7. Assignment of Proceeding

President Michael R. Peevey is the assigned Commissioner and Carol A. Brown is the assigned Administrative Law Judge in this proceeding.

1. Petitions for Modification of D.07-12-052 were filed by SCE and SDG&E; PG&E; IEP; CMA; Calpine; SDG&E; and PG&E and SDG&E.

2. The requested modifications to D.07-12-052 are granted in part, and denied in part.

3. The modifications adopted by the Commission are set forth herein and as set forth below:

a. We authorize the IOUs to recognize the effects of DE when comparing PPAs against PPAs in their bid evaluations, but not when a UOG project is being considered.

b. We delete the exception of allowing the IOUs to chose UOG projects outside of a competitive solicitation for expansion of existing facilities.

c. We clarify the circumstances under which EPC bids may be considered.

d. We authorize SDG&E to procure up to the 530 MW of new local capacity that was conditionally authorized in D.07-12-052, and require that applications for this procurement be supported by updates of the status and projected on-line date of the Sunrise Powerlink project.

e. We modify the circumstances under which an IOU must retain the services of an IE to RFOs that seek products two years or greater in duration. However, we still require that an IE be utilized whenever an affiliate or utility bidder is present, regardless of contract duration.

4. We also make the following clarifications to D.07-12-052:

a. Conclusion of Law 30, contains an extraneous word "for" after evaluating, we are removing the word "for."

b. Eliminating bias in the RFO process: we are replacing the word "impartiality" with "bias" on page 208 of the Decision.

c. Page 140, we clarify that an IE must be utilized for all competitive RFOs that seek products of two years or more in duration. We specify that the contract duration clock begins: (1) at the time the contract resources begin delivery or the product is made available, if delivery or availability of the product occurs within one year of contract execution; or (2) at the time of contract execution if delivery or availability does not begin within one year of contract execution.

d. Pages 207-208, we clarify that we are allowing four [not five] categories of unique circumstances, and we are deleting the following: Expansion of Existing Facilities - we envision certain unique circumstances in which ratepayers would benefit from development on or expansion of an existing IOU asset that would not lend itself to the PPA project structure, but the IOU would need to make a strong showing that such development was clearly preferable to a resource that could be obtained via a competitive solicitation that would not necessarily result in utility ownership.

e. Finding of Fact 62, we change "greater than three months in length" to " two years or more in duration." We add that the contract duration clock begins: (1) at the time the contract resources begin delivery or the product is made available, if delivery or availability of the product occurs within one year of contract execution; or (2) at the time of contract execution if delivery or availability does not begin within one year of contract execution.

f. Finding of Fact 96, we delete "expansion of existing facilities."

g. Ordering Paragraph 9, we change "greater than three months in length" to " two years or more in duration." We add that the contract duration clock begins: (1) at the time the contract resources begin delivery or the product is made available, if delivery or availability of the product occurs within one year of contract execution; or (2) at the time of contract execution if delivery or availability does not begin within one year of contract execution.

h. Ordering Paragraph 31, we delete "expansion of existing facilities."

i. Ordering Paragraph 13, we modify to read as follows: Such costs, if any, shall not exceed a total annual amount of $400,000, and the total shall be paid by PG&E, SCE and SDG&E on a pro rata basis (i.e., 33.3% to each IOU) unless the contractor(s) perform work related to only a specific utility.

5. Requests for capital structure adjustments related to PPAs are appropriate in a utility's COC proceeding, not in an advice letter/application for the PPA.

1. As set forth herein, it is reasonable to grant in part, and deny in part, the modifications requested to D.07-12-052.

2. All other requested changes or modifications requested in the PFM that have not been explicitly granted are deemed denied.

