ALJ/TIM/gd2 Date of Issuance 8/4/2010
Decision 10-07-042 July 29, 2010
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of Pacific Gas and Electric Company for Approval of Agreements Related to the Novation of the California Department of Water Resources Agreement with GWF Energy LLC, Power Purchase Agreement with GWF Energy II LLC, and Associated Cost Recovery (U39E). |
Application 09-10-022 (Filed October 16, 2009) |
And Related Matter. |
Application 09-10-034 (Filed October 30, 2009) |
DECISION APPROVING ONE POWER PURCHASE AGREEMENT AND CONDITIONALLY APPROVING TWO OTHER POWER PURCHASE AGREEMENTS
DECISION APPROVING ONE POWER PURCHASE AGREEMENT AND CONDITIONALLY APPROVING TWO OTHER POWER PURCHASE AGREEMENTS 1
1. Summary 2
2. Background 3
2.1. Procedural Background 3
2.2. Regulatory Background 4
2.2.1. Novation of DWR Contracts 4
2.2.2. Long-Term Procurement Contracts 5
3. PG&E's Applications 6
3.1. Summary of A.09-10-022 and the Tracy Transaction 6
3.2. Summary of A.09-10-034 9
3.2.1. The LECEF Transaction 9
3.2.2. The Peakers Transaction 11
3.3. Compliance with Commission Policies 13
3.3.1. Novation of DWR Contracts 14
3.3.2. Emissions Performance Standard 14
3.3.3. Fit with PG&E's GHG Reduction Strategy 15
3.3.4. Use of Brownfield Sites 15
3.3.5. Project Viability 16
3.4. Significant Benefits 16
3.4.1. Hedge Against Project Delay and Failure 16
3.4.2. Integration of Renewable Resources 17
3.4.3. Increased Fuel Efficiency and Lower Emissions 18
3.4.4. Resource Adequacy and Operating Flexibility 19
3.4.5. Economic Stimulus 19
3.4.6. Independent Evaluator's Report 20
3.4.7. Just and Reasonable 20
3.5. Requested Relief 21
4. Support for PG&E's Applications 21
4.1. New Capacity Is Authorized by D.08-11-056 21
4.2. New Capacity Is a Reasonable Hedge 22
4.3. Extra Procurement Is Allowed by D.06-06-035 24
4.4. The CAISO Letter 24
4.5. The LECEF Upgrade Supports Renewable Generation 25
4.6. The Transactions Are Indivisible 25
5. Opposition to PG&E's Applications 25
5.1. New Capacity Is Not Authorized by D.07-12-052 25
5.2. New Capacity Is Not Authorized by D.08-11-056 27
5.3. PG&E's Authorized Capacity Has a Built-In Hedge 27
5.4. There Is No Need for a Hedge 28
5.5. The New Capacity Is Too Expensive 29
5.6. The New Capacity Violates the Mariposa Settlement 29
5.7. Lack of Competitive Procurement 30
5.8. The CAISO Letter 30
5.9. The LECEF Upgrade Is Not a Flexible Resource 31
5.10. Deferred Action on the Upgrade PPAs 32
5.11. The Transactions Can Be Disaggregated 32
5.12. The Cost of the Peakers PPA Is Not Justified 32
6. PG&E's Response to the Opposing Parties 33
6.1. The New Capacity Is Authorized by D.08-11-056 33
6.2. The Hedge Is Needed and Consistent with D.07-12-052 33
6.3. PG&E Used a Competitive Process 35
6.4. The Mariposa Settlement Does Not Bar the Transactions 35
6.5. The Upgrade PPAs Are Reasonably Priced 35
6.6. The Peakers PPA Is Reasonably Priced 36
7. Discussion 37
7.1. Standard of Review 37
7.2. The Tracy and LECEF Transactions 38
7.2.1. The New Capacity Is Not Authorized by D.07-12-052 40
7.2.2. The Hedge Is Not Authorized by D.07-12-052 42
7.2.3. There Is No Need for More New Capacity than Authorized by D.07-12-052 45
7.2.4. PG&E Has Not Demonstrated that the Upgrade PPAs Are Needed to Support Renewable Generation 49
7.2.5. The Cost of the Upgrade PPAs Is Unreasonable 50
7.2.6. The Relevance of D.08-11-056 53
7.2.7. The Upgrade PPAs Do Not Comply with the Mariposa Settlement Agreement and D.09-10-017 54
7.2.8. Conclusion and Conditional Approval 55
7.2.9. Novation of DWR Contracts 58
7.3. The Peakers Transaction 59
7.3.1. PG&E Has a Need for the Peakers Capacity 60
7.3.2. The Peakers PPA Maintains Resource Adequacy 60
7.3.3. The Cost of the Peakers PPA Is Reasonable 60
7.3.4. The Emissions Performance Standard 62
7.3.5. Conclusion and Recovery of Costs 62
8. Revised Need for Hearing 63
9. Comments on the Proposed Decision and Motion 64
10. Assignment of the Proceeding 64
Findings of Fact 65
Conclusions of Law 67
ORDER 69
DECISION APPROVING ONE POWER PURCHASE AGREEMENT AND CONDITIONALLY APPROVING TWO OTHER POWER PURCHASE AGREEMENTS
1. Summary
In Application (A.) 09-10-022 and A.09-10-034, Pacific Gas and Electric Company (PG&E) requests approval of three transactions. The purpose of the transactions is to novate existing power purchase agreements (PPAs) from the California Department of Water Resources to PG&E, and then replace the novated agreements with new long-term PPAs. The new PPAs would procure 1,090 megawatts (MW) of fossil-fuel capacity, including 254 MW of new capacity.
Today's decision approves the Peakers Transaction under which PG&E will procure 502 MW of capacity, energy, and ancillary services from existing facilities through 2017, and 325 MW through 2021.
Today's decision grants conditional authority for PG&E to proceed with the Tracy Transaction and the Los Esteros Critical Energy Facility (LECEF) Transaction, which together provide 588 MW of capacity, including 254 MW of new capacity. Specifically, today's decision requires PG&E to proceed immediately with both of these transactions if PG&E's request for approval of the proposed Marsh Landing Project and/or Oakley Project is denied in A.09-09-021. If other events occur that create an unfilled need for the new capacity authorized by Decision 07-12-052 or subsequent decisions, PG&E may resubmit one or both of these transactions for Commission approval via a Tier 3 advice letter.
