2. Background and Related Procedural History
2.1. Four Corners
Southern California Edison Company (SCE) holds a 48% co-tenancy interest in Units 4 and 5 of Four Corners Generating Station (Four Corners), a coal-fired, baseload electric generation facility located on the Navajo Reservation in northwestern New Mexico. SCE's fifty-year, contractual interest in Four Corners expires in 2016. We refer collectively herein to the various co-tenancy and related operating agreements to which SCE is a signatory as the co-tenancy agreements. SCE has five co-tenants: Arizona Public Service Company (APS), El Paso Electric Company, Public Service Company of New Mexico, Salt River Project Agricultural Improvement and Power District, and Tucson Gas & Electric Company. APS is the sole owner of Units 1-3.
Unit 4 commenced commercial operation in 1969 and Unit 5, in 1970. Four Corners supplies SCE with approximately 720 megawatts (MW) of power per year. SCE calculates the value to its ratepayers of the potential loss of energy and capacity from Four Corners at approximately $200 million per year.
2.2. Senate Bill 1368
Senate Bill (SB) 1368 (Stats. 2006, ch. 598), enacted in September 2006, directs the Commission, no later than February 1, 2007, to establish an interim greenhouse gas (GHG) emission performance standard (EPS) and to adopt rules to enforce this standard. By Decision (D.) 07-01-039, the Commission timely adopted the EPS and related rules, referred to as the Adopted Interim EPS Rules.1 D.07-01-039 recognizes that the primary purpose of the EPS required by SB 1368 "is to reduce California's exposure to the compliance costs associated with future GHG emissions (state and federal) and associated future reliability problems in electricity supplies."2
As D.07-01-039 observes, SB 1368 specifies much of the design and implementation for the EPS and defines a number of key terms, including two particularly relevant here:
"Baseload generation" means electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60 percent.
....
"Long-term financial commitment" means either a new ownership investment in baseload generation or a new or renewed contract with a term of five or more years, which includes procurement of baseload generation."3
With reference to these terms, SB 1368 explicitly prohibits the Commission from approving a long-term financial commitment, and any load-serving entity (LSE) such as SCE from entering into one, unless the baseload generation supplied under that long-term financial commitment complies with the EPS. SB 1368 deems compliant with the EPS, and thereby expressly grandfathers, certain combined-cycle natural gas powerplants - those either operating or that hold an Energy Commission final permit to operate, as of June 30, 2007. SB 1368 does not grandfather other types of existing, fossil-fueled powerplants, such as Four Corners. Because SB 1368 does not define "new ownership investment," the Commission had to define this type of long-term financial commitment in D.07-01-039 in order to determine the scope of what D.07-01-039 terms "covered procurements," that is those transactions that trigger a need to demonstrate compliance with the EPS. As part of that task, the Commission had to consider how the EPS should apply to those existing fossil-fueled plants, not grandfathered, that an LSE owns and uses to serve its load, which D.07-01-039 refers to as "retained generation."4
D.07-01-039 concludes that powerplants not expressly grandfathered by SB 1368 fall within the scope of covered procurements whenever an LSE makes a new ownership investment, defined to include any LSE investment in retained generation that "is intended to extend the life of one or more units of an existing baseload powerplant for five years or more, or results in a new increase in the existing rated capacity of the powerplant. [fn omitted]"5 D.07-01-039 reasons that this determination is necessary to uphold the integrity of SB 1368 by "... ensur[ing] that there is no `backsliding' as California transitions to a statewide GHG emissions cap."6
In opening comments on the proposed decision that the Commission ultimately adopted as D.07-01-039, SCE had expressed concern that this interpretation might impair its ability to comply with at least some of the co-tenancy agreements, chiefly its obligations to make certain financial investments to maintain Four Corners through the end of the contractual term in 2016. SCE asked the Commission either to clarify that the EPS was inapplicable to contracts governing existing baseload power plants or to create an exemption for LSEs "that co-own existing generating plants with third parties with whom they have contractual obligations to pay for ongoing expenses."7
D.07-01-039 does not grant the relief requested but states:
If SCE anticipates that the EPS will prevent it from complying with its contractual obligations at Four Corners, it should file an application or petition for modification, together with adequate supporting information, documentation, and analysis, and request appropriate relief.8
2.3. Assembly Bill 32
Assembly Bill (AB) 32 (Stats. 2006, ch. 488), also enacted in September 2006 and known as the California Global Warming Solutions Act of 2006, establishes a comprehensive program to achieve quantifiable, cost-effective reductions of GHGs by 2020. Under AB 32, the California Air Resources Board (CARB) is charged to develop measures to achieve this goal. As particularly relevant here, AB 32 provides that CARB's GHG rules and market mechanisms are to take effect and become legally enforceable by January 1, 2012. This date is earlier than 2016, the end of the contractual term of the various Four Corners co-tenancy agreements. While D.07-01-039 takes note of AB 32, it expressly declines to "prejudge or predetermine what approach may be established in the context of our Procurement Incentive Framework [Phase 2 of this docket] or under the statewide GHG emissions limit envisioned under AB 32."9
1 Interim Opinion on Phase 1 Issues: Greenhouse Gas Emissions Performance Standard (2007), D.07-01-039; the Adopted Interim EPS Rules are found at Attachment 7.
2 D.07-01-039 at 31.
3 SB 1368, Section 2, codifying Pub. Util. Code § 8340 (subparts (a) and (j), respectively [as quoted here]) (emphasis added). SB 1368 does not define the term "new ownership investment."
4 D.07-01-039 at 5.
5 D.07-01-039 at 5.
6 D.07-01-039 at 24.
7 Comments of Southern California Edison Company on the Proposed Decision of President Peevey and ALJ Gottstein, filed January 2, 2007 at 13.
8 D.07-01-039 at 46.
9 D.07-01-039 at 115.
