2. The Settlement
RCEC plans to construct a 601 MW combined-cycle facility in Hayward, California which would provide PG&E with a 10-year contract for energy capacity and energy.5 The project design and operational benefits did not change between the original PPA and the 2nd APPA. The RCEC project design is intended to operate at a relatively low heat rate, use less natural gas and emit less greenhouse gas (GHG) per unit of electricity than existing, older fossil fuel-fired plants.6 The project was originally scheduled to be online by June 2010,7 but the 1st and 2nd APPAs both delay the online date by two years to June 2012. This date conforms with an extension RCEC received from the California Energy Commission (CEC) to begin project construction.
The Joint Parties describe the 2nd APPA as having terms that are substantially better for ratepayers than the 1st APPA. In Revised Public Supplemental Testimony, PG&E analyzed the original and the 1st APPA using the same valuation date, forward curves, and valuation models and found the primary difference was that the 1st APPA had higher net customer costs that reflected the rapid escalation of construction costs. However, PG&E also concluded that these costs would be partially offset by the delayed start date when market values of the energy and capacity are expected to be higher.8
The 2nd APPA significantly reduces the proposed costs to ratepayers compared to the 1st APPA , but includes about a 30% cost increase over the terms of the original PPA. Other changes relate to keeping the project on time to meet the scheduled start date and online date, as well as consequences of possible incidents of default. A few minor changes made are intended to conform the 2nd APPA operating provisions to the requirements of the 2008 LTRFO. The 2nd APPA also shifts certain risks from the developer to PG&E's customers related to control of future GHG emissions. PG&E dropped its option to use the CAM/Energy Auction Mechanism provided for in D.06-07-029 (in the 1st APPA, PG&E elected to use the CAM/Energy Auction).
5 Application at 10.
6 Id. at 11.
7 D.06-11-048 at 6.
8 PG&E Testimony 1-2 to 1-5.
