2. Background

Pacific Gas and Electric Company (PG&E) requests approval of a power purchase agreement (PPA) with South Feather Water and Power Authority (South Feather). The PPA provides for PG&E to purchase power from four existing hydroelectric powerhouses for a 10-year period commencing in July 2010. Two of the powerhouses are certified by the California Energy Commission (CEC) as Renewables Portfolio Standard (RPS) resources producing RPS-eligible electricity. The remaining two powerhouses are too large for RPS qualification.¹

PG&E seeks authorization to recover the resulting costs through its Energy Resource Recovery Account (ERRA). PG&E also seeks to recover indirect costs incurred to remotely operate and dispatch these resources through its ERRA until a decision is adopted in its 2011 general rate case (GRC) in which PG&E will seek recovery of such costs.

The four powerhouses are currently in operation. PG&E has a 50-year agreement with South Feather for deliveries from the four powerhouses that expires in June 2010. The powerhouses have been successfully generating power throughout the 50-year period.

The Sly Creek Powerhouse and the Kelly Ridge Powerhouse, are RPS-eligible and have a total capacity of 23 MW. The Forbestown Powerhouse and the Woodleaf Powerhouse, are not RPS-eligible and have a total capacity of 94 MW. The Forbestown, Woodleaf and Sly Creek Powerhouses are fully dispatchable and can be operated to meet daily peak load during much of the year. The Kelly Ridge Powerhouse is operated for most of the year as a base load facility.

Generally, RPS contracts may be filed by advice letter and long-term non-RPS contracts are submitted for approval by application. Since this PPA includes both, an application is appropriate.

The PPA is the result of bilateral negotiations between PG&E and South Feather. PG&E represents that the PPA was negotiated as a single PPA to allow optimization of the operation of the powerhouses that would not likely occur if the output of some of the power houses was sold to different buyers.

¹ RPS-eligible resources do not include hydroelectric facilities of greater than 30 megawatts (MW).