2. Background
2.1. Procedural Background
On September 30, 2009, Pacific Gas and Electric Company (PG&E) filed an application requesting approval of four agreements arising from its 2008 Long-Term Request for Offers (LTRFO). In particular, PG&E seeks approval of: (1) a power purchase agreement (PPA) with Mirant Marsh Landing for the net output of the Marsh Landing Generating Station (Marsh Landing Project), a new natural gas-fired combustion turbine (CT) facility that is expected to produce 719 megawatts (MW) at peak July conditions beginning May 1, 2013; (2) a PPA with Mirant Delta LLC that would eventually require the closure of the Contra Costa units 6 and 7 (Contra Costa 6 & 7) which rely on once-through cooling technologies;1 (3) a purchase and sale agreement (PSA) with Contra Costa Generating Station LLC (Contra Costa LLC) for the Contra Costa Generating Station in Oakley, California (Oakley Project), a new natural gas-fired combined cycle facility that is expected to produce 586 MW of generation at July peak conditions beginning June 4, 2014;2 and (4) a PPA with Midway Sunset Cogeneration Company (Midway Sunset) for the partial output of an existing natural gas-fired cogeneration plant that will deliver 129 MW of Qualifying Facility (QF) generation under peak July conditions for five years beginning at Commission approval, and 61 MW under peak July conditions through September 30, 2016.
Resolution ALJ 176-3242 preliminarily determined that hearings were necessary. A prehearing conference (PHC) was held on November 23, 2009, and an Assigned Commissioner's Ruling and Scoping Memo (Scoping Memo) was issued on January 5, 2010. Parties at the PHC requested the opportunity to revisit the question of whether hearings would be necessary after written testimony was served.
PG&E served written testimony concurrently with its application. The testimony contains confidential information regarding prices, terms offered, and proposals. Therefore, as allowed by Decision (D.) 06-06-066, PG&E filed confidential versions of the testimony under seal. Although PG&E has disclosed summary information about the agreements, the terms offered and other significant conditions are confidential.
The intervenors served testimony on February 22, 2010, and parties served concurrent rebuttal testimony on March 10, 2010.3 Following these submissions, on March 24, 2010, the parties agreed that hearings would not be necessary. The written testimony was admitted into the record pursuant to Rule 13.8 of the Commission's Rules of Practice and Procedure (Rule).
Opening briefs were filed on April 14, 2010, by Californians for Renewable Energy, Inc. (CARE), California Unions for Reliable Energy (CURE)/The Coalition of California Utility Employees (CUE), Communities for a Better Environment (CBE), The Division of Ratepayer Advocates (DRA), Pacific Environment (PE), PG&E and The Utility Reform Network (TURN). On
April 22, 2010, concurrent reply briefs were filed by CARE, CURE/CUE, PE, PG&E, and TURN.
2.2. Regulatory Background
The Commission is required by Public Utilities Code Section 454.5 to adopt a long-term procurement plan (LTPP) for each Investor-owned Utility (IOU).4 The Commission adopted PG&E's current LTPP in D.07-12-052. D.07-12-052 authorized PG&E to procure 800 to 1,200 MW5 of new capacity by 2015 and authorized PG&E to issue requests for offers (RFOs) so as to obtain and execute long-term PPAs for this new capacity.6 This number has since increased to
928 - 1328 MW due to new projects being authorized and the cancellation of previously approved projects. Specifically, Commission approval of the Mariposa project, pursuant to D.07-12-052, reduced the range by 184 MW while cancellations of previously approved projects increased the range by 312 MW, for a net increase of 128 MW.
Our conclusions in D.07-12-052 substantially relied on the 2007 demand forecast prepared by the California Energy Commission (CEC).7 However,
D.07-12-052 was issued more than two years ago. During those two years California and the United States as a whole experienced the worst economic downturn since the Great Depression, resulting in sharply reduced electric demands. This drastically reduced electric demand is reflected in the CEC's most recent energy demand forecast which shows that demand in PG&E's service area dropped between 2006 and 2007, and is not anticipated to reach 2006 demand levels within the next five years.8 Several parties urge a reconsideration of D.07-12-052's finding related to PG&E's energy need on the basis of this reduced demand.
PG&E does not dispute that the CEC has reduced its forecast of PG&E's need. Rather, PG&E notes that the prior CEC demand forecast was only one of several factors considered in D.07-12-052 and asserts that "requiring constant updating to previously litigated need determinations is contrary to Commission policy."9
The latter assertion references D.06-11-048 wherein we stated:
Our long term procurement proceedings are intended to monitor changes in forecasts. In order to permit timely action in response to Commission determinations of need for new generation resources, it is crucial that we not be sidetracked by second-guessing recent determinations absent evidence of significant errors. (D.06-11-048 at 10)
For 2009 and 2010 the CEC's 2007 Integrated Energy Policy Report (IEPR) anticipated PG&E peak demands of 21,954 MW and 22,236 MW, respectively. The CEC's more recent estimates show peak demand to be 20,517 MW and 20,692 MW, for the same respective periods.10 Thus, for 2009 and 2010 demand is expected to be 6.5% and 6.9% less than previously forecast. Based on the prior CEC forecast, this Commission adopted a range of 800 - 1200 MW for PG&E. In that we adopted a 400 MW range in D.07-12-052, a 6.9% decrease could be made at any point but the extreme lower end of the adopted range.
