6. Review of the Settlement Agreement
The Commission has expressed a strong preference favoring settlement of disputes if they are reasonable in light of the whole record, consistent with the law and in the public interest. 14 DRA recommends rejecting the SA on a number of grounds, including that it is vague, complicated and too expensive. In the event the Commission does not reject the settlement, DRA recommends several changes to the SA to protect ratepayers against excessive financial risk.
We reject the SA, because, as discussed below, we do not believe it meets the required criteria for settlements identified in Section 4.3 of this decision.
The SA is a consensus reached by a few parties using a set of guiding principles that they claim were "developed from filed testimony in this proceeding and set out in the SA as their roadmap."15 The SA is not an all-party settlement and is contested by DRA and IEP.
One factor in measuring public interest is how the affected parties react to the settlement and whether they support it. This becomes especially important when the settlement is not an all-party settlement as is this case. When the settlement is not sponsored by all parties, we rely on parties' self interest to help scrutinize the settlement and point out issues that would concern their constituents. Here, while the SA is supported by a diverse range of interest groups such as UCAN and CARE who represent utility customers, and WPTF who is a trade association comprised mostly of independent energy developers, it does not have the support of IEP or DRA, who represents a broad base of developers and utility ratepayers, respectively.
Moreover, the non-settling parties oppose several key elements of the SA. For example, the total program cost is a major concern. DRA contested the $250 million cost cap for the Solar Energy Project, arguing that it would expose the ratepayers to exorbitant and unreasonable costs. Although the SA reduces the $250 million cost cap by reducing the UOG program size, it introduces new program components at additional costs that are not capped, thus potentially resulting in an overall increase in the cost of the program. Further, we agree that the SA lacks significant details that remain to be developed. Lack of detail in the program cost exposes ratepayers to an unknown costs and additional risk. The Joint Parties' claim that the SA is in the interest of customers is not supported by the record and is undercut by the lack of support from DRA.
Other aspects of the settlement are also problematic. The SA requires developers to aggregate their projects into a single 5 MW PPA and submit a single bid. Although evaluating fewer bids may reduce SDG&E's administrative costs, requiring developers of small projects to consult with their competitors on mutually acceptable terms and conditions and bid price is impractical and raises several concerns. We agree with IEP that this requirement may raise concerns about antitrust issues.16 Further, as CARE notes in the reply comments on the PD, there is extensive proprietary information that is closely held by the individual companies. To require such companies to work together on common 5 MW proposals would necessitate sharing of information among companies which could compromise these companies' competitive positions on future projects and discourage their participation in the program.17
In addition, requiring bidders to aggregate their bids in 5 MW projects could impose additional cost and create barriers for participation of smaller projects. Our goal in adopting a Solar Energy Project is to encourage investment in the installation of new small-scale PV projects by making it easier for developers to pursue such projects. Requiring small projects to aggregate their bids places unnecessary burden on developers and may discourage program participation. This could result in fewer eligible installations in the program and as IEP notes, could drive the prices higher. For these reasons, we find that the program proposed in the SA is not in the public interest.
We also find that the SA is not reasonable in light of the record. The guiding principals that were used in the SA do not represent a reasonable resolution of the contested issues. For example, DRA and UCAN contested the basis for the cost estimate and specifically the $7,000/kW cap that was originally in SDG&E's application for single axis tracking facilities. UCAN presented data that the cost basis is outdated.18 It recommended that the cost cap should be unique to system size, type and panel technology.19 DRA also argued that the project cost cap should be different from the original estimate since alternatives other than single axis tracking PV systems are used. As part of the settlement, SDG&E withdrew its proposal to use single axis tracking PV systems in favor of other PV technologies and reduced the cost cap to $6,000/kW, but provided no data to support the new estimate. There is no basis in the record for the Commission to determine if the 15% reduction in cost is reasonable for non-tracking PV systems proposed in the SA.
The SA also is not consistent with the law, because one element of the settlement does not meet the requirements of Pub. Util. Code § 454.3. Section 454.3 provides that the Commission may, after a hearing, approve an increase of from one-half of 1 percent to 1 percent in the rate of return otherwise allowed an electrical corporation on its electric plant for investment by the corporation in certain types of facilities. One such facility is an "experimental" facility which is "reasonably designed to improve or perfect technology for the generation of electricity from renewable resources or to more efficiently utilize other resources in a manner which will decrease environmental pollution from and lower the cost of the electricity generated."
SDG&E originally proposed a 100 basis points adder to its rate of return, claiming that the SA was experimental under § 454.3(c). DRA argued that the proposed Solar Energy project is not experimental because the technology used in the projects has been in existence for decades and is readily deployed. Although the Joint Parties acknowledge DRA's point with respect to the technology, they still propose a 50 basis points adder, claiming that the SA will contribute to SDG&E's "understanding and evaluating [of] the resource intermittency of notable installed solar PV on individual distribution circuits."20
Gaining engineering experience with integrating intermittent solar resources into distribution system by itself is not sufficient justification for a project to be considered experimental. There is nothing in the SA that meets the "experimental" requirement of § 454.3(c) in order to warrant any additional rate of return. Therefore, the SA as well as the adopted Solar Energy Project do not meet the requirements of § 454.3 and as such are inconsistent with the statute.
In addition, the Joint Parties' claim that there is precedent in D.06-09-021 for the SA's proposed approach for debt equivalence is misplaced. D.06-09-021 concerned FIN 46(R), not debt equivalence. FIN 46 (R) is an accounting standard which is triggered when there is a requirement to consolidate financial statements of entities. In D.06-09-021, the Commission found that FIN 46 (R) was applicable, because that decision involved an option to purchase a facility and a requirement for consolidation of the financial statement of that facility with SDG&E's statement. No such transaction is envisioned here for projects under the Solar Energy Project to justify similar treatment. Thus, the SA's proposal conflicts with existing precedent and contradicts the Commission's treatment of similar requests for debt equivalence.
Rule 12.4 of the Commission's Rules of Practice and Procedure states that the Commission may reject a proposed settlement whenever it determines that the settlement is not in the public interest, and sets forth the steps the Commission may take in rejecting a settlement. Given the existing complete
evidentiary record in this proceeding for both the original application and the SA, and the fact that all the issues have been fully briefed, we adopt changes to the proposed Solar Energy Project based on the evidentiary record. The following sections describe the adopted Solar Energy Project.
14 We developed a complete evidentiary record (as well as full briefing) on all issues, including the original application and the SA. Although this decision rejects the SA, the adopted Solar Energy Project is based on the entire evidentiary record.
15 Joint Motion of the Joint Parties at 6.
16 IEP Opening Brief at 6.
17 CARE Reply Comments on the PD at 2-3.
18 Exhibit 500 at 11.
19 Exhibit 501 at 55.
20 Joint Parties' Opening Brief at 8.
