6. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Darwin E. Farrar is the assigned ALJ in this proceeding.

1. Given the authorization in D.07-12-052 and revisions made in subsequent proceedings, PG&E has been authorized to procure between 928 MW and 1,328 MW of new capacity by 2015.

2. PG&E's conduct of the 2008 LTRFO was generally acceptable, but contained minor shortcomings and the some of the weights applied to the evaluation criteria were not wholly consistent with Commission directives in D.07-12-052. However, these criticisms should be taken in the context of the RFO as a whole and while significant, particularly in regard to future RFO's, do not change our determination that overall PG&E conducted a reasonable RFO and evaluation.

3. The GWF Tracy and Los Esteros Critical Energy Facility Upgrades (now being addressed in A.09-10-022 and A.09-10-034) were submitted and evaluated in PG&E's 2008 RFO.

4. D.08-11-056 established that the policy favoring novation of the DWR contracts would have to be carried out in a manner consistent with the utilities LTPPs.

5. PG&E involved the IE and PRG in most aspects of the RFO, as required by D.07-12-052.

6. PG&E made some decisions in the RFO process, for which it provided little or no explanation or rationale.

7. Of the eight factors that PG&E weighted to compute its G-score, "environmental leadership" was given one of the lowest weights.

8. The finding in D.09-10-017 that PG&E conducted an open, competitive and fair solicitation and contract selection process was based on a far more limited record than is available in this proceeding.

9. We relied on the CEC's 2007 draft forecast in D.07-12-052 because it was the most current public information available and therefore provided a better `snapshot' of the needs of the system at the time.

10. The CEC's 2009 IEPR subsequently found the 2007 California Energy Demand forecasted need determination to be "markedly" higher.

11. No party in this proceeding disputes that the CEC's 2009 IEPR forecast of peak demand for the PG&E planning area in 2015 is less than in the 2007 CEC forecast relied upon in D.07-12-052.

12. Given reporting errors and changes in demand in its service territory, PG&E only needs to procure 950 - 1000 of its previously approved MW allotment.

13. All the projects proposed in this proceeding have attributes desirable for renewable integration and offer numerous environmental benefits relative to many generating resources currently operating as part of PG&E's Resource Adequacy Portfolio.

14. The Partial Settlement Agreement addresses the ratemaking issues and cost recovery in the 2008 LTRFO proceeding, but does not address selection of projects to meet the LTRFO need amount.

15. With regard to the projects approved here, the Partial Settlement Agreement is reasonable in light of the whole record, consistent with law, and in the public interest.

16. PG&E should be authorized to recover costs incurred pursuant to the PPAs approved in this proceeding in the ERRA and to recover any stranded costs associated with the agreements.

17. The Marsh Landing project, Contra Costa 6 & 7 tolling agreement and the Midway Sunset PPA are reasonable and in the best interest of PG&E's customers and thus, should be approved by the Commission.

18. The Oakley Project is not needed at this time.

1. There is no need for evidentiary hearings.

2. The changed determination on the need for hearings should be approved in accordance with Rule 7.5.

3. In D.09-10-017 the Commission approved a Settlement Agreement that provided for 184 MW from the Mariposa Project that fulfilled a portion of the need identified in D.07-12-052.

4. With the exceptions detailed in Section 3.5.6 above, PG&E may procure no more than 950 - 1000 of its previously approved MW allotment in this proceeding.

5. D.07-12-052 provided the only legal authority that PG&E had to solicit new resources in 2008 and that authority was based on Public Utilities Code
Section 454.5.

6. The DWR novations decisions (D.08-11-056) did not create an exception to approved procurement plans.

7. As a general rule, to support decisional consistency and discourage the parsing of projects into different applications as a means to circumvent our rulings, to the extent that procurement is allowed outside of the proceeding to approve the agreements that are within the utility's previously authorized procurement authority, any approved MW should be counted against the authorized procurement. Consistent with this general rule, absent a specific exemption providing for a deviation from the previously authorized procurement authority, Commission approved projects that allow utilities to procure new generation during the time-frame covered by their LTPPs should count toward the authorization granted in the LTPP.

8. Our previous finding that PG&E "conducted an open, competitive and fair solicitation and contract selection process" is applicable to PG&E's selection of the Mariposa Energy Center only.

9. Following approval of the Marsh Landing, Contra Costa 6 & 7, and Midway Sunset PPAs, PG&E's remaining procurement need under D.07-12-052 (as revised by subsequent decisions) is between 231 - 281 MW.

10. PG&E should be authorized to recover costs incurred pursuant to the PPAs approved in this decision in the ERRA and to recover any stranded costs associated with the agreements.

11. With regard to the projects approved in this decision, the Partial Settlement Agreement is reasonable in light of the whole record, consistent with law, and in the public interest, and should be approved.

12. The Marsh Landing project, and Contra Costa 6 & 7, and Midway Sunset agreements are reasonable and in the best interest of PG&E's customers and thus, should be approved by the Commission.

13. The Oakley Project is not needed at this time.

14. PG&E may resubmit this project, via application for Commission consideration if any of the conditions detailed in Section 3.5.6 above are met.

