Background

On May 21, 1984, Edison executed an Interim Standard Offer No. 4 contract with FPB Cogeneration, Inc., NP Cogen's predecessor, with a term of 20 years. The contract was a standard form firm capacity power purchase agreement providing 20 megawatts (MW) of power, of which 18 MW is firm power, paid at short-run avoided cost (SRAC), and a fixed $123/kilowatt-year for capacity. Edison states that due to a number of factors related to the energy crisis, in late 2000 and early 2001, Edison suspended payments to various Qualifying Facilities (QFs) including NP Cogen. Suspended payments for NP Cogen encompass the period from November 1, 2000 through March 16, 2001, when NP Cogen ceased operating its project. A total of $8,423,208 in energy and capacity payments was withheld from NP Cogen. On March 19, 2001, NP Cogen provided written notice it was canceling the contract in light of the suspension of payments.

On March 27, 2001, we issued Decision (D.) 01-03-067, which revised the factor in the SRAC formula, changed the SRAC gas index, and ordered utilities including Edison to resume payments to QFs. On March 28, 2001, NP Cogen filed an action against Edison in Los Angeles County Superior Court¹ seeking judicial declaration that Edison's suspension of payments constituted a material breach of the contract entitling NP Cogen to terminate the contract. NP Cogen claimed damages of approximately $8.4 million, and unspecified consequential damages. Edison disputed NP Cogen's assertion and this matter was consolidated with other actions in Los Angeles Superior Court. Although the Superior Court judge dismissed all of the coordinated actions on September 13, 2001, NP Cogen appealed the dismissal order.²

Edison states that it began negotiations with QFs, including NP Cogen, regarding suspended energy payments, litigation, and other related issues shortly after suspension of payments. The negotiations yielded two settlement agreement forms, which we "pre-approved" in D.01-06-015 and D.01-07-031. One form for gas-fired QFs was made available to NP Cogen. For reasons unique to its project, NP Cogen was unwilling to enter into a settlement under the same terms and conditions approved in these decisions. Edison and NP Cogen resumed negotiations and on September 27, 2001, reached the Settlement Agreement that is the subject of this application by Edison. Under a standstill provision in the Settlement Agreement, NP Cogen's appeal is currently stayed.

On November 21, 2001, Edison filed this application for our approval of the Settlement Agreement. Accompanying its application, Edison filed a motion for a protective order to preserve the confidentiality of certain portions of the application, and a motion to shorten time for filing responses.

Edison filed public versions of its application, the power purchase QF contract between Edison and NP Cogen, prepared testimony of Edison's manager of the QF contract section, and the complaint filed by NP Cogen against Edison in Los Angeles Superior Court. Edison also filed non-public versions of its application, the testimony of its manager, and the Settlement Agreement between Edison and NP Cogen. The non-public versions of the application and the testimony include confidential information on the reasonableness of the negotiations and benefits of the Settlement Agreement to ratepayers.

Edison's states that the Settlement Agreement will result in the dismissal of pending litigation, and will resolve all outstanding issues between the parties concerning Edison's suspension of payments to NP Cogen for energy delivered during the period November 1, 2000 through March 16, 2001, and NP Cogen's cessation of energy deliveries as of March 16, 2001. Edison's application requests an expedited approval since the settlement will terminate on January 25, 2002, if Commission approval is not obtained, with a potential resumption of litigation.³

Edison's motion to shorten time requested that responses be due December 6, 2001, rather than December 21, 2001. The Office of Ratepayer Advocates (ORA) opposed shortening time as Edison had requested, and the assigned Administrative Law Judge (ALJ) shortened time by only two days to December 19, 2001, however, no opposition or responses to Edison's application were filed. By ruling dated January 17, 2002, the assigned ALJ granted Edison's motion for a protective order.

Edison's states that although NP Cogen was unwilling to enter into a settlement on the same terms and conditions in agreements approved in D.01-06-015 and D.01-07-031, this Settlement Agreement has many provisions including payment for past energy deliveries, which are nearly identical to the agreements approved by the Commission in these decisions. Edison seeks Commission approval of the terms of the Settlement Agreement as reasonable, and authorization to recover all payments made or to be made by Edison to NP Cogen subject only to Edison's prudent administration of the Settlement Agreement and the NP Cogen contract. Edison also seeks Commission confirmation that the payments and other benefits to be received by NP Cogen under the Settlement Agreement are in lieu of and replace in their entirety such orders as the Commission may have issued, or will issue, requiring Edison to make payments to NP Cogen for deliveries during the period November 1, 2000 through March 16, 2001.