Section 57.34. Purchases of energy and capacity

(a) General provisions. Each utility shall purchase any energy which is made available from a qualifying facility as required by applicable statutes and regulations. Each utility is required to implement an all-source competitive bidding program for the purchase of capacity and associated energy under subsection (c).

(b) Purchases of energy only.

(1) Energy payments in mills per kilowatt hour shall be based upon costs in this paragraph.

(i) Energy payments will be equal to a utility’s highest cost source of energy used to supply the energy requirements of its domestic load customers at all times. When basing contract payments to qualifying facilities on the electric utility’s future avoided cost, the avoided energy cost shall be determined without considering the qualifying facility about to come on line as part of the supply mix.

(ii) When the utility’s energy payments for the purchases are based on its own generation, the energy payments shall include the costs of fuel, variable operation and maintenance expenses, and other costs associated with that generation. The costs of units which run, but are not economically dispatched, may be excluded by the utility in the calculation of energy payments. The energy payments shall incorporate the costs or savings resulting from variations in line losses from those that would have existed in the absence of purchases from a qualifying facility.

(iii) When the qualifying facility is larger than 5,000 kilowatts, the utility may base its energy payments on the average cost of its last block of energy of equivalent size rather than its single highest source of energy.

(2) Energy payments shall, at the option of the qualifying facility, be based on actual, projected or levelized costs.

(i) The actual costs of the purchasing utility calculated at the time of delivery, as described in paragraph (1).

(ii) The utility’s projection—for up to 10 years or the length of the contract, whichever is shorter—as filed with the Commission, of its energy costs, as defined in paragraph (1), at the time the qualifying facility elects to accept this projection.

(iii) The utility’s filed levelized projected energy costs, as determined by converting the cumulative present value of each year’s costs (projected in accordance with subparagraph (ii)) to an annuity with the same present value, at the time the qualifying facility elects to accept this projection. A zero risk discount factor should be used—such as, the current rate on a United States Treasury Bill of corresponding term. The term of levelization may be no longer than the term of the contract or 10 years, whichever is shorter.

(iv) Contracts are required where the parties agree to use a projection or a levelized projection as outlined in subparagraphs (ii) and (iii). When a levelized projection of energy costs is used, or when early year payments exceed projected avoided energy costs, for energy-only contracts, a utility may require security from the qualifying facility only to the extent the early year costs exceed the projection of energy costs for those years. The security may not be a cash deposit and shall be the least burdensome form of security among the following: an irrevocable letter of credit; a payment bond; a fully paid noncancelable project failure insurance policy; or corporate guarantee, lien, mortgage or deed of trust on the facility itself. A utility may not require a qualifying facility to reconcile payments to utility costs actually experienced during the contract period.

(v) Contracts may be for a period mutually agreed upon by both buyer and seller.

(3) Utilities shall purchase energy from qualifying facilities of 500 kilowatts or greater on a uniform, time of day, seasonal or other cost-justified basis, as determined by the utility.

(4) Qualifying facilities of less than 50 kilowatts may opt for net energy billing. Under net energy billing, the energy taken by the qualifying facility from the purchasing utility is billed net of the energy supplied by the qualifying facility to the purchasing utility. However, net energy billing shall not reduce the qualified facility’s minimum bill. Utility policy for net billing is to be filed with the Commission concurrent with other filings required in this subpart.

(5) If a qualifying facility and a utility agree for the utility to broker the qualifying facility’s power, the qualifying facility will then be entitled to the total price received by the utility for the energy, less any brokerage fee and other identifiable costs incurred.

(c) Mandatory competitive bidding for purchases of capacity and associated energy. Jurisdictional electric utilities with annual gross intrastate operating revenues in excess of $500 million shall establish competitive bidding programs to obtain capacity resources. Utilities are responsible for developing requests for proposals, and negotiating and enforcing contracts. Small qualifying facilities (under 5 megawatts), are exempted from the mandatory competitive bidding requirements. Utilities may purchase capacity and associated energy from small qualifying facilities outside of an all-source competitive bidding program. Utility sponsored DSM programs are exempt from competitive bidding until January 2, 2000.

(1) Sources of capacity.

(i) A utility shall allow all sources of capacity to submit offers in a competitive bidding program. These sources may include the utility conducting the bid, other electric utilities, qualifying facilities, independent power producers, exempt wholesale generators, marketers, brokers and other entities. An exempt wholesale generator which is an affiliate or an associate of the utility conducting the bid is subject to the prohibitions appearing at 15 U.S.C.A. § 79z-5a(k) (‘‘Protection against abusive affiliate transactions’’). All source bidding programs are encouraged.

