5. Proposed Contingencies

Pursuant to Section 16.2 of the QF/CHP Settlement, it is not effective until and unless certain conditions precedent have been met, including approval by the FERC of a waiver of the utilities' obligations under Section 210(m) of PURPA. As of this time, those conditions have not been met, and D.10-12-035 approving the QF/CHP Settlement is the subject of three pending applications for rehearing.

In its opening brief, AReM requests that the Commission make approval of the PPAs subject to any changes that may be made to the QF/CHP Settlement as the result of the Commission's resolution of the pending applications for rehearing D.10-12-035 or the FERC's ruling on PG&E's request for waiver of its PURPA obligations, as well as any changes that may occur to the CHP Program as the result of potential future petitions to modify D.10-12-035 or future proceedings regarding the utilities' long term procurement planning. In its reply brief, AReM additionally requests that the Commission make approval of the PPAs contingent on resolution of the pending applications for rehearing of D.10-12-035 and a FERC ruling approving PG&E's application for waiver from PURPA requirements.

It is inappropriate to make approval of this application contingent on the resolution of pending applications for rehearing of D.10-12-035. D.10-12-035 was made effective immediately upon its issuance and, therefore, the applications for rehearing do not suspend it. (See Rules of Practice and Procedure [Title 20, Division 1, of the California Code of Regulations], Rule 16.1(b).)

It is likewise inappropriate to make approval of this application subject to potential future changes to the QF/CHP Settlement, D.10-12-035, or the CHP Program, as it is entirely speculative whether future changes will be made or that, even if they are, any such changes would directly impact the issues addressed in this proceeding. If such changes are made in the future, the proper procedural approach would be for AReM to file a petition to modify this decision approving the PPAs.

It is, however, appropriate to make approval of this application contingent on the QF/CHP Settlement becoming effective. The reasonableness of the proposed PPAs is premised, in large part, on their value relative to the Transition PPAs that the sellers could receive under the QF/CHP Settlement, and the appropriateness of PG&E's proposed recovery of costs is premised on it having entered into the PPAs pursuant to the QF/CHP Settlement. If the QF/CHP Settlement does not become effective, consistency with the settlement will not be determinative of the reasonableness of the PPAs and appropriateness of PG&E's recovery of their costs.

We approve the PPAs and PG&E's recovery of their costs contingent on the QF/CHP Settlement becoming effective. In its reply comments on the proposed decision, PG&E attached a binding agreement between PG&E and all parties to the PPAs that the PPAs are not effective until and unless the QF/CHP Settlement becomes effective. Accordingly, this proceeding should be closed.

The proposed decision of Administrative Law Judge (ALJ) Yacknin in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on February 28, 2011, by PG&E and the CAISO, and reply comments were filed on March 3, 2011, by PG&E.

Michael R. Peevey is the assigned Commissioner, and Hallie Yacknin is the assigned ALJ in this proceeding.

1. The PPAs will provide approximately $5 million greater market value than the Transition PPAs that the sellers could receive under the QF/CHP Settlement, due to PG&E's greater curtailment rights.

2. The PPAs provide greater operational benefits than the sellers' current contracts and the Transition PPAs that the sellers could receive under the QF/CHP Settlement.

3. The PPAs may result in reduced GHG emissions as compared to GHG emissions under the sellers' current contracts and the Transition PPAs that the sellers could receive under the QF/CHP Settlement.

4. Procurement under the PPAs will satisfy the Emissions Performance Standard adopted by D.07-01-039.

5. Procurement under the PPAs qualifies to meet PG&E's MW targets and GHG emissions reductions under the QF/CHP Settlement.

6. Procurement under the proposed PPAs will serve the Commission's policy preference for the utilities to maintain their current level of QF capacity, as provided in D.07-12-052.

7. Section 3.4.4 of the QF/CHP Settlement Term Sheet does not impose any obligation on PG&E to pay for deliveries under the proposed PPAs as if they started on January 1, 2010.

8. Contingent on the QF/CHP Settlement becoming effective, the PPAs are just and reasonable and should be approved.

9. Contingent on the QF/CHP Settlement becoming effective, procurement under the PPAs should count toward PG&E's MW and GHG emissions reduction targets.

10. Contingent on the QF/CHP Settlement becoming effective, PG&E should proportionately allocate annually the PPAs' net capacity costs and all resource adequacy benefits associated with them to all bundled, electric service provider, community choice aggregator and departing load customers on a non-bypassable basis pursuant to Section 13.2.1 of the QF/CHP Settlement, and recover the bundled customer costs associated with them in its Energy Resources Recovery Account.

11. As D.10-12-035 is not suspended by virtue of the pending applications for rehearing the decision, it is inappropriate to make this decision approving the PPAs contingent on the resolution of those applications.

12. The proper vehicle for seeking to apply future potential changes to the QF/CHP Settlement, D.10-12-035, or the CHP Program to the PPAs and/or PG&E's recovery of costs incurred under them is by petition to modify this decision approving the PPAs.

13. As the PPAs are contingent on the QF/CHP Settlement taking effect, it is unnecessary to condition approval of the PPAs on such event.

14. This proceeding should be closed.

15. This order should be effective immediately.

ORDER

IT IS ORDERED that:

16. Pacific Gas and Electric Company's power purchase agreements with Mid-Set Cogeneration Company, Salinas River Cogeneration Company, Coalinga Cogeneration Company, and Sargent Canyon Cogeneration Company are approved, contingent on the Qualifying Facility and Combined Heat and Power Program Settlement Agreement becoming effective.

17. Procurement under Pacific Gas and Electric Company's power purchase agreements with Mid-Set Cogeneration Company, Salinas River Cogeneration Company, Coalinga Cogeneration Company, and Sargent Canyon Cogeneration Company shall count toward Pacific Gas & Electric Company's megawatt and greenhouse gas emissions reduction targets, contingent on the Qualifying Facility and Combined Heat and Power Program Settlement Agreement becoming effective.

18. Pacific Gas and Electric Company shall proportionately allocate annually the net capacity costs of its power purchase agreements with Mid-Set Cogeneration Company, Salinas River Cogeneration Company, Coalinga Cogeneration Company, and Sargent Canyon Cogeneration Company, and all resource adequacy benefits associated with them, to all bundled, electric service provider, community choice aggregator and departing load customers on a non-bypassable basis, and shall recover the bundled customer costs of the power purchase agreements in its Energy Resources Recovery Account, contingent on the Qualifying Facility and Combined Heat and Power Program Settlement Agreement becoming effective.

19. Application 10-10-005 is closed.

This order is effective today.

Dated March 10, 2011, at San Francisco, California.

I abstain.

/s/ MICHEL PETER FLORIO

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