Renewable Requirement

19. Requirements to Ensure Imperial Valley Renewable Development

This decision finds, based on the evidentiary record, that Sunrise is justified on reliability, economic, and 33% RPS grounds provided that actual Imperial Valley renewable development occurs at the levels projected by CAISO. This decision also finds, however, that Sunrise could facilitate the development of new fossil fueled generation in the western United States.⁶⁹⁸ Hence, we must take affirmative action to ensure Imperial Valley renewable development at meaningful levels.

CAISO estimates Sunrise will facilitate the development of over 1,900 MW of Imperial Valley renewables - 1,000 MW of high capacity geothermal generation and 900 MW of solar thermal generation, as shown in Table 2 in Section 6.10, above. The modeling we rely upon to reach our decision is based on this CAISO estimate of Imperial Valley renewable development. We find in Section 11.4 above that Sunrise will generate $94 million per year in economic benefits if the projected 1,900 MW of new Imperial Valley renewable resources are developed and flow over Sunrise. Specifically, CAISO's projected level of Imperial Valley renewable development will generate RPS compliance benefits of approximately $60 million per year and significant local area reliability benefits. We also find in Section 14 of this decision that development of Imperial Valley renewables will offset the construction-related GHG emissions of Sunrise and will contribute to meeting this state's carbon reduction goals. For these reasons, we find in Section 4.3 above that Sunrise is needed for 33% RPS compliance. Development of Imperial Valley renewables will also raise tax revenues and create construction and other long-term skilled jobs in the Imperial Valley, an economically depressed area. Absent CAISO's projected level of Imperial Valley renewable development, ratepayers have no assurance that their $1.9 billion investment in Sunrise will produce economic, reliability and environmental benefits.

SDG&E claims that one of Sunrise's objectives is to provide transmission from Imperial Valley renewable resources to SDG&E's service area to assist in meeting or exceeding California's 20% RPS and the governor's proposed 33% RPS.⁶⁹⁹ However, currently SDG&E is not legally obligated to procure renewables at a 33% RPS level. Because Sunrise could be used to import fossil fired generation into California, we have no assurance that Sunrise will deliver substantial amounts of renewable generation from the Imperial Valley. If this Commission adopts the October 29, 2008 proposed decision in R.06-02-012 (Renewable Portfolio Standard proceeding) that allows utilities to purchase tradable renewable energy credits (TRECs) in lieu of entering into contracts with renewable generators, there is even less assurance that significant amounts of renewable generation in the Imperial Valley will be developed.

Consequently, to ensure the development of CAISO's projected level of Imperial Valley renewables, which will provide ratepayers the economic and reliability benefits and GHG emission reductions that form the basis for this decision, we require the following:

1. SDG&E shall procure a minimum cumulative total of 3,500 GWh/year of Imperial Valley renewables⁷⁰⁰ to be delivered over Sunrise upon energization or soon thereafter, but no later than 2015.

2. SDG&E shall adjust its current compliance filings in the Long Term Procurement Plan and RPS proceedings to reflect a 33% RPS by 2020 goal within 60 days of the effective date of this decision. SDG&E shall also reflect this new RPS goal in its future procurement efforts. ⁷⁰¹

3. SDG&E shall refrain from procuring contracts for coal fired generation of any length. This condition shall not apply to spot market purchases of system power.

With regard to the first requirement, we find it is reasonable and appropriate to require a significant Imperial Valley renewable procurement obligation from SDG&E for several reasons. First, absent the level of Imperial Valley renewable development within the time frame projected by CAISO, Sunrise will not generate the economic benefits projected by CAISO or this decision, and will likely result in significant ratepayer costs.⁷⁰² Second, SDG&E has claimed throughout this proceeding that Sunrise is needed to ensure development of Imperial Valley renewable resources and that it desires to purchase Imperial Valley renewables. This requirement memorializes SDG&E's claims. Third, SDG&E will earn a return on equity for its investment in Sunrise, and SDG&E's ratepayers will enjoy the reliability benefits of Imperial Valley renewable development at no additional cost - including reliability benefits from those projects under contract to other utilities.

