Since 2005 California’s Public Utilities Commission has been publishing a Market Price Referent (MPR) based on a 500 MW combined cycle plant.   The MPR serves as a benchmark for renewable projects and has been used since 2007 as the basis of contracts offered pursuant to the Feed In Tarriff (FIT) program.   Predictably, since the MPR is based on a gas plant the price moves up with the outlook for gas and also moves down with the outlook for gas.    The chart below illustrates this relationship:

Note that the CPUC didn’t update the MPR in 2010 as gas prices were falling creating the “plateau” in 2009/2010.  If the MPR were updated now I would expect another drop for the simple reason the gas prices used in 2011 are unrealistic.  The 2011 NYMEX monthly contracts averaged to yield a 2012 price of $4.84/mmBtu.   As of today, the Mar – Dec 2012 contracts averaged $3.05 and the monthly contract didn’t exceed $4.84 until Dec 2016.

So why does this matter if California has mandated 33% RPS and FERC has allowed avoided cost to be set based on tranches of RPS requirements?