3. Discussion

The MVPP Transactions include eight agreements: (a) five
Buy-Out Agreements, (b) Letter Agreement, (c) Novation Agreement, and
(d) Replacement Agreement. Each is briefly described below.

3.1. Agreements

SCE explains that its customers have been receiving energy and capacity benefits from the MVPP facility, and have been incurring the costs of the DWR Contract, since Commission allocation of that contract to SCE in 2003. SCE says it entered into the series of transactions at issue here in order to procure bundled renewable output from the MVPP facility over the period from January 1, 2008 through September 30, 2011 (thereby providing RPS benefits to its customers), and to satisfy Commission policy on novation of DWR contracts.5

Buy-Out Agreements: SCE says it discovered that MVPP had entered into agreements with third parties to sell future rights to a portion of the RECs from the MVPP facility, although none of these third parties had received or taken title to any of these RECs. To directly procure all of the energy benefits, capacity benefits and RECs from the MVPP facility as bundled renewable output, SCE entered into five buy-out agreements (Buy-Out Agreements).6 The Buy-Out Agreements terminated the third party agreements, and ensured that all RECs from the MVPP facility were retained by MVPP.

Letter Agreement: Termination of the third party agreements, according to SCE, allowed SCE to procure a bundled renewable product directly from MVPP. To do this, SCE entered into a letter agreement (Letter Agreement) with MVPP for the exclusive rights to all RECs generated by the MVPP facility. SCE says that the Letter Agreement, combined with the DWR Contract, secured all of the MVPP facility's energy benefits, capacity benefits and RECs as bundled renewable output for SCE's customers.

Novation Agreement: SCE reports that DWR, MVPP and SCE then entered into a novation agreement (Novation Agreement). The Novation Agreement removed DWR from the DWR Contract, and replaced DWR with SCE.

Replacement Agreement: Parties also agreed to replace the DWR Contract with an agreement between MVPP and SCE (Replacement Agreement). As a result, the energy and RECs from the MVPP facility would be delivered directly to SCE.

Effective Dates: According to SCE, the effectiveness of these agreements was contingent upon Commission approval. SCE explained that the Replacement Agreement would take effect upon Commission approval, and both the DWR Contract and the Letter Agreement would terminate. Thus, two periods were involved:

· From January 1, 2008 until Commission approval of the Replacement Agreement: MVPP would convey bundled RPS-eligible energy to SCE pursuant to the DWR Contract and the Letter Agreement; and

· From the date of Commission approval of the Replacement Agreement until September 30, 2011: MVPP would deliver bundled RPS-eligible energy directly to SCE pursuant to the Replacement Agreement.7

3.2. No Need to Consider Novation and Replacement Agreements

We did not approve the Novation Agreement, nor the Replacement Agreement, by September 30, 2011. SCE reports that those agreements cannot now take effect. As a result, SCE no longer requests Commission approval of those agreements. (Status Report at 3.) We accept SCE's request. We give no further consideration to approving or rejecting these two agreements.8

3.3. Buy-Out and Letter Agreements

SCE requests approval of the remaining agreements. Taken together, these agreements will allow SCE to use for RPS compliance the procurement from the existing DWR Contract. The agreements do not create a new procurement obligation, and extend no further than the end of the DWR Contract,
September 30, 2011.

We consider SCE's request in the context of some of the changes to the RPS program made by SB 2 (1X) and implemented by the Commission. In particular, SB 2 (1X) establishes a new classification of RPS procurement transactions into portfolio content categories. (Section 399.16.)

In D.11-12-052, we addressed the application of the new portfolio content categories to transactions, like those at issue in this proceeding, in which DWR had contracted for the energy but not the RECs from RPS-eligible generation facilities in California. We noted that:

[i]n three of its contracts, DWR procured energy from
RPS-eligible wind farms in California, but expressly did not also buy the RECs associated with that energy. Two of the contracts (with Cabazon Wind Partners LLC and Whitewater Hill Wind Partners LLC) are assigned to SDG&E. One, with Mountain View Power Partners, is assigned to SCE. The customers of both SDG&E and SCE are receiving electricity generated by California RPS-eligible wind facilities, but because the contracts did not also convey the RECs, the utilities (and thus their ratepayers) are not receiving credit toward RPS compliance.

The Commission explained that:

[b]oth SDG&E and SCE have sought to buy RECs from these facilities and "reunite" the RECs with the underlying generation that their customers receive from the DWR contracts. [However], once the electricity and the RECs are separated, the RECs are "unbundled" and the underlying electricity may not be used for RPS compliance. It is generally not possible to reattach RECs that have been unbundled from the energy with which they are originally associated.

