseline given in Ordering Paragraph 5 of this decision.PG&E’s total procurement requirement is 765.1 MW, including 716.9 MW corresponding to bundled customers and 48.2 MW corresponding to customers of load serving entities (LSE) operating within the PG&E service territory that opted out of their D.19-11-016 procurement requirements. Thus, PG&E must procure at least 382.55 MW by August 1, 2021, at least 573.83 MW by August 1, 2022, and 716.9 MW by August 1, 2023.On February 28, 2020, PG&E initiated a solicitation that resulted in seven contracts for roughly 423 MW of incremental capacity, which the Commission subsequently approved in Resolution E-5100. On July 10, 2020, PG&E issued Phase 2 of the solicitation, seeking eligible capacity to meet its remaining 2022 and 2023 requirements. PG&E evaluated and shortlisted offers based on net market value and other factors affecting project viability, and PG&E presented its shortlist to the Cost Allocation Mechanism Procurement Review Group (CAM PRG) on September 15, 2020. PG&E also consulted with its independent evaluator (IE) – Merrimack Energy – throughout the solicitation process, and AL 6033-E contains both public and confidential versions of the IE’s report on the solicitation. On December 22, 2020, PG&E filed Tier 3 AL 6033-E, which requests approval of six selected contracts. Three contracts are long-term RA agreements (LTRAA), two are long-term RA agreements with energy settlement (LTRAA with ES), and one is a behind-the-meter long-term RA agreement (BTM LTRAA). The projects represent 387 MW of incremental capacity, 194 MW of which would achieve commercial operation by August 1, 2022, and 193 MW of which would achieve commercial operation by August 1, 2023. In combination with the roughly 423 MW of 2021 incremental capacity that the Commission approved in Resolution E-5100, the procurement in AL 6033-E would result in roughly 617 MW of incremental capacity coming online by 2022 and roughly 810 MW coming online by 2023, exceeding PG&E’s respective requirements for those years. The table below describes the contracts for which PG&E seeks approval.Counterparty(Project Name)TechnologySize (MW)Location and DAC DesignationContract TypeInitial Delivery DateTerm (Years)Nexus Renewables U.S. Inc.(AMCOR)Standalone Lithium Ion Battery27Fairfield, Solano County, CA(Not in DAC)BTM LTRAA8/1/202215Lancaster Battery Storage, LLC(Lancaster Battery Storage)Standalone Lithium Ion Battery127Lancaster, Los Angeles County, CA(DAC Adjacent)LTRAA with ES8/1/202215LeConte Energy Storage, LLC(LeConte Energy Storage)Standalone Lithium Ion Battery40Calexico, Imperial County, CA(In DAC)LTRAA8/1/202215North Central Valley Energy Storage, LLC(North Central Valley Energy Storage)Standalone Lithium Ion Battery132Linden, San Joaquin County, CA(DAC Adjacent)LTRAA with ES8/1/202315Daggett Solar Power 2, LLC(Daggett 2 BESS)Standalone Lithium Ion Battery46Daggett, San Bernardino County, CA(In DAC)LTRAA8/1/202315Daggett Solar Power 3, LLC(Daggett 3 BESS)Standalone Lithium Ion Battery15Daggett, San Bernardino County, CA(In DAC)LTRAA8/1/202315Cost RecoveryPG&E proposes to continue tracking costs not covered in rates – including procurement costs and administrative costs associated with procurement on behalf of CCAs and ESPs that opted out of their D.19-11-016 requirements – through the Incremental Resource Adequacy Procurement Memorandum Account (IRAPMA) that the Commission approved in Resolution E-5100, until the Commission adopts a Modified Cost Allocation Mechanism (“Modified CAM”) in R.20-05-003. Specifically, PG&E will assign 6.3% of costs to opt-out LSEs, which corresponds to the ratio of opt-out LSE procurement in PG&E’s requirement (48.2 MW) to PG&E’s total requirement of 765.1 MW. Also in accordance with the process that the Commission approved in Resolution E-5100, “PG&E will recover contract costs and administrative expenses associated with bundled customers through generation rates in 2021.”SafetyPG&E describes the safety considerations of the proposed agreements. As with Phase 1 of its solicitation, PG&E required all shortlisted counterparties to “provide information about their technology as well as the safety history of the participant and/or contractors (if known)” and required selected counterparties to undergo screening against PG&E’s Contractor Safety Program prequalification standards. The final agreements for which PG&E seeks approval “require sellers to practice responsible safety management enforced by contractual terms and conditions based on 1) standards for Prudent Electrical Practices, 2) all applicable laws and regulations, and 3) requirements of PG&E’s Contractor Safety Program.” Sellers must provide safety plans that demonstrate “responsible safety management during all phases of the project lifecycle” (including decommissioning) and that reference all applicable codes and standards, among other criteria. Sellers must also document potential hazards and mitigation plans and must demonstrate contractors’ and subcontractors’ compliance with safety requirements. Disadvantaged Community (DAC) DesignationsSenate Bill 350 (de León, Chapter 547, Stats. 