PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
CA-38
ENERGY DIVISION RESOLUTION E-3716
December 21, 2000
Resolution E-3716. San Diego Gas & Electric Company (SDG&E) requests approval of the Termination Agreement And Release Of Claims between SDG&E and Yuma Cogeneration Associates. Ratepayer savings of between $14 and $20 million are expected, and a shareholder incentive payment of $1.4 million is requested. Approved.
By Advice Letter 1236-E, Filed on July 11, 2000.
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SUMMARY
This Resolution approves SDG&E's Advice Letter (AL) 1236-E. Filed on July 11, 2000, AL 1236-E submits for filing and approval with the Commission a Termination Agreement and Release of Claims (Agreement) between SDG&E and Yuma Cogeneration Associates (YCA). This Agreement seeks to terminate a Standard Offer No. 2 (SO2) power purchase agreement. SDG&E requests that the Commission adopt a resolution that does the following:
· Approves the Agreement as Reasonable.
· Authorizes recovery of all payments that SDG&E has made and will make to YCA under the Agreement through a Commission-approved mechanism such as SDG&E's Transition Cost Balancing Account.
· Finds that the Agreement provides expected customer savings of between $14 million and $20 million.
· Authorizes SDG&E's shareholders to retain $1.4 million of the ratepayer benefits, as negotiated by SDG&E and ORA.1
While SDG&E did agree to the disclosure of the amount of its shareholder incentive payment, it maintains that other financial and operational information must remain confidential. In addition to filing its AL under Public Utility Code Section 583 (§583) and General Order 66-C (GO 66-C), SDG&E also submitted a Motion For Protective Order so as to preserve the confidentiality of certain non-public aspects of its agreement with YCA. SDG&E subsequently notified the Energy Division that it was withdrawing its Motion.
The Energy Division received no protests to AL 1236-E.
This Resolution approves AL 1236-E.
BACKGROUND
The Original SO2 Contract - Decision (D.)87-11-024 and D.87-12-056 directed SDG&E to make a Commission-approved revised SO2 Firm Capacity Purchase Agreement available on a first-come, first-served basis to the first 100 megawatts of power offered by electric generating facilities that would operate as a QF. On May 23, 1988, SDG&E began soliciting offers; Bonneville Pacific Corporation (BPC) responded with a proposal to construct a 56 MW cogeneration facility in Yuma, Arizona. SDG&E and BPC executed the power purchase agreement (PPA) on March 9, 1990. In D.90-06-028, dated June 6, 1990, the Commission approved the PPA. In November 1992, California Energy Development Corporation became YCA's managing partner when it purchased all interests in the facility following BPC's bankruptcy.
On May 7, 1993, YCA applied for FERC recertification of the cogeneration facility to reflect the change in ownership and an alternate thermal host. On November 10, 1993, FERC recertified the project as a QF.
Project Overview - The YCA generating facility is designed to produce approximately 50 MW. It is located adjacent to the Riverside Substation on the Arizona Public Service Company's (APS) electric system and transmits power to SDG&E via transmission agreements with APS. The point of delivery under the PPA is the APS North Gila Substation. The power is then transmitted to SDG&E's service area via the 500-kV Southwest Powerlink.
YCA commenced operations on March 19, 1994. The facility has operated consistently and continuously. The facility has never failed to achieve the minimum performance requirements.
Summary of the Agreement - The major provisions of the Agreement include the following:
· SDG&E will make a lump sum termination payment to YCA.
· The SO2 PPA (dated March 9, 1990) between SDG&E and Bonneville Pacific Corporation (the original owner of the Yuma facilities) will be terminated within 14 days of the date on which the adopted Resolution is no longer subject to appeal.
· YCA's obligation to operate as a QF will be eliminated, and YCA is required to waive, for itself and subsequent owners of the facility, any right it may have under PURPA or otherwise to require SDG&E to purchase power from the YCA facility.
· YCA will defend and indemnify SDG&E for damages directly relating to the termination of the YCA PPA or cessation of the facility's operation if the suit is brought by an entity contractually associated with YCA.
· YCA and subsequent owners will obtain transmission service from the Independent System Operator (ISO) if YCA desires to deliver power to the California market.
Summary of Customer Benefits -In its AL, SDG&E claims that the termination of the PPA will result in positive ratepayer savings under all reasonable scenarios. This savings estimate is derived from a comparison of the above-market energy and capacity costs that SDG&E's customers would have incurred under the PPA against the costs its customers will incur as a result of the termination payment SDG&E will make to YCA. SDG&E's customers can expect to realize $14 million to $20 million in savings (net present value year 2000). ORA has reviewed these claims, and in a July 6, 2000 letter, agrees that under a range of scenarios, a net savings to the ratepayers will result. SDG&E and ORA have agreed to a shareholder incentive payment equal to $1.4 million.