Since forecast adjustments could be made within the adopted range, the February 1, 2010, Assigned Commissioner's Ruling and Scoping Memo directed that, rather than revisit the several factors underlying our prior decision in an attempt to develop a new range of MW for PG&E, parties may use the revised CEC data and other new and/or relevant information to support their position about what the appropriate level of MW is for PG&E to procure, within the previously specified range.11
On October 30, 2009, CARE and PE each filed protests to PG&E's application. For its part, CARE takes issue with PG&E's valuation of PSAs over the PPA offers; the flexibility, viability, and fit of the projects into PG&E's greenhouse gas (GHG) reduction strategy; the price, limited flexibility, heat rate (relative to start time), and cumulative effects on the community of the Marsh Landing Project; and the inclusion of the PPA extension for Contra Costa 6 & 7 in the current application.12 PE argues that the application is at odds with D.07-12-052 both because it requests generation capacity beyond that which was approved and because PG&E has not shown retirement of the number of megawatts identified in D.07-12-052.13 PE goes on to point out that several sources, including PG&E, now predict that gas demand will decrease (or grow at a slower rate than predicted) in the foreseeable future. Finally, PE argues that PG&E's request related to Contra Costa 6 & 7 contravenes and seeks to reverse the assumptions and conclusions reached in D.07-12-052.
On November 4, 2009, CBE and Sierra Club California (Sierra) each filed a protest to PG&E's application. CBE asserts that the application seeks approval of projects that require review under the California Environmental Quality Act (CEQA), that the application fails to comply with provisions of PG&E's 2008 LTRFO, and more generally, that not all the new facilities are needed. Sierra asserts that not all the power plants are needed to meet in-state electrical demand, that PG&E's proposal is inconsistent with California's commitment to renewable energy, and that PG&E's proposal violates its environmental leadership protocols.
On November 5, 2009, DRA, The California Municipal Utilities Association (CMUA), and TURN each filed a protest to PG&E's application. In addition to questioning the capital, operations, and maintenance costs for the proposed Oakley Project, DRA's protest notes that in the time since the application was filed, PG&E has submitted two other applications for the procurement of new resources. According to DRA, the total new resources requested will exceed the need for long-term procurement authorized for PG&E in D.07-12-052. The CMUA protest neither challenges any aspect of the application nor objects to the relief sought. Instead, CMUA seeks to provide "information that clarifies PG&E's statements regarding its proposed non-bypassable charge." Specifically, CMUA notes that PG&E "requests that the Commission authorize PG&E to recover any stranded costs associated with the agreements consistent with Decision 04-12-048."14 CMUA states that it was unsure whether this statement meant that PG&E would seek to recover stranded costs from municipal departing load (MDL) customers, and therefore propounded a data request asking PG&E to provide clarification on this point. CMUA interprets PG&E's response to its data request as suggesting that PG&E believes, consistent with D.08-09-012, except in limited circumstances, it is neither appropriate nor permissible to include any stranded costs associated with the projects at issue in this application in the non-bypassable charges applicable to MDL.
TURN's protest expresses guarded support for the selection by PG&E of the winning projects. However, TURN notes that its support was premised on the findings of need reached in D.07-12-052. To the extent that the newly enacted Section 365.1 of the California Public Utilities Code (which addresses the recovery of costs of generation resources that are obtained by an electrical corporation to meet system or local area reliability needs for the benefit of all customers in the utility's service territory) is included within the scope of this proceeding, or where the more recent CEC forecast of expected peak demand is used to determine PG&E's need (rather than the forecast relied upon in D.07-12-052), TURN believes that PG&E's true needs are now less than those adopted in the LTPP.
1 The PPA with Mirant Delta LLC is an 18-month tolling agreement that allows PG&E to dispatch the facility as needed.
2 The Oakley Project will be developed by Contra Costa LLC and purchased and operated by PG&E after the plant is operational and has passed performance tests.
3 On December 12, 2009, Pacific Environment timely filed a notice of intent (NOI) to claim compensation. On December 22, 2009, TURN and CARE timely filed completed NOIs.
4 All statutory references are to the Public Utilities Code unless otherwise indicated.
5 MW values are expressed in July peak operating conditions.
6 See D.07-12-052, Ordering Paragraph 4 at 300.
7 See PG&E Prehearing Conference Reply Brief at 1; DRA Brief at 2-6; CBE Brief at 2-3; and PE Brief at 3-6.
8 California Energy Commission, Staff Proposed 2010 Peak Demand Forecast, May 21, 2009. Available at www.energy.ca.gov/2009publications/CEC-200-2009-012/.
9 PG&E Prehearing Conference Reply Brief at 2.
10 CEC Staff Proposed 2010 Peak Demand Forecast, for PG&E planning area, May 21, 2009.
11 To the extent that parties believe that not all the proffered agreements are necessary to reach what they claim is the appropriate level of MW for PG&E, they were directed to clearly identify and apply selection criteria that may be used to eliminate agreements that would result in surplus MW.
12 See footnote 1, infra.
13 See D.07-12-052 at 105-106 and 116.
14 CMUA Protest at 2, citing PG&E LTRFO application at 8.