2015) contains disadvantaged community goals that are cross-cutting and therefore will be integrated into all policy areas.? Thus, in evaluating the Phase 2 procurements, the Commission will analyze the impacts on such communities.The California Environmental Protection Agency (CalEPA) is responsible for identifying disadvantaged communities for purposes of the Cap-and-Trade program funding. CalEPA has designated disadvantaged communities as the 25% highest scoring census tracts in the state using results of the California Communities Environmental Health Screening Tool, Version 3 (CalEnviroScreen 3.0). The tool combines twenty indicators in “population” and “pollution burden” categories. SB 350 directs the CPUC to also use CalEPA’s tool to identify disadvantaged communities. The LeConte Energy Storage, Daggett 2 BESS, and Daggett 3 BESS projects are located in DACs, as identified according to the CalEnviroScreen 3.0. In addition, the Lancaster Energy Storage and North Central Valley Energy Storage projects are located in census tracts that are immediately adjacent to DACs. Siting Energy Storage resources in DACs has the potential to reduce local dependence on energy production that increases air pollution. NoticeNotice of AL 6033-E was made by publication in the Commission’s Daily Calendar. PG&E states that a copy of the Advice Letter was mailed and distributed in accordance with Section 4 of General Order 96-B.ProtestsAdvice Letter 6033-E was timely protested by the Public Advocates Office (“Cal Advocates”) on January 11, 2021. In addition, the California Energy Storage Alliance (CESA) timely responded to AL 6033-E on January 11, 2021.Cal Advocates recommends that the Commission deny the two LTRAA with ES contracts, arguing that “PG&E does not provide sufficient information for the Commission to determine whether [the] LTRAA w/ES contracts [provide] commensurate ratepayer value.” Cal Advocates makes certain confidential observations regarding these contracts and asserts that “[t]he Commission cannot determine whether offers that could have provided greater value to ratepayers were excluded." Cal Advocates also expresses concern that PG&E did not value ancillary services in the LTRAA with ES contracts, which “[raises] the question of whether PG&E is neglecting a valuable energy benefit that could provide value for ratepayers.” Cal Advocates argues that if the Commission approves the LTRAA with ES contracts, then the Commission should require an independent evaluation of those contracts and additional information regarding PG&E’s valuation procedures for those contracts specifically. Finally, as in its protest of AL 5826-E, Cal Advocates argues that PG&E should provide more information about its bid valuation procedures in general. Cal Advocates notes that it “has had to pursue information through data requests through PG&E, information which should have been provided in PG&E’s initial filing.” Cal Advocates questions whether the advice letter process is appropriate for procurement of the type in AL 6033-E and specifically requests that PG&E either “provide greater details regarding energy benefits, including inputs and assumptions, in initial advice letter filings” or else seek approval through Applications.Cal Advocates also makes several recommendations on “issues that cannot be resolved in the context of this advice letter, but which raise broader policy questions that should be considered in the Commission’s [IRP] proceeding.” Cal Advocates recommends that until the Commission adopts a common resource valuation methodology (CRVM), “the Commission should require consistency across IOUs for targeted bid criteria,” such as modeling energy benefits over the procurement horizon and using current portfolio planning assumptions from the IRP proceeding. Cal Advocates also suggests that “[t]he CRVM should require that local, and flexible capacity should be valued in a consistent manner, that [ancillary services] benefits should be evaluated consistently, and that the valuation be based on the most up-to-date portfolio planning assumptions from the IRP proceeding.” Next, Cal Advocates recommends that the Commission adopt standard procurement protocols – including standard contracts – for the IRP proceeding, as was done in the Renewable Portfolio Standard program. Finally, Cal Advocates recommends that the Commission require IOUs to provide a greenhouse gas (GHG) impact analysis for IRP procurement moving forward, noting that such analysis is necessary to ensure compliance with GHG pollutant requirements in SB 350, SB 100, and D.18-02-018.In its response to AL 6033-E, CESA comments that the proposed contracts meet the requirements of D.19-11-016 with regard to incrementality, contract length, and sufficient detail regarding the bid evaluation methodology. CESA also comments that the Commission should follow the precedent set in Resolutions E-5100 and E-5101, namely by finding that GHG analysis is not