Discussion

It is clear that if SCE and SDG&E file in compliance with D.96-12-028 for September, the natural gas prices reflected, and therefore the posted avoided costs, are very high. Various parties have argued about whether the high prices at Topock are the result of market fundamentals or the result of market manipulation. These arguments are properly part of the Commission's consideration of the underlying petition to modify the Transition Formula or border indices. However, no party has argued that the Topock index has not reflected the actual prices occurring in the border market.

SCE's emergency motion is premised on allegations of collusion in the gas markets serving California. SCE does not allege that qualifying facilities are colluding to impact natural gas prices. In fact, if collusion exists, QFs that rely on gas suffer its ill effects to the same extent as other market participants that utilize gas. SCE relies on the fact that this Commission filed a complaint at the Federal Energy Regulatory Commission (FERC) alleging improper market behavior as evidence that a provisional posting is required as a remedy. The complaint referenced (RP00-241-000) was filed on April 4, 2000. SCE does not explain why an emergency exists now, as opposed to when the complaint was filed, necessitating a provisional posting.

As FPL Energy LLC and Caithness Energy, LLC (FPL/Caithness) argue in comments, allegations of collusion in gas markets can be addressed by numerous entities, including FERC, the California Attorney General, and the Federal Department of Justice. These entities have well-established processes for evaluating the existence of collusion and for assessing damage and punitive penalties when appropriate.

At its essence, SCE's emergency motion asks us to preserve the opportunity to apply a new border index to the September 2000 and subsequent postings because the Topock indices have reflected extremely high prices for September. In its emergency motion, SCE has not actually alleged that the Topock indices are no longer reflecting market prices. The complaint SCE relies on was filed at FERC in April 2000. The underlying petition to modify the transition formula by SCE does not address the validity of the Topock indices; it was ORA that raised this question to the Commission in its comments. The assigned ALJ has properly expanded the scope of the petition to modify to address the validity and reliability of the border indices. Given this set of facts, it is difficult to conclude that an emergency situation exists that differs in nature from that which existed in earlier months this year.

Additionally, Section 390(b) requires the Commission to set avoided energy prices "based on a formula that reflects a starting energy price, adjusted monthly to reflect changes in a starting gas price in relation to an average of current California natural gas border price indices" (emphasis supplied). Adoption of a September provisional posting using the August gas price would violate Section 390(b)'s requirement that gas indices relied upon be "current." In fact, the Transition Formula is specifically designed to capture market conditions, both up and down, in establishing avoided cost payments to QFs, the fact that it has done so does not constitute an emergency.

In order to authorize a provisional posting, we must conclude that ratepayers will suffer irreparable harm if we do not adopt a provisional posting. Because SCE's retail rates remain frozen, it is unclear whether SCE's ratepayers will suffer harm if we do not adopt a provisional posting. In the event that SCE's rate freeze runs its full course under current law (through March 31, 2002), increases in SCE's QF payments will not impact its ratepayers, but rather its shareholders who may see transition cost recovery limited. SDG&E does not even attempt to demonstrate irreparable harm to its ratepayers in

comments but asks that if the Commission adopts a provisional posting for SCE that SDG&E be authorized to post under the same basis.

CCC/IEP argue in their preliminary comments that there is irreparable harm to both qualifying facilities and ratepayers if we adopt a provisional posting. These arguments are echoed in the comments of various parties on the draft decision and the SCE motion. CCC/IEP argue that qualifying facilities have entered into gas contracts based on the index prices and therefore, if they operate, will operate at a significant loss if we adopt a provision posting based on a lower price of gas. CCC/IEP also argue that decisions by qualifying facilities not to operate during this time period, because of pricing uncertainty, have the potential to cause significant ratepayer harm through increased electricity prices in the Power Exchange. It is this assumption that drives the CCC/IEP contention that such generators will not operate if a provisional posting is adopted and their argument that there will be irreparable harm to ratepayers if a provisional posting is adopted.

Because SCE's posting appears directly contrary to both D.96-12-028 and Section 390(b), it is highly unlikely the Commission would grant a request to modify D.96-12-028 to allow the use of an August price instead of the current price1. Therefore, there is not a reasonable likelihood of irreparable harm to ratepayers or shareholders from setting avoided cost in compliance with D.96-12-028. On the other hand, qualifying facilities claim that there will be harm to ratepayers from reduced supply and higher PX prices if QFs change

their operating patterns or reduce output as a result of lower avoided costs in a provisional posting due to existing tight electric supply conditions. Declarations submitted with comments and reply comments by various QFs indicate that reduction in output is a very real possibility if a provisional posting is adopted based on operations thus far in September.