(ii) Utility participation in its own auction. A utility seeking capacity resources and companies affiliated with the utility may participate in the capacity solicitation. All bids are to be evaluated fairly by an independent third-party evaluator selected by the utility. Abusive self-dealing is prohibited. A utility seeking to participate in its own solicitation or allow its affiliate to participate in that solicitation shall also adhere to the following requirements:

(A) Not less than 90 days prior to the filing of a Request for Proposal (RFP) under paragraph (4), the electric utility shall specify in writing to the Commission the names, addresses and job titles of the utility personnel that shall be directly or indirectly involved, in any fashion, in any of the following groups: the development of the requests for proposals to be utilized in the competitive selection process; the ultimate selection of successful projects or developers, or both; and the development and formulation of the bids expected to be submitted by, or on behalf of, the electric utility or any of its affiliates, or both. The utility shall identify the group in which each person will work and that person’s duties and responsibilities within the group.

(B) Nothing in clause (A) limits the ability of an electric utility to add personnel after the initial designation if:

(I) An amendment to the filing required by clause (A) is filed with the Commission within 15 days after the new personnel are added.

(II) Other applicable requirements of this subparagraph have been satisfied.

(C) No one participating in the bidding process on behalf of the utility conducting the auction may be a member of more than one of the groups identified in clause (A).

(D) Each member of the groups specified in clause (A) shall execute and file with the Commission within 60 days prior to the utility’s RFP filing, a written affidavit under oath acknowledging its obligations during the competitive selection process to:

(I) Maintain in the strictest of confidence the information, data, and the like, relating to the operators of its group and the work-product thereof.

(II) Refrain from communicating any information, data and the like, relating to the operations or work-product of their group to any individuals who are members of any other groups specified in clause (A).

(iii) DSM projects. Electric utilities have the option of including DSM providers and electric generation suppliers in the same auction or in separate auctions. In auctions which include DSM providers, the amount and type of DSM programs solicited shall be consistent with the amount and type of DSM programs contained in the utility’s Annual Resource Planning Report filed with the Commission.

(A) Eligible DSM projects shall include conservation as well as load management programs.

(B) DSM proposals shall be reliable and quantifiably cost effective.

(C) Bidders of DSM projects shall include in their bids the costs to consumers participating in the DSM programs.

(D) Commercial or industrial DSM may not contemplate only reductions in commercial or industrial plant output.

(E) The utility shall make known the criteria and procedures for evaluating DSM proposals in its Request for Proposals.

(2) Development of the Capacity Resource Plan. A competitive bidding process shall be responsive to the needs of the jurisdictional electric utilities. To provide maximum flexibility in the purchase of capacity and associated energy and DSM programs, there will be no Commission mandated benchmarks, price factors and nonprice factors in a competitive bidding process. Each electric utility initiating a competitive bidding process may propose benchmarks, price factors and nonprice factors and otherwise follow these principles:

(i) A utility’s competitive bidding program shall be an integral part of its Annual Resource Planning Report filed under 66 Pa.C.S. § 524 (relating to data to be supplied by electric utilities) and the Commission’s regulations. A utility’s Annual Resource Planning Report shall include information on system reliability sufficient to establish a reasonable bid block for procurement.

(ii) A utility’s need for capacity as identified in its Request for Proposal shall be consistent with the long-term resource plans reflected in its Annual Resource Planning Report. If the Request for Proposal is not consistent with those long-term resource plans, the utility shall justify any differences to the Commission before a Request for Proposal is issued.

(iii) A utility’s competitive bidding program shall be conducted at appropriate times consistent with the capacity need reflected in the utility’s Annual Resource Planning Report filings.

(iv) A utility is not required to hold an auction if its Annual Resource Planning Report shows that it has sufficient existing capacity to meet the needs of its customers unless the Commission determines otherwise.

(v) Power plant life extension programs are exempted from competitive bidding.

(3) Petition for Approval of Capacity Resource Plan.

(i) As provided in this subchapter, each jurisdictional Class A utility shall file with the Commission a Petition for Approval of its Capacity Resource Plan (petition). The petition shall be based on each utility’s then-current Annual Resource Planning Report (ARPR), filed under § 57.141 (relating to general). The petition shall contain the following information based upon the ARPR:

(A) The types, amounts and timing of capacity resources, which include associated energy, that the utility plans to construct or own, or both, in whole or in part, or which the utility plans to purchase from unaffiliated or affiliated utilities, independent power producers, exempt wholesale generators, qualifying facilities, marketers, brokers or other entities.

