4. Support for PG&E's Applications
The following parties support PG&E's applications: Calpine, CURE, GWF, and IEP (together, "the Supporting Parties"). Their arguments largely mirror PG&E's arguments that are summarized elsewhere in today's decision and will not be repeated here. What follows is a summary of the additional and supplementary arguments raised by the Supporting Parties.
4.1. New Capacity Is Authorized by D.08-11-056
The Supporting Parties assert the new capacity provided by the Tracy and LECEF Upgrades is authorized by D.08-11-056. There, the Commission held that it is in the public interest to "phase out of DWR's remaining involvement in supplying electric power to retail utility customers, and to return full responsibility to the IOUs."18 Consistent with D.08-11-056, the new capacity provided by the Tracy and LECEF Upgrades is part of transactions that remove DWR from supplying electric power to PG&E's customers.
Calpine and GWF argue that the following passage in D.08-11-056 indicates D.07-12-052 does not apply to the novation process:
We conclude that the process of implementing novation does not conflict with the statutorily required procurement planning process as prescribed by Pub. Util. Code § 454.5. (D.08-11-056 at 51.)
Calpine and IEP emphasize that the Commission had full knowledge of D.07-12-052 when it issued D.08-11-056. The Commission in D.08-11-056 could have prohibited the novation process from resulting in the procurement of more new capacity than authorized by D.07-12-052, but the Commission did not. Instead, the Commission gave parties maximum negotiating flexibility.19
4.2. New Capacity Is a Reasonable Hedge
D.07-12-052 directed the IOUs to rely on extending contracts with aging generation facilities to address the risk of project delay and failure.20 The Upgrade PPAs are consistent with this direction, according to CURE, because they provide a backstop for delayed or failed projects. However, instead of extending contracts with aging units, PG&E is contracting for new facilities. GWF adds that relying on aging facilities undermines other important policy objectives, such as GHG reductions and increased renewable generation.
CURE and GWF assert that the need to hedge the risk of project delay and failure is evident from the status of PG&E's four fossil generation projects that are in various stages of permitting and development (i.e., the Mariposa, Marsh Landing, Oakley, and RCEC projects). None has started construction, and all are behind schedule. The failure or further delay of these projects would create a large hole in PG&E's portfolio and jeopardize PG&E's ability to serve.
GWF acknowledges that D.07-12-052 rejected PG&E's request to procure extra capacity to hedge the risk that projects might fail,21 but GWF argues that D.07-12-052 is not controlling here because it considered only abstract concerns about the risk of project failure and equally abstract solutions. In contrast, the instant proceeding addresses the very real risk that specifically identified projects might fail (i.e., the Mariposa, Marsh Landing, Oakley, and RCEC projects), for which PG&E has proposed a concrete solution in the form of the Upgrade PPAs.
Finally, CURE and GWF state that the Upgrade PPAs will hedge the risk of costly price increases of other projects. This is because an essential element to moderating price risk is ensuring an adequate supply of capacity. The Upgrade projects will help ensure an adequate supply of capacity. CURE and GWF also state that the Upgrade PPAs have a low risk of price escalation because of their advanced stage in the permitting process, their use of brownfield sites, and the fact that they are managed by experienced project owners.
4.3. Extra Procurement Is Allowed by D.06-06-035
Calpine argues that D.06-06-035 provides a precedent for procuring more new capacity than authorized by D.07-12-052. In D.06-06-035, the Commission authorized PG&E to build the Contra Costa 8 Facility ("CC 8 Facility") with 530 MW of capacity. Importantly, the CC 8 Facility exceeded the new capacity that PG&E was authorized to procure at that time by D.04-12-048.22 Nonetheless, D.06-06-035 approved the CC 8 project because it was "a low-cost and low-risk project that meets PG&E's long-term procurement needs and... [enhances] grid reliability."23 Calpine believes the same reasoning applies to the Upgrade PPAs.
4.4. The CAISO Letter
The Supporting Parties believe the CAISO's letter submitted to the Commission on February 1, 2010, provides strong support for the proposed Upgrade projects. The letter states:
[CAISO] will need flexible gas-fired generation resources possessing quick start and significant ramping capability to integrate renewable resources and maintain grid reliability... PG&E's proposed contracts with GWF and Calpine for the output from [the Upgrade] projects... would meaningfully contribute to satisfying this growing need.
The Supporting Parties contend the CAISO letter confirms that the Tracy and LECEF Transactions will help satisfy the growing need for flexible gas-fired resources to support the growth of intermittent renewable generation.
4.5. The LECEF Upgrade Supports Renewable Generation
Calpine asserts that the record does not sustain CARE's claim that the LECEF Upgrade lacks the flexibility needed to support the integration of intermittent renewable generation. Calpine believes the fallacy of CARE's claim is apparent from the above-cited CAISO letter.
4.6. The Transactions Are Indivisible
The Supporting Parties agree that if one part of a Transaction is rejected, the entire Transaction must be rejected. To do otherwise would undermine the balance of benefits and obligations that was negotiated by PG&E and the counterparties. For example, GWF states the Tracy Replacement Agreement provides PG&E with superior fuel efficiency relative to the DWR Contract it replaces. GWF did not receive extra compensation in the Tracy Replacement Agreement in exchange for providing PG&E with better value. The benefit to GWF is provided by the Tracy Upgrade PPA. If the Commission were to adopt the Tracy Replacement Agreement but reject the Tracy Upgrade PPA, GWF would be unfairly deprived of the benefits that it bargained for.
18 D.08-11-056 at 3.
19 Implementation Ruling at 10.
20 D.07-12-052 at 96-97.
21 D.07-12-052 at 97.
22 D.06-11-048 at 2-3. See also D.04-12-048 at 237, Ordering Paragraph 4, and D.06-11-048 at 2.
23 D.06-06-035 at 20, Conclusion of Law 10.