SDG&E Motion For Protective Order - As discussed in a previous footnote, SDG&E did agree to the disclosure of the amount of its shareholder incentive payment; however, it maintains that other financial and operational information must remain confidential. To that end, SDG&E filed its AL under §583 and GO 66-C, which provide for information deemed to be confidential to remain protected. At the same time, SDG&E also submitted a Motion For Protective Order so as to preserve the confidentiality of certain non-public aspects of its agreement with YCA. SDG&E subsequently determined that §583 and GO 66-C provided the necessary levels of confidentiality. SDG&E obtained YCA's agreement to proceed only with §583 and GO 66-C protection, and withdrew its Motion.
NOTICE
Notice of AL 1236-E was made by publication in the Commission's Daily Calendar. SDG&E states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.
PROTESTS
No protests to AL 1236-E were filed.
DISCUSSION
The Energy Division has reviewed AL 1236-E, and has been in contact with representatives of SDG&E.
Pursuant to the Restructuring Advice Letter Filing (RALF) procedure adopted in D.98-12-066, SDG&E negotiated an Agreement that would (if approved) terminate a PPA between SDG&E and YCA. The RALF procedure established a mechanism for the review of QF contract restructurings. This procedure provides for Commission approval of QF contract restructurings by means of a resolution in response to the filing of an advice letter. A key feature of this process is a letter from ORA accompanying the advice letter, stating its neutrality or support. As noted above, ORA reviewed the proposed advice letter prior to its being filed. In its July 6, 2000 reasonableness assessment letter to SDG&E, ORA states, in pertinent part, that "this buyout and termination agreement provides significant and robust commensurate ratepayer benefits..."
Under the existing SO2 agreement, SDG&E is required to pay YCA over-market prices for the remaining life of the contract (which terminates in May, 2024). Net savings to SDG&E's ratepayers will occur if these over-market payments, less the cost of replacement power, exceed the termination payment to YCA. According to SDG&E's calculations, approval of the Agreement will result in ratepayer savings of between $14 million and $20 million (net present value year 2000).
It is Commission policy to foster ratepayer savings by encouraging QF contract restructurings. Previous Commission decisions (D.98-12-066 and D.99-02-085) have provided the procedural framework for the processing of QF contract restructurings via advice letter and resolution, and also the guidelines to be used in evaluating the advice letters. In conformance with Commission guidelines regarding RALFs, SDG&E included with its advice letter submission a July 6, 2000 letter from ORA stating that it finds the proposed PPA restructuring reasonable and savings will result. Commission policy is that shareholders should be rewarded 10% of any estimated ratepayer savings resulting from QF contract restructurings. In this instance, SDG&E and ORA have agreed that SDG&E is entitled to a shareholder incentive payment of $1.4 million.
Because the termination of this PPA provides robust savings under a variety of scenarios, it is in the ratepayers' interest and should be approved. Further, all payments to be made pursuant to the Agreement should be recovered through a Commission-approved mechanism such as the Transition Cost Balancing Account.
COMMENTS
Public Utilities Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days of public review and comment prior to a vote of the Commission. Section 311(g)(2) provides that this 30-day period may be reduced or waived upon the stipulation of all parties in the proceeding.
All parties in the proceeding have stipulated to waive the 30-day waiting period required by PU Code section 311(g)(1) and the opportunity to file comments on the draft resolution. Accordingly, this matter will be placed on the Commission's agenda directly for prompt action.
FINDINGS
1. In Advice Letter 1236-E, filed on July 11, 2000, SDG&E proposes that the Commission find reasonable the Agreement it reached with YCA regarding the termination of its PPA.
2. In conformance with Commission policies regarding RALFs, SDG&E included with its AL a letter from ORA stating that it finds the proposed Agreement reasonable.
3. Under the proposed Agreement, SDG&E's obligation to purchase power from YCA would cease. In exchange, SDG&E would pay YCA a termination payment. Ratepayer savings would result.
4. SDG&E's calculations show that if the Agreement is approved, ratepayers will save between $14 million and $20 million (net present value year 2000).
5. In a letter dated July 6, 2000, ORA confirms that ratepayers will realize savings.
6. SDG&E and ORA have agreed that SDG&E is entitled to a shareholder incentive payment of $1.4 million.
7. No protests were filed against this advice letter.
8. The Agreement is reasonable.
9. All payments to be made pursuant to the Agreement should be recovered through a Commission-approved mechanism such as the Transition Cost Balancing Account.
10. SDG&E is entitled to the agreed-upon shareholder incentive payment of $1.4 million.
THEREFORE IT IS ORDERED THAT:
1. Advice Letter 1236-E shall be marked to show that it was approved by Commission Resolution E-3716.
2. All termination payments that SDG&E will make under the Agreement shall be recovered through the Transition Cost Balancing Account or any other mechanism authorized by the Commission.
3. SDG&E is entitled to the $1.4 million shareholder incentive payment.
This Resolution is effective today.
I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on December 21, 2000; the following Commissioners voted favorably thereon:
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WESLEY M. FRANKLIN
Executive Director
1 SDG&E originally requested that the amount of the shareholder incentive payment be kept confidential. When informed that the Commission wanted to make that figure public, SDG&E provided written authorization to disclose the amount.
