9. Comments on Proposed Decision

The proposed decision (PD) of ALJ Gamson in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on February 6, 2012, and reply comments were filed on February 13, 2012 by PG&E and Robert Sarvey.

In comments on the Proposed Decision, Robert Sarvey continues to support the conclusion of the PD that the GWF transaction should be approved because the proposed shutdown of the five petroleum coke facilities will benefit local communities with a variety of specific, but unquantified, local and regional environmental improvements. However, Mr. Sarvey contends the PD should be modified to require a decommissioning plan for the petroleum coke facilities, because "nothing prevents GWF from selling the plants to another party or refiring the QF's with fuel oil, coal, or any other fuel that the plant owners could permit."

We will not modify the PD on this point. As PG&E states in its reply brief, " in the unlikely case that the site of GWF's QF facilities will ever to be used to generate electricity again, they would do so using both cleaner fuel and cleaner processes, thereby greatly reducing GHG and criteria pollutant emissions as compared to the current plants. That, of course, assumes that a new air permit in this location would even be possible for such a plant." Finding of Fact #12 states that there is no evidence that the petroleum coke from the closure of these plants will be used elsewhere, or if so, would cause the totality of the GHG transaction to result in net additional GHG emissions. There is evidence supporting this Finding; as PG&E points out in its reply brief, as part of this transaction GWF is surrendering its air permits for the QF facilities within 30 days and has agreed to cease the use of petroleum coke. Mr. Sarvey in his brief requested the Commission to take official notice of documents entitled "California's Cap and Trade Program Final Statement of Reasons" and a letter of GWF to the California Air Resources Board (CARB) on the Cap and Trade Program. We did not and will not take official notice of these documents. Mr. Sarvey did not protest the Application and did not request the opportunity to present evidence. It is not reasonable to allow unexamined evidence at this point in the proceeding.

Even if we were to take official notice of the CARB documents, and if these documents could be determined to stand for the proposition that the petroleum coke now used in the GWF plants may be elsewhere, such as in China (thus potentially eliminating one of PG&E's purported environmental benefits from closing these plants), economic benefits and other environmental benefits would remain in place. Thus, we would still be able to approve the application on the same basis as recommended by Mr. Sarvey in his brief.

Mr. Sarvey also contends that the PD's conclusion that PG&E included potential minimum damage payments in the calculation of GWF market value is erroneous. He cites PG&E testimony stating "In calculating the value of the GWF transaction PG&E does not consider the minimum damages due for early termination." However, PG&E's witness testified at the hearing that PG&E had a strong rationale for determining that the cost and probability of collecting damages would be uncertain. Finding of Fact #11 properly stems from the record and will not be modified.

In its comments on the PD, PG&E argues that the PD erroneously finds that PG&E may have estimated the benefits of the GWF transaction in two specific areas. PG&E contends that there is no evidence to support the PD's findings. The PD does not provide detail on its findings in these areas because the findings are based on analysis of confidential material provided by PG&E. While the PD finds that PG&E may have overestimated certain benefits, the PD also finds that certain economic benefits may have been underestimated. Overall, the PD determines that there are ratepayer benefits, and concludes that the proposed GWF transaction, as a whole, is just and reasonable and should be approved. We will not modify the PD on these points.

Findings of Fact

1. No party protested PG&E's application.

2. The transactions proposed by PG&E would lead to a significant net reduction of GHG emissions.

3. While benefits from reduction of payments to GWF associated with GHG emissions are included in PG&E's analysis, there is an economic benefit to the net reduction of GHG emissions from the overall GWF transaction that is not quantified in the application.

4. The proposed shutdown of five petroleum coke facilities will benefit local communities with a variety of specific, but unquantified, local and regional environmental improvements.

5. The proposed Peaker PPAs will help meet PG&E's local RA requirements during the 10-year contract terms in the Fresno transmission constrained area. However, the value of this benefit is unknown and unspecified by PG&E and may be zero.

6. The proposed PPAs with the Henrietta and Hanford facilities offer PG&E a range of ancillary services and other capabilities, including spinning reserves, quick start capability, and a large number of starts and operating hours. While PG&E does not assign a dollar value to these services and capabilities, there are positive values associated with them

7. There are positive, but unquantified, benefits to the PPAs associated with market certainty.

8. PG&E's cost/benefit analysis may have underestimated certain benefits associated with timing in the proposed transaction by approximately $7 million.

9. PG&E may have overestimated benefits in its capacity benefits model with regard to the value of the capacity for the two peaker plants. This overestimation may be as much as $30 million.

10. PG&E may have overestimated the benefits stemming from the end of capacity payments to GWF for the petroleum coke plants. This overestimation may be as much as $14 million.

11. PG&E properly accounted for potential early termination damage payments from GWF for the petroleum coke plants in its cost-benefit analysis.

12. We do not find evidence to support Mr. Sarvey's claim that the petroleum coke from the closure of the Contra Costa County plants will be used elsewhere, or if so, that such use would cause the totality of the GHG transaction to result in net additional GHG emissions.

13. The range of possible outcomes of a cost/benefit analysis of the overall GWF transaction varies from a positive value of $22 million to a negative value of $29 million, based on quantifiable factors. Unquantified benefits make it more likely that the GWF transaction will provide overall ratepayer benefits.

14. The most likely outcome of the GWF transaction will be slightly positive ratepayer benefits, but close to ratepayer indifference.

15. PG&E may have been able to obtain the capacity benefits from the proposed Peaker PPAs at lower cost through the market.

16. The proposed GWF transaction is a package deal so that the elements of the transaction must be considered as a whole.

17. PG&E' proposed cost recovery through the Energy Rate Recovery Account is consistent with similar treatment in previous Commission decisions.

18. PG&E's proposal to recover stranded costs is consistent with the process set forth in D.08-09-012.

Conclusions of Law

1. The proposed GWF transaction, as a whole, is just and reasonable and should be approved.

2. The cost recovery mechanism and treatment of stranded costs proposed by PG&E are just and reasonable.

ORDER

IT IS ORDERED that:

1. Pacific Gas and Electric Company's Application 11-07-010 is approved, including two Peaker Purchased Power Agreements with GWF ( contained in Confidential Exhibits C and D to the application), and an Omnibus Agreement (contained in Confidential Exhibit B to the application) that terminates existing Qualifying Facilities Purchased Power Agreements with GWF.

2. Pacific Gas and Electric Company's requests for approval to recover costs incurred and associated with the application through a debit to its Energy Resource Recovery Account, and the recovery of stranded costs associated with the application and consistent with Decision 08-09-012, are approved.

3. The January 6, 2012 Ruling of Administrative Law Judge Gamson to grant Pacific Gas and Electric Company's July 21, September 23 and November, 2011 Motions for Leave to File Confidential Material Under Seal consistent with the confidentiality protections of Decision 06-06-066, Public Utilities Code Section 583 and General Order 66-C is affirmed.

4. The January 13, 2012 Division of Ratepayer Advocates Motion for Leave to File Confidential Material Under Seal is granted.

5. Application 11-07-010 is closed.

This order is effective today.

Dated February 16, 2012, at San Francisco, California.

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