5. The Proposed Settlement Agreement

In late 2010, after this application was filed, GSWC learned that BioEnergy had suspended its biogas operations at the location which was going to provide the product to GSWC under the GPA, so BioEnergy would not be able to fulfill its obligations to provide biogas to GSWC pursuant to the GPA discussed in Section 4 above. As a result of Bioenergy's suspension of biogas production, GSWC negotiated a Biogas Option Agreement with BioEnergy (Option). By entering into the Option, GSWC will have the option to acquire biogas from BioEnergy in the future once biogas production is resumed, and to avoid costly and time-consuming litigation regarding BioEnergy's inability to fulfill its contract with GSWC to provide biogas. The specifics of the Option are discussed below.

GSWC then met with DRA and advised them of the suspension of biogas production by BioEnergy and the execution of the Option with BioEnergy. After engaging in negotiations, Joint Parties reached a proposed settlement of A.10-07-012, as set forth in the Joint Motion.

The proposed Settlement Agreement is an all-party settlement and resolves all issues raised in the protests and all elements of GSWC's request. No protests or comments were filed in response to the Joint Motion. The key portions of the Settlement Agreement are summarized below.

The Joint Parties agree that the execution of the Option preserves for GSWC and its customers the core value of the GPA. Specifically, the Option provides an option for GSWC to purchase renewable energy for its customers for ten years, with an anticipated reduction in the price of biogas as compared to the GPA. By entering into the Option instead of the previously executed GPA which BioEnergy is now unable to execute, GSWC states that it and BioEnergy avoid potentially costly and time consuming litigation. The Settlement Agreement provides that any GPA resulting from execution of the Option will be subject to Commission approval.

As part of the Settlement Agreement, the Joint Parties also request Commission permission for GSWC to withdraw this current application,
A.10-07-012, which requests approval of the GPA and the establishment of a GPA memorandum account. This request for withdrawal of the current application is contingent upon the Commission approving, without change, the Option.

5.1. Ten Year Term

The Option has a ten-year term which provides GSWC with the option to purchase up to the same amounts of biogas which would have been acquired through the GPA requested in the current application. Provision of biogas under the Option is conditioned upon BioEnergy resuming production of biogas in sufficient quantities to satisfy both the existing contract between PG&E and BioEnergy¹⁴ and a new biogas GPA between GSWC and BioEnergy that would result as a consequence of GSWC exercising the Option.

In particular, the Option provides GSWC with the option (but not the obligation) to purchase up to an annualized daily average of 60 MMBtu¹⁵ and
120 MMBtu of biogas in Year One and Year Two of a potential future ten-year biogas purchase contract, respectively, and up to an annualized daily average
of 350 MMBtu of biogas in Years Three through Ten of such potential contract. These annualized amounts mirror the provisions of the GPA requested in the current application. The Option may be exercised by GSWC at any time within ten years of December 2, 2010 (the date the Option was signed). In the event BioEnergy fails to resume production of biogas by December 2, 2020, neither party to the Option is liable or obligated to the other party to fulfill the Option.

5.2. Price of Biogas

The Option provides that the price of the biogas that GSWC would exercise its option at to purchase from BioEnergy shall be equal to the lowest price of biogas previously offered by BioEnergy to another purchaser with respect to a biogas contract of similar length and volumes.

5.3. Costs Associated With Option

In their response to the ALJ ruling, the Joint Parties state that GSWC plans to request recovery of various costs related to the drafting and negotiation of the Option via an application for recovery from GSWC's Renewable Portfolio Standard Memorandum Account (RPSMA). The Joint Parties also state that GSWC may also request recovery, in the future, of any legal and administrative costs it may incur regarding the Option.

¹⁴ Resolution E-4076 approved a contract in which BioEnergy provides biogas to PG&E that results in 389 gigawatt hours of power per year.

¹⁵ MMBtu represents one million British thermal units. British thermal units are defined as a unit of energy, or the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit at sea level. See http://www.cpuc.ca.gov/PUC/glossary/b.htm.