VI. Shortening the Public Review Period of the Proposed Decision

In setting the briefing schedule on July 2, 2002, the ALJ asked parties to address if they would stipulate to shortening the time for review of the proposed decision pursuant to Section 311(g)(2). Several parties stated their support for this in their briefs; no party opposed the request. Parties will have another opportunity to address this issue in their oral argument before the Commission on August 8, 2002. We will consider the silence of a party on the issue to imply consent. If no objections are raised to the Commission shortening time for public review of the proposed decision at the oral argument, comments will be due on August 19, 2002 and the decision will be placed on the August 22, 2002 Commission agenda.

Comments on Draft Alternate Proposed Decision

Public necessity requires that the 14-day comment period of Public Utilities Code Section 311(g) be reduced so that PG&E, Edison, and SDG&E can begin procuring electric capacity as set forth in this decision as soon as possible. We have balanced the public interest in avoiding harm to the public welfare resulting from delay in considering this alternate proposed decision against the public interest in having the full 14-day period for review and comment required by Rule 77.7(f)(9). We conclude that the former outweighs the latter and that failure to adopt would cause significant harm to the public welfare. Accordingly, we reduce the comment period for this alternate proposed decision.

Timely comments were filed by Edison, PG&E, SDG&E, CAC, CBEA, CalWEA, CCC, CEC, CPA, Sempra, Ridgewood, CEERT, CCUE, TURN, DWR, ORA, and IEP/WPTF. To the extent parties have raised factual or technical errors contained in the draft alternate decision, they have been corrected herein.

Findings of Fact

1. PG&E, SDG&E, and Edison are the respondent utilities in this proceeding.

2. On May 6, 2002, Edison filed a "Motion for an Interim Decision Granting Approval of Process for Early Procurement of Capacity." Edison's motion requests authority to enter into multi-year capacity contracts for a term of up to five years using the credit of the DWR until Edison regains its investment grade rating.

3. On May 15, 2002, the assigned Commissioner and ALJ issued a ruling finding that the authority sought by Edison should be considered in the hearings scheduled to commence shortly, and modified the hearing schedule to accommodate this.

4. At the hearings, held from June 10 through July 3, 2002, PG&E and SDG&E requested that they be granted the same transitional period authority as Edison is granted. In addition, PG&E requests it be granted authority to enter gas hedge contracts of the type currently authorized Edison under its Settlement Agreement with the Commission.

5. Interested parties to the proceeding generally support a more limited transitional authority that requested by the respondent utilities; Ridgewood and Aglet recommend the request be denied.

6. SDG&E currently has an investment grade credit rating, and, therefore, a question exists as to whether the credit support of DWR should be provided, and if so, when SDG&E should assume financial and legal responsibility for the contracts from DWR. We find that SDG&E is creditworthy, its procurement needs are a small part of the market, and it can fully participate in the CAISO market. SDG&E may execute any contracts resulting from the authority granted today without DWR involvement. SDG&E may use the expedited review process

7. We will be cautions in any authority we grant until a decision on allocation of the existing DWR contracts is final, both at the Commission and in any reviewing courts.

8. We find merit in authorizing multi-year procurement. The prospect of signing multi-year procurement contracts will help attract suppliers to utility solicitations and will help attract capital investment in new generating projects.

9. It is reasonable to grant Edison, PG&E, and SDG&E authority to procure a portion of their on-peak hourly RNS requirement reflected in a low-case RNS scenario for products including ancillary services.

10. Unnecessary restrictions that we impose on the utilities may hinder them now in their efforts to avoid high spot market prices during critical periods, we find it reasonable to deny SDG&E's recommended 50/50 proposal.

11. It is reasonable to grant Edison and PG&E authority to purchase:

12. It is reasonable to grant the respondent utilities authority to use financially-settled hedging instruments because the necessity of ensuring the utilities have the opportunity to procure sufficient dispatchable capacity outweighs the complexity in reviewing these transactions in an expedited manner.

13. We deny PG&E's request for additional authority to procure gas hedging to hedge the fuel cost risks associated with its retained generation and qualifying facilities contracts.

14. We find that granting transitional authority, under the terms and conditions adopted here, is beneficial for both the utilities and their customers. Edison and PG&E will benefit by being able to enter procurement contracts prior to regaining an investment grade credit rating and to demonstrate to the financial markets that they can successfully resume their full procurement responsibilities under the Commission's regulatory oversight. Customers of the utilities will benefit from the utilities receiving and exercising this authority in a manner that promotes reliable service at just and reasonable rates.

15. The Edison/DWR agreement proposed in Edison's May 6th Motion should be modified to meet the concerns expressed by DWR in its May 31st memo.

16. Edison, PG&E, and SDG&E have in their initial control how expedited the review and approval process will be based on the transitional procurement strategy they employ, the early and collaborative role they give staff and non-market participant parties in reviewing their analysis and recommendations, the contracts they chose to enter, the quality of the advice letter package they file, and their responsiveness to requests for additional information.

17. The procedural process adopted in Appendix B is reasonable.

18. The establishment of a "Procurement Review Group" is reasonable.

19. All products purchased under this authority should be purchased using a competitive process.

20. We should re-institute the utility obligation to enter SO1 contracts for qualifying facilities, as defined under the Public Utility Regulatory Policy Act of 1978 during this transition period until the full implementation of the utilities' long-term procurement plans, or until December 31, 2003, whichever occurs first, for all QFs that meet the following criteria:

21. It is not necessary to grant a right of first refusal to QFs.

22. We expect utilities to take into consideration in their resource selection the mandates of Section 701.3 and AB 57.

23. We should require the respondent utilities to conduct a separate solicitation for renewable resources in the amount of at least an additional 1 percent of their annual electricity sold.

