The Federal Energy Regulatory Commission on June 7 dismissed a Southern California Edison (SoCal Edison) application related to purchasing power from an affiliated, 385-MW power plant in California.
In August 2012, SoCal Edison submitted a request for authorization of an affiliate transaction whereby Watson Cogeneration Co., a market-regulated power sales entity, would sell electric capacity and energy to SoCal Edison, its franchised public utility affiliate, on a long-term basis under a power purchase agreement (Watson PPA). In the June 7 order, the commission dismissed SoCal Edison’s filing and found that the Watson PPA is exempt from the requirements of section 205 of the Federal Power Act (FPA).
SoCal Edison is a subsidiary of Edison International (NYSE: EIX), and Watson Cogeneration is a partially-owned indirect subsidiary of Edison International. SoCal Edison told FERC that Watson Cogeneration is owned by three general partners: Products Cogeneration Co.; Carson Cogeneration Co.; and Camino Energy Co., the latter of which is wholly-owned by Edison Mission Group, which in turn is a wholly-owned subsidiary of Edison International.
Watson Cogeneration is authorized to make wholesale sales of electric energy, capacity, and ancillary services at market-based rates. Watson Cogeneration owns a 385-MW combined heat and power (CHP) facility located in Los Angeles County, Calif. SoCal Edison stated that the output of this plant, which is a qualifying facility (QF) under the Public Utility Regulatory Policies Act of 1978 (PURPA), has been sold to SoCal Edison under a PURPA contract since the Watson facility became operational in 1987.
SoCal Edison said that the Watson PPA was prepared under the process adopted by the California Public Utilities Commission to transition QFs from expiring standardized PURPA contracts to competitively-procured contracts.
SoCal Edison stated that many of its original PURPA contracts began to expire in the 2000s and that such expirations led to disputes and litigation over the terms of replacement contracts and the setting of an avoided cost price for such contracts. SoCal Edison explained that the California investor-owned utilities, CHP QF representatives, and statewide consumer and ratepayer groups entered into extensive settlement negotiations to address and resolve their numerous existing disputes and forestall additional litigation. SoCal Edison said that in October 2010, the participants entered into a settlement agreement establishing a California CHP Program. The QF/CHP Settlement was approved by the California Public Utilities Commission in December 2010.
Upon consideration of the circumstances, FERC in its June 7 ruling found that the certain transition PPAs, including the Watson PPA, are exempt from the requirements of section 205 of the FPA and, accordingly, that commission approval for the affiliate transaction provided for in the Watson PPA is not required.
“We therefore will dismiss SoCal Edison’s filing,” FERC added. “While SoCal Edison is correct that the mandatory purchase obligation was terminated effective November 23, 2011, that does not mean that the transition PPAs, including the Watson PPA, were not approved pursuant to a state regulatory authority’s implementation of section 210 of PURPA. When the Commission terminated the mandatory purchase obligation, it terminated the requirement that [Pacific Gas and Electric] PG&E, SoCal Edison and [San Diego Gas & Electric] SDG&E enter into new obligations or contracts to purchase electric energy and capacity from qualifying cogeneration and small power production QFs with net capacity in excess of 20 MW on a service territory-wide basis. The QF/CHP Settlement, however, also established an obligation for PG&E, SoCal Edison and SDG&E to transition from a PURPA regime to a non-PURPA regime.”
FERC added: “This obligation was established prior to November 23, 2011, and is part of a continuing obligation to buy from QFs that the Commission relied on in terminating PG&E’s, SoCal Edison’s and SDG&E’s mandatory purchase obligation, i.e., the requirement to enter into new obligations or contracts. The Transition PPAs are a part of that continuing PURPA obligation during the transition from PURPA to the market, and are not new obligations incurred after termination of the PURPA obligation.”