4. Discussion
4.1. PG&E`s PFM is Rejected Because it is an Improper Procedural Vehicle to Seek Project Approval
PG&E claims to have negotiated a modification to the PSA that extends the guaranteed commercial availability date of the Oakley Project by two years, from June 1, 2014 to June 1, 2016. This two-year extension of the PSA constitutes the "changed circumstances" upon which PG&E relies in support of its PFM.
PG&E asserts that, "the modification of the Oakley Project guaranteed commercial availability date in the amendment constitutes a significant change in circumstances."10 In contrast, opposing parties argue that the amendment to the Oakley PSA's guaranteed delivery date does not constitute a changed fact or circumstance sufficient to justify the PFM.11 In response to this criticism, PG&E asserts that "the change in the PSA guaranteed commercial availability date is material."12 According to PG&E "[t]his is indisputably a change in facts and circumstances because the PSA that was before the Commission in A.09-09-021, and on which the Commission based D.10-07-045, has subsequently been amended."13 Consistent with this argument, PG&E notes that "under the original PSA, ...the Oakley Project would have been on-line no later than June 1, 2014,"14 while under the amended PSA the Oakley Project would be on-line no later than June 1, 2016.
Rule 16.4(b) requires that allegations of fact must be supported by evidence that is in the record or that is judicially noticeable and that new or changed facts be supported by a declaration or affidavit. Providing the source for existing facts and documentation for new facts as required by Rule 16.4(b) is necessary to allow these facts to be weighed and considered when reviewing a PFM. PG&E filed the Declaration of Marino Monardi in support of the PFM.
Mr. Monardi's Declaration, at 1, paragraph 3, sets forth that the on-line date was changed from no later than June 1, 2014 to no later than June 1, 2016.
Although we agree with PG&E's claim that the change in on-line date is a changed material fact that could arguably support a PFM, the PFM is denied because it is an improper vehicle to seek approval of the revised Oakley PSA. In D.10-07-045, the Commission specifically instructed PG&E that, if the Oakley Project came back before us, it should return as an application. Nevertheless, due to the opportunities and benefits associated with the project that are discussed below, the Commission has sua sponte considered PG&E's filing as an application.
4.2. Consideration of the Revised Oakley PSA
The revised Oakley Project represents a significant new opportunity that merits the Commission's consideration at this time. Many of the operational attributes of this plant were litigated in reaching D.10-07-045, as supplemented by the instant proceeding. In particular, it has been established that:
1) Oakley is a highly viable if the Commission acts today. It is expected that the financing available for this project will no longer be available if the project is not approved in 2010.
2) Oakley is highly efficient (it has a very low heat rate) and will enable California to meet increasingly stringent greenhouse gas (GHG) reduction goals. Oakley would allow for the retirement of peaking resources with high heat rates.
3) Oakley would allow for renewable integration by providing load following capabilities. The combination of this generation attribute with a low heat rate is uncommon in the current generation fleet.
4) Oakley reduces risk that California will have an insufficient supply of generating resources due to lack of available financing for capital projects and regulatory lag.
5) Generation investment is, by its nature, not well suited to the acquisition of small incremental assets. Instead, investments are often for larger discrete units. As a result, the Commission has in the past approved projects that exceed, in their first couple of years of operation, the Commission's projections of the number of MW needed for reliability. At some point, it is likely that California will need to bring additional projects such as Oakley on-line. In the Commission's judgment, in this instance it is worth the risk of short-term over procurement to ensure that resources such as Oakley are available in the longer-term. Thus, it is reasonable to act now so that Oakley will be operational by 2016.
4.3. Oakley is an Exceptional Project, is Highly Viable, and Must Be Approved Now in Order to Be Built
The Commission's decision to deny Oakley in D.10-07-045 was in no way based on the attributes of the project. Oakley Project represents a highly viable, highly efficient and low polluting project. The Commission recognized that the Oakley Project is uniquely viable because it has nearly completed the permitting process. It is anticipated that the opportunity to bring this project to fruition will be lost, due to financing concerns, if this project is not approved in 2010.
As D.10-07-045 notes, "we understand that developing and building a power plant in California is a long process, fraught with pitfalls."15 The turbulent economy in which we are currently situated has threatened or doomed the viability of many large capital projects that have been in the planning process for years. Power plant projects are no exception. It is very unusual for this Commission to be presented with a viable project, which could become operational, with the same commercial terms, two years later than originally planned during project development. The merits of the operational characteristics, viability and the costs and benefits of this power plant have already been thoroughly litigated before this Commission. The Commission must act now to guarantee its construction.
