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ALJ/MCK/hkr MAILED 7/1/2002

Decision 02-06-068 June 27, 2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U-338-E) for Approval of Amendments to Power Purchase Contracts Between Southern California Edison Company and Seven Landfill Gas Biomass Projects (QFIDs 1103-1107, 1110 and 1111).

Application 02-01-018

(Filed January 11, 2002)

OPINION GRANTING APPLICATION FOR QUALIFYING FACILITY CONTRACT EXTENSIONS

In this decision, we grant the unprotested application of Southern California Edison Company (Edison) to extend for five years Standard Offer 1 (SO1) contracts that Edison entered into on November 27, 1996 with seven Qualifying Facilities (QFs) that generate electricity by means of methane gas that is produced and collected at landfills. Six of the seven landfill-powered generating facilities are located in Edison's service territory; one is located outside it.

Because the contract extensions could affect negotiations with other QFs, Edison filed the full terms of the extensions under seal, along with a motion requesting that these terms be kept confidential pursuant to Public Utilities Code Section 583 and General Order (G.O.) 66-C. Edison also filed redacted and unredacted versions of certain exhibits to the application, and requested that the unredacted versions remain under seal. In today's decision we grant Edison's motion in part, but we also conclude that more of the extension terms and application exhibits can be discussed without harm to Edison or its ratepayers than is assumed in Edison's motion.

Background

As Edison notes in its application, the contract extensions in question are before us because of certain exceptions for landfill biomass QFs that the Commission carved out in D. 96-10-036 (68 CPUC2d 434), the 1996 decision that modified the terms of SO1 contracts in light of the then recently-enacted AB 1890 and the planned deregulation of the electricity market. Although D.96-10-036 (as modified by D.96-11-018) provided that new QF contracts would expire on December 31, 2001 and placed QFs on notice that they could not expect regulatory must-take status if they entered into SO1 contracts after December 20, 1995,1 the decision also established two limited exceptions to its must-take rule. The first was for QFs that agreed to SO1 contract modifications allowing the output of the QF to be delivered to a direct access customer. The second exception, made for policy reasons, was for "landfill biomass QFs that allow another entity to become eligible for tax credits under Section 29 of the Internal Revenue Code." (Id. at 45, n. 22.)2

As Edison notes in its application, the policy reasons supporting the exception for landfill QFs "relate[] to the purported societal benefits that are typically identified with QFs of this nature, specifically the use of a renewable fuel that has the subsidiary benefit of preventing or reducing the flaring of potentially harmful methane gas." (Application, p. 4.) The application continues that each of the projects at issue "uses a landfill gas collection system feeding a generator that produces the electricity sold to [Edison]. As noted above, by using the landfill . . . gas to fuel their generators, the Projects do not simply generate electricity from a renewable fuel source; they also avoid or reduce the necessity of flaring of potentially harmful methane gas." (Id. at 5.)

The seven SO1 contracts for which Edison is seeking extensions were all entered into on or about November 27, 1996, and all of them provide for an expiration date of December 31, 2001 (subject to extension by the Commission). The Edison contract numbers, location of the landfills, date of first operation and rated capacity of the facilities (net of station use) are set forth in the table below.

Contract No. Location Operational Date Nameplate Rating

1103

Visalia

May 8, 1998

1.9 MW

1104

Santa Barbara

August 5, 2000

3.0 MW

1105

Lake View Terrace

January 5, 1999

6.0 MW

1106

Woodland

March 1, 1997

2.45 MW

1107

Tulare

December 17, 1999

1.9 MW

1110

West Covina

October 5, 19963

6.5 MW

1111

West Covina

October 5, 19964

6.5 MW

1 D.96-10-036 reached this conclusion because of the Commission's concerns about the dispatch priority then enjoyed by the holders of SO1 contracts. The decision described the problem as follows:

"If a generator seeks to compete in the new market as a direct access provider, and other competing generators are able, through the continued availability of the [SO1] for some or all of their capacity, to . . . avoid curtailment, then the number of hours during which minimum load conditions exist will expand to fill the year. Generators' profitability is highly correlated to the magnitude of unplanned outages, as turning a plant on and off increases operations and maintenance costs of the QF and disturbs the steam host's operations. The advantage of obtaining must-take status is viewed as providing a 'right to run' when others are subject to curtailment. This consequence is not the comparable, non-discriminatory access to and use of the transmission grid we require. The number of minimum load hours experienced today with separate control areas for PG&E, SCE, and SDG&E will dramatically swell if a preference relative to other generators in the market can be obtained through the [SO1]." (Mimeo. at 43-45.)
2 In D.96-10-036 as originally issued, footnote 22 described the second exception as applying to "small, publicly owned, landfill biomass QFs." D.96-11-018 modified this language to read as it appears in the text above. (69 CPUC2d 205, 206.) To conform the Commission's policies with AB 1890, D.96-11-018 also provided that unless they were extended, new QF contracts would expire on December 31, 2001 rather than December 31, 2002. (Id.) 3 According to the application, Contract 1110 was entered into with a pre-existing facility, and so was deemed to have achieved firm operation on the contract's starting date. However, the facility was out of service for an extended period because of turbine problems, and did not return to service until April 1999. (Application, p. 8.) 4 The application states that like the project covered by Contract 1110, this facility is located at the BKK Landfill in West Covina, California. It also pertains to a pre-existing facility and so had an operational date that coincided with the contract's starting date. Unlike Contract 1110, however, this project has not been out of service for an extended period. (Id. at 9.)

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