The 3,500 GWh/year amount is significantly less than the almost 10,000 GWh of Imperial Valley renewable development the CAISO projects will occur as a result of Sunrise between 2011 and 2015, and is just over one-half of SDG&E's projected need to meet 33% RPS.⁷⁰³ The amount is reasonable given that SDG&E already has approximately 1,600 GWh/year of Imperial Valley renewable resources under Commission-approved contracts and approximately 1,300 GWh/year in additional options or rights.

Table 14: SDG&E Imperial Valley Renewable Resources⁷⁰⁴

Project	Status	GWh/year	Cumulative GWh/year
Esmeralda Geothermal	60 MW under contract	485	485
Bethel Solar	99 MW under contract	472	957
Stirling Solar	300 MW under contract	648	1,605
Stirling Solar	300 MW option	648	2,253
Stirling Solar	300 MW right of first refusal	648	2,901

SDG&E's signed contracts, totaling 1,605 GWh/year, may count toward the 3,500 GWh/year requirement, provided that the viability of these contracts is verified in R.08-08-009.⁷⁰⁵ Such contracts with material breaches shall be cured within a reasonable period of time or shall not be considered viable for purposes of counting towards SDG&E's procurement requirement set forth herein.⁷⁰⁶

SDG&E may pursue its procurement of incremental Imperial Valley renewables via three mechanisms. First, SDG&E may procure additional Imperial Valley renewables by successfully concluding by December 31, 2009 (as evidenced by executed power purchase agreements) any ongoing bi-lateral negotiations commenced prior to the issuance of this decision for renewable energy deliveries upon energization of Sunrise (or soon thereafter), but no later than 2015.

Second, to ensure opportunities for an open, competitive procurement process, SDG&E shall also conclude an Imperial Valley Request for Offers by no later than December 31, 2009 (SDG&E 2009 Imperial Valley RFO). The SDG&E 2009 Imperial Valley RFO shall solicit the amount of incremental GWh that is necessary to meet the 3,500 GWh/year target upon energization of Sunrise, but no later than 2015. The RFO responses will be reviewed by this Commission in accordance with our RPS requirements, including least-cost/best-fit principles. We do not intend to procure Imperial Valley renewables at any cost and will take steps in R.08-08-009 to ensure that our commitment to develop Imperial Valley renewable will not impose unreasonable costs on ratepayers.

Third, to the extent that the above measures do not result in SDG&E's procurement of Imperial Valley renewables sufficient to meet the minimum 3,500 GWh/year target upon energization of Sunrise (or soon thereafter), but no later than 2015, SDG&E shall procure additional Imperial Valley renewables sufficient to meet the 3,500 GWh/year target through its future annual RPS solicitations.

In addition to the foregoing, in order to ensure the economic benefits of Sunrise pursuant to CAISO's projections, it is our intent that the Commission (through R.08-08-009) will direct Southern California Edison Company (SCE) and Pacific Gas and Electric Company (PG&E) to each issue a 2010 Imperial Valley RFO (SCE and PG&E 2010 Imperial Valley RFOs) to assure that the remainder of CAISO's projected Imperial Valley renewables will be developed if sufficient amounts have not been contracted for in 2009. The SCE and PG&E 2010 Imperial Valley RFOs shall each solicit a cumulative total target of 3,182 GWh/year of Imperial Valley renewables.⁷⁰⁷ This amount may be decreased by SCE and PG&E's Imperial Valley renewable contracts executed prior to their 2010 Imperial Valley RFOs.

Further, we will use all reasonable authority to require the procurement of Imperial Valley renewables in R.08-08-009, consistent with the CAISO's projections that 9,864 GWh of Imperial Valley renewable development are necessary for Sunrise to produce the economic benefits upon which this decision rests. We will consider all appropriate measures and conditions for the Imperial Valley RFOs to mitigate market power concerns, protect ratepayers from unreasonable costs, and apply any newly developed contract viability rules to these resources. We will also ensure that terminated contracts for Imperial Valley renewables shall be replaced with other Imperial Valley renewable contracts as soon as practicable. We require each of the utilities to file reports in R.08-08-009 every six months addressing the status of their Imperial Valley procurement efforts.

SDG&E's failure to comply with the conditions set forth herein shall be deemed a violation of this decision, and SDG&E shall be subject to remedies available to the Commission to enforce the Commission's intent.

