Edison's "Motion for an Interim Decision Granting Approval of Process for Early Procurement of Capacity" (Edison May 6th Motion) requests that the Commission issue an interim decision prior to June 15, 2002, that authorizes Edison to enter into multi-year capacity contracts using the credit of the DWR until Edison regains its investment grade rating. Edison claims that this approach would help bridge the gap to the procurement that it would conduct under a Commission approved procurement plan that is currently before the Commission for review. Edison contends that such authorization would allow it to begin procuring power prior to the Commission completing its review of the procurement plan and prior to Edison regaining an investment grade capacity rating.
Under this requested authority, Edison anticipates procuring capacity products that are dispatchable, together with related fuel and electric transmission where appropriate, to meet its anticipated need, defined as its RNS, in super-peak periods. Edison asserts that entering capacity contracts for up to five years in duration would be beneficial for Edison's customers because it would allow Edison to be less dependent on the volatile spot market for power purchases.
Edison states that each contract would be submitted to the Commission by advice letter for approval within 30 days of its execution. Edison's proposal would require the Commission `s Energy Division to approve the contract within 30 days, unless it provides specific reasons why the contract is not in the best interest of Edison's ratepayers.
On May 15, 2002, the assigned Commissioner and Administrative Law Judge (ALJ) issued a ruling (May 15th Ruling) finding that the authority sought by Edison should not be considered outside of the full factual and evidentiary record being developed in this proceeding. The ruling provided a short extension to the procedural schedule to accommodate consideration of the motion in an expedited manner and required Edison, and any other utility interested in similar authority, to serve the additional testimony necessary for us to consider this request. Prior to Edison's motion, the scope of the procurement plans before us were limited to consideration of 2003 needs. As stated in the May 15th Ruling, the critical part of the evidentiary record needed to evaluate Edison's proposal was a reliable forecast of its residual net short requirements for 2003 through 2008. Edison and the other respondent utilities had previously stated that they could not provide this forecast until there was resolution of issues related to the allocation of DWR contract power and ongoing coordination of DWR and utility supply activities; therefore, the ruling set forth a process for parties to meet and confer in order to develop a proposal to resolve these issues.
The utilities were not able to timely resolve the DWR allocation issues identified as critical in the May 15th Ruling. Instead, in its May 24, 2002 supplemental testimony, Edison stated that the uncertainty regarding the effects of DWR contract allocation on its forecasted peak day shortages should be addressed by limiting the amount of megawatts (MWs) authorized under the motion.
On May 31, 2002, DWR wrote the Commission and parties a memo outlining its position on Edison's motion. This memo, received into evidence as Exhibit 131, states that DWR requires the following conditions for the proposed authorization to be consistent with its authority under AB1X:
1. DWR retains title to all power purchased by DWR.
2. DWR's costs for interim payment under the contracts are recovered through DWR's revenue requirement and are directly reimbursed by Edison's customers in the same manner as other net short purchases by DWR at present.
3. DWR and Edison would be signatories to any contract, providing for DWR to be removed from the contract upon Edison becoming creditworthy and assuming full responsibility for payment for energy under the contract(s) thereafter.
In addition, DWR states that the Commission should be aware if there are any contracts for energy payments which vary with the market price of fuel (presumably natural gas) or other market indices, such contracts could contribute to added volatility in DWR's payment obligations, thereby affecting the reserve fund balances and associated bond issue size. DWR further states that, to ensure the stability of rates, it is critical that the Commission adopt a contract allocation and resource dispatch policy as a part of its ruling on Edison's motion.
In its July 12, 2002 brief, Edison renews its request, with some modifications, under the Joint Principles for Interim Procurement dated July 12, 2002 (Joint Principles) it signed with CU, PG&E, and TURN. The Joint Principles proposes establishment of a Procurement Review Group whose members, subject to an appropriate non-disclosure agreement, would review and assess the details of Edison's overall interim procurement strategy and specific proposed procurement contracts and proposed procurement processes prior to Edison submitting filings to the Commission. Commission staff would be ex officio members of the group. Both renewable and non-renewable suppliers would be eligible to supply the capacity needs of Edison, with no accelerated or special consideration given to renewables or, more broadly, to QFs. The procedural process set forth in the Joint Principles requires the Commission to issue a resolution within 30 days of an advice letter filing. The Joint Principles state that this authorization should be granted no later than the end of July 2002.