15. The following order should be effective immediately.

ORDER

IT IS ORDERED that:

1. There is no need for evidentiary hearings in this proceeding.

2. The Marsh Landing Power Purchase Agreement, the Contra Costa 6 & 7 Power Purchase Agreement, and Midway Sunset Power Purchase Agreement are approved.

3. The Oakley Project is denied at this time.

4. Pacific Gas and Electric Company may resubmit this project, via application, for Commission consideration if any of the conditions detailed in Section 3.5.6 above are met.

5. Pacific Gas and Electric Company is further authorized to procure between 231 - 281 megawatts of new generation pursuant to the authority granted it in Decision 07-12-052.

6. Our approval of the Marsh Landing Project and the Contra Costa 6 & 7 power purchase agreement is conditioned on Pacific Gas and Electric Company's and the Mirant Corporation's agreement to undertake all necessary and appropriate activities to obtain the necessary permits and approvals to retire Contra Costa 6 & 7 as scheduled, on April 30, 2013, or when the Marsh Landing Project becomes operational, whichever comes first.

7. The terms of the Partial Settlement Agreement (included here as Appendix A) are approved and adopted.

8. Application 09-09-021 is closed.

This order is effective today.

Dated July 29, 2010, at San Francisco, California.

I reserve the right to file a concurrence.

TIMOTHY ALAN SIMON

/s/ Commissioner

I reserve the right to file a concurrence.

DIAN M. GRUENEICH

/s/ Commissioner

I will file a concurrence.

JOHN A. BOHN

/s/ Commissioner

CONCURRENCE OF COMMISSIONER DIAN M. GRUENEICH

JULY 29, 2010 BUSINESS MEETING, AGENDA ID# 3258, ITEM 44

Today we have before us two major procurement decisions, Decision
(D.) 10-07-042 and D.10-07-045, both involving Pacific Gas and Electric Company (PG&E).

Decision 10-07-045 is ALJ Farrar's PD in A.09-09-021 on the results of the Long Term Request for Offers (RFO) process, approving PG&E's procurement of
719 MW of new generation from the Marsh Landing natural gas powerplant. The ALJ Farrar PD also denies approval of PG&E's procurement of 586 MW from the Oakley gas-fired powerplant. This procurement before us in tandem with the procurement considered in D.10-07-042, if approved in full, would add a total of 1,559 MW of new natural-gas, fossil-fired plants to PG&E's system.

The agenda today does not have us address these items concurrently, though the central issue in the two PDs is the same - whether PG&E ratepayers should fund thousands of millions of dollars of new fossil-fired generating capacity in the PG&E service area.

I will vote to support D.10-07-045, ALJ Farrar's decision on the Long Term RFO process which denies the 586 MW Oakley powerplant but approves the 719 MW Marsh Landing powerplant procurement.

I am very concerned about approving any new procurement at this time but, on balance, I can support approving the Marsh Landing plant. It provides the best value for ratepayers' money and it was properly selected through the Long Term RFO process, unlike the upgrades proposed in D.10-07-042. Marsh Landing accelerates the retirement of inefficient powerplants that use once thru cooling. It has secured most permits required to begin construction and uses proven technology to help integrate growing renewable capacity into the grid.

The past two years have been marked by the largest economic downturn since the Great Depression, substantially reducing demand for electricity. At the same time, the commission has invested heavily in ambitious energy efficiency, demand response, distributed generation, and advanced metering programs that will significantly reduce demand. While I anticipate that demand for energy services will be revived by the upswing in the state's economy, these demand side investments will temper against the risk of a steep increase as seen in the past. Without a doubt, these demand side program effects will continue to increase during the coming years.

The arguments to approve the full procurements at issue in these PDs rely on an outdated forecast of demand that was completed in 2007 based on 2006 data. This forecast - which predates the economic downturn - assumes PG&E will need between 928 and 1328 MW of new generation by 2020. I direct your attention to the table presented overhead titled "2007 Long Term Procurement Plan Range Adjustments." On the first line, it presents this range of need determination.

I will use this table to illustrate that there are at least four reasons why authorization of the full procurement proposed by PG&E is not reasonable. Those items are shown on the table, in the "adjustments" category. All of these matters have been presented in the record before us.

First, let me start with the line entitled "Path 26 Mistake." A CEC analysis released in October of 2008 - a full year before CPUC review of these applications began - concludes that PG&E's 2007 need determination overstated the amount of peak power flowing from north to south on path 26 by at least 1900 MW. As the report states, "the 3000 MW north to south capacity flow assumption... used in the CPUC's LTPP decision D.07-12-052 is clearly not correct." This single error in the 2007 need determination cancels out PG&E's entire authorized need.

The second line of adjustments is labeled "2009 CEC forecast adjustment." The CEC 2009 forecast determined that PG&E's forecasted demand in 2015 is now
567 MW lower than anticipated by the commission in 2007 due to a revised economic forecast and the CPUC's 2009 approval of the 2010 - 2012 expanded energy efficiency portfolios. For the PG&E service area alone, ratepayers are committed to spend over $1 billion for energy efficiency programs through 2012. Given this expenditure, it makes no sense to assume zero savings from these programs.

