7. The Alta Contract Should Be Approved
As discussed below, we have considered SCE's request and have determined that the Alta Contract and the two amendments should be approved without modification.
7.1. The Alta Project is Consistent with SCE's Approved 2005 RPS Plan
California's RPS statute requires the Commission to review the results of a renewable energy resource solicitation submitted for approval by a utility. The Commission will then accept or reject proposed PPAs based on their consistency with the utility's approved renewable procurement plan.18 In accordance with the RPS legislation and D.03-06-071, SCE submitted its 2005 RPS procurement plan and bid solicitation materials for Commission approval. The Commission approved SCE's 2005 procurement plan and bid solicitation materials in D.05-07-039. As required by statute, the plan includes an assessment of supply and demand to determine the optimal mix of renewable generation resources, consideration of compliance flexibility mechanisms established by the Commission, and a bid solicitation setting forth the need for renewable generation of various operational characteristics.19
7.2. Selection of the Alta Project Is Consistent With RPS Solicitation Protocol
On September 2, 2005, SCE released its 2005 RPS solicitation consistent with its approved 2005 RFP protocol. Applying the evaluation criteria required by the RPS Legislation, as implemented by the Commission in D.04-07-029, SCE established a short list for the 2005 solicitation and subsequently entered into discussions with parties on the short list. SCE communicated with its PRG throughout the evaluation, selection and contracting process that ultimately led to the execution of ten contracts from its 2005 solicitation.
7.3. The Alta Project Fits With Identified Renewable Resource Needs
In its 2005 RPS RFP, SCE sought resources that would provide maximum benefit to SCE's customers and count towards the RPS Program. As provided by Commission decisions and statute, SCE solicited proposals for power purchase agreements with 10-, 15-, and 20-year terms. The RFP Protocol encouraged existing, new, expanded, and repowered renewable resources to participate in the RFP. Because of SCE's demand profile, SCE prefers dispatchable products and/or on-peak products. Additionally, SCE values capacity that is resource adequacy-eligible, low cost, and RPS-eligible.
Alta fits SCE's renewable resource needs. The project represents the largest wind energy contract in the history of renewable energy development in the United States.
7.4. The Bid Evaluation Process Is Consistent With the LCBF Decision
The LCBF decision directs the utilities to use certain criteria in their bid ranking. It offers guidance regarding the process by which the utility ranks bids in order to select or "shortlist" the bids with which it will commence serious negotiations.
SCE's LCBF bid review process is detailed in its prepared testimony.20 The described process is in compliance with the applicable Commission decisions. SCE's LCBF analysis evaluates both quantitative and qualitative aspects of each proposal to estimate its value to SCE's customers and relative value in comparison to other proposals. The benefit/cost ratio for Alta was favorable when compared with other bids that SCE received in its 2005 solicitation.21
7.5. Standard Terms and Conditions Are Consistent With D.04-06-014 as Modified by D.07-11-025
On November 19, 2007, after the filing of Application 07-07-002, the Commission granted, in part, an amended petition for modification of D.04-06-014. In D.07-11-025, the Commission stated that all renewable power purchase agreements must contain four specific non-modifiable standard terms and conditions. SCE filed an amended application on January 31, 2008 to modify the terms and conditions in the Alta Contract to comply with D.07-11-025.
7.6. The Contract Pricing Structure Is Reasonable
Review of the Alta Contract reveals the following:
· The Master Agreement, as modified by Amendment No. 2, sets forth pricing structures for generating facilities that execute PPAs under this agreement and that come online between 2007 and 2020.
· Because the Alta wind projects will be developed in different years, certain factors affecting development costs will change, so the contract prices for future generating facilities will depend on a number of factors and will not be finalized until the PPAs are executed.
· The contracting structure has target prices bounded by price maximums and minimums. The target prices and price maximums are at or below the MPR, thus all potential prices are per se reasonable.22
· For each project, the contract price will only deviate from the target price if developer costs (as validated by an independent engineer) have changed since the original bid. The price is then bound between a price minimum and maximum.
· SCE has the right to reject a proposed project if the independent engineer determines the proposed price to be unreasonable.
The contract pricing structure set forth in the Master Agreement, as amended, is reasonable. The use of the independent engineer to validate changes to certain specified developer costs and corresponding revisions to contract prices will facilitate SCE's ability to reasonably evaluate the ultimate price for each proposed contract.
7.7. The Alta Project Is Viable
As discussed below, we agree with SCE's assertion that the Alta Project is viable.
18 Section 399.14(c).
19 Section 399.14(a)(3).
20 Exhibit 1 (Confidential) and Exhibit 6 (Public), pp. 5-18.
21 Exhibit 1 (Confidential), Appendix E.
22 Where the net present value of the sum of payments to be made under the power purchase agreement is less than the net present value of payments that would be made at the MPR for the anticipated delivery, the contract price is considered to be per se reasonable, pursuant to D.04-06-015, D.04-07-029, and D.05-12-042. In this application, SCE only seeks Commission approval to enter into power purchase agreements at prices at or below the energy price maximum for the applicable calendar year. Therefore, for all power agreements executed pursuant to the Master Agreement, both the original energy price and any amended energy price will be at or below the energy price maximum, and subsequently at or below the relevant MPR.