Interested parties to the proceeding generally support a more limited transitional authority than that requested by the respondent utilities. Ridgewood and Aglet recommend the request be denied. Ridgewood claims that granting Edison's motion would prevent companies from developing new renewable resources in the state and cause many existing renewable facilities to shut down. Aglet states that the Commission should deny Edison's motion because the risks of unanticipated long-term consequences of hasty contract approval outweigh the benefits of current market opportunities. In the alternative, Aglet states that the Commission should impose restrictions of the type recommended by CEC. Examples of such limitations are a cap on on-peak capacity procured under Edison's motion, and dispatchability requirements. The recommendations of other parties on the amount and type of products will be discussed in a following section.
B. Applicability to PG&E and SDG&E
PG&E and SDG&E request similar authority to that requested by Edison, and also request that any interim procurement authority the Commission provides to one utility be extended simultaneously to all three utilities, to ensure fair and equitable opportunities for all California utilities to acquire reliable and reasonably-priced capacity for all their customers.4
SDG&E currently has an investment grade credit rating, and, therefore, a question exists as to whether the credit support of DWR should be provided, and if so, when SDG&E should assume financial and legal responsibility for the contracts from DWR. Edison and PG&E propose SDG&E assume this responsibility at the same time that either Edison or PG&E achieves an investment grade credit rating, whichever is earlier. SDG&E differs, requesting that it not assume full responsibility for the DWR contracts until both Edison and PG&E have achieved an investment grade credit rating.
SDG&E states that although it is creditworthy, its procurement needs are a small part of the market and it represents that the market does not distinguish between a creditworthy SDG&E and a non-creditworthy SDG&E because of the spillover effects stemming from PG&E and Edison. However, we note that SDG&E is distinguishable, for example SDG&E may fully participate in the CAISO market. Also, other creditworthy utilities operating in California such as PacifiCorp are able to procure for their customers, despite the financial situation of Edison and PG&E.
We are not persuaded that there is a need for DWR to "backstop" purchases for SDG&E. The purpose of DWR's involvement is to use the state's credit to assist the utilities, if necessary, and the state should not continue this relationship beyond its intended purpose. Therefore, we direct SDG&E to execute any contracts resulting from the authority granted today without DWR involvement. However, we will authorize SDG&E to use other aspects of Edison's proposal, such as an expedited review process.
C. Should DWR Contract Allocation Be Completed First?
The May 15th Ruling stated that the DWR contract allocation should be completed in order for the Commission to have an accurate forecast of each utility's RNS and set forth an expedited procedural schedule to accomplish this. In their supplemental testimony, the utilities stated that they could not complete this task in the time allowed and proposed that the Commission use a percentage of a conservative estimate of the RNS to compensate for the range of uncertainty. At the end of hearing, the ALJ asked parties to brief this issue.
The utilities continue to argue that transitional procurement can be authorized prior to allocating the DWR contracts by using a percentage of a conservative RNS estimate. ORA, CEC, and several renewable parties are more cautious, their concern being that the utilities may foreclose the opportunities to purchase renewable power by signing long-term non-renewable capacity contracts prior to January 1, 2003. These parties recommend that the amount of power authorized under the requested transitional authority be less than requested by the utilities, and that less of the authorized amount be available for long-term contracts.
We share the concern that the utilities not over-procure in the transition period, especially for five-year contracts that could have the effect of shutting out new renewable generation or demand reduction options. We will consider Edison's May 6th motion here, but only in a manner that will not foreclose renewable generation in the final procurement plan. The specifics of this will be discussed in the following section.
