3. Discussion

In order to approve this PFM, the Commission must find that the PFM is an appropriate vehicle, that the PFM is timely, and that the proposed Amended El Segundo Contract is reasonable, justified, and in the public interest. SCE also requested expedited Commission review of the PFM, no later than December 2, 2010, due to the shrinking window of time available to commence construction of the Facility. We acknowledge this imperative for expedited review.

It is consistent with prior Commission practice for SCE to seek approval of the Amended El Segundo Contract through a PFM. For example, in D.06-09-021, the Commission approved revisions to a previously approved ten-year power purchase contract that were proposed in a PFM, and included an extension of the on-line date for the underlying power plant. The Commission approved the PFM and found that the revised contract, which reflected extensive changes,29 would preserve the benefits of the previously approved contract and ensure that a state-of-the-art generation facility would be built. The facts are sufficiently similar to support SCE's use of this procedural vehicle here.

SCE filed its PFM of D.08-09-041 two years after the effective date of that decision, September 22, 2008. Rule 16.4 of the Commission's Rules of Practice and Procedure (Rules) provides that a Petition for Modification of a Commission decision must be filed and served "within one year of the effective date of the decision proposed to be modified." If filed more than one year later, the petitioner must explain why the petition could not have been filed within the first year after the decision.

Here, SCE has offered a reasonable explanation for why the PFM was not filed within one year. Unexpected delays arose due to circumstances beyond SCE's control, and negotiations of the proposed amendments could not begin until the end of 2009 and took time to reach agreement. As discussed above, the rules regarding issuance of a necessary air permit were in flux due to litigation, a regulatory freeze, and subsequent legislative action. SB 827, which allowed El Segundo to obtain an air permit, was not signed until October 2009, more than one year after D.08-09-041 was issued. Although El Segundo approached SCE shortly thereafter about amending the El Segundo Contract to modify the delivery date, negotiations were apparently extensive. Moreover, SB 827 was challenged by environmental groups in December 2009 and the lawsuit was not dismissed until July 2010.

Therefore, this PFM could not have been presented within one year of the effective date of D.08-09-041 because the facts about whether El Segundo would receive an air permit were unknown before October 2009, if not July 2010. To the extent SCE and El Segundo took many months to negotiate amendments to the El Segundo Contract, it does not change the fact that SCE would have been unable reach agreement in the negotiations prior to settling of the air permit legal issues.

Therefore, based on the surrounding facts and circumstances, we conclude that SCE's PFM is timely.

We agree with SCE and the Beck Report that there is little fundamental change between the previously-approved El Segundo Contract and the proposed Amended El Segundo Contract. SCE and its customers will still receive access to up to 550 MW of expected contract capacity and associated energy from the Facility to be constructed. The two new combined-cycle units will still feature dry cooling technology and will replace two older steam units using OTC technology. The Facility is still a repower located on a brownfield site where it can support grid stability and voltage support for the Los Angeles Basin. No evidence to the contrary has been submitted.

In considering whether the changes are reasonable, justified and in the public interest, the Commission's review prioritizes the capacity price and expected delivery date of the resources.30 In both of these categories, the amendments to the El Segundo Contract are acceptable. SCE provided one internal, and two external, evaluations of the proposed amendments which followed the methodologies applied to analyze the original El Segundo Contract and other Contracts in the New Gen RFO. Each of the evaluations established that the proposed amendments to capacity price and delivery date are justified and reasonable.

As set forth in the Singh Declaration, SCE performed a comparative analysis of the proposed changes to price and schedule and concluded that these amendments will result in reduced customer costs. Sedway agreed with SCE that the changes to price and delivery date will result in economic benefits to SCE and its customers. Similarly, the Beck Report concluded that changes to various cost components were reasonable and justified as reflective of current market conditions, rather than any increased profits for any party.

In addition, there is ample evidence to conclude that the Amended El Segundo Contract, as a whole, is in the public interest. SCE negotiated in good faith and agreed to limited changes necessitated by the permit delay and changed market conditions. To the extent the parties altered a few rights and liabilities regarding unlikely events, the trade-offs appear balanced. These changes, including the price reduction, provide a reasonable agreement among the parties which is in the public interest.

The Facility's capacity also satisfies a need for new resources, and its future operation will meet several of the State's energy policy objectives. For example, SCE acknowledged that the economic recession has led to a drop in the system peak electrical load since the 2008 forecasted need. However, the delayed delivery date may coincide with increasing demand as the economy improves through 2013. SCE also argued that the Amended El Segundo Contract is still needed based on the Commission's policies to increase integration of renewables, reduce greenhouse gases, retire older, less efficient technology, and to minimize environmental harm. These policies, said SCE, require looking beyond load to assess what resources support these policy goals.

We agree with SCE and Sedway that the Amended El Segundo Contract advances Commission policies. The Facility will be more efficient than the generators it is replacing, has more operating flexibility to facilitate integration of renewables, uses an existing site, and does not use OTC, thus, minimizing the environmental impact at the site. The Facility also has benefits based on its location because it will qualify as a local resource adequacy resource for the Los Angeles Basin, in an area useful from an operational and grid reliability perspective.

SCE's request to modify D.08-09-041 should be granted. We approve the Amended El Segundo Contract because we find that it gives SCE a cost-effective, local area reliable resource, with a lower long-term cost to the utility's ratepayers than the original PPA. The plant will be a state-of-the-art, low heat-rate, clean facility in SCE's Los Angeles service territory with the potential for many years of benefits. The relevant permits have been issued or requested, and the acquisition of financing to commence construction becomes imminent upon the approval of the PFM by the Commission. Thus, the Project remains viable and the Amended El Segundo Contract is in the public interest for the aforementioned reasons.

The Amended El Segundo Contract submitted as the basis for SCE's PFM should be approved because it is reasonable, justified and in the public interest.

29 For example, put and call options were added to give San Diego Gas & Electric Company an option to purchase the power plant at the end of the ten-year contract term (D.06-09-021 at 2).

30 D.10-09-004 at 17.

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