4. Consistency with Commission Guidelines
for Bilateral Contracting

This Commission has developed guidelines pursuant to which utilities may enter into bilateral contracts for RPS-eligible energy. In D.03-06-071, the Commission authorized entry into bilateral contracts provided the contracts do not require Public Goods Charge (PGC) funds and are prudent.⁹ Subsequently, in D.06-10-019, the Commission held that bilateral contracts were permissible provided they were at least one month in duration.¹⁰ The Commission concluded that utilities' bilateral RPS contracts must be submitted for approval by advice letter and that they must be "reasonable."¹¹ Finally, as BVES notes, bilateral contracts must also contain the Standard Terms and Conditions (STCs) set forth in D. 04-06-014, D.08-04-009 (as modified by D.08-08-028), and D.10-03-021 (as modified by D.11-01-025).

4.1. Submission by Application

In D.02-07-041, the Commission approved a settlement agreement that, among other things, increased BVES' electric surcharges through its Power Purchase Adjustment Clause (PPAC). The settlement agreement included a cap on the weighted average annual cost of $77.00 per megawatt hour in the calculation of the energy charge component of the PPAC. In particular, in D.08-05-025 we stated:

In order to allow BVES to undertake only one procedural step in seeking approval of RPS contracts, we will require that BVES submit all PPAs for RPS-eligible power for approval by means of an application, rather than an advice letter, as long as any cap on its charges for electricity is in place. (D.08-05-029 at 29.)

BVES is still subject to the ratemaking settlement agreement adopted in D.02-07-041 which included a cost cap that is in effect until either August 31, 2011 or certain other conditions are met.¹² Thus, BVES properly seeks approval of the bilateral contracts via application rather than advice letter.¹³

4.2. Standard Terms and Conditions

BVES acknowledges that bilateral contracts must also include the STCs established in D.04-06-014 as well as the STCs for Renewable Energy Credits (RECs).¹⁴ In D.08-04-009 (as modified by D.08-08-028) we compiled the current Commission-adopted language for the STCs used in contracts pursuant to the RPS. As set forth in D.08-04-009, there are 13 STCs of which four (numbers 1, 2, 6, and 7) are non-modifiable and nine are modifiable.¹⁵

Each contract used for RPS compliance by an investor-owned utility (IOU), including a small or multi-jurisdictional utility (SMJU), must contain the 4 non-modifiable STCs. Each contract used for RPS compliance by a load-serving entity (LSE) other than an IOU must also contain the non-modifiable STCs, with the exception of STC 1.¹⁶ (D.08-04-009 at 2, citing D.04-06-014 (Appendix A), D.06-10-019, D.07-02-011, D.07-05-057, and D.07-11-025 (Attachment A).)

The contract for which BVES now seeks approval contains modifications to non-modifiable STCs numbers 2 and 6.

In Application (A.) 07-01-003, Southern California Edison Company (SCE) sought approval of an RPS power purchase agreement with Imperial Valley Resource Recovery Company, LLC (IVRR). The contract at issue contained modifications to certain terms and conditions, some of which were identified as non-modifiable by D.04-06-014. As we stated in D.07-04-039, in granting SCE's application "[i]t was principally for this reason that SCE was prompted by the Energy Division to seek approval of the IVRR contract through the filing of an application rather than an advice letter."¹⁷ In addition to claiming that the modifications were minor, SCE asserted that the modifications were commercially necessary and/or substantively immaterial to the terms contained in D.04-06-014. The issue was set forth in D.07-02-011 as follows:¹⁸

SCE says its counterparties have found some Commission non-modifiable terms (e.g., "assignment") to be unacceptable. SCE also says some standard terms do not work in the context of SCE's entire 2007 Proforma Agreement (e.g., definition of "as-available" is a remnant of the Edison Electric Institute agreement that no longer makes sense, according to SCE). SCE asserts that it would need to publicly state it would be unable to enter into its own Proforma Agreement if SCE is required to modify its Proforma Agreement to comply with the exact terms in D.04-06-014. SCE contends this would be a waste of time and resources.

It has now become apparent (through recent advice letters, applications, the petition for modification of D.04-06-014, and comments on the proposed decision by parties other than SCE) that not only SCE but also other IOUs have changed standard terms and conditions over time (both modifiable and non-modifiable).¹⁹

Consistent with D.07-02-011, in D.07-04-039 we approved SCE's IVRR contract without requiring that the non-modifiable STCs conform to those adopted in D.04-06-014.

While subsequent decisions have addressed the question of when and how universal and/or substantive changes may be made to the non-modifiable STCs (see for example, D.08-04-009), few have addressed non-substantive changes to the non-modifiable STCs. For example, in D.07-11-025, which addressed a petition to modify D.04-06-014 by SCE and PG&E, we approved non-substantive changes to some of the non-modifiable STCs but did not afford parties the opportunity to tailor the substantive, non-modifiable STCs (such as "Green Attributes") to meet their specific project characteristics.