D. What Types of Products Should Be Authorized and in What Amounts?
1. Parties' Positions
Most active parties in the proceeding were not permitted to review the underlying data submitted by the utilities because they did not meet the strict standard of "non-market participant" set forth in our May 1, 2002 Protective Order. And as market participants themselves, the respondent utilities did not have access to each others' confidential material. With many parties unable to review the evidence, we need to be very cautious in assuring that the underlying forecasts of RNS and the assumptions they are based on, have been vigorously examined, tested, and verified. We give particular weight to the testimony of ORA, CEC, Aglet, and TURN because they are parties with full access to the evidence and possess the technical expertise to understand and assess it.
We are particularly mindful of the needs of parties representing renewable resources because they do not have access to the confidential evidence. The renewable resources parties express strong concerns that the authority we authorize here does not foreclose, or in any way harm, the utilities' ability to meet their potential obligation under AB 57 to increase the amount of eligible renewables presently in their portfolio by 1% annually, beginning in 2003. The authorization for renewable resources is necessarily different and is discussed below.
The specific amount each respondent utility is requesting is a confidential number, based on a percentage of a conservative forecast of its RNS energy needs in 2003 through 2007.5
The utilities assert that if multi-year dispatchable capacity or forward energy hedges can be purchased in these amounts at favorable prices, they will be far superior to reliance on short-term transactions in protecting electricity customers from the risks of volatile power prices. Edison states that it would be inappropriate for the Commission to specify precisely the type of contracts which it and DWR can jointly enter because the utilities will have less than six months to negotiate and gain all approvals of complex contracts before DWR's authority to contract expires. That time period has now shortened to only a little more than four months.
Edison proposes that each contract be "either a capacity contract, an energy contract, an energy exchange contract, or a financial transaction that provides a hedge similar to that provided by any of the above types of contracts." (Ex. 119, Appendix A.) PG&E and SDG&E request they be granted the same terms and conditions as those approved for Edison. In addition, PG&E requests it be granted explicit approval to enter gas hedge contracts, an authority that Edison now has under the terms of its settlement agreement with the Commission.
a) Establishing a Procurement Limit
On May 24, 2002, PG&E, Edison, and SDG&E filed supplemental testimony providing capacity limits to be used under an interim procurement framework. Edison and SDG&E's testimony explicitly states that the capacity limits are based on low-case RNS scenarios (e.g., assuming low load, high direct access, and high allocation of DWR contracts) to produce conservatively low estimated procurement limits. The purpose in proposing a conservatively low limit for interim procurement is to establish a limit such that even though DWR contracts have yet to be allocated, the utilities will not over commit their RNS once contract allocation is resolved. PG&E's supplemental testimony does not explicitly acknowledge that its proposed procurement limit is based on a modeling scenario aimed at producing a conservatively low estimated capacity limit for purposes of interim procurement.
Numerous parties raise concerns with respect to the amount of the procurement limits proposed by the utilities. CEC comments that Edison's proposed interim procurement limit is too high and would obviate the need for procurement under Phase 2 of this proceeding as the level of capacity contracting requested would essentially cover all of Edison's RNS. CEC urges us to authorize the utilities to procure for a more limited quantity of resources, between one-fourth and one-third of their respective on-peak RNS requirements. Aglet also supports more restrictive limits. ORA indicates that its examination of Edison's residual net short requirement shows that if interim procurement is allowed, "only a relatively small number of on-peak hours in the reference case RNS and a limited number on peak hours for the high-case RNS for 2003 and 2004 are projected to have RNS greater [than] SCE's proposed limit."6 ORA advises that we consider the actual number of hours that would remain uncovered as the Commission decides the merits of Edison's Motion. SDG&E also cautions that the amount of power to be procured on an interim basis should be conservative in order to allow additional procurement to be guided by the Commission's final decision adopting the utilities' final procurement plans.