ORDER

IT IS ORDERED that:

1. The following modifications requested in the Petitions for Modification (PFM) to Decision (D.) 07-12-052 are granted:

a. We authorize the investor-owned utilities (IOUs) to recognize the effects of debt equivalence (DE) when comparing power purchase agreements (PPA) against PPAs in their bid evaluations, but not when a utility-owned generation (UOG) project is being considered.

b. We grant the request to delete the exception of allowing IOUs to chose UOG projects outside of a competitive solicitation for expansion of existing facilities.

c. We specify the circumstances under which engineering, procuring and construction (EPC) bids are appropriate as follows:
(1) The purpose of allowing EPC bids is in no way intended to provide the IOUs with a broad loophole that allows for what are essentially direct utility build projects, as suggested by the Petitioners - the purpose is simply to acknowledge that certain extraordinary circumstances that are unpredictable in advance may necessitate utility ownership of generation at a particular site; (2) While extraordinary circumstances are by definition difficult to identify a priori, our intention is to set a high bar for an "appropriate circumstance" for an IOU to circumvent the potential for private ownership by soliciting EPC bids. (3) Simply owning land on which generation could be built or requesting EPC bids in general in an RFO as an alternative to PSAs and PPAs does not satisfy this requirement.

d. We authorize San Diego Gas & Electric Company (SDG&E) to procure a total of up to 530 megawatts (MW) of new local capacity that was conditionally authorized in D.07-12-052 and require that applications for this procurement be supported by updates of the status and projected on-line date of the Sunrise Powerlink project.

e. We modify the circumstances under which an IOU must retain the services of an Independent Evaluator ( IE) to requests for offers (RFO) that seek products two years or greater in duration is granted. However, we still require that an IE be utilized whenever an affiliate or utility bidder participates in the RFO, regardless of contract duration.

2. We also make the following clarifications to D.07-12-052:

· Conclusion of Law 30, contains an extraneous word "for" after evaluating, we are removing the word "for."

· On page 208 of the Decision in the section on eliminating bias in the RFO process, we are replacing the word "impartiality" with "bias."

· On page 140, we clarify that an IE must be utilized for all competitive RFOs that seek products of two years or more in duration. We specify that the contract duration clock begins: (1) at the time the contract resources begin delivery or the product is made available, if delivery or availability of the product occurs within one year of contract execution; or (2) at the time of contract execution if delivery or availability does not begin within one year of contract execution.

· On pages 207-208, we clarify that we are allowing four [not five] categories of unique circumstances, and we are deleting the following: "Expansion of Existing Facilities - we envision certain unique circumstances in which ratepayers would benefit from development on or expansion of an existing IOU asset that would not lend itself to the power purchase agreement (PPA) project structure, but the IOU would need to make a strong showing that such development were clearly preferable to a resource that could be obtained via a competitive solicitation that would not necessarily result in utility ownership."

· Finding of Fact 62, we change "greater than three months in length" to " two years or more in duration." We also add that the contract duration clock begins: (1) at the time the contract resources begin delivery or the product is made available, if delivery or availability of the product occurs within one year of contract execution; or (2) at the time of contract execution if delivery or availability does not begin within one year of contract execution.

· For Finding of Fact 96, we delete "expansion of existing facilities."

· For Ordering Paragraph 9, we change "greater than three months in length" to " two years or more in duration." We also add that the contract duration clock begins: (1) at the time the contract resources begin delivery or the product is made available, if delivery or availability of the product occurs within one year of contract execution; or (2) at the time of contract execution if delivery or availability does not begin within one year of contract execution.

· For Ordering Paragraph 31, we delete "expansion of existing facilities."

· We modify Ordering Paragraph 13 to read as follows: Such costs, if any, shall not exceed a total annual amount of $400,000, and the total shall be paid by Pacific Gas and Electric Company, Southern California Edison Company and San Diego Gas & Electric Company on a pro rata basis (i.e., 33.3% to each IOU) unless the contractor(s) perform work related to only a specific utility.

3. All other requested changes or modifications requested in the PFM that have not been explicitly granted are denied.

4. In all other respects, D.07-12-052 remains unchanged or modified.

5. Rulemaking 06-02-013 is closed.

This order is effective today.

Dated November 6, 2008, at San Francisco, California.

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