We delegate the responsibility for implementation of the requirements set forth herein to the Assigned Commissioner in R.08-08-009.

Concurrence of Commissioner Rachelle Chong

Decision Granting Certificate of Public Convenience and Necessity for the Sunrise Powerlink Transmission Project

A.06-08-010

December 18, 2008

I strongly support the Alternate Proposed Decision of President Michael Peevey, and write separately to set forth my reasons.

California leads the nation in its strong commitment to tackle climate change, as reflected by Assembly Bill (AB) 32, the Global Warming Solutions Act of 2006. The California Public Utilities Commission (CPUC) and the California Energy Commission jointly concluded that cutting greenhouse gas emissions from the electricity sector will require that at least a third of the state's electricity comes from renewable sources. The Air Resource Board agreed and has included a 33 percent renewable energy goal in the Final Scoping Plan to implement AB 32.

Fortunately, California is blessed with some of best renewable resource regions in the country. No one disputes that the Imperial Valley is near the top of the list. An Energy Commission-funded study identified up to 2,000 MW of undeveloped geothermal potential in the Imperial Valley. Nearby Baja California is the home to one of Mexico's top two wind resource areas. That wind potential stretches north into eastern San Diego County. The potential for solar energy in the Imperial Valley is also substantial.

This Sunrise Powerlink Transmission project will bring clean, green renewable energy from the Imperial Valley to the cities where the energy is needed. The evidence in this case clearly shows that more transmission is needed to develop and bring to an optimal level the renewable energy potential of the Imperial Valley. To that end, after review of the voluminous record, I am strongly convinced that the Sunrise Powerlink is a transmission project this Commission should approve. Thus, I could not support Administrative Law Judge's decision rejecting the project.

Not only will Sunrise support the state's greenhouse gas and renewable energy goals, but it will also address a reliability need in the San Diego area. Building Sunrise will avoid the need to build new fossil fuel power plants within the San Diego region to keep the lights on. Sunrise may also create an opportunity to retire older, power plants in San Diego, thus improving local air quality in the region.

When evaluating new transmission lines, the Commission is required to thoroughly consider the environmental impacts and minimize the impacts to the extent feasible. We have done that here.

Numerous potential routes were extensively reviewed for the line. The extensive environmental review that was conducted in this case identified a southern route as the best option. I agree. I do not think the northern route going through the Anza-Borrego Desert State Park was as optimal for two reasons: (1) the route through the State Park is longer and (2) the route negatively impacts wilderness areas and recreational opportunities.

It is also notable that both the alternate proposed decisions of Commissioner Grueneich and President Peevey impose very significant mitigation measures on San Diego Gas & Electric Company (SDG&E). For example, SDG&E cannot construct the project in bighorn sheep critical habitats during lambing season. The utility is also required to acquire land in other locations to mitigate land that is impacted by the Sunrise transmission line. Mitigation measures such as these will provide important environmental protections.

If the Commission is going to approve the construction of Sunrise, I agree that we need to do it in a way that will unlock the potential of the Imperial Valley as to renewable energy. That is why I support the alternate decision of President Peevey, and not the alternate decision of Commissioner Grueneich.

President Peevey's decision rightly recognizes that developing the Imperial Valley is a statewide responsibility which should be borne by all California utilities and not just by one small utility. Conditions as to procurement of renewable energy should not be layered onto a transmission line approval, but should properly be dealt with in the context of our broader Renewable Portfolio Standard (RPS) policies. The renewable energy developed in Imperial Valley may flow to any electric utility in the state. The President's decision clearly explains how we will closely monitor the utilities' renewable energy solicitations, via our oversight of the RPS program. If the Sunrise Powerlink is built and new renewable power development does not occur in the Imperial Valley, then we will consider measures that focus the utilities on the potential for renewable energy from the Imperial Valley. Where parties have identified problems with the existing RPS program, President Peevey recommends sensible fixes.

Commissioner Grueneich's alternate, on the other hand, layers on unnecessary regulatory requirements that, in my view, will raise costs for consumers, complicate the RPS program, and thus discourage future transmission projects. First, requiring SDG&E to buy a very large, specific amount of Imperial Valley renewable energy by a date certain, as required by Commissioner Grueneich's decision, will drive up the price of Imperial Valley renewable resources. A low cost region will become a high cost region. I have a duty to bring ratepayers affordable energy rates.