(B) The proposed analytical method for determining the timing, amount and duration of capacity resources, if any, that the electric utility would purchase from unaffiliated or affiliated utilities, independent power producers, exempt wholesale generators, qualifying facilities, marketers, brokers or other entities over an appropriate planning period, and the amount of capacity resources, if any, that the electric utility should construct or own, or both, itself.

(C) The amount, type, timing, duration, ownership and configuration of capacity resources needed over an appropriate planning period calculated in accordance with the methodology provided in compliance with § 57.150 (relating to evaluation and integration of resources).

(D) The type of information provided in compliance with § 57.150 for generation supply shall also be provided in regard to the utility’s plans to procure and implement demand-side management programs.

(E) Other data and information requested by the Commission to assist it in its ruling on the utility’s petition.

(ii) The Commission will provide notice of the filing of a petition to be published in the Pennsylvania Bulletin within 30 days after the petition is filed. The notice must contain sufficient information to advise the utility’s customers, the entities referenced in subparagraph (i), and other interested parties of the utility’s overall capacity resource needs and the operation of the utility’s competitive selection process. The notice will provide the interested parties with the opportunity to participate in a formal Commission proceeding concerning the petition.

(iii) Within 30 days of the filing of a petition, the utility shall provide further notice, including publication in newspapers of general circulation, media advertising, customer bill inserts or other notice as the Commission reasonably believes to be required to notify the utility’s customers and interested parties of the proceeding concerning the utility’s petition.

(iv) Within 60 days after the petition is filed, the Commission will assign the petition to the Office of Administrative Law Judge for hearings and the issuance of a recommended decision. The Commission will adopt a final order on the petition within 210 days after the petition is filed. If the Commission does not enter a final order concerning the petition within that time, the petition shall become effective as filed, requiring no further action by the Commission or the electric utility.

(v) A Commission order on a petition will contain findings concerning the following:

(A) The method or approach to be used by the electric utility to establish the amount of its capacity resource needs to be filled by its own facilities or the facilities of unaffiliated or affiliated utilities, independent power producers, exempt wholesale generators, qualifying facilities, marketers, brokers or other entities over an appropriate planning period.

(B) The appropriate planning period for evaluating capacity resource needs, avoided costs and the utility’s actual commitment to capacity resources.

(C) The electric utility’s appropriate interconnection requirements, including physical inspection and testing requirements, cost and payment procedures, reconciliation of actual costs to estimates and the like

(D) The appropriate allocation of costs for system upgrades among affected unaffiliated or affiliated utilities, independent power producers, exempt wholesale generators, qualifying facilities, marketers, brokers or other entities.

(E) The timing, type and amount of DSM programs the utility will procure and implement.

(F) The utility’s methodology for evaluating DSM programs.

(G) The utility’s proposed dispute resolution process designed to resolve in an efficient and expeditious manner disputes associated with the competitive bidding process.

(H) Other findings that the Commission deems reasonable and appropriate relating to the petition.

(vi) When a utility’s capacity resource plan, approved by Commission order under this paragraph becomes outdated or fully implemented, or becomes inappropriate for any reason, the utility shall file a new petition with the Commission consistent with this paragraph. This filing shall not affect any contract submitted under paragraph (7).

(4) Request for Proposal (RFP).

(i) Following the Commission’s disposition of the petition, a utility shall develop an RFP for the purchase of capacity. The utility’s RFP shall be filed with the Commission at the appropriate time in order to meet the utility’s capacity needs. A utility’s RFP shall provide accurate information about its need for capacity. The RFP shall provide whether the utility is seeking baseload, intermediate or peaking capacity. The RFP shall include information necessary to the preparation of the bid proposal and the following:

(A) The size, type and timing for which the utility anticipates contracting.

(B) The RFP shall specify any nonprice, benchmark or other considerations, such as fuel diversity and how those factors will be evaluated.

(C) Thresholds that shall be met by bidders.

(D) The criteria which will be used in evaluating the bids.

(E) Major assumptions to be used by the utility in its bid evaluation process.

(F) Explicit instructions for preparing bids so that bids can be evaluated on a consistent basis.

(G) The preferred general location of additional capacity and availability of offsets or allowances.

(H) Standard power purchase and operating agreements.

(ii) A utility shall provide bidders with the information that would reasonably be expected to have a bearing on the viability of a proposed project. Potential bidders shall be able to meet with the utility to discuss the RFP and the utility’s capacity needs.

