5. Opposition to PG&E's Applications
The following parties oppose part or all of the proposed Transactions: AReM/CLECA, CARE, DRA, Pacific Environment, and TURN (collectively, the "Opposing Parties"). Their positions and arguments are summarized below.
5.1. New Capacity Is Not Authorized by D.07-12-052
PG&E is authorized by D.07-12-052 to procure 1,112 MW to 1,512 MW of new capacity by 2015. The Opposing Parties note that PG&E has filed four applications to obtain a total of 1,743 MW of new capacity, including 254 MW in the instant proceeding, which is 231 MW more than authorized by D.07-12-052.
The Opposing Parties believe it is unreasonable for ratepayers to bear the cost of unneeded capacity. AReM/CLECA and DRA recommend that the Tracy and LECEF Upgrades be rejected because these two projects exceed the capacity authorized by D.07 12-052. CARE, Pacific Environment, and TURN believe the Commission should evaluate the Upgrade projects in conjunction with the three other projects that PG&E has brought before the Commission (i.e., the Mariposa, Marsh Landing, and Oakley projects) and select the combination of viable projects that best fits PG&E's authorized need of 1,112 MW to 1,512 MW.
The Opposing Parties argue that D.07-12-052 prohibits PG&E's strategy of procuring more new capacity than authorized by D.07-12-052 to hedge the risk that some projects might fail or be delayed. Specifically, D.07-12-052 rejected PG&E's request to procure up to 600 MW of new capacity to address the contingency of "contracted resource uncertainty," stating:
Regarding the... contingency that is the result of conventional generation contracts, we would expect the IOUs to handle this uncertainty... [by] delaying retirements (in this case, via contract extensions with aging facilities) until [the] uncertainties are addressed. (D.07-12-052 at 94.)
The Opposing Parties urge the Commission to affirm its determination in D.07-12-052 that the appropriate way to address the risk of project delay and failure is to extend contracts with aging units.
DRA, Pacific Environment, and TURN believe there is ample capacity available from aging facilities to replace failed projects. They state that D.07-12-052 assumed PG&E would retire 4,200 MW of aging facilities by 2015,24 which is more than enough to backfill any failed projects.
Pacific Environment and TURN also note that the Commission determined in D.07-12-052 that PG&E would not need any new capacity until at least 2014.25 Despite this distant need, PG&E has already requested approval of 1,489 MW of new capacity. TURN maintains that it makes no sense to procure an additional 254 MW of new capacity at this time for a need in 2014 that will be met by the 1,489 MW that PG&E has already contracted for.
5.2. New Capacity Is Not Authorized by D.08-11-056
AReM/CLECA, DRA, and TURN assert that D.08-11-056 does not allow PG&E to procure more capacity than authorized by D.07-11-052. They note that D.08-11-056 linked the replacement of DWR contracts with D.07-12-052:
[A]ny replacement agreement that would extend the term of a contract should also be reviewed by the Commission for consistency with long-term procurement planning criteria, pursuant to Section 454.5. (D.08-11-056 at 81.)
The Commission adopted long-term procurement criteria pursuant to § 454.5 in D.07-12-052, including a limit on the procurement of new fossil capacity. AReM, DRA, and TURN state that because the Upgrade PPAs exceed the new capacity authorized by D.07-12-052, these contracts are not authorized by D.08-11-056.
5.3. PG&E's Authorized Capacity Has a Built-In Hedge
DRA and Pacific Environment contend that the 1,112 MW - 1,512 MW of new capacity authorized by D.07-12-052 includes a cushion to hedge the risk that some generation projects will fail. Pacific Environment states that the amount of the cushion is 600 MW.26 DRA and Pacific Environment argue that it is unreasonable for PG&E to procure even more new capacity to serve as a hedge, as doing so would force ratepayers to pay for the same hedge twice.