Second, the RPS program is already quite complex. Nonetheless, Commissioner Grueneich's alternate would create special RPS requirements for just one utility, and no others. I do not think that is fair.

Third, while the CPUC and California Energy Commission have been highlighting the need for more transmission to access renewable energy for years, the onerous conditions in the Grueneich alternate will have the effect of discouraging utilities and independent developers from proposing transmission projects in our state in the future. If we want to encourage the development of renewable energy in California, we should not place unnecessary requirements on transmission projects. It is time to stop talking and time to commence building transmission lines that unlock California's renewable energy potential.

For all of these reasons, I support President Peevey's alternate proposed decision.

Dated December 18, 2008, at San Francisco, California.

/s/ RACHELLE B. CHONG

RACHELLE B. CHONG

Commissioner

Concurrence of Commissioner Bohn on D.08-12-058

I concur in President Peevey's decision. This case represents a very close call. This Commission is asked to balance long-term development prospects against the reality of immediate job loss and uneconomic uncertainty facing those who will ultimately pay for the construction of this controversial transmission line. It is expensive and, as originally proposed, was determined to go through the largest State Park in California. We are making this decision, in part, in order to encourage the development of renewable energy in the Imperial Valley, relying on the market to provide that development. It is a time of great economic uncertainty so it is not surprising that there is more than a little cynicism about the effectiveness of market solutions. We are valuing the potential long-term impact of greenhouse gases on the future against community economic decline in the near term. Finally, we are ascribing to a transmission solution greater immediate value than possible distributed generation solutions within the community user area itself.

 Our decision determines that construction of Sunrise is worth the cost because it will immediately provide necessary - but perhaps but not sufficient - incentives for renewable development in the Imperial Valley and it will help SDG&E meet its renewable generation goals as laid out by this Commission. More importantly, it will contribute to the reliability and flexibility by which SDG&E can provide electricity to its service area, even in the face of some doubts as to the ultimate level of renewable energy which will flow across the line. Finally, in this atmosphere of considerable financial uncertainty, it is important that we provide as much certainty as possible to the market within which SDG&E must finance this development. There are, however, several concerns which this Commission will need to address going forward.

First, we are in a time of significant financial uncertainty, and to the extent the Commission can help the process obtain more certainty, then I think that is part of our obligation.  Where I differ from Commissioner Grueneich's very well-reasoned and well-articulated position is that I believe the imposition of even nominal conditions at this time runs the risk of interfering with the financing and other operational needs of SDG&E.  At the end of the day, such uncertainty can make financing perhaps more difficult and indeed, more expensive for the ratepayers.

Second, one of the concerns that anyone reading the record in this case will have will be the continually moveable positions of SDG&E on various issues, including costs, during the course of this proceeding.  It is clear that SDG&E had the burden and the responsibility of providing the Commission with a good faith estimate of the cost of Sunrise against which we are to balance the benefits. I take SDG&E at its word that it did in fact provide good faith estimates of the costs of Sunrise.  While unforeseen circumstances may occur which could lead to an increase in the costs of this transmission line, costs reasonably foreseeable at the time the cost estimates were presented should have been, and presumably, therefore, were included in SDG&E's presentation. Accordingly, this Commission will look with skeptical eyes at any deviations from those costs, should they occur.  The integrity of our deliberative processes depends on our being able to rely on the accuracy and diligence of good faith estimates of parties before us.

Third, parties have raised concerns that the total cost estimate of Sunrise is too high to justify Commission approval, and that indeed, SDG&E will be able to go to FERC to get higher costs approved.  These are serious concerns. However, this Commission does not have jurisdiction to impose a cost cap in this case, and SDG&E can go to FERC for an increase in return on this project. I want to emphasize that the good faith estimates provided to SDG&E formed the basis of our analysis and should be taken as a benchmark, departure from which should be supported by substantial evidence. Unless we can rely on cost estimates given by the applicants, the entire deliberative process is a mockery. Moreover, it will not go unnoticed by this Commission if a utility makes a habit of going to FERC to get higher costs approved after receiving State approval based on the submission of "reasonable" cost estimates. President Peevey's decision requires that SDG&E file quarterly project status updates, which will include any changes to cost estimates and the reasons therefore.  By requiring these reports, the Commission will be better able to monitor the total costs of Sunrise and evaluate SDG&E's performance.

