Discussion

It is clear that if SCE, SDG&E, and PG&E rely on the posted California border indices in compliance with D.96-12-028 for December, the natural gas prices reflected, and therefore the posted avoided costs, will be very high. SCE asks that we rule on the merits of its petition to modify D.96-12-028 by permanently establishing a new border pricing methodology and adopting a new "factor". We are not yet prepared to rule on the petition to modify, as a new proposal was submitted by SCE on November 28. For this reason, we deny the bulk of SCE's November 28, 2000 emergency motion.

However, we are convinced that a provisional posting until we decide on the merits of the petition to modify is appropriate. Although the Commission declined to adopt a provisional posting for SCE in D.00-10-030, we believe the situation SCE has raised in this emergency motion to be distinct from the situation we addressed in that order.

If SCE, SDG&E, or PG&E had filed their avoided cost postings in compliance with relevant Commission decisions on December 5, 2000, the Commission will be unable to decrease the avoided cost postings retroactively. As stated by the Commission in D.82-12-120, avoided cost "prices may be adjusted upward and applied retrospectively in the event the Commission later reaches a determination that the prices posted were too low. However, no downward adjustments will be made retrospectively to avoid pricing uncertainty for QFs." (10 CPUC 2d at 623, emphasis added.) Although other aspects of avoided cost pricing have changed, this prohibition against downward adjustments has been consistently enforced.

The extreme basis differential convinces us that the posted California border prices have deviated so fundamentally from our understanding of how the market is supposed to operate that the extreme step of adopting a provisional posting must be taken. We will establish a proxy price floor to temporarily replace the California border indices now used in the avoided cost postings to ensure some level of advance knowledge for QFs of the prices they will receive for December deliveries.⁴ This action preserves our ability to address the merits of the petition to modify while protecting ratepayers from extreme volatility in the border index prices. It is Commissioner Neeper's goal that a draft decision on the merits of the petition to modify the Transition Formula be issued by the end of this year.

Adopting a proxy price floor allows the Commission the ability to analyze and decide on the merits of modifying the Transition Formula already before it in the petition to modify D.96-12-028. Without adoption of a proxy price floor, if the Commission were to conclude in a subsequent decision that the border prices were no longer valid or reliable, it would not be able to recover excess payments from qualifying facilities. However, if the Commission does adopt a proxy price floor and later finds that the border prices remain valid and reliable, avoided cost payments can be adjusted upwards. Adoption of a proxy price floor best preserves the Commission's ability to conduct a thorough analysis of the issues and does not prejudge the merits of the pending petition to modify. In addition, QF payments based on posted December avoided costs will not be made until after December 31, 2000, at a minimum, therefore, there is no prejudice to adoption of a temporary proxy price floor.

The next issue we must decide is what proxy price floor to adopt on a temporary basis. SCE and SDG&E rely only on Topock border prices at this time and PG&E relies on a 50/50 weighting of Topock and Malin border prices. SCE proposes to replace the simple average of the three published Topock border indices currently used in the SCE Transition Formula with an index consisting of (i) 10% of the simple average of three border indices at Topock (as published in Btu Daily Gas Wire, Natural Gas Intelligence, and Natural Gas Week) and (ii) 90% of Southern California Gas Company's ("SoCalGas") monthly published Schedule G-CS Cost of Gas ("WACOG"). On a temporary basis we will accept this as a replacement for the Topock border index for all three utilities. For PG&E, we will allow it to replace the Malin border index with the same formula, but replacing Schedule G-CS from SoCalGas with Schedule G-CSP from PG&E.

Our adoption of this temporary proxy price floor does not address the merits of SCE's petition to modify the Transition Formula. If the Commission has not acted on the merits of SCE's petition to modify the Transition Formula by March 31, 2001, the utilities should resume making avoided cost postings consistent with the Transition Formula.

Comments on Draft Decision

Rule 77.7(f)(9) provides for reduction or waiver of the 30-day period for public review and comment when public necessity requires such reduction. We must balance whether the public necessity of adopting an order outweighs the public interest in having the full 30-day period for review and comment. We are convinced that the motion of SCE falls under Rule 77.7(f)(9), and for that reason, we established a shortened period for comments on the draft decision.

Comments were filed on ______________. Reply comments were filed on ______________.

Findings of Fact

1. SCE's November 28, 2000 emergency motion was filed after the agenda for the December 7, 2000 Commission meeting was mailed.

2. Avoided cost postings are based on the Transition Formula adopted in D.96-12-028, which incorporates various California border price indices.

3. The Commission is considering a pending petition to modify D.96-12-028.

4. Natural Gas Week posted a November 27, 2000 price of $15.49/MMBtu for gas delivered at Topock.

5. Daily Gas Wire posted a November 27, 2000 price of $15.50/MMBtu for gas delivered at Topock.

6. Prices for gas delivered at Malin are approximately $1.00/MMBtu lower than Topock prices.

7. Wellhead prices in the San Juan and Permian basins have reached over $6.00/MMBtu during the same period.

8. The basis differential recently exhibited by posted California border prices has deviated fundamentally from historical patterns.

9. Adoption of the proxy price floor described herein would yield a lower avoided cost than published California border indices.

Conclusions of Law

1. Adoption of a proxy price floor preserves our ability to address the merits of the pending petition to modify while protecting ratepayers from extreme volatility in the border index prices.

2. Avoided cost prices can be adjusted upwards but not downwards pursuant to D.82-12-120.

3. The proxy price floor should be subject to potential upward adjustment based on the Commission's determinations on the merits of the petition to modify the Transition Formula.

4. If the Commission has not acted on the merits of SCE's petition to modify the Transition Formula by March 31, 2001, the utilities should resume making avoided cost postings consistent with the Transition Formula.

5. Pursuant to Rule 77.7(f)(9), the public review and comment period has been shortened.

6. This item should be added to the Commission's December 7, 2000 agenda under the provisions of Government Code § 11125.3(a)(2).

ORDER

Therefore, IT IS ORDERED that:

1. If the Commission has not acted on the merits of Southern California Edison Company's (SCE) petition to modify the Transition Formula by March 31, 2001, the utilities shall resume making avoided cost postings consistent with the Transition Formula.

2. Proxy price floors should temporarily replace the California border prices used in calculating avoided cost payments.

3. The proxy price floor for Topock shall be calculated as (i) 10% of the simple average of three border indices at Topock (as published in Btu Daily Gas Wire, Natural Gas Intelligence, and Natural Gas Week) and (ii) 90% of Southern California Gas Company's monthly published Schedule G-CS Cost of Gas.

4. The proxy price floor for Malin shall be calculated as (i) 10% of the simple average of three border indices at Malin (as published in Btu Daily Gas Wire, Natural Gas Intelligence, and Natural Gas Week) and (ii) 90% of Pacific Gas and Electric Company's (PG&E) monthly published Schedule G-CSP.

5. SCE, San Diego Gas & Electric Company (SDG&E), and PG&E shall establish a tracking account to monitor avoided cost payments made pursuant to this order and those that would have been made if the motion had not been granted, so that appropriate payment adjustments can be made once the petition to modify review of the border indices is concluded.

6. Within five days of the effective date of this decision SCE, SDG&E, and PG&E shall file and serve a compliance advice letter to establish a tracking account, consistent with this decision. The advice letter shall be effective on filing subject to Energy Division determining that it is in compliance with this Order.

7. This decision is an interim decision and does not prejudge the merits of the pending petition to modify.

This order is effective today.

Dated __________________, at San Francisco, California.