5.4. There Is No Need for a Hedge
The Opposing Parties state there have been several developments since D.07-12-052 was issued which indicate that PG&E's need for new capacity has declined significantly and eliminate any need to procure the Upgrade PPAs. First, the determination in D.07-12-052 that PG&E needs 800 MW to 1,200 MW of new capacity by 2015 (now 1,112 MW to 1,512 MW) was based, in part, on the assumption that 3,000 MW of power would be exported from PG&E's planning area during periods of peak demand. However, in October 2008 the staff of the California Energy Commission (CEC) issued a report which forecasts that exports will be 100 MW to 1,100 MW in 2015,27 far less than the 3,000 MW assumed by D.07-12-052. If D.07-12-052 were revised to reflect the CEC staff's lower forecast of exports, PG&E would have no need for new capacity in 2015.
Second, D.07-12-052 was based, in part, on the CEC's 2007 forecast of peak demand for electricity in PG&E's planning area. The CEC's more recent 2009 forecast shows that peak demand in 2015 will be 597 MW (4.48%) lower than the 2007 forecast.28
Finally, Pacific Environment argues that the decline in PG&E' need for new capacity is confirmed by PG&E's 2008 California Gas Report. The Report shows that PG&E expects the use of natural gas to generate electricity will decline through 2015, which casts doubt on PG&E's need for any new gas-fired capacity at this time.29
5.5. The New Capacity Is Too Expensive
CARE, DRA, and TURN each presented an analysis of the cost of the Upgrade PPAs. The details of their analyses and conclusions are confidential. In general, they state that the 254 MW of incremental capacity provided the Upgrade PPAs has a substantial negative market value (as calculated by the IE) in both absolute terms and relative to other projects. DRA describes the two Upgrade PPAs as "a terrible deal for ratepayers." TURN concurs.
5.6. The New Capacity Violates the Mariposa Settlement
In D.09-10-017, the Commission adopted a settlement agreement that authorized PG&E to procure 184 MW of new capacity from the Mariposa project. CARE represents that PG&E agreed in the settlement to limit its procurement of new capacity to 1,512 MW, inclusive of the Mariposa project.
CARE notes that PG&E has requested 1,743 MW of new capacity, including 254 MW from the Upgrade PPAs. CARE alleges that the amount of new capacity requested by PG&E violates the Mariposa settlement agreement, which limited PG&E to 1,512 MW of new capacity.
5.7. Lack of Competitive Procurement
AReM/CLECA allege that the Upgrade PPAs violate the Commission's policy of competitive procurement. They state that because the Upgrade PPAs were unsuccessful participants in PG&E's 2008 LTRFO, there is no colorable argument that the projects were selected via a competitive process.
5.8. The CAISO Letter
On February 1, 2010, CAISO submitted a letter that states:
[The Tracy Upgrade and LECEF Upgrade] would support the development of generation resources with operational characteristics that will compliment [CAISO's] efforts to integrate the increased number of renewable resources in the [CAISO] balancing authority area... [CAISO] will shortly be releasing its preliminary Phase I study to determine the amount, type, and location of the required additional generation resources necessary to support the goal of 33% renewable generation. This study... identifies an increased need for regulation and load following resources like the Tracy and Calpine Upgrade projects. PG&E's proposed contracts with GWF and Calpine for the output from these projects... would meaningfully contribute to satisfying this growing need. (CAISO letter at 1.)
All of the Opposing Parties note that CAISO is not a party to this proceeding and state that its letter does not have any evidentiary value.