(iii) Notice of the RFP shall be filed with the Commission, served on the Office of Consumer Advocate, the Office of Small Business Advocate and the Pennsylvania Energy Office and published by the Commission in the Pennsylvania Bulletin. The notice shall include information regarding when the RFP will be released, when bidders must submit their proposals, and when the utility will announce the winning bidder.

(iv) The RFP shall be consistent with the Commission’s order on the utility’s petition.

(v) There shall be a single due date for all proposals, so that all proposals may be delivered to the evaluator and opened at the same time without amendment.

(vi) Performance incentives and penalties are encouraged to ensure efficient project operation. Performance incentives and penalties, if used, shall be included in the RFP.

(5) Determination of procurement block size.

(i) The amount of capacity or block size which the utility solicits shall be based on the utility’s incremental capacity and associated energy needs as forecast beyond the next 5 years from the date of the utility’s most recent ARPR, consistent with the Commission’s disposition of the utility’s petition. Projects may be appropriately considered in the bid assessment when their proposed in-service date is later than the time-frame used to determine the block size.

(ii) Incremental needs refer to the level of capacity and associated energy needs in excess of the following, less planned utility plant retirements:

(A) Current utility-owned generating capacity.

(B) Short-term power purchase contracts, and commitments with other utility sources.

(C) Current signed power purchase contracts and commitments with nonutility generators which are likely to operate, with recognition of their likely in-service dates.

(6) Evaluation of bids.

(i) Evaluation of bids submitted in a competitive bidding program shall be based on the criteria identified in the utility’s RFP. All resource options competing to meet the utility’s procurement needs as determined by the Commission’s disposition of the Capacity Resource Plan shall be evaluated against each other, consistent with the requirements of the Capacity Resource Plan and the RFP.

(ii) For auctions in which neither the utility nor any affiliate is a participant, the utility shall objectively evaluate all bids consistent with the RFP. If the utility or its affiliates participate in their own bidding process, the Commission will require independent, third-party evaluation of all bids. The Commission will closely scrutinize all evaluations of bids.

(iii) A utility shall establish reasonable interconnection procedures to facilitate the wheeling of power from unsuccessful bidders to wholesale purchasers of power.

(7) Contract negotiations.

(i) Contract negotiations between the utility and a potential supplier of electricity shall be in strict accordance with the utility’s RFP. Contract negotiations may not be extensive. Fundamental changes in the nature of the project and purchase payments may not be negotiated. The fully executed contract shall include provisions that assure a facility’s performance and continued availability under that contract.

(ii) Security provisions for levelized contracts may not be onerous or anticompetitive.

(iii) Line loss savings are a matter of location integration with the current system and may be incorporated in final contracts when negotiated.

(iv) The price negotiated to be paid to the successful bidder for power shall reflect its share of necessary upgrades to the transmission system. The utility is encouraged to establish a standard contribution format for partial compensation by power producers to transmission system upgrades where these upgrades can be negotiated.

(v) Promptly upon the completion of contract negotiations, the utility shall submit a petition to the Commission seeking approval of the contract and cost recovery.

(8) Purchases outside of a bidding program.

(i) A utility with a competitive bidding program under this subsection may refuse offers of capacity that are made outside of that bidding program. Energy-only shall be purchased from an offering qualifying facility under subsection (b).

(ii) When a utility and a potential supplier of capacity resources intends to negotiate a purchased power contract outside of the utility’s competitive bidding program, the parties shall jointly file a petition for waiver of this subchapter under § 5.43 (relating to petitions for issuance, amendment, waiver or repeal of regulations). The parties shall demonstrate that the transaction cannot be accommodated in the competitive bidding program and that the purchase is in the public interest from both a cost and reliability standpoint.

(iii) An electric utility may file a petition for permission to construct its own generating plant outside of a competitive bidding program. The Commission will hold hearings on the utility’s petition and the Commission will adopt a final order within 210 days after the petition is filed. If the Commission does not adopt a final order within that time, the utility’s petition for permission to construct its own generating plant outside of a competitive bidding process shall be deemed approved as filed, requiring no further action by the Commission or the utility. The Commission may consider the following factors in reviewing the electric utility’s proposal:

(A) The electric utility’s proposal is the best least-cost option compared to other options.

(B) The electric utility’s proposal has the lowest rate impact compared to other options.

(C) The electric utility’s proposal has the best reliability standard compared to the reliability offered by other competitors.

(D) The utility’s proposal offers the greatest improvement in the electric utility’s financial standing.

(E) The electric utility’s proposal offers the largest economies of scale and best optimum fuel mix.

(F) Other factors which the Commission believes are in the public interest.

(9) Disputes.