CEC also points out that Edison's estimates of its RNS energy requirement are highly sensitive to how the DWR contracts are allocated among the three utilities as well as to the outcome of the state's contract renegotiations efforts. Given that final allocation remains undecided and that contracts are subject to ongoing renegotiation, utility RNS estimates are "uncertain and speculative."7
Energy Division is in possession of the utilities' confidential data supporting their respective requests for capacity limits. A basic assessment of the supporting data shows that if the utilities are authorized to procure up to their conservatively estimated capacity limit (capacity without ancillary service capability), the number of hours that Edison is still short is reduced from roughly 45% of the total number of hours in 2003 to about 13%. For SDG&E, the decrease is more modest, dropping from 38% of total hours in 2003 to about 28%. Unlike Edison and SDG&E, PG&E did not explicitly make a showing in its Supplemental Testimony that its requested capacity limit for interim procurement is based on a methodology aimed at producing a conservatively low estimate for interim procurement. (See Exhibit 48C.) Edison and SDG&E present an alternative capacity limit that includes self-provision of ancillary services. Energy Division's review of the proposed capacity limits with ancillary services capability shows that the number of hours left uncovered in 2003 (i.e., the remaining RNS) drops to about 7% of total hours for Edison and 11% for SDG&E.
For transitional procurement authority, we adopt a capacity limit for each utility that reflects a cautious but still reasonable approach. We authorize Edison, PG&E, and SDG&E to procure their forecasted on-peak hourly RNS requirement reflected in a low-case RNS scenario for products with options for multi-year contracts including ancillary services.
We find that the on-peak hourly RNS requirement based on a low-case RNS forecast allows the utilities to procure on a transitional basis, but also does not commit all RNS requirements. In addition, this approach allows for the final procurement plan to consider changes in the RNS requirements.
Our adopted figure is intended to not foreclose opportunities for the utilities to procure additional power under the 2003 utility procurement plans pending with the Commission, but also to be of a sufficient amount to generate robust interest in the supplier community. In their applications for pre-approval of products, the utilities shall demonstrate that the low case RNS scenario is adhered to.
Edison's May 6th Motion also requests authority to procure contracts with terms up to five years. Edison asserts that multi-year procurement authority is needed because:
"...the availability in the marketplace of capacity contracts for a one-year term is highly unlikely and, to the extent they are available at all, SCE believes they will not provide a reasonable cost to our customers. Capacity contracts are more complex than other contracts and may require the seller to make a significant investment in generation to provide the service."8
Edison adds that:
"Mutli-year capacity contracts may also be used, if approved by the Commission, to firm up investment in new generation which can help meet customer demand that currently must rely on the uncertain spot market. The contracts may help to assure that capacity additions that are now being differed, or at risk of being differed, will actually be completed when needed."9
In supplemental testimony filed by the utilities, each utility proposes a procurement limit that reflects a significantly increasing amount of power annually between 2004 and 2007.
Several parties object to Edison's request for multi-year contracting authority. ORA argues against multi-year procurement citing: (i) uncertainty associated with wholesale market redesign issues; (ii) the fact that the utilities' procurement plans are pending at the Commission; (iii) the Commission possesses limited time and resources to review such contracts; and (iv) multi-year contracts with suppliers that do not have generation installed to meet 2003 needs will not satisfy near-term capacity needs of the utilities. CEC recommends that multi-year capacity products be limited to "a safe quantity assured to be required."10 CEC comments that the substantive benefit provided through multi-year contracts is the revenue assurance it provides to a new generator. Like ORA, CEC points out that it takes about two years for a new generating facility to come on-line following commitments; therefore ratepayers won't receive the "majority of the benefits"11 of such a contract in the near-term.