In approving non-substantive changes to the non-modifiable STCs, D.07-11-025 established that while RPS contracts may continue to be submitted for Commission consideration by advice letter, Energy Division should reject an advice letter that makes changes to modifiable or non-modifiable standard terms and conditions.²⁰ Thus, while D.07-11-025 and D.07-02-011 make clear that substantive changes cannot be made to the non-modifiable STCs, and that the advice letter process is inappropriate where there are changes to the non-modifiable STCs, neither decision forecloses an application for approval of a contract with minor, non-substantive changes to the non-modifiable STCs. Here BVES asks that the Commission approve the modified STCs (without further modification) since the modifications are minor conforming modifications which are essential to the negotiated agreement between the contracting parties, consistent with the principles behind the STCs, and consistent with all applicable laws and regulations.

We agree that BVES' modifications are non-substantive changes that represent project specific identifying language, or language that provides greater ratepayer protections. For example, in STC 6, BVES replaces the term "Renewables" with "Renewable."²¹ Similarly, BVES inserts the term "Generating Facility" instead of "Project," which is used in STC 6. Also, where STC 6 provides that a subsequent change in law that causes certain representations to be materially false or misleading shall not be a default, BVES modifies the term to state that a subsequent change in law that causes certain representations to be incorrect in any way shall not be a default.²² We agree with BVES that this modification raises the standard to which the Seller, would be accountable and thereby affords greater protection to BVES and its ratepayers.²³ Finally, BVES modifies STC 6 by replacing the word "agreement" with "confirmation." The confirmation is included as an attachment to Appendix G (the Master Power Purchase and Sale Agreement) in BVES' application. By its terms, the confirmation is "pursuant to, in accordance with, and subject to the applicable provisions of" the Master Power and Purchase Sale Agreement.²⁴

Because BVES proposes minor, non-substantive modifications to the non-modifiable STCs that provide equivalent or greater ratepayer protections as the terms contained in D.04-06-014, we find the modifications permissible.

4.3. Reasonableness and Prudency

At the time BVES filed its application, its June 2009 IRP was BVES' most current IRP. The June 2009 IRP sets forth BVES' efforts to acquire renewable energy resources to comply with California's RPS requirements.²⁵ According to BVES, the primary difficulty it faces in acquiring RPS resources is its relatively small annual electrical requirements. BVES believes that renewable energy developers are unwilling to sell a portion of a power plant's output to BVES when they can sell their project's entire output to one of the larger utilities.²⁶ BVES issued three requests for proposals for renewable resources, with limited responses and no resulting contracts. In the wake of these unfruitful efforts, BVES pursued RPS opportunities through a bilateral-contracting processing. We believe this course of action to be both prudent and reasonable.

⁹ Neither the settlement agreement entered into by BVES and approved in D.08-05-029 nor the instant application provide for receipt of PGC funds. We therefore conclude that the bilateral contracts now at issue do not require any PGC funds.

¹⁰ As noted in section 2 above, the contracts at issue are for a term of 10 years. BVES therefore complies with the requirement that bilateral contracts must be at least one month in duration.

¹¹ Id.

¹² See D.02-07-041, Finding of Fact 3-6 for other conditions.

¹³ In D.06-10-019, we stated that bilateral RPS contracts must be submitted for approval by advice letter. However, this statement must be taken in context. At issue in D.10-03-021 was whether or not to "allow utilities to present for our approval, via advice letter, contracts offered by generators, in response to solicitations seeking long-term contracts for new RPS-eligible generation, that are for a period less than 10 years. (D.10-03-021 at 28.) Thus, the statement in D.10-03-021 addressed whether or not the advice letter process could be used for contracts that are less than 10 years. Here the contract is for a period of 10 years.

¹⁴ See D.10-03-021, Appendix C.

¹⁵ See D.08-08-009 at 2-3.

¹⁶ With regard to modifiable STCs, "seller and buyer (inclusive of all LSEs under the RPS program) may negotiate different language for each modifiable STC (or agree to delete the term if it is not applicable), as long as the result remains consistent with all applicable laws and regulations." (D.08-08-009 at 3, citing D.04-06-014, Appendix A; D.07-11-025, at 22-23 and 26, and Ordering Paragraph 1.)

¹⁷ D.07-04-039 at 9-10.

¹⁸ The resolution of SCE's IVRR contract term issue was impacted by a petition for modification of D.04-06-014 filed by SCE and Pacific Gas and Electric Company (PG&E) and the issuance of D.07-02-011 which conditionally accepted procurement plans for 2007 RPS solicitations and addressed the issue of modifying contract terms and conditions.

¹⁹ D.07-02-011 at 51-55.

²⁰ D.07-11-025 at 29.

²¹ Application, Attachment to Appendix D at D-11.

²² Id.

²³ See Application, Appendix D at D-4.

²⁴ See Application, Appendix G.

²⁵ The June 2009 IRP is attached to the application as Exhibit 1.

²⁶ See Exhibit 1 at 25.