6. Comments on Proposed Decision

Comments on the proposed decision (PD) were received from Calpine, CMA, DRA, IEP, NRG, Energy (NRG), PG&E, SCE, SDG&E and TURN. Reply comments were received from IEP and PG&E.

SCE generally supports the PD, but asks for some clarifying language on the modification that deletes the exception allowing IOUs to choose UOG projects outside of a competitive solicitation for expansion of existing facilities. SCE requests that we specify in the decision that this deletion is without prejudice and that a utility is not precluded from seeking authorization for a UOG project that happens to involve the expansion of an existing facility. We agree with SCE and incorporate these suggestions in the decision. TURN also asks for similar consideration in its comments to the PD and in particular argues that expansion of an existing IOU asset does not lend itself to a PPA project structure. TURN asks the Commission to clarify the PD so that parties know a solicitation of EPC bids for the expansion of existing facilities is permissible in a competitive RFO that also seeks PPAs and PSAs. As discussed above, this assumption is subsumed in our discussion that a utility may tailor its RFO to meet its needs and our preference is for all resources to be chosen via competitive solicitations.

SDG&E again requests that it be granted additional resources, and NRG and IEP support this request. We have reconsidered our findings in the PD and revised the decision to increase SDG&E's need for new resources up to 530 MW and we ask SDG&E to update the status of the Sunrise project in any application for new procurement. SDG&E also argues that we should keep the expansion of existing facilities exception and not try to limit the circumstances for a utility to solicit an EPC bid. We did qualify the exception for existing facility expansion as discussed above, and are not going to further address the EPC bid issue in this decision. NRG's comments focus on giving SDG&E the additional authority to procure local area capacity, and we granted SDG&E's request.

Calpine asks the Commission to prohibit the IOUs from excluding existing generation from their long-term RFOs since without the long-term contracts, these facilities can not recover the full cost of their equity investment. IEP also argues in favor of the same modification. We have considered this request and we again decline to establish such an edict. The PD includes a discussion and analysis of our findings on this topic.

DE continues to be a contentious topic. PG&E specifically urges the Commission to allow the IOUs to consider DE in all RFOs that include PPAs, including those that also have UOG resources. PG&E states that DE is a real cost and a utility should consider all real costs in evaluating bids in a RFO. IEP opposes this suggestion and argues that DE is not a cost, but an element of financial risk that must be balanced with other risks and benefits in determining a utility's cost of capital. Most certainly, IEP argues that DE should not be used in solicitations that compare UOG and PPAs. In the alternative, IEP asks that we remove the endorsement of use of a 20% DE adder when there is no UOG participating in the RFO or to at least reduce the DE to no more than 16.7%. This proposal merits consideration in a future LTPP, but has not been fully vetted enough for us to address in this decision.

IEP also raised an issue in its comments that was not addressed in the PD and that is that allowing the use of DE could overstate the cost of PPA capacity payments and could conflict with other policy objectives, such as promoting renewables. As IEP states, RPS-eligible renewable generation facilities are frequently characterized by high capital costs and low variable costs, whereas gas-fired resources can be the opposite. Therefore, using a DE adder in PPA competition could favor fossil-fuel technologies, and disfavor renewables or other technologies likely to reduce GHG emissions. IEP asks us to modify the PD so as to address this disparity in technologies. We considered IEP's arguments and modified the PD to ensure that we are promoting the state's policy directives towards renewables and reduced GHG emissions. We made the following change to the text of the decision:

We empower the utilities to develop in their bid evaluation protocols, in consultation with their IEs and PRGs, to ensure that in head-to-head competition, the use of the DE adder does not disadvantage bids for renewable and innovative low-carbon resources that may have higher capital costs than traditional gas-fired generation.

We decline to make any other modifications to the DE section of the decision, but may want to consider DE again in the next LTPP proceeding. As we have mentioned, it is the Commission's intent to move towards a competitive market, and as we make further inroads in that direction, we may better understand how to ensure that utilities and independent power producers are competing on a level field in solicitations for new resources.

IEP also requests in its comments a number of other changes to the PD including imposing limits on PSAs bidding into RFOs, requiring the development of a code of conduct for the IOUs, affirming that the IOUs should not exclude existing generation from bidding into RFOs, and granting SDG&E the additional generation it requested. DRA argues in its comments against the PSA limitations, the code of conduct and no limits on existing generation. We grant SDG&E the additional generation, but are not making the other requested changes to the PD since they are issues we carefully considered in drafting the PD and we are not convinced that the changes are warranted at this time.