The third adjustment takes into account energy efficiency savings between
2013 - 2020. This uses information from a may 2010 CEC report that finds that the state's lowest quantity of energy efficiency savings that can be expected to occur will avoid an additional 1,731 MW of peak demand between 2013 and 2020 in the PG&E territory. Like the first two items, this avoided demand is not accounted for in the 2007 need determination.

Finally, the fourth adjustment shows the impact of the commission's recent approval of PG&E's request to build 500 MW of solar PV. This 500MW is above and beyond the contribution of renewables assumed in the 2007 procurement authorization. The number in this table assumes a 40% capacity factor, resulting in 200 MW of peak capacity and further reducing the need for new generation.

The result, as you can see, is clear. Rather than PG&E needing 928-1,328 MW of new procurement, PG&E's need is negative, between 2,500 MW to almost 3,000.

Over-procurement creates at least two major problems. First, it burdens ratepayers by making them pay for assets that will be underused. In these difficult economic times, we must be mindful of the strain this puts on Californians. And second, over-procurement contradicts the policy of procuring preferred resources from the loading order adopted by the Commission. If PG&E over-procures fossil generation, the cost-effectiveness of preferred resource programs diminishes.

Both PDs decline to revisit the 2007 procurement authorization on the theory such a revisit - though clearly warranted by current facts - will disturb the settled expectations of the market. Nonsense! Settled expectations of the market have flown out the window since 2007.

The global economy has suffered, and is continuing to suffer, through the worst economic downturn since the Great Depression. Virtually every business, large and small, and virtually every individual, rich or poor, has adjusted their expectations and altered their spending habits to conform to the realities of markets turned upside down, decreased demand and shrinking budgets. Approval of PG&E's proposed procurements will wrap us in a time warp to continue business as usual. Such approval even walls us off from the impacts of our own recent decisions. Our obligation is not to ensure that generators can continue as if the economic crisis never happened or we never learned of the mistakes and omissions in our 2007 need determinations. Our obligation is to ensure that our decisions have a legitimate factual basis, and that ratepayers' interests are protected.

Since 2005, this commission has allowed PG&E rates to rise 28%. As many of you know, I am very disturbed that our actions sometimes reflect the belief we hold an ever-expanding checkbook of ratepayer money. We should use a standard for our decision making that we only approve rate increases on a clear demonstration of necessity. That standard is not met here.

I am very sympathetic to the economic situation of the cities that would host these fossil-fired powerplants and their desire to create jobs. But, as my fellow commissioners remind me, we are not a job creation agency. The price per job from these powerplants is exceptionally high, and we have no basis on which to choose using ratepayer money to create jobs for one city but not another.

/s/ DIAN M. GRUENEICH

DIAN M. GRUENEICH

Commissioner

CONCURRENCE OF COMMISSIONER JOHN A. BOHN

REGARDING DECISION 10-07-045

In this decision the Commission addressed the results of the solicitation for new power contracts that we directed PG&E to undertake in 2008. PG&E followed our directions, undertook a request for offers, reviewed the submitted bids, vetted the results with the Independent Evaluator and PG&E's Procurement Review Group and ultimately presented the two highest ranking bids to the Commission for approval, the Marsh Landing and Oakley projects. PG&E has followed our directives and the participants in this process have done everything indicated to them to successfully obtain a contract from PG&E, incurring significant costs to both participate in the process and to begin developing their projects.

Marsh Landing is relatively low cost, has outstanding operational characteristics and directly displaces antiquated facilities that utilize once through cooling. Oakley similarly has many beneficial features, including a very high efficiency and low air emission rates, and utilizes the most up to date technology from General Electric.

Despite the beneficial features of these projects, and the fact that they have done what we have asked of them, this decision approves one of the projects yet denies approval of the other.

While I support this decision, I am troubled by the message we send to the investment community and project developers when a project has met all the conditions we lay out, participates and wins a competitive solicitation and yet still is rejected. I must believe that such an act will dampen the interest of investors and developers in participating in the California market, and potentially result in increased costs in the future due to the perception of risk in developing projects in this state.

Having said that, I do recognize the concerns expressed by some that approving both of these projects at this time will result in an excess of generation capacity and thereby result in higher costs and rates for PG&E's ratepayers. I appreciate that this decision does include provisions under which PG&E can bring the Oakley project back to the Commission for reconsideration should those excess capacity concerns diminish. However, I do not believe it is likely that those provisions will actually help this project proceed.

What I would have liked is to have the opportunity to consider approving the Oakley project, but with a later date for construction and operation, so as to better match the needs of PG&E and its ratepayers. However, the contract presented to us does not contain flexibility in that regard and we do not at this time have the option of considering better dates for the development of this project. Given that lack of flexibility, and in balancing the needs of the consumers against the detrimental impact of sending mixed messages to the investment community, I support this decision.

Dated July 29, 2010 in San Francisco

/s/ JOHN A. BOHN

JOHN A. BOHN

Commissioner

Farrar Appendix A

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