(i) The Commission will determine the dispute resolution process to be followed during the course of a competitive bidding program in its final order on the utility’s petition filed under paragraph (3).

(ii) Disputes concerning the competitive bidding process specific to the unsuccessful bidder shall be brought to the Commission as a Petition for Reconsideration within 15 days of the Commission’s final order on the utility’s petition for contract approval and cost recovery.

(iii) The Commission will refer disputes concerning the administrative process of the RFP to the Office of the Administrative Law Judge.

(10) Utility reporting requirements.

(i) A utility conducting a competitive bid solicitation shall file a written report to the Commission within 45 days of the completion of its evaluation of bids received. This report shall describe in detail the evaluation of the bids and the electric utility’s comparison of the bids received to its own construction options. The report will be treated as proprietary information.

(ii) A second report shall be prepared as a public document and accompany the proprietary report.

(iii) A utility shall cooperate fully with Commission staff in review of the solicitation and evaluation process.

The provisions of this § 57.34 adopted September 17, 1982, effective January 11, 1983, 13 Pa.B. 4237; corrected December 24, 1982, effective January 11, 1983, 12 Pa.B. 4338; amended December 29, 1995, effective December 30, 1995, 25 Pa.B. 6085. Immediately preceding text appears at serial pages (195595) to (195603).

Notation

Notes of Decisions

Capacity Credits

The Commission exceeded its authority under the Public Utility Regulatory Policies Act by calculating capacity credits, for purpose of calculating payments owing to a facility and recoverable from ratepayers, based on an ‘‘offer of acceptance’’ and not a ‘‘legally enforceable obligation.’’ Armco Advanced Materials Corporation v. Pennsylvania Public Utility Commission, 579 A.2d 1337 (Pa. Cmwlth. 1990), affirmed per curiam 634 A.2d 207 (Pa. 1993).

Fixed Charge Rate

The fixed charge rate represents those costs that change over time, such as the cost of debt or cost of capital. Armco Advanced Materials Corp. v. Pennsylvania Public Utility Commission, 664 A.2d 630 (Pa. Cmwlth. 1995); appeal denied 674 A.2d 1079 (Pa. 1996).

Need

A utility is not free to claim that it does not have a need for additional capacity and refuse to negotiate contracts with qualifying facilities when in fact it does need to add capacity. The Public Utility Regulatory Policies Act of 1978 (PURPA) (16 U.S.C.A. § 824a-3), required utilities to make purchases from qualifying facilities when a need exists that qualifying facilities can fulfill. In cases where a utility denies the existence of its needs, there must be a means for compelling a capacity purchase. Otherwise, the aims of PURPA would be frustrated. Pennsylvania Electric Co. v. Pennsylvania Public Utility Commission, 677 A.2d 831 (Pa. 1996).

The Public Utility Commission did not err in calculating capacity needs and avoided costs as of the date when the petition to compel a purchase was filed. This approach was consistent with Milesburg II (Armco Advanced Materials Corp. v. Pennsylvania Public Utility Commission, 135 Pa. Cmwlth. 15, 579 A.2d 1337 (1990), aff’d per curiam, 535 Pa. 108, 634 A.2d 207 (1993), cert. denied, 130 L. Ed. 2d 274 (1994)) and was within the bounds of the Commission’s authority under the Public Utility Regulatory Policies Act of 1978, 16 U.S.C.A. § 824a-3. Pennsylvania Electric Co. v. Pennsylvania Public Utility Commission, 677 A.2d 831 (Pa. 1996).

Price

Where a petitioner challenged the Pennsylvania Public Utility Commission’s order approving a utility agreement to purchase power from a cogeneration facility, the question of whether prices in the agreement were equal or below full avoided costs was preserved. The utility’s ratepayers must be provided notice and an opportunity to be heard on the terms of the agreement relating to prices. GPU Industrial Intervenors v. Pennsylvania Public Utility Commission, 628 A.2d 1187 (Pa. Cmwlth. 1993).

Qualifying Facility Petition Date

To hold that a contract to supply capacity must be executed before a qualifying facility can ‘‘lock in’’ needs and avoided costs would allow utility companies to impede the development of qualifying facilities by denying needs and refusing to negotiate contracts. Determining need and cost factors with reference to the date when a qualifying facility files a petition to compel a purchase is a reasonable course. Pennsylvania Electric Co. v. Pennsylvania Public Utility Commission, 677 A.2d 831 (Pa. 1996).

Cross References

This section cited in 52 Pa. Code § 57.31 (relating to definitions); 52 Pa. Code § 57.32 (relating to purpose and scope); and 52 Pa. Code § 57.146 (relating to system cost data).