Discussion
The Commission's settlement and stipulation rules are found in Rules 51 to 51.10 of the Commission's Rules of Practice and Procedure.5 The settlement rules provide a standard for review of this settlement. Specifically, Rule 51.1(e) provides in pertinent part that the Commission will not approve a settlement unless the "settlement is reasonable in light of the whole record, consistent with law, and in the public interest." We review the proposed settlement between Edison and NP Cogen with that criterion in mind.
We have reviewed the QF contract, the circumstances leading to the settlement, as well as the terms of the proposed Settlement Agreement. The reasonableness of the Settlement Agreement is based on (1) the terms and conditions of payment for energy provided during the payment suspension period, and (2) the potential risks associated with litigation. This agreement is different from other QF agreements and amendments we have approved because it anticipates contract termination rather than contract continuation.6 However, while unique in this aspect, our review of the terms and conditions for Edison's payments for energy and capacity previously delivered shows that these payments will be essentially the same as the contract amendments we approved in D.01-06-015 and D.01-07-031. Furthermore, a financial analysis indicates that the net-present-value of expected cost benefits to ratepayers is equal to, or exceeds, expected costs as a result of the settlement, and thus the settlement is in the public interest. Based on our knowledge of QF contracts and amendments, and the negotiations between utilities and QFs regarding suspension of payments, Edison's proposed payment provisions are a reasonable resolution of this issue.
Litigation risk is not as easily weighed as the results of a financial analysis. Litigation risk includes not only direct monetary impacts from monies owed and from potential consequential damages, but also indirect impacts that might affect existing contracts and continuing negotiations with other QFs. Thus, in our approval of this settlement, we consider not only the potential impacts of continued litigation between Edison and NP Cogen, but also the potential implications of future litigation between Edison and other QFs. Based on the issues resolved by the settlement, the litigation risks that Edison could be exposed to if these issues and the dispute were litigated, here, and in potential future litigation with other QFs, we conclude that the proposed settlement is reasonable, consistent with the law, and in the public interest. Accordingly, the Settlement Agreement entered into between Edison and NP Cogen should be approved. Consistent with Rule 51.8, this settlement is not precedential and does not constitute approval of any principle or issue in future proceedings.
We turn next to the issue of cost recovery. Edison requests that it should be authorized to recover in rates all payments that it will make to NP Cogen under the Settlement Agreement through Edison's Annual Transition Cost Proceeding (ATCP) or successor mechanism, subject only to Edison's prudent administration of the Settlement Agreement and the NP Cogen contract. The ATCP was established in D.97-06-060,7 as part of the establishment of the transition cost balancing accounts. The reasonableness of the QF contract administration is to take place in the ATCP, to the extent that such reviews have not been eliminated by the standard offers or other approved contracts.8
Since we have approved the settlement terms and conditions, we authorize Edison to recover in rates all payments that it will make to NP Cogen pursuant to the Settlement Agreement through Edison's ATCP, or any other successor mechanism, subject only to Edison's prudent administration of the Settlement Agreement and the contract between Edison and NP Cogen.
Since this matter is uncontested, and this decision grants the relief requested, the comment period is waived as provided for in Rule 77.7(f)(2).
1. Edison and FPB Cogeneration, Inc., NP Cogen's predecessor, entered into an Interim Standard Offer No. 4 QF contract on May 21, 1984, with a term of 20 years.
2. NP Cogen provides Edison with firm capacity under the contract.
3. Edison suspended payments to NP Cogen for the period from November 1, 2000 through March 16, 2001, when NP Cogen ceased operating its project.
4. NP Cogen provided written notice on March 19, 2001, that it was canceling its contract with Edison.
5. The terms of the settlement between Edison and NP Cogen are memorialized in the Settlement Agreement that was filed under seal.
6. The Commission has reviewed the QF contract, the circumstances leading to the settlement, and the terms and conditions of the proposed Settlement Agreement.
7. The conditions and provisions for energy and capacity payments of the settlement are similar to those approved in D.01-06-015 and D.01-07-031.
8. A financial analysis of the net-present-value of expected cost benefits to ratepayers is equal to, or exceeds, costs as a result of the settlement.
9. Edison should be authorized to recover all payments made to NP Cogen under the Settlement Agreement and the power purchase agreement between Edison and NP Cogen through Edison's ATCP, or any other successor mechanism, subject only to Commission review of the reasonableness of future administration of the agreements.
1. Persons interested in the proposed settlement of issues between Edison and NP Cogen were provided with notice of Edison's Application by virtue of the notice of the Application's filing in the November 28, 2001 Daily Calendar.
2. Several of the settlement and stipulation rules do not apply to the proposed settlement at issue in this proceeding and should be waived because the settlement agreement was entered into before the application was filed.
3. Rule 51.1(e) should be used to review the proposed settlement agreement because that rule sets a standard that provides guidance for evaluating a proposed settlement.
4. The terms of the proposed settlement of the issues and dispute between Edison and NP Cogen are reasonable, consistent with the law, and in the public interest.
5. The Settlement Agreement entered into between Edison and NP Cogen should be approved.
6. Consistent with Rule 51.8, this settlement is not precedential and does not constitute approval of any principle or issue in future proceedings.
7. The terms in the Settlement Agreement shall be in lieu of and replace any orders that the Commission has issued or may issue requiring Edison to make payments to NP Cogen for past deliveries that are different from or in addition to those established in the Settlement Agreement.
8. This order should be effective today in order to allow the Settlement Agreement to be implemented immediately.
IT IS ORDERED that:
1. Southern California Edison Company's (Edison) November 21, 2001 application to approve its settlement agreement with NP Cogen, Inc. (NP Cogen) is approved.
2. Edison is authorized to recover in rates all payments that Edison will make to NP Cogen, under the Settlement Agreement through Edison's Annual Transition Cost Proceeding or any other successor mechanism, subject only to Edison's prudent administration of the Settlement Agreement and the contract between Edison and NP Cogen.
3. This proceeding is closed.
This order is effective today.
Dated April 4, 2002, at San Francisco, California.
LORETTA M. LYNCH
President
HENRY M. DUQUE
CARL W. WOOD
GEOFFREY F. BROWN
MICHAEL R. PEEVEY
Commissioners