4.4. Oakley's Unique Operating Characteristics Will Allow California to Meet its GHG Reduction Goals
The Commission must consider the implications of continuing to rely on resources with high heat rates to provide California with an ability to meet peak demand and to integrate renewable energy. Approving the Oakley Project will provide California with much more efficient way to meet peak demand and integrate renewable generation than much of the current generation fleet. Furthermore, the Oakley project provides load following, a highly desirable integration attribute uncommon to peaking facilities.
While arguments for and against the Oakley Project have focused on capacity need issues, there are other features of this project which make it a uniquely valuable addition to PG&E's resource mix. As noted by Commissioner Bohn,16 the Oakley plant "has many beneficial features, including a very high efficiency and low air emission rates, and utilizes the most up to date technology from General Electric." These are exactly the type of attributes the state of California will need to help with renewable integration. In this instance, it is our view that denying approval of the amended Oakley PSA would be acting contrary to the Commission's stated goal, in D.07-12-052, of integrating renewable resources through LTPP.
4.5. Oakley is a Hedge Against Risks Caused By Regulatory Lag
Following the Commission's approval of the IOU's long-term procurement plans in D.07-12-052, the Commission opened the 2008 long-term procurement proceeding, Rulemaking (R.) 08-02-007, for the years 2008-2018. That proceeding did not approve any new long-term procurement plans for the IOUs, but instead focused on procurement policy development and integration of renewables into the IOUs' resource portfolios. The Assigned Commissioner's Ruling and Scoping Memo, dated August 28, 2008 for R.08-02-007 stated: "to the extent the LTPP lens is focused on the seven year and greater timeframe for new plants to be built, this proceeding in some cases must infer policy objectives that have not been articulated to a level of detail required for making procurement decisions."17 This acknowledgement of the conservative time period of seven years to build a plant is important because the procurement authority granted by the Commission in D.07-12-052 assumed that the 2010 LTPP cycle,18 which will cover the 2011-2020 planning period, would begin in early 2009.19 This cycle substantively commenced in December 2010, much later than anticipated. It is unlikely that any new plant to address need determined in that proceeding would come on-line before 2018. Indeed, it is reasonably likely-and therefore of concern to the Commission-that any new projects approved in the 2010 LTPP cycle might be delayed well beyond 2018.
Thus the amended Oakley Project is uniquely situated to be in place to fill this critical gap. We previously concluded that the cost of this additional insurance outweighed the benefits, if, as PG&E originally proposed, such costs were imposed upon ratepayers in 2014. On balance, however, at present we are convinced there are numerous grounds to consider approving the amended Oakley contract, with a 2016 commencement date in lieu of the original 2014 commencement date. For these reasons, we will approve the revised Oakley Project despite the fact that this authorization will result in PG&E's procurement of new generation capacity in excess of the range of need established by the Commission in D.07-12-052. This decision does not modify our determination in D.07-12-052, or reflect any determination that PG&E's immediate need for new capacity has changed.
We recognize, however, that to date it has been three years since the Commission has made a needs determination. As noted above, the 2010 LTPP is currently behind schedule. Although the Commission and its staff are working diligently to make up ground on that proceeding, it may be another year or even two before the Commission makes another new capacity needs determination for PG&E with respect to its generation resources. As a result, we are concerned there could be a gap as long as five years between need determinations. A time lapse of that duration creates substantial risk for capacity shortfalls. The Commission has, before it now, a proposed resource that would be able to come on-line precisely during the gap created by the time lapses between needs determination. It would not be prudent for Commission to turn a blind eye at an excellent opportunity to hedge the risk of any capacity shortfall by declining to consider the revised Oakley contract.
4.6. Conclusion
When the considerations discussed herein are viewed in total, in particular the benefits associated with the amended Oakley Project with the delayed on-line date, it is prudent to allow PG&E to procure the new capacity provided by the project even though this would cause PG&E to exceed the highest range of need established by the Commission in D.07-12-052. The revised Oakley Project represents a highly viable, highly efficient and low polluting project that will effectively hedge the risks of capacity shortfalls created by the time lapse between needs determinations in the LTPP. Therefore, the project should be approved.
10 PG&E PFM at 3.
11 TURN Comments on PFM at 3-4; DRA Comments on PFM at 6-7.
12 PG&E Reply to Opposition at 3-4.
13 Id.
14 Id. at 4.
15 D.10-07-045 at 40.
16 See Concurrence of Commissioner John A. Bohn, filed as part of D.10-07-045.
17 Page 5.
18 Need determinations have not been made since D.07-12-052. The 2008 LTPP cycle did not conduct a needs determination.
19 R.08-02-007, July 1, 2009, at 6.
