California utilities are pressing not only for large refunds from certain independent power projects| Norton Rose Fulbright
The dispute involves “QF” or “qualifying facility” projects. Examples of such projects are wind farms, and solar and geothermal power plants.
The legal proceedings could complicate refinancings of QF projects in California over the next 12 to 18 months, reports Bill Monsen with MRW & Associates in Oakland.
The refunds could run into the hundreds of millions of dollars. They cover the period December 2000 through March 27, 2001. For example, Pacific Gas & Electric claims it overpaid QFs by more than $200 million during this period.
The refunds became an issue after owners of QF projects complained to a California appeals court about a change the California Public Utilities Commission made in March 2001 in the formula for calculating energy payments the utilities are required by contract to make to QFs for their electricity. The appeals court not only rejected the QFs’ appeal, but also sent the case back to the California Public Utilities Commission to consider whether QFs were overpaid for electricity during the four months before the formula was changed. An administrative law judge has set February 2 as the deadline for legal briefs to be filed in the case.
Meanwhile, the utilities are also pressing for a change in the formula for computing “short-run avoided cost,” which is the measure for energy payments under most QF contracts after 2006. The change would reduce the amount utilities would have to pay QF projects for their electricity in the future.
Utilities are required by federal law to buy electricity from two kinds of power plants — cogeneration facilities that supply both steam and electricity, and other power plants that use waste or renewable fuels. These are QF projects. The utility pays the “avoided cost” for the electricity, or the amount the utility would have had to spend to generate the electricity itself. Owners of such power plants enter into long-term contracts with the utilities to sell their electricity. They usually receive both “capacity” payments and “energy” payments. A capacity payment is a payment by the utility to be able to call on the plant. An energy payment is an amount per unit of electricity actually delivered.
The arguments the utilities are making threaten to reduce not only future energy payments to QF projects, but also capacity payments, according to Monsen. The commission is expected to hear arguments about the level of future payments in the second quarter of 2004.