Comments on Draft Decision
The draft decision of ALJ DeBerry in this matter was mailed to the parties in accordance with Public Utilities Code Section 311(g)(1) and Rule 77.7 of the Rules of Practice and Procedure. Comments were filed by Oildale on July 22, 2002 and by PG&E on July 29, 2002.
Oildale asserts that the draft decision mischaracterizes the application and overlooks the primary benefits of the contract amendment, which include insulating ratepayers from volatile gas prices and preserving a much-needed 40 MW cognerator. Oildale contends that the application contains sufficient information to conclude that it is in the public interest, reasonable in light of the whole record, and consistent with applicable law.
Oildale believes that it is important in the current energy environment to preserve a QF such as Oildale, an in-state energy generator that does not manipulate prices and is willing to continue operations at a "modest and temporary premium over SRAC prices". Oildale further argues that the draft decision pays lip-service to Oildale's plight, and gives little value to having the additional 40 MW on California's energy grid. Oildale asserts that operation of this QF provides market stability and contributes to ensuring sufficient QF energy is available. Oildale states that the energy markets, both electric and gas, continue to be unstable and a fixed energy price, consistent with the fixed energy prices given other QFs, benefits ratepayers.
Oildale concludes there is ample information in the record regarding litigation costs. Oildale believes that the benefits of protecting against greater gas costs, and securing operation of a much needed, reliable QF are adequate to justify the application. Oildale also asserts that the draft decision does not give value to the settlement of litigation based on the information provided in responses to ALJ rulings. Accordingly, Oildale believes no value has been ascribed to the settlement of litigation between Oildale and PG&E in the draft decision. Oildale believes all of the information provided by Oildale and PG&E is sufficient to conclude that the application is reasonable in light of the whole record and consistent with applicable law.
PG&E also asserts that the draft decision incorrectly focuses on the resolution of litigation and ignores the principal benefits in the application including avoiding volatile gas prices and helping Oildale to return to operation as a QF. PG&E argues against divulging its litigation risks, citing attorney-client privilege or revelation of attorney work product, and states that the litigation risk analysis already provided, in addition to the other benefits cited, are sufficient to justify the application. Attached to PG&E's comments is a September 21, 2001 decision of the San Francisco Division of the United States Bankruptcy Court for the Northern District of California regarding another QF. PG&E asserts this decision provides additional evidence of the challenges PG&E faces regarding breach of contract claims by Oildale.
We will not further argue the issue of litigation risk. We have given PG&E ample opportunity to provide this element, confidentially, in order to justify the application, apart from the other benefits PG&E and Oildale ascribe to the application. Whether PG&E views the litigation risk in the same manner as portrayed by its consultant MRW and Associates is uncertain from the information provided.
With regard to the other benefits offered by Oildale and PG&E, we have carefully reviewed Oildale's and PG&E's contentions apart from the resolution of litigation. While avoiding gas price variances is useful, almost 70% of the total QF energy capacity for the three major California utilities operates under contracts at fixed energy prices. As a result there already exists a substantial "insurance policy" with regard to changing gas prices.
Although returning Oildale to financial health is a worthy goal, there are many worthy business ventures throughout the State that could be assisted by increasing ratepayer costs. Oildale was given the opportunity to choose the fixed energy price that it now requests back in June 2001; however, it choose a one-year supplemental payment alternative that it now believes is inadequate to meet its financial requirements. QFs are not public utilities and we do not regulate management decisions made by QFs. As has already been said, our relationship to QFs is governed by federal and state law through PURPA and Section 390. Therefore, we must weigh the benefits for ratepayers of the proposed amendment, primarily a resolution of undetermined litigation costs, against additional ratepayer costs ($4.7 million). We conclude that those benefits are not equivalent to the costs and therefore this application is not in the public interest and should be denied.
1. PG&E filed A.02-01-042, January 31, 2002 requesting Commission approval of a Third Amendment to PG&E's PPA with Oildale.
2. On July 20, 2001, PG&E and Oildale entered into a first amendment to the PPA under the one-year option approved in D.01-06-015.
3. On August 22, 2001, PG&E and Oildale entered into a second amendment to the PPA that changed the energy price to a fixed price of 5.37 cents/kWh. The second amendment became a nullity when the safe harbor date for non-standard contract modifications was not extended beyond July 31, 2001.
4. PG&E and Oildale estimate that under the Third Amendment, PG&E will pay approximately $4.7 million more for energy then PG&E's energy payments using the current generic SRAC formula, on a net present value basis.
5. Without Commission approval of the Third Amendment by July 31, 2002, energy payments by PG&E to Oildale will revert to the Commission's generic SRAC formula.
6. No party has protested PG&E's Application.
7. The Assumption Agreement was not filed with either PG&E's Application or in the responses to ALJ rulings.
8. PG&E did not provide its litigation analysis.
1. The motion of PG&E for an expedited order is denied.
2. Energy and capacity payments to QFs are defined by PURPA and Pub. Util. Code § 390.
3. PG&E has not demonstrated that the Third Amendment to the PPA, or the settlement agreement with Oildale, is in the public interest.
IT IS ORDERED that:
1. Pacific Gas and Electric Company's application approving an amendment to the Power Purchase Agreement between Pacific Gas and Electric Company and Oildale Energy LLC is denied. This denial is without prejudice to the applicant filing a subsequent new application for approval of the amendment at
such time that applicant can demonstrate that the amendment is in the public interest, is reasonable in light of the record and consistent with law.
2. Application 02-01-042 is dismissed.
3. This proceeding is closed.
This order is effective today.
Dated , at San Francisco, California.