The Legislature, the Governor and this Commission require the utilities to increase their procurement of renewable resources, and the utilities have little time to meet the mandated renewable targets.  Sunrise will allow SDG&E to tap into the large renewable resources of the Imperial Valley.  In addition, the existence of Sunrise also encourages others to develop these resources.  However, it is also important that the Imperial Valley authorities, on their own, undertake this development. I am encouraged by the comments of the representatives from entities in the Imperial Valley who spoke at the December 18, 2009 Commission meeting that they fully intend to proceed with the development themselves. This Commission may empower, but we cannot create.  Moreover, though Sunrise cannot be justified as a jobs program, it has the added bonus of helping foster economic development in the Imperial Valley.

Fourth, this Commission takes corporate representations to this body, such as the ones made by SDG&E at the November 7, 2008 Oral Argument, very seriously.  While I can appreciate Commissioner Grueneich's wish that this Commission adopt specific and enforceable conditions prior to the approval of Sunrise, I prefer to believe that corporate self-interest will dictate that SDG&E's promises are representations of accountability, and that SDG&E will take actions consistent with those representations.

In conclusion, I want to particularly take a moment to acknowledge Commissioner Grueneich for her work in this proceeding.  In addition to her tireless devotion to the public process, her leadership guided the Commission through the difficult and time consuming steps needed to asses the various issues in the Sunrise proceeding in depth and in detail.

/s/ JOHN A. BOHN

John A. Bohn

Commissioner

San Francisco, CA

December 18, 2008

⁶⁹⁸ SDG&E Exhibit SD-5, I-21 to I-22.

⁶⁹⁹ PEA, Section 3.1. The EIR/EIS distilled this objective into Basic Project Objective 3: to accommodate the delivery of renewable energy to meet state and federal renewable energy goals from geothermal and solar resources in the Imperial Valley and wind and other sources in San Diego County.

⁷⁰⁰ For purposes of this Section 19, we consider "Imperial Valley renewables" to be limited to renewables located in either Imperial County or in San Diego County that access the Sunrise line through either the Imperial Valley substation, or connections to Sunrise or to the Southwest Powerlink west of the Imperial Valley substation.

⁷⁰¹ SDG&E voluntarily offered to comply with Conditions 2 and 3 during our November 7, 2008 oral argument (Tr. 6244) and the November 13, 2008 All Party meeting with Commissioner Grueneich (Tr. 20-21).

⁷⁰² CAISO estimates ratepayer costs of $11 million per year resulting from delayed development of Imperial Valley renewables. CAISO Exhibit I-13, 19.

⁷⁰³ We project SDG&E's 33% RPS need will be 6,540 GWh by 2020. This assumes SDG&E's forecast of sales from Phase 1 for 2009 (17,418 GWh for bundled service customers) and 1.3% annual growth in sales (per the November 2007 CEC demand forecast).

⁷⁰⁴ See Table 2 in Section 6.10, above. 1,000 MW of geothermal are equal to 7971 GWh/year assuming 91% capacity. 900 MW of solar thermal are equal to 1892 GWh/year assuming 24% capacity. See, e.g., CAISO Exhibit I-2, Table 4.3.

⁷⁰⁵ SDG&E has only committed to replace the first 300 MW portion of its Stirling Solar contract, and so we only count that portion as committed under contract.  Transcript from November 13, 2009 All Party Meeting, 36, 39. 

⁷⁰⁶ Closing the gap between Commission-approved contracts and viable projects that will come on-line within the RPS time frame is an increasingly critical item that we and the utilities must address. We undertake review of these SDG&E contracts as a first step in a broader review of Commission-approved RPS contracts and changes to our RPS process.

⁷⁰⁷ This amount is equal to 50% of the difference between the amount of renewable generation projected by CAISO to be developed because of Sunrise (i.e., 9,864 GWh) and SDG&E's minimum procurement obligation from the Imperial Valley pursuant to this decision (3,500 GWh). (9,864 GWh - 3,500 GWh) * 0.5 = 3,182 GWh.