SDG&E proposes what it calls a "50/50 rule" for multi-year contracting whereby half of the total amount of capacity that is authorized for procurement under interim procurement be contracted for a term of up to five years. The remaining half could be contracted for a term not to exceed one year.12 SDG&E witness Resley provided context for this proposal during evidentiary hearing:
"...this [50/50 proposal] derives from our concern about making too many commitment too soon for too long. We've learned some things in the past few years, and we have learned that some hedging, some time between commitments, some ability to see how things evolve is better than putting all your bets on a single outcome at a single time."13
We find merit in authorizing multi-year procurement. The prospect of signing multi-year procurement contracts will help attract suppliers to utility solicitations and will help attract capital investment in new generating projects. On the one hand, we acknowledge the uncertainty that exists surrounding final allocation of DWR contracts and the uncertain net effects of DWR contract renegotiation on the aggregate size and shape of DWR's supply portfolio over the next five years, as well as the concerns voiced by ORA and SDGE. On the other hand, we take note of the fact that any unnecessary restrictions we impose on the utilities may spancel them now in their efforts to avoid high spot market prices during critical periods. Moreover, it would be difficult practically to create an interim procurement portfolio with a 50% limit on contracts with a term longer than one year. It would be an unintended result if a utility were able to negotiate an extremely favorable contract, only to terminate discussions because it penetrated the 50% limit by only a few percentage points. Micro-management of the interim procurement guidelines is not in the best interest of the ratepayers. Authorizing procurement up to the levels requested by the utilities is appropriate at this time. This limit will ensure that a significant remainder of procurement requirements will be guided by future Commission decisions and re-examination of utility RNS positions and market conditions.
b) Product Types
Edison proposes to enter into contracts for "dispatchable capacity, and for related fuel and transmission, where appropriate, of up to five years in length."14 Edison also seeks to secure natural gas hedging in support of the capacity contracts negotiated through interim procurement. PG&E states that it needs the same types of procurement products described by Edison, but also requests authorization to purchase natural gas hedges to hedge the fuel price of its fossil-fuel Utility Retained Generation (URG) assets and QFs contracts whose energy payments are indexed to natural gas prices. SDG&E indicates that in addition to dispatchable capacity, one of its "significant residual net short needs" is for energy products to replace San Onofre Nuclear Generation Station (SONGS) Unit 3 during its scheduled refueling in early 2003.15,16 Edison's testimony lists energy products without making a specific showing of need for them.
With the exception of ORA, parties do not dispute the utilities' identified need for capacity products. ORA characterizes Edison's proposal as an "unspecified need for capacity contracts" and argues that Edison's proposal fails to adequately define what it means by capacity.17 Additionally, ORA recommends that the Commission should explicitly encourage energy for capacity transactions given that "the utilities generally appear to be long in energy supplies and short in electric capacity."18 CEC points out that the utilities should be encouraged to foster the development and trade of energy products that satisfy RNS requirements during "super-peak" periods.
Given the flexibility that capacity products provide in meeting a range of variously shaped residual net short requirements during certain hours in a month, we agree with Edison's proposal that capacity contracts should be allowed under transitional procurement process.
Gas tolling agreements will be allowed as a subset of capacity contracts. Recognizing the scheduled refueling of SG&E's SONGS Unit 3 in 2003 and in consideration of CEC's recommendation for promoting peaking energy products, we are also authorizing the use of forward energy products under interim procurement process. Additionally, we find the it is reasonable for the utilities to arrange for the transportation of the physical commodity portion to be deliver pursuant to capacity and energy contracts. Related fuel products, natural gas supply, transportation, and storage are also authorized to the extent the utilities make a showing that such arrangements are in support of the specific electric capacity transactions brought forward pursuant to this decision.
Energy exchanges, such as the energy for capacity transaction recommended by ORA, peak for off-peak exchanges, and seasonal exchanges, are authorized for interim procurement. As noted by ORA, these types of transactions have proven to be cost effective in the past plus the Commission and the utilities have significant previous experience with these types of transactions.
We also provide additional authority to the utilities for the use of financially-settled hedging instruments for interim procurement, including natural gas hedges.19 Such transactions may add a level of complexity to the interim procurement review process, but they are necessary to ensure that the utilities have the opportunity to procure sufficient dispatchable capacity products in order to lessen the impact of the volatile spot market. For like reasons, the requests of PG&E and Edison for additional authority to transact for natural gas hedging as part of this short-term interim procurement mechanism is also allowed. But we deny PG&E's specific request to procure gas hedging to hedge the fuel cost risks associated with its URG and QFs contracts. We reject PG&E's request for two reasons. First, the request goes beyond the scope of this proceeding. PG&E's gas hedging proposal is focused on hedging fuel costs associated with existing generation resources whereas this proceeding addresses the utilities' going-forward RNS procurement needs for 2003.20
We find that granting transitional authority, under the terms and conditions adopted here, is beneficial for both the utilities and their customers. Edison and PG&E will benefit by being able to enter into procurement contracts prior to regaining an investment grade credit rating and to demonstrate to the financial markets that they can successfully resume their full procurement responsibilities under the Commission's regulatory oversight. All three utilities will benefit by reducing the amount of purchases they will need to make beginning in 2003 and beyond. Finally, customers of the utilities will benefit from the utilities receiving and exercising this authority in a manner that promotes reliable service at just and reasonable rates.
