VII. Cost Effectiveness and Need

Edison claims that the addition of Mountainview is consistent with the needs identified in its Preferred long-term resource plan submitted in R.01-10-024; the capacity is necessary to preserve statewide reserve margins; and the power is needed no later than 2006. To assuage the concerns of competitors, including QFs and cogeneration producers, as well as Mohave, Edison forecasts the need will be there even if power is available from these other sources. Edison does not now own or have committed under contract sufficient generation to meet its customers' likely peak demands, now or in the future. In Edison's long-term resource plan filed in the procurement rulemaking, Edison predicts that its gap between committed capacity resources and likely peak demand will grow significantly between 2005 and 2012. Edison argues that it would be prudent for Edison to fill a sizeable portion of this gap with utility resources. Mountainview's online date of 2006 comports well with Edison's projected capacity needs both in the near-term and long-term.

TURN's "official position" is that new resources may be needed as early as 2008, but not in 2006. TURN is also concerned about the regulatory uncertainty surrounding the status of direct access, the adoption of a core/non-core framework, community choice aggregation, and the future of Mohave. In light of these uncertainties, TURN fears that there will be stranded costs that could transform Edison's "unique opportunity" into a "unique burden" for ratepayers. TURN witness Marcus testified that if Mountainview, Mohave, and direct access all converged simultaneously it could place bundled customers at serious risk of "rate shock."⁸ To address this concern, TURN proposes that the Commission condition the approval of Edison's application on the requirement that all customers currently ineligible for direct access will be obligated to pay for any stranded costs related to Mountainview for at least the first 10 years of its life.

ORA is concerned that Mountainview will be too costly to ratepayers since it will come on line before it is needed and will contribute to an oversupply of capacity.

The Navajo Nation is not convinced that Edison has established the need for Mountainview. Specifically, Edison defines its need as a dispatchable, immediate resource, but then assumes that Mountainview will operate as a baseload facility after 2010. Considering the uncertainty of the future or of the stability of its customer base, the Navajo Nation questions the wisdom of the Mountainview facility-especially when Edison already owns Mohave.

IEP cannot address the issues of need and cost-effectiveness since it was denied access to confidential materials. In addition, IEP feels that need and cost-effectiveness are more properly addressed with the integrated planning process of the procurement rulemaking.

CCC claims that Edison has conceded that there are existing uncommitted resources that are available to fill most of the gap between Edison's projected need and its committed resources for at least the next nine years. Therefore, CCC argues that Edison has not demonstrated that the Mountainview PPP provides greater benefits than the benefits that Edison could secure through contracts with a mixture of long-term resources, including renewable and non-renewable QF resources, and under contracts that do not require Edison ratepayers to bear the risks associated with the PPA. CCC's position is that if Mountainview is approved, Edison will be allowed to replace the power supplied under its expiring QF contracts with power from Mountainview and that will undermine state policy that encourages existing and new cogeneration.

CUE is adamant that Edison needs additional generation by 2006. CUE relies on a CEC October 2003 report, TURN's witness Bill Marcus, and testimony from Dr. Barkovich for CLECA, Thomas Beach for CCC, and Dr. Cicchetti for IEP for support that Edison needs more generation. And since Mountainview is a new combined-cycle plant, it should be cost-effective over the 30-year term because it provides below cost capacity, low priced energy, and reduces transmission losses. From CUE's perspective, even if Edison did not need the additional capacity in 2006 and it was not so cost effective for ratepayers, ratepayers benefit by securing generation now, during a period of oversupply, rather than waiting until supplies get tighter, and prices rise. CUE supports Mountainview even if Mohave does not close for any period of time.

Sequoia argues in support of both the need for Mountainview and its cost effectiveness. In Sequoia's view, California faces a capacity shortfall in the near future, and unless capacity is added, the energy crisis may not be over. Sequoia takes this position even if Mohave stays operational and the QF and cogeneration power is available. Because of Mountainview's low heat rate, high efficiency, and location in Edison's load center the facility is even more cost effective.

We find that Edison has met its burden of showing that it needs the capacity of Mountainview. The acquisition of Mountainview is consistent with the Energy Action Plan, Item 3, jointly issued by this Commission, CEC, and CPA. Edison has forecast that considering its existing resource base of utility-owned generation, QF contracts, interutility contracts, Department of Water Resources (DWR) allocated contracts, and transitional contracts, when combined with expiring contracts, forecasted load growth, and the assumed reserve requirements, it will need more capacity by 2006. Edison does admit that there are existing uncommitted resources to meet any gaps between now and 2006. However, moving forward, Edison forecasts a need for dispatchable, peaking and intermediate resources in the short-term, and baseload over the long term. Mountainview with its 1,054 MW combined-cycle, in Edison's service territory capacity satisfies this resource need. We make this finding independently of any finding concerning the future of Mohave, or QF contracts.

The intervenors were not all on board with Edison's forecast, especially for the years 2006 to 2008. Even TURN's analysis indicates that additional capacity will not be needed until 2008. TURN, however, did propose a condition for the approval of Edison's application that is designed to protect bundled ratepayers; all customers currently ineligible for direct access should be obligated to pay for stranded costs related to Mountainview for the first 10 years of its life.

We agree with TURN to ensure that ratepayers are not over burdened during the early years of the contract with stranded costs if all the power is not needed, we adopt TURN's proposal that all customers currently ineligible for direct access will be obligated to pay for stranded costs related to Mountainview for the first 10 years of its life. This can be accomplished by rolling Mountainview into the portfolio of resources used to determine exit fees for departing customers, or departing customers may take a pro rata share of Mountainview power under PPA pricing through an offtake agreement between Edison and the customer's Electric Service Provider (ESP).