2. Background
2.1. Procedural Background
Pacific Gas and Electric Company (PG&E) filed Applications (A.) 09-10-022 and A.09-10-034 on October 16 and October 30, 2009, respectively. In these applications, PG&E requests Commission approval of three transactions involving ten contracts. If approved, each transaction would novate a power purchase agreement (PPA) from the California Department of Water Resources (DWR) to PG&E,1 and replace the novated agreement with a new long-term PPA. Together, the three transactions would procure 1,090 megawatts (MW) of fossil-fuel capacity under new long-term PPAs, including 254 MW of new capacity.
The ten contracts contain confidential information regarding prices, terms, and conditions of electric procurement. Therefore, as allowed by Decision (D.) 06-06-066, PG&E filed the contracts under seal. Although PG&E has disclosed summary information about the contracts, the prices for capacity and other significant terms and conditions are confidential.
A prehearing conference (PHC) for both applications was held on December 16, 2009. The two applications were consolidated in a ruling issued on December 21, 2009. An Assigned Commissioner's Ruling and Scoping Memo (Scoping Memo) was issued on January 5, 2010.
PG&E served written testimony concurrently with each application, and supplemental testimony on January 11, 2010. The intervenors served testimony on January 15, 2010, and parties served rebuttal testimony on January 22, 2010. The Scoping Memo provided that an evidentiary hearing would be held if requested by the parties. There were no requests for an evidentiary hearing and none was held. The written testimony was admitted into the record pursuant to Rule 13.8 of the Commission's Rules of Practice and Procedure (Rule). Opening and reply briefs were filed on January 29 and February 5, 2010, respectively.
The following intervenors participated actively in this proceeding: the Alliance for Retail Energy Markets jointly with the California Large Energy Consumers Association (together, AReM/CLECA); Californians for Renewable Energy (CARE); California Unions for Reliable Energy (CURE); Calpine Corporation (Calpine); the Division of Ratepayer Advocates (DRA); GWF Energy LLC (GWF); the Independent Energy Producers Association (IEP); Pacific Environment; and The Utility Reform Network (TURN).
2.2. Regulatory Background
In order to understand and evaluate PG&E's applications, it is necessary to first review the Commission's policies regarding (1) the novation of DWR contracts, and (2) long-term PPAs.
During the energy crisis of 2000 - 2001, PG&E and other investor-owned utilities (IOUs) could not buy electricity for their customers.2 In response, the Legislature authorized DWR to purchase electricity under long-term PPAs and to resell the power to the retail customers of the IOUs. DWR eventually executed 59 long-term PPAs, including three that are the subject of today's decision. In D.02-09-053, the Commission allocated the cost responsibility for the DWR contracts among the IOUs.
Most of the DWR contracts have a novation clause that gives DWR the right to transfer the contract "as is" to a financially solvent IOU. In D.08-11-056, the Commission determined that it is in the public interest to phase out DWR's role in supplying electric power to utility customers and identified several benefits from doing so.3 To achieve this goal, D.08-11-056 directed the IOUs to seek ways to replace DWR as the buyer in their allocated contracts, either through the novation of the DWR contracts or the replacement of the DWR contracts with new bilateral agreements between the IOUs and power suppliers.4
D.08-11-056 delegated oversight of the novation/replacement process to the assigned Commissioner and the assigned Administrative Law Judge. They issued a joint ruling on February 4, 2009, that provided guidance regarding the process for negotiating novation and replacement agreements and the standard of review for such agreements (hereafter, "the Implementation Ruling").5
The Commission is required by Pub. Util. Code § 454.5 to adopt a long-term procurement plan (LTPP) for each IOU.6 The Commission adopted PG&E's current LTPP in D.07-12-052. Under its adopted LTPP, PG&E has a need to procure 800 MW to 1,200 MW7 of new capacity by 2015 and is authorized to execute long-term PPAs for this new capacity, subject to the Commission's review and approval.
1 Novation is the substitution of a new contract for an existing one. Novation completely extinguishes the earlier contract. (Decision (D.) 08-11-056 at 9.)
2 The IOUs are PG&E, Southern California Edison Company, and San Diego Gas & Electric Company.
3 D.08-11-056 at 3, 9 - 10, and 29 - 34.
4 D.08-11-056 at 3 and Ordering Paragraph 1.
5 Assigned Commissioner and Administrative Law Judge's Ruling Regarding Implementation Measures For Phase II(A)(2), issued February 4, 2009, in Rulemaking 07-05-025, at 8 - 11 and Ruling Paragraphs 4 and 8.
6 All statutory references are to the Public Utilities Code unless otherwise indicated.
7 MW values are expressed in July peak operating conditions.
