II. DISCUSSION

As to the issue of cost, the IOUs are correct that, under PURPA, we may only require the IOUs to enter into QF contracts at prices equivalent to the IOUs' "avoided costs." (18 C.F.R. §§ 292.303(a), 292.304(b).) "Avoided costs" are defined as "the incremental costs to an electrical utility of electrical energy or capacity or both which, but for the purchase from the qualifying facility or facilities, such utility would generate itself or purchase from another source." (18 C.F.R. § 292.101(b)(6).) As we noted in D.99-03-021, "avoided cost is not measured by what utilities are paid when they sell energy, but instead on what they must spend to produce or procure [that] energy in the absence of QFs." (In the Matter of the Application of San Diego Gas & Electric Co. [D.99-03-021] (1999) 85 Cal.P.U.C.2d 263, 268.) The regulations further provide that the costs paid are to be fair and reasonable to the electric consumer of the electric utility and in the public interest and not be discriminatory against the QFs. (18 C.F.R. § 292.304(a).) The same regulation also provides that public utilities need not pay QFs more than their avoided costs. (18 C.F.R. § 292.304(a).) In a recent decision on QF pricing, we acknowledged that, under PURPA, we cannot require payments to QFs that exceed utility avoided costs. (See Opinion on Future Policy and Pricing for Qualifying Facilities [D.07-09-040] (2007) ___ Cal.P.U.C.3d ___, at p. 126 (slip op.); see also Order Modifying Decision (D.) 07-09-040 and Denying Rehearing of Decision, as Modified [D.08-07-048] (2008) ___ Cal.P.U.C.3d ___.)

As to the issue of need, the IOUs are correct that, under PURPA, we cannot require the IOUs to purchase unnecessary capacity from QFs. In City of Ketchikan, the FERC determined that, "while utilities may have an obligation under PURPA to purchase from a QF, that obligation does not require a utility to pay for capacity that it does not need." (City of Ketchikan, Alaska, et al., (2001) 94 FERC ¶ 61,293, at 62,062.) This requirement flows from PURPA's mandate that rates must be just and reasonable to the utilities' consumers, and in any event cannot exceed utility avoided costs. (16 U.S.C. § 824a-3(b); see also 18 C.F.R. § 292.304(a).) Acquiring and paying for unnecessary capacity could run afoul of both of these requirements.

While it may be implicit in the Decision, D.07-12-052 does not expressly acknowledge PURPA's requirements regarding cost and need. Thus, we will modify the Decision to specifically acknowledge the requirements of PURPA. These modifications are detailed below.

Having dealt with the primary issue raised in the IOUs' rehearing application, the other allegations of error are rendered moot. The IOUs' rehearing application makes clear that their claims regarding Sections 1757(a)(1), 1757(a)(2), 1757(a)(4), and 1705 flow directly from their primary allegation regarding PURPA. As the PURPA issue has been resolved, no further discussion of the remaining issues is necessary.