The utility/DWR agreement proposed by Edison should be modified to meet the concerns expressed by DWR in its May 31st memo. The revised agreement should be submitted to the Commission by each respondent utility by a compliance filing within five days.
The utilities should perform due diligence in seeking procurement contracts under the transitional authority granted herein.
We next discuss the process that should be used by the utilities to make this showing of ratepayer benefits.
E. Procedural Process
1. What is Being Requested?
In their July 12th briefs, CU, PG&E, Edison, and TURN advocate that the Commission adopt their proposed expedited advice letter process. This process would have the Commission commit to approve or disapprove the contract and/or procurement process by Commission resolution within 30 days of filing. Approval would constitute a determination by the Commission that costs incurred by the utility under the contract itself and/or under contracts conforming to the procurement process are "reasonable" and "prudent" for purposes of recovery in retail rates under the Public Utilities Code for the full term of the contract or contracts. Utility administration of such contracts would remain subject to reasonableness review by the Commission under reasonableness criteria or incentive ratemaking, as appropriate. If the Commission rejects a proposed contract or procurement process, it would designate alternative procurement choices that would be recoverable by the utility for ratemaking purposes without further reasonableness review.
ORA is the only other party proposing an alternative procedural process. ORA discusses the complexity of the issues it expects to confront and, therefore, states that the Commission should authorize only one application for each utility, and there should be a minimum review period of 30 days before parties need to respond by filing a protest. It recommends that the Commission process these contracts by advice letter and if there is a protest, the Commission would resolve the dispute by a resolution.
The advice letter procedure proposed by the parties to the Joint Principles has the Commission approving by resolution the utility's filing within 30 days. At a minimum, it generally takes approximately 60 days to adopt an advice letter by resolution.
2. What is Required Now?
We agree it is reasonable to implement a transitional approach to procurement, and we modify Edison's proposal slightly. The time periods in Edison's proposed process are ambitious, but public necessity requires the Commission to take extraordinary steps in order to provide sufficient time for the utilities to obtain DWR funding by the end of this year. The modifications that we make to the Edison proposal reflect the fact that Commission Meetings usually occur twice a month, and there can be as much as three weeks between Meetings. Thus, there are actually two competing timelines in Edison's proposal. The first timeline is forward counting as presented by Edison. The second timeline would count backward from when a Commission Meeting is scheduled. The agenda for the Commission Meeting is noticed at least ten days prior to the Meeting itself.
To reconcile these competing timelines, we have adopted a schedule that would allow Energy Division and the Assigned Commissioner a minimum of ten days to prepare and review, respectively, the draft Resolution if and only if a Commission Meeting is scheduled thirty days from the advice letter filing date. If the Commission Meeting date is less than thirty days from the advice letter filing date, then the draft Resolution would be noticed on the following Commission Meeting date. If the Commission Meeting date is more than thirty days from the advice letter filing date, then the Energy Division and the assigned Commissioner would have more time to prepare and review the draft Resolution. We suspect the last schedule we described may be the more common occurrence. The Energy Division and the Assigned Commissioner shall expedite their efforts to prepare and review the draft Resolution in order to increase the time allowed for parties to comment. The deadline for circulating any draft Resolution for comment shall be the date the agenda is mailed for the next Commission Meeting.
An abbreviated schedule for this Advice Letter process appears in Appendix B of this decision.
The pace at which we can proceed is initially within the utilities' control as it is governed by the contents of the filed advice letter.
If the utilities provide the Commission a complete and clearly laid-out advice letter that is uncontested and meets our standard for approval, the Commission could place a Resolution on a Commission agenda within approximately 30 days.
