2. Background

Pacific Gas and Electric Company (PG&E) filed its application on July 21, 2011. No comments or protests were received.

PG&E seeks approval of three contracts in connection with a transaction with GWF. The GWF transaction involves seven power plants - the Hanford power plant located in Hanford, California; the Henrietta power plant located in Lemoore, California; and five petroleum coke power plants located in the San Francisco Bay Area Delta region (Contra Costa County) in California.

All seven power plants are currently under contract with PG&E. The Power Purchase Agreements (PPAs) for two power plants, Hanford and Henrietta, are scheduled to terminate on December 31, 2012. The Qualifying Facility (QF) PPAs for the petroleum coke power plants are scheduled to terminate in 2020 and 2021. The GWF Transaction involves three separate agreements: an Omnibus Agreement which governs the shutdown of the five GWF petroleum coke power plants and the termination of their associated existing QF PPAs; and two new 10-year PPAs with the Hanford and Henrietta facilities (the Peaker PPAs).

The GWF Hanford and GWF Henrietta facilities are both relatively new, efficient peaking combustion turbine (CT) generation facilities. Both facilities employ natural gas simple cycle gas turbines, typically referred to as CTs. Combined, the facilities provide approximately 175 megawatts (MWs) of capacity on a peak summer day. These units are currently under contract to PG&E as a result of the novation of California Department of Water Resources agreements, which was approved by the Commission in Decision (D.) 10-07-042.

The five GWF petroleum coke facilities are non-dispatchable, baseload facilities. Each facility is approximately 19 MW and sells energy and capacity to PG&E under an existing QF PPA. As baseload facilities, these units operate year-round with capacity factors of roughly 90%. PG&E has no ability to dispatch these units in order to follow its customers' electricity demand, or to reduce output to minimize greenhouse gas (GHG) emissions. The facilities burn petroleum coke, a waste product of the oil refining process, as their source of fuel and, as such, are extremely carbon intensive. On a pounds per MW/hour basis, these units emit more than twice the GHG emissions as the Hanford and Henrietta facilities. In total, the petroleum coke facilities emit approximately 1,000,000 metric tons of GHG emissions per year, representing a sizable portion of California in-state electricity sector GHG emissions.

Under the existing QF PPAs, PG&E pays for energy and capacity subject to terms of the agreements. Currently, the QF PPA energy payments are based on the Short-Run Avoided Cost (SRAC) price and the capacity payments specified are based on prices specified in the contracts. Under the Qualifying Facility and Combined Heat and Power Settlement approved by the Commission in D.10-12-035, PG&E will pay GWF for GHG emissions through 2014. After that point in time, GHG emissions costs will be paid solely through the SRAC price for energy. Under the QF PPAs, GWF would be required to pay minimum damages to PG&E for early termination of the agreements, reflecting the fact that customers paid front-end loaded payments in the earlier years of the contracts.

The Omnibus Agreement addresses the shutdown of the five GWF petroleum coke facilities and the termination of the existing QF PPAs. The Omnibus Agreement provides for termination of the QF PPAs when certain conditions precedent are satisfied, addresses payment obligations and requirements under the QF PPAs before a Commission decision on this Application becomes final and non-appealable, and requires certain actions by GWF once a Commission decision on this application becomes final and non-appealable. A summary of the Omnibus Agreement is included as Confidential Exhibit A to PG&E's application, and a copy of the Omnibus Agreement is attached as Confidential Exhibit B to PG&E's application.

Under the Peaker PPAs, PG&E will have the ability to dispatch two reliable and operationally flexible CTs. GWF will continue to own and operate the facilities, and energy from these facilities will be purchased by PG&E over a 10-year period beginning January 1, 2013. PG&E will have full dispatch rights over the facilities during that period, and says it will utilize the units to help ensure system reliability and to help integrate a growing amount of intermittent renewable resources. The Peaker PPAs are fuel conversion agreements under which PG&E will pay for the fuel and arrange to make it available at the project. GWF will then be paid to convert that fuel into energy. Copies of the Peaker PPAs are attached as Confidential Exhibits C and D and are summarized in Confidential Exhibit A to PG&E's application.

On September 21, 2011, Administrative Law Judge (ALJ) Gamson issued a ruling seeking more detail on a number of contentions in the application. PG&E filed its response on September 23, 2011. On November 1, 2011, ALJ Gamson issued a second ruling seeking further information. PG&E filed its response on November 10, 2011. On December 16, 2011 a Scoping Memo was issued. The Scoping Memo provided that Division of Ratepayer Advocates (DRA) and Robert Sarvey would be parties to the proceeding, in response to late-filed requests. The Scoping Memo scheduled an evidentiary hearing, which was held on January 6, 2012. PG&E, DRA and Robert Sarvey filed briefs on January 13, 2012.