4. Discussion
Fairness of Contracting Process
SDG&E claims the Proposed Agreement remained an attractive choice when compared to shortlisted bids from the other three solicited resource alternatives. SDG&E contends the project was selected because, in competition with all other offers in the RFO, it was included in the lowest cost portfolios that helped SDG&E meet its identified local and system resource adequacy needs. In addition, SDG&E notes that while the Envirepel bid competed successfully with all other offers bid into the RFO, SDG&E's selection of this bid also reflects SDG&E's adherence to the preferred loading order and the Commission's direction to procure the maximum feasible amount of renewable energy in all-source solicitations.
SDG&E provided in its application a copy of the "Report of the Independent Evaluator on the All Source 2007-2009 Request for Offers," dated June 13, 2007, from PA Consulting Group (PA). In D.04-12-048, the Commission required "the use of an Independent Evaluator in resource situations where there are affiliates, IOU-built, or IOU-turnkey bidders" (p. 135) in order to guard against any tendency for the utility to favor itself, its affiliates or its shareholders. SDG&E retained PA because it anticipated that there might be affiliate bids in the RFO (as in fact there were).
The detailed PA Report states that it reviewed the RFO for clarity and fairness with the objective of ensuring a competitive, open and transparent process. The Report states that PA (a) observed SDG&E's process, (b) analyzed SDG&E's methods, and (c) reviewed in detail the RFO process. The Report concluded that SDG&E designed a fair evaluation for ranking bids and fairly applied this method to determine its short list. PA also concluded that the Envirepel contract is reasonable based on the fairness of the contract process. We note that Envirepel is not affiliated with SDG&E.
After reviewing SDG&E's application and testimony, and considering the detailed report of the Independent Evaluator, we conclude that the RFO process was fair and reasonable.
Reasonableness of Proposed Agreement
SDG&E provided the Master Power Purchase and Sales Agreement (Proposed Agreement) with Envirepel. SDG&E has a model PPA which complies with the standard terms and conditions set forth by the Commission for RPS agreements in D.04-06-014, as subsequently modified. SDG&E claims the Proposed Agreement conforms to SDG&E's model PPA in all ways except for one.
The only modification to the Commission-approved "non-modifiable" RPS standard terms is the duration of the Proposed Agreement (less than five years). SDG&E states that this term is non-standard for RPS solicitations, but does comply with the RFO from which it was selected. Because this contract is intended to be a proof-of-concept agreement for potential larger projects from Envirepel, SDG&E believes the short-term nature of the Proposed Agreement will allow it to protect ratepayers for liability for payments pursuant to a long-term contract for energy from a not-yet-proven technology.
At the time this application was filed, contract lengths were limited to 10, 15, or 20 years. This has since been changed in D.07-11-025 to a modifiable term. Therefore, SDG&E's contract is compliant with Commission-approved terms.
We have reviewed the Proposed Agreement and its terms, including confidential data such as price and delivery amounts. The Proposed Agreement adheres to our standards and is consistent with other similar agreements. We find the Proposed Agreement to be reasonable.
RPS Eligibility
D.04-12-048 provides that "IOUs are directed to procure the maximum feasible amount of renewable energy in the general solicitations authorized by this decision, and will be allowed to credit this procurement towards their RPS targets."2
SDG&E requests that the Commission find that the generation procured pursuant to the Proposed Agreement constitutes eligible renewable energy for purposes of determining SDG&E's compliance with applicable RPS requirements. SDG&E submits that RPS credit is appropriate in the instant case, notwithstanding the fact that the Proposed Agreement resulted from a utility solicitation of short-term contracts.
The first issue to consider is whether SDG&E's all-source bidding process was an appropriate method to produce this renewables contract. The Commission noted in D.07-05-028 that it had placed limitations on the ability of RPS-obligated entities to solicit certain short-term contracts (i.e., contracts of less than 10 years' duration) in RPS solicitations.3 SDG&E claims this limitation does not extend to contracts negotiated outside of the RPS solicitation context, for example, bilateral contracts or contracts resulting from all-source solicitations. We agree. D.04-12-048 specifically directs RPS-obligated utilities to procure renewable energy through all-source solicitations and places no limitation on the ability of the utilities to avail themselves of the short-term contracting authority granted under that decision.
The second issue raised by SDG&E is whether SDG&E's contract qualifies for RPS credit. D.07-05-028 provides a gate keeping requirement that RPS credit for short-term contracts (less than 10 years) will be available only where the utility has satisfied Commission-established requirements for minimum quantities of long-term contracts (with new or existing facilities) and/or short-term contracts with new facilities. Ordering Paragraph 1 of the decision states:
Beginning in calendar year 2007, each load-servicing entity (LSE) obligated under the renewables portfolio standard (RPS) program must, in order to be able to count for any RPS compliance purpose energy deliveries from contracts of less than 10 years' duration ("short-term") with RPS-eligible facilities that commenced commercial operation prior to January 1, 2005 ("existing facilities"), in each calendar year enter into contracts of at least 10 years' duration ("long-term") and/or short-term contracts with facilities that commenced commercial operation on or after January 1, 2005 ("new facilities") for energy deliveries equivalent to at least 0.25% of that LSE's prior year's retail sales (the "minimum quantity").
SDG&E claims it has satisfied these minimum quantity requirements and RPS credit for the Proposed Agreement should be granted. In 2007, SDG&E claims that it signed three RPS contracts with Envirepel. One of these is the Proposed Agreement; the other two agreements are long-term agreements that have yet to be submitted to the Commission. SDG&E states that the two not-yet-submitted contracts each have 15-year terms. SDG&E has presented testimony4 that these long-term contracts make up 0.49% of SDG&E's 2006 retail sales, thus exceeding the 0.25% minimum threshold required by D.07-05-028 and permitting SDG&E to count all generation procured pursuant to the Proposed Agreement toward RPS compliance.
The question before us is whether SDG&E's two long-term renewable contracts SDG&E says it signed in 2007 open the gate for SDG&E's short-term Envirepel contract to count for 2007 RPS purposes. SDG&E states "Once Envirepel is able to prove its technology by successfully delivering to SDG&E, SDG&E will be able to procure energy from additional Envirepel facilities pursuant to PPAs that the parties have executed for larger projects using the same technology."5
SDG&E's proposed agreement with Envirepel's Vista facility is for a new facility. Per the language in D.07-05-028 quoted above, short-term contracts with new facilities (those commencing operation on or after January 1, 2005) need not meet the minimum quantity requirement. Thus, SDG&E's long-term contracts with Envirepel have no bearing on whether SDG&E may count the short-term Envirepel contract towards RPs compliance.
2 D.04-12-048, mimeo., p. 70.
3 D.07-05-028, mimeo., pp. 4-5.
4 SDG&E Testimony of Michael McClenahan, p. 19.
5 SDG&E Testimony of Michael McClenahan, p. 4.