In order to ensure that interim procurement contracts entered into by the utilities are subject to sufficient and expedited review and pre-approval, we will require each utility to establish a PUC-authorized "Procurement Review Group" whose members, subject to an appropriate non-disclosure agreement, would have the right to consult with and review the details of 1) each utility's overall interim procurement strategy; 2) proposed procurement contracts with the utilities before any of the contracts are submitted to the PUC for expedited review, and 3) proposed procurement processes including but not limited to "Requests For Offers" ("RFOs"), which result in contracts being entered into in compliance with the terms of the RFO2. The PUC Energy Division and ORA staff would be ex officio members of each "Procurement Review Group," and membership of the "Procurement Review Group" would be open to an appropriate number of interested parties who are not "market participants" as defined in the May 1, 2002 PUC Protective Order, and who agree to execute an appropriate non-disclosure agreement and commit to review and make recommendations concerning proposed contracts and procurement processes on an expedited basis. Each "Procurement Review Group" would assess the procurement contracts and reasonableness criteria with each utility and offer assessments and recommendations to each utility and then to the PUC when the contracts and/or reasonableness criteria are submitted for expedited PUC review.
The members of each "Procurement Review Group" would be committed to devote the time necessary to meet and confer with the utilities on each proposed contract and/or procurement process and provide written comments to the utilities within no later than 15 days of initiation of the review process.21 The CEC and Power Authority are invited to participate in the "Procurement Review Group." The findings made in the first Resolution will provide guidance that should facilitate future filings. Moreover, the utilities can include multiple contracts in the same advice letter to further expedite the process.
The utilities have requested that the Commission pre-approve each contract. The utilities testified at some length that they were unwilling to accept any procurement risk. The record shows, however, that a cost premium may attach to a pre-approval process because the utilities may need to pay a fee to keep an offer open or pay a premium to "refresh" the offers after the Commission grants approval. If the utilities seek pre-approval, they should carefully monitor and report any cost premium paid for this.
The procedural process laid out above is an ambitious one for the Commission. Our past experience with trying to review and approve large contracts in an expedited manner has not always been entirely successful. However, we find there are policy reasons for adopting Edison's motion for transitional procurement authority, with modifications, and believe the process we adopt here is a workable process. This process is applicable to all interim procurement contracts authorized by this decision, including QFs and Renewables.4 PG&E requests it also be granted authority for gas hedging under this motion, similar to the authority that Edison already has. PG&E also requests a different percentage of its RNS be authorized. These two issues will be addressed in Section D below. 5 The confidential number for Edison is found in Exhibit 5C, page 11-6, for PG&E in Exhibit 48C, Table S-2, and for SDG&E in Exhibit 64C, page 5. 6 ORA Brief. p. 4. 7 CEC Brief, p. 4. 8 Exhibit 5C, p. I-9. 9 Id. p. I-10. 10 CEC Brief, p. 5. 11 Id. 12 SDG&E Brief, p. 11. 13 Tr. Vol. 10, June 21, 2002, pp. 1222-1223. 14 Edison Brief, p. 10. 15 SDG&E Brief, p. 12. 16 SDG&E contemplates that it may opt not to exercise the procurement authority granted by this Decision. SDG&E states: "There should be an explicit recognition in the authorization for interim procurement that authorization creates no presumption that it is imprudent not to use this authority to its full extent." (P. 12.) 17 Notwithstanding these reservations, ORA recommends that "the utilities be authorized to pursue an initial purchase of capacity." (ORA Brief, p. 5.) 18 Id. p. 6. 19 For example, financially-settled hedging instruments such as locational basis swaps as described in Exhibit 45 (PG&E), p.3-23 would be authorized. 20 See Section 2.4 of the Settlement Agreement entered into by the Commission and Edison settling matters at issue in Southern California Edison Company, Plaintiff, vs. Loretta M. Lynch, et al., October 21, 2001. 21 Joint Principles for Interim Procurement, July 12, 2002. Principle 4. Brief of Southern California Edison Company.