Discussion

Pursuant to Section 12.1(d) of the Commission Rules of Practice and Procedure, Commission approval of a settlement, even if uncontested, may only be granted if the settlement is reasonable in the light of the whole record, consistent with law, and in the public interest. After reviewing the Settlement Agreement in its entirety, we find that the Settlement Agreement, with clarifications set forth above, is reasonable in light of the whole record, consistent with law, and in the public interest.

As suggested by the motion for approval and chronicled in this order, the Settlement is the result of almost 20 mediation sessions, and represents a compromise formed by more than ten different settling parties. To begin, we note that the Settlement Principles establish a clear process for the energy auction. In particular, the process requires a timeline sufficient to allow notice to stakeholders and broad participation in the auction process. It also requires an IE whose selection is dependent upon ED approval, for the purpose of overseeing the preparation and administration of the auction. In addition, the auction process utilizes an independent consultant to provide a MVA of the products being offered.

Next, the Settlement Principles identify two products that will be offered in the energy auction, and allows for additional products. The crafting of these Principles was the result of negotiations on the part of market participants who wanted to develop products that would be attractive to potential bidders and offer bidders an opportunity to bid on products most suited to their needs, yet would also maximize the value of the energy to benefiting customers. This is consistent with the directives from D.06-07-029 that the cost of the energy from the new generation resources should be born by the market participants, including the IOUs, who value it the most. Specifically, the Principles provide a variety of products for which participants may bid, the opportunity for the creation of new energy products for which participants may bid, and a procedurally fair chance for them to bid.

In addition, the Settlement Principles set forth the mechanics for allocating the RA benefits and net costs, consistent with the maxims established in
D.06-07-029.

We find that the Settlement is reasonable in light of the whole record because its principles and the products effectively balance the interests of the various parties and also establish a process that is transparent and that instills faith in market participants.

Finally, the Settlement is in the public interest because it facilitates the procurement of new generation in California and creates a transparent market process that should indirectly reduce the cost of energy to utility ratepayers. As the Commission noted in D.06-07-029, "we are faced with the urgent need to bring new capacity on line as soon as 2009 . . . ."⁸ We found that developers require long-term contracts to undertake new projects, and all LSEs, including the IOUs, were unwilling to sign long-term contracts because of perceived risks associated with market, regulatory and customer uncertainty. We concluded in D.06-07-029 that Commission action was necessary to incentivize "new steel in the ground."

We therefore established the CAM set forth in D.06-07-029 whereby the IOUs were designated as the procurers of the long-term contracts for new generation, but the costs and benefits of the capacity and energy would be shared by all benefiting parties in the IOUs' respective service territories. Through the CAM methodology, utility ratepayers would not bear the cost of this new generation alone, but the costs would be shared. The Energy Auction Principles set forth in the Settlement are the corner-stone for implementing the benefit and cost sharing from D.06-07-029. The Settling Parties are already eager to activate the auction process in the case of the re-powered Long Beach generating facility, approved in D.07-01-041.

For the reasons discussed above, we find that, with the clarifications set forth above, the Settlement is reasonable in light of the whole record, consistent with law, and in the public interest. We therefore grant Settling Parties' motion to approve the Settlement with clarification, as set forth in the order below.

⁸ D.06-07-029, p. 3.