Given the delicate state of the current energy market, and the conflict between the proposed provisional posting and Section 390(b), we do not believe it is in the public interest to risk supply disruptions. Therefore, we order SCE and SDG&E to refile their September 2000 avoided cost postings in compliance with D.96-12-028. Subsequent postings should conform to the Transition Formula set forth in D.96-12-028 unless and until modified by the Commission. Payments to QFs should be made consistent with these postings.

The emergency motion is denied.

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 September 14, 2000 by SCE, SDG&E, ORA, CCC, IEP, Cogeneration Association of California (CAC), Watson Cogeneration Company (Watson)2, Coral Energy Resources, LLC and Engage Energy US, L.P. (jointly Coral/Engage)3, and FPL/Caithness. Reply comments were filed on September 18, 2000 by SCE, ORA, CCC/IEP, CAC, Coral/Engage, and FPL/Caithness. We have taken comments into account, as appropriate, in finalizing this order.

Findings of Fact

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

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

3. The Assigned ALJ has ruled that the validity and reliability of border indices will be considered as part of the petition to modify.

4. SCE filed its September 2000 avoided cost posting using the August gas price, as if it had been granted authority to make a provisional posting.

5. On September 14, 2000, SDG&E revised its September 2000 avoided cost posting to rely on the August gas price, as if it had been granted authority to make a provisional posting.

6. No party has argued that the Topock index has not reflected the actual gas prices occurring in the border market.

7. SCE does not explain why an emergency necessitating a provisional posting exists now, as opposed to when complaint RP00-241-000 was filed at FERC on April 4, 2000.

8. Allegations of collusion in gas markets can be addressed by numerous entities, including FERC, the California Attorney General, and the Federal Department of Justice.

9. SDG&E does not even attempt to demonstrate irreparable harm to its ratepayers.

Conclusions of Law

1. Adoption of a September provisional posting using the August gas price would violate the Section 390(b) requirement that gas indices relied upon be current.

2. The rate freeze limits the possibility of ratepayer harm from not adopting a provisional posting, even assuming the provisional posting of August gas prices for September and onward would not violate Section 390(b).

3. Given the state of current energy supplies, it is not in the public interest to risk supply disruptions.

4. SCE and SDG&E should refile their September 2000 avoided cost postings in compliance with D.96-12-028.

5. Subsequent avoided cost postings by SCE and SDG&E should conform to the Transition Formula set forth in D.96-12-028 unless and until modified by the Commission.

6. Payments to QFs should be made consistent with these postings.

7. The emergency motion should be denied.

8. The motion of Watson for a protective order covering portions of the declaration of David E. Moore should be granted.

9. The requests to intervene of Coral/Engage should be granted to the limited extent set forth herein.

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

11. This decision should be effective today to allow the avoided costs to be posted expeditiously.

INTERIM ORDER

Therefore, IT IS ORDERED that:

1. The Emergency Motion of Southern California Edison Company (SCE) is denied.

2. Within one day of the effective date of this order, SCE and San Diego Gas & Electric Company (SDG&E) shall refile their September 2000 avoided cost posting in compliance with Decision (D.) 96-12-028.

3. Subsequent avoided cost postings by SCE and SDG&E shall conform to the Transition Formula set forth in D.96-12-028 unless and until modified by the Commission.

4. SCE and SDG&E shall make payments to qualifying facilities consistent with the postings set forth in Ordering Paragraphs 2 and 3.

5. The motion of Watson Cogeneration Company for a protective order covering portions of the declaration of David E. Moore is granted.

6. The requests to intervene of Coral Energy Resources, LLC and Engage Energy US, L.P. is granted to the limited extent set forth herein.

7. This decision does not prejudge the merits of the pending petition to modify.

This order is effective today.

Dated October 5, 2000, at San Francisco, California.

I will file a written dissent.

/s/ CARL W. WOOD

Commissioner

1 As noted, SCE did not even request this change in its Petition to Modify D.96-12-028. Other possible changes to the SRAC methodology that do not violate Section 390(b) will be considered in that proceeding. 2 Concurrent with its September 13, 2000 comments, Watson filed a motion for a protective order for a portion of the declaration of David E. Moore. No response has been filed. Watson argues that the redacted information contains commercially-sensitive information, disclosure of which could adversely impact its future operations. The motion for protective order is granted. 3 Coral/Engage filed separate motions for leave to intervene in this proceeding on September 13, 2000. No response has been filed. Coral/Engage are each gas marketers that participate in the California market. Because this proceeding was originally designed solely to address issues surrounding implementation of Pub. Util. Code Section 390 and was not originally a forum to address the Transition Formula or disputes over its implementation, Coral/Engage could not have known to intervene at an earlier date. Therefore we grant the requests to intervene for purposes of participating in comments on SCE's motion and the underlying petition to modify. Should Coral/Engage wish to participate with respect to other aspects of the proceeding, it should appear at the appropriate public hearing to register its appearance status.

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