9. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Victoria S. Kolakowski is the assigned ALJ in this proceeding.

1. The Commission approved in D.07-05-023 power purchase agreements and associated option agreements and proposed leases between SDG&E and the Developers. The Agreements authorized the construction of peakers by each of the Developers.

2. SDG&E filed a Petition for Modification for the Decision on September 5, 2008, along with a corresponding Motion to File Under Seal, which are within one year of the issuance of the Decision.

3. SDG&E filed a minor amendment to the Petition on September 11, 2008.

4. Ladera Hope, a community organization comprised of residents of properties located near the originally proposed site for the Wellhead peaker, moved for party status on October 6, 2008 and filed a response to the Petition. SDG&E replied to the response on October 16, 2008.

5. Ladera Hope has not objected to the SDG&E Motion.

6. The J-Power Agreements have been impacted by unforeseen delays in construction of the J-Power peaker. These delays are the result of changes made to the project in response to the CEC, local businesses and CalTrans.

7. The modifications to the J-Power Agreements occur in the online date as well as the confidential terms, and do not fundamentally change the nature of the original J-Power Agreements.

8. The Wellhead Agreements have been impacted by unforeseen delays. However, the Wellhead peaker faces substantial uncertainty. SDG&E notes that it may either be completed at the existing site or at another location; hence, the location of the Wellhead peaker is not specified.

9. Relocation of the Wellhead site could result in a fundamental change in the nature of the original Wellhead Agreements, as construction of the Wellhead peaker off of SDG&E property would not allow transfer of ownership of the peaker at the expiration of the Wellhead Agreements.

10. If the Wellhead peaker is relocated to a different location which is no longer on SDG&E property, the approved fundamental nature of the original Wellhead Agreements project will change.

11. The requested modifications to the J-Power Agreements have been reviewed by Commission Staff and by an independent evaluator (R.W. Beck), and have been found to be reasonable and prudent.

12. The modifications necessary for D.07-09-010 are in Attachment 1.

13. A.07-05-023 should remain open for the sole purpose of considering this Petition with respect to the Wellhead Agreements.

1. SDG&E's Petition, satisfies the requirements of Rule 16.4 regarding the proposed modifications related to the J-Power Agreements, but not regarding the proposed modifications related to the Wellhead Agreements.

2. The October 11, 2008 amendment to the Petition was so minor as to not place the filing of the Petition outside the one year window set forth in Rule 16.4(b).

3. Based upon review by Staff and R.W. Beck, the requested modifications regarding the J-Power Agreements should be granted.

4. Relocation of the Wellhead peaker to a property not owned by SDG&E will change the fundamental nature of the original approved Wellhead Agreements.

5. The Petition should be amended regarding the modifications related to the Wellhead Agreements within 90 days to clarify whether the Wellhead peaker will be constructed on SDG&E property; and if it is not, to identify the new location of the peaker. Furthermore, SDG&E must provide comprehensive suggested revisions to the Decision pursuant to Rule 16.4 to account for any change in the nature of the approved Wellhead Agreements. SDG&E should be allowed to extend this period upon showing of good cause.

6. Ladera Hope should be granted party status.

7. SDG&E's Motion to File Under Seal is consistent with the provisions of D.06-06-066 and should be granted as set forth below.

8. A.07-05-023 should remain open.

9. This order should be effective immediately.

ORDER

IT IS ORDERED that:

1. Decision (D.) 07-09-010 is modified as shown in Attachment 1. All other language in D.07-09-010 shall be read and understood to conform to those modifications.

2. Ladera Hope is granted party status.

3. San Diego Gas & Electric Company's (SDG&E) motion to file under seal is granted. The unredacted version of the Petition for Modification shall be placed under seal and shall remain sealed for a period of three years from the effective date of this decision.

4. SDG&E shall amend the Petition for Modification (Petition) within 90 days as described herein. This period may be extended by the assigned Commissioner or Administrative Law Judge upon showing of good cause. If the Petition is either dismissed or withdrawn by SDG&E and later refiled, the Commission will accept the amended Petition as meeting the timeliness requirements of Rule 16.4(d) and will not require a showing of cause for filing beyond one year from issuance of the original decision, D.07-09-010.

5. Application 07-05-023 remains open.

This order is effective today.

Dated March 26, 2009, at San Francisco, California.

ATTACHMENT 1

REDLINES TO D.07-09-010

P.2 (add new paragraph before first full paragraph): Due to unforeseen delays associated with necessary permitting, the J-Power project was delayed. Nevertheless, because the J-Power project continues to prudently meet demonstrated need at a reasonable cost, approval remains in the public interest.

P. 2: This decision further orders full recovery of costs associated with the PPAs, including the revised PPAs and associated costs from an independent evaluation, from bundled customers through SDG&E's Energy Resources Recovery Account (ERRA).

P. 3: The commercial online date will for the J-Power project was originally expected to be May 31, 2008, and the delivery term of the PPA is was expected to be from May 31, 2008 through May 31, 2033. However, unforeseen permitting delays associated with applications before the California Energy Commission (CEC) require a need to reschedule the online date. These unanticipated delays have also caused an increase in the total cost of the project.

P. 6: As discussed below, we determine that the amended PPAs and lease agreements with J-Power and Wellhead should be approved.

P. 9: We have reviewed the J-Power and Wellhead PPAs, as amended by the amended PPA and lease option agreements, and find that they prudently meet the demonstrated need at reasonable costs.

P. 11: Therefore it is appropriate for SDG&E to recover its purchased power costs through the ERRA., including the costs associated with the Independent Evaluator (R.W. Beck) used by SDG&E to analyze the reasonableness of the amended J-Power contracts.

Finding of Fact No. 1: SDG&E has entered into a PPA and lease option agreement with J-Power to develop approximately 86.5 MW of gas-fired peaking generation on 16.5 acres of SDG&E's 202 acre Pala substation in northern San Diego County, to which the generators will be connected. The commercial online date will was expected to be May 31, 2008, and the delivery term of the PPA is was expected to be from May 31, 2008 through May 31, 2033.

New Finding of Fact No. 19: Unanticipated delays associated with permitting have caused the need to amend the contracts with J-Power. The new online date is expected to be October 1, 2009, and the delivery term is expected to be from October 1, 2009 through October 1, 2034. Nevertheless, the J-Power project continues to be a least cost and best fit proposal that fully meets the current location, delivery and creditworthiness requirements of SDG&E. Thus, the J-Power project continues to prudently meet demonstrated need at reasonable costs.

Conclusion of Law No. 1: SDG&E's amended PPA and lease option agreement with J-Power and its associated lease option agreement should be approved, as they prudently meet demonstrated need at reasonable costs.

Conclusion of Law No. 6: SDG&E's amended agreements to lease substation land provide useful purposes for the land without interfering with SDG&E's provision of utility services, and therefore meet the requirements under § 853(b) of a waiver of the § 851 requirements for the limited purposes of constructing peaker units pursuant to these agreements, provided that they are the same as those attached to the lease option agreements.

Ordering Paragraph No. 1: San Diego Gas and Electric Company's (SDG&E) amended power procurement agreement (PPA) and lease option agreement of May 9, 2007 June 20, 2008 with J-Power, USA Development Company, Ltd. is approved.

Ordering Paragraph No. 3: SDG&E is authorized to recover payments made pursuant to the amended PPAs by means of entries into its Energy Resources Recover Account (ERRA), subject to annual review of those payments.

(END OF ATTACHMENT 1)

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