required to approve the contracts and that the IRAPMA is a reasonable cost tracking mechanism. CESA notes that the IE found that PG&E’s solicitation was “fair and reasonable.” Finally, CESA urges the Commission to follow an expedited approval process, with a Draft Resolution in February 2021 and a Final Resolution in March 2021. CESA notes that “the Commission should not repeat the experience for the regulatory review and approval of 2021 contracts, which left only 11 months for developers to bring projects online – an untenable situation with immense risks.”PG&E timely replied to the protest of Cal Advocates on January 19, 2021. PG&E asserts that it “provided all the relevant valuation information in its Advice Letter, consistent with how it was provided in [AL 5826-E].” PG&E objects to Cal Advocates’ recommendation that the Commission require an independent valuation of the LTRAA with ES contracts, noting that “PG&E did exactly this. Consistent with all similar solicitations issued by PG&E, PG&E hired an experienced independent evaluator…to evaluate the process and results.” PG&E also notes that the IE recommended approval of all selected contracts. With regard to ancillary services, PG&E states that it “did not value ancillary service benefits because the LTRAA w/ES contract does not include ancillary services,” which would increase the contract prices. PG&E notes that the other contracts for which it seeks approval similarly do not include ancillary service benefits, to which Cal Advocates did not object. Finally, PG&E asserts that it provided the bid selection and methodology information required by Ordering Paragraph nine of D.19-11-016, including:(1) the Independent Evaluator report, which thoroughly describes the Least Cost Best Fit methodology and metrics employed by PG&E to evaluate bids[,]…(2) Public Attachment J, which provided a description of the quantitative and qualitative evaluation metrics employed by PG&E, and 3) Confidential Appendix K, which provided the quantitative evaluation results and price comparison.In summary, PG&E argues that Cal Advocates’ recommendation that the Commission reject the two LTRAA with ES contracts “is without merit and should be rejected.” PG&E did not reply to Cal Advocates’ other recommendations and did not reply to the response of CESA. DiscussionThe Commission has reviewed the Advice Letter, the response, the protest, and the reply of PG&E. We find that PG&E’s request in AL 6033-E is reasonable and deny the protest of Cal Advocates.Data on Bid Evaluation MethodologyPG&E provided the IE report (Appendices G1 and G2) and the quantitative evaluation results of its bid evaluation (Appendices K and L) along with AL 6033-E. We note that the IE determined that PG&E’s procurement process was reasonable and appropriate overall. In response to a data request from Energy Division, PG&E also provided detailed workpapers that outlined its net market value calculations. As with AL 5826-E, we find that the substantially similar information PG&E provided in AL 6033-E and in response to the Energy Division data request meets the requirement of D.19-11-016 that the investor-owned utilities describe metrics used to compare bids in their solicitations. The information provided is sufficiently detailed to enable an assessment of the reasonableness of PG&E’s evaluation methodology.Long-Term Resource Adequacy Agreements with Energy SettlementWe recognize Cal Advocates’ arguments regarding LTRAA with ES contracts. Nevertheless, as we discuss above, we have received sufficient information to understand PG&E’s Net Market Value (NMV) metric and to gauge the relative benefits of the selected contracts (and other offers received) for the purposes of this short-term procurement. Having reviewed the data we received in AL 6033-E and through our separate data request to PG&E, we find that the NMV of the LTRAA with ES contracts is competitive with the other selected contracts and with other offers that PG&E received. Furthermore, whereas we understand Cal Advocates’ arguments regarding ancillary services, we agree with PG&E that the LTRAA with ES contracts (as structured) will provide ratepayer value and do not see the exclusion of ancillary services alone as a sufficient reason to reject the contracts. We also do not see the inclusion of energy settlements in LTRAA agreements as sufficient grounds to reject those agreements, given that PG&E’s ratepayers should benefit from locational marginal price differentials as a result of their inclusion.Cost RecoveryWe find that it is appropriate for PG&E to continue tracking costs that are not currently recovered in rates – including costs associated with the retail customers of LSEs that opted out of their D.19-11-016 requirements – through the IRAPMA on an interim basis, until we approve a Modified CAM mechanism or other cost recovery mechanism(s). We also find that it is appropriate for PG&E to continue recovering costs incurred on behalf of its bundled customers through the generation rate. These processes are consistent with what