24. This renewable resource requirement is irrespective of the utility's residual net short.

25. Utilities should solicit bids for renewable resources with contract terms of five, ten, and 15 years and enter into contracts with a mixture of term lengths.

26. D.01-06-015 provides a reasonable interim benchmark price for renewables procurement, to be revisited in the next phase of this proceeding.

27. Any QF and renewable procurement conducted during the transitional procurement period should be subject to the same procedural processes and DWR contract arrangements as other procurement authorized in this decision.

Conclusions of Law

1. We need to develop a process that is balanced: one that meets the needs of the utilities for timely decisions that reduce regulatory uncertainties while at the same time ensuring that the Commission has exercised its statutory responsibilities to protect consumers from unreasonable costs through effective oversight and regulation.

2. The utilities should use a competitive process that provides wide dissemination of the request to members of the generation community, to include renewable resource suppliers. The specifications for a capacity or energy contract should not be fuel or technology specific, with the exception of a renewable set-aside and the treatment of QFs.

3. The utilities should perform due diligence in seeking procurement contracts under the transitional authority granted herein.

4. We are not obligated to reinstitute SO1 contracts for QFs during the transition period, but have considerable discretion to devise policies that comply with PURPA. Reinstituting the SO1 contracts on an interim basis is a reasonable approach and their cost at SRAC prices should be fully recoverable by the utilities.

5. It is not necessary to provide a right of first refusal to qualifying facilities for solicitations conducted under the transitional authority granted here.

6. In order to ensure an adequate review period, the utilities should use an advice letter process for nonstandard contract review and approval, especially as we undertake to quickly examine and provide, up-front reasonableness approval to electric procurement contracts that are represented to be quite complex multi-year transactions.

7. Renewables contracts that meet or exceed the provisional benchmark price of 5.37 cents per kWh should be deemed per se reasonable. Other renewables contracts may also be approved by the Commission through the advice letter process outlined in this decision.

8. This order should be effective today in order to allow the utilities to expeditiously begin the all-source solicitation process, described herein.

9. Public necessity requires that the 14-day comment period of Public Utilities Code Section 311(g) be reduced so that PG&E, Edison, and SDG&E can begin procuring electric capacity as set forth in this decision as soon as possible. We have balanced the public interest in avoiding harm to the public welfare resulting from delay in considering this decision against the public interest in having the full 14-day period for review and comment required by Rule 77.7(f)(9). We conclude that the former outweighs the latter and that failure to adopt would cause significant harm to the public welfare. Accordingly, we should reduce the comment period for this decision.

INTERIM ORDER

IT IS ORDERED that:

1. The May 6th, 2002 motion of Southern California Edison is granted, with the modifications set forth in this decision.

2. The respondent utilities shall file by compliance letter the terms under which they will enter contracts in participation with the California Department of Water Resources (DWR), revised to address the concerns stated by DWR in its May 31, 2002 memo, within five days of the effective date of this order.

3. We adopt the process to approve contracts for transitional procurement as contained in Appendix B.

4. Any contract under which a respondent utility is seeking pre-approval must be filed by advice letter within 30 days of signing or selection. The utilities shall carefully monitor and report any cost premiums paid for pre-approval.

5. Renewable and QF electricity procurement during the transitional process are subject to the requirements in ordering paragraphs 2, 3, and 4 above.

6. IOUs are required, during the transition procurement process, to procure at least 1 percent of their annual electricity sales through a set-aside competitive procurement process for renewable resources. Utilities must solicit bids with contract terms of five, ten, and fifteen years, and enter into contracts with a mixture of lengths of not less than five years.

7. IOUs are required to offer SO1 contracts, whose term ends at the time that the IOU fully implements its long-term procurement plan approved by the Commission, or on December 31, 2003, whichever occurs first, to any QF meeting the following conditions:

8. The June 12, 2002 motion of Ridgewood Olinda, LLC is denied.

This order is effective today.

Dated August 22, 2002, at San Francisco, California.

I will file a written dissent.

/s/ LORETTA M. LYNCH

President

/s/ CARL W. WOOD

Commissioner

APPENDIX A

is in 128988

APPENDIX B

Procurement Contract Review Process

 

Adopted Review Process

Day

Days to Complete Task

Tasks

-15

15

Review Group to assess proposed contracts and provide written comments to IOU before IOU submits contract(s) to PUC.

0

0

Advice Letter Filed by IOU including proposed contract(s), procurement processes, and Review Group recommendations

7

7

Protests due within seven days of AL filing.

10

3

Replies to protests due within three days of protest.

20

 10

 Minimum amount of time for Energy Division to prepare a Resolution and the assigned Commissioner to review it in order to meet the minimum 10 day requirement for notice on item on the Commission's agenda Draft Resolution circulated to parties for a shortened comment period due to public necessity. PUC rules on Advice Letter. Approval constitutes a determination that costs incurred under contract and/or contracts conforming to procurement process are reasonable and prudent. If PUC rejects proposed contract or procurement process, it would designate alternatives that would not be subject to further reasonableness review. Approval would constitute determination that cost incurred under the contracts itself and/or under contracts conforming to procurement process are reasonable and prudent.· IOU administration of contracts would remain subject to reasonableness review by the CPUC under reasonableness criteria or incentive ratemaking, as appropriate.

30

10+

If, in order to meet the minimum 10 day notice requirement for the Commission's agenda, Energy Division and the Assigned Commissioner do not have 10 days to prepare and review the Resolution, it should be put over until the next regularly scheduled Commission Meeting.

(END OF APPENDIX B)

APPENDIX C

ADOPTED MASTER DATA REQUEST

(END OF APPENDIX C)

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