AReM/CLECA, DRA, Pacific Environment, and TURN see nothing in the CAISO letter that indicates PG&E needs more new capacity than authorized by D.07-12-052 to integrate renewable generation. Pacific Environment adds that the CAISO letter is contradicted by the CEC's 2009 Integrated Energy Policy Report (IEPR), which found that there is no need for more capacity in the Bay Area to integrate renewable energy.30
AReM/CLECA, CARE, and DRA state that because CAISO has not completed its preliminary Phase I study, it is improper for CAISO to suggest that the study supports the procurement of the Tracy and LECEF Upgrades. TURN also questions the CAISO's characterization of the Phase I study. TURN represents that it is familiar with the CAISO study, and TURN does not believe that "[the CAISO] will shortly be releasing" the study. Nor does TURN believe the study is sufficiently advanced to support the CAISO's statement that the study "identifies an increased need for regulation and load following resources like the Tracy and Calpine Upgrade projects" and that "PG&E's proposed contracts with GWF and Calpine for the output from these projects...would meaningfully contribute to satisfy this growing need." In addition, the CAISO's study is focused on renewable integration needs in the year 2020. Thus, its relevance to the Tracy and LECEF Upgrades, which are scheduled for completion in 2012 - 2013, is doubtful.
5.9. The LECEF Upgrade Is Not a Flexible Resource
CARE states the LECEF Upgrade will have start times of up to four hours, which means the LECEF Upgrade will not provide dispatchable, load-following power that is needed to integrate a growing amount of intermittent renewable generation. In contrast, the current LECEF Facility has a start time of five to ten minutes, and can ramp up and down to meet variable demand, making it well suited to support the integration of intermittent renewable power. CARE believes that ratepayers would be better off with the lower price and superior flexibility of the existing LECEF configuration.
5.10. Deferred Action on the Upgrade PPAs
TURN states that if the 600 MW RCEC project fails, the Commission might have to approve the Upgrade PPAs, in spite of their high costs, in order to ensure reliable service. Therefore, TURN recommends that the Commission defer its decision on the Upgrade PPAs until after September 10, 2010, which is the deadline for Calpine to start construction or its CEC permit will expire. If the RCEC project cannot begin construction within the next several months, then TURN recommends that the Commission approve the Upgrade PPAs to meet PG&E's system reliability requirements in 2015. Conversely, if the RCEC project is able to proceed, then the Upgrade PPAs should be rejected as unneeded.
TURN emphasizes that in no event should the Tracy Transition Agreement be approved. The purpose of this Agreement is to accelerate the online date of the Tracy Upgrade from 2013 to 2012. TURN argues that PG&E does not have a need for new capacity in 2012 under any reasonable scenario.
5.11. The Transactions Can Be Disaggregated
Of the ten contracts that comprise the Tracy Transaction, the LECEF Transaction, and the Peakers Transaction, the Opposing Parties believe the Commission has complete flexibility to approve some agreements and reject others. The one exception is the Tracy Transition Agreement. TURN believes this contract can be approved only if the Tracy Upgrade PPA is approved.
5.12. The Cost of the Peakers PPA Is Not Justified
DRA recommends that the Commission reject the Peakers PPA because PG&E did not provide enough information for DRA to determine if the agreement is cost effective. DRA believes that ratepayers would be better served if the Peakers capacity were acquired through a competitive process such as the next intermediate-term RFO.
TURN opposes the Peakers PPA for different reasons. Although PG&E has calculated a positive net market value for the Peakers PPA, TURN has little confidence in the calculation. TURN notes that PG&E's calculation includes a forecast of rising RA prices several years into the future. If lower price increases are assumed, which TURN believes is likely, the Peakers PPA would not be cost effective.
24 D.07-12-052 at 116, Table PGE-1.
25 D.07-12-052 at 116, Table PGE-1.
26 D.07-12-052 at 104 and 116, footnote 6.
27 Revisiting Path 26 Power Flow Assumptions at http://www.energy.ca.gov/2008publications/CEC-200-2008-006/CEC-200-2008-006.PDF.
28 California Energy Demand 2010-2020 Staff Revised Forecast at 35 ( http://www.energy.ca.gov/2009publications/CEC-200-2009-012/CEC-200-2009-012-SF.PDF.)
29 2008 California Gas Report at 32, 49 - 55. ( http://www.socalgas.com/regulatory/documents/cgr/2008_CGR.pdf.)
30 CEC 2009 IEPR at 190 ( http://www.energy.ca.gov/2009_energypolicy/).