we approved in Resolution E-5100.General Compliance with D.19-11-016D.19-11-016 does not specify particular safety requirements. As in Resolution E-5100, however, we acknowledge the safety provisions that PG&E has included in its solicitation processes and in the proposed agreements. We continue to expect that in implementing these provisions, PG&E and counterparties will include all appropriate measures necessary to prevent the spread of COVID-19, especially those required by the California Department of Industrial Relations’ Division of Occupational Safety and Health (Cal/OSHA). We note that the energy storage projects are (or will be) permitted by local Authority-Having Jurisdictions (AHJ) and will be compliant with AHJ codes that address safety requirements. Again, we note that the IE determined that PG&E’s procurement process was reasonable and appropriate and that the IE found each of the contracts for which PG&E seeks approval to be reasonable. We also note that PG&E consulted with its CAM PRG for this solicitation, which we had recommended in Resolution E-5100.Based on our review, we find that the solicitation process and agreements described in Advice Letter 6033-E comply overall with the requirements of D.19-11-016 – including reasonableness, permitting, and safety considerations – and that PG&E also addressed our previous recommendation regarding review by the CAM mentsPublic Utilities Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review. Please note that comments are due 20 days from the mailing date of this resolution. Section 311(g)(2) provides that this 30-day review period and 20-day comment period may be reduced or waived upon the stipulation of all parties in the proceeding. The 30-day review and 20-day comment period for the draft of this resolution was neither waived nor reduced. Accordingly, this draft resolution was mailed to parties for comments, and will be placed on the Commission's agenda no earlier than 30 days from today.FindingsPacific Gas and Electric Company provided its independent evaluator report and the quantitative evaluation results of its bid evaluation along with Advice Letter 6033-E. In response to a data request by Energy Division, Pacific Gas and Electric Company also provided detailed workpapers that outlined its Net Market Value calculations. The information Pacific Gas and Electric Company provided in Advice Letter 6033-E and in response to the Energy Division data request meets the requirement of D.19-11-016 that the investor-owned utilities describe metrics used to compare bids in their solicitations. Furthermore, this information is sufficiently detailed to enable an assessment of the reasonableness of Pacific Gas and Electric Company’s evaluation methodology.The exclusion of ancillary services is not a sufficient reason to reject the two long-term Resource Adequacy agreements with energy settlement.It is appropriate for Pacific Gas and Electric Company to continue tracking costs that are not currently recovered in rates – including costs associated with the retail customers of load serving entities that opted out of their D.19-11-016 requirements – through the Incremental Resource Adequacy Procurement Memorandum Account on an interim basis, until we approve a Modified CAM mechanism or other cost recovery mechanism(s). It is also appropriate for Pacific Gas and Electric Company to continue recovering costs incurred on behalf of its bundled customers through the generation rate.The solicitation process and agreements described in Advice Letter 6033-E comply with the requirements of D.19-11-016 overall.Therefore it is ordered that:The six storage projects and associated contracts resulting from Pacific Gas and Electric Company’s 2020 System Reliability Request for Offers – Phase 2, as described in Advice Letter 6033-E, are approved.Pacific Gas and Electric Company is authorized to continue tracking and recording any costs associated with the contracts approved by this Resolution that are not currently recovered in rates – including contract payments and administrative expenses incurred on behalf of load serving entities that opted out of the D.19-11-016 procurement requirements – through the Incremental Resource Adequacy Procurement Memorandum Account, as proposed in Advice Letter 6033-E. Eventual recovery of these costs will be determined based on the Commission’s adoption of a Modified Cost Allocation Mechanism or other cost recovery mechanism(s).Pacific Gas and Electric Company is authorized to recover contract payments and administrative expenses incurred on behalf of its bundled customers through the generation rate, as proposed in Advice Letter 6033-E, until the Commission adopts the Modified Cost Allocation Mechanism or other cost recovery mechanism(s).This Resolution is effective today.I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on April 15, 2021; the following Commissioners voting favorably thereon:_____________________RACHEL PETERSONExecutive Director ................
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