The Commission then concluded that:

In this unique and limited circumstance, however, SDG&E and SCE should be allowed to acquire the RECs separately from the energy but receive RPS compliance credit as though they had been purchased together. Neither the utilities nor their ratepayers had any part in DWR's decision to buy only the electricity and not the RECs; neither the utilities nor their ratepayers should be disadvantaged by the assignment to them of these DWR contracts. SCE and SDG&E should be able to obtain the RECs that would have been part of the contracts if the energy and RECs had been procured together, thus making the generation under the DWR contracts
RPS-eligible.

The buy-out and letter agreements effectively "rebundle" the RECs with the energy SCE's customers have received from the MVPP contracts, as authorized by D.11-12-052, OP 15. The agreements reasonably ensure that the output from the 66.6 MW MVPP facility (about 200,000 megawatt-hours (MWh) per year) may be considered for RPS compliance.

DRA asserts that the MVPP Transactions must be found to be just and reasonable. DRA reviewed the contracts here, and found that they meet those tests. For example, DRA determined that the TREC price was less than the Commission established TREC price cap; the bundled MVPP Transaction price was less than the applicable market price referent (MPR); and the contract terms appeared to be within a zone of reasonableness. (DRA Opening Brief at 3, 7-9.)9 DRA does not oppose granting the requested relief.

We agree with DRA's assessment, as further supported by evidence from SCE. The renewable premium is less than the TREC price cap, and is competitive compared to the renewable premiums in SCE's 2008 RPS solicitation. The total price is below both the 2007 and 2008 MPRs, and is less than the prices for executed contracts in SCE's 2008 RPS solicitation. The MVPP facility was operational and delivering power during the applicable period, making the transactions highly viable compared to output from projects secured via the
2008 RPS solicitation but not yet constructed at that time. The agreements are reasonable in light of market conditions at the time, and in view of the unique circumstances of the agreements. The procurement is consistent with SCE's RPS procurement plans. The result is to convert procurement of non-RPS-eligible energy to bundled renewable energy on terms that are just and reasonable, to the benefit of SCE and its customers.10

CARE presents several arguments in opposition to the transactions. CARE asserts, for example, that our implementation of the use of RECs for RPS compliance is enjoined by a March 17, 2011 San Francisco Superior Court decision, Association of Irritated Residents v. California Air Resources Board, San Francisco Superior Court No.CPF-09-509562 (March 17, 2011). This decision, which in any event applied only to the California Air Resources Board, was reversed by the Court of Appeal, First Appellate District, in Case No. A132165 (June 24, 2011). CARE's claim on this point is now irrelevant.

CARE also contends that the price in the original DWR Contract (a 10-year contract starting in October 2001) is neither just nor reasonable, making the MVPP Transactions (energy, capacity, and RECs over 45 months starting
January 1, 2008) unjust and unreasonable. SCE does not now ask for a Commission finding relative to the DWR Contract, and the Commission assigned the DWR Contract to SCE almost ten years ago. We therefore make no finding on the DWR Contract, and do not need to do so to reach a conclusion about the agreements before us. Rather, we find that the Buy-Out and Letter Agreements are just and reasonable based on price, viability, and other factors discussed herein.

CARE also argues that the REC price is unreasonable when compared with Commission-established avoided costs. We do not agree. The agreements we consider here are voluntary, bilaterally-negotiated RPS transactions. We review them in the same way we review other voluntary, bilaterally-negotiated RPS procurement. (D.09-06-050, OP 7.) For all the reasons stated above, we find that the Buy-Out and Letter Agreements are just and reasonable. This includes an assessment that the price is reasonable compared to the price of viable alternatives SCE did not need to procure given the purchase of RPS-eligible MVPP electricity.11

3.4. Other Findings

SCE asks for three additional findings. We address each in turn.

SCE asks that we find:

Any electric energy sold or dedicated to SCE pursuant to the Letter Agreement and the Buy-Out Agreements constitutes procurement by SCE from an ERR for the purpose of determining SCE's compliance with any obligation that it may have to procure from ERRs pursuant to the RPS Legislation or other applicable law concerning the procurement of electric energy from renewable energy resources. (Status Report at 4.)

DRA recommends that our approval be conditioned on California Energy Commission (CEC) verification that all renewable energy at issue here is from an RPS eligible resource. DRA is correct. The CEC certifies ERRs. (§ 399.13.) Generation from a resource that is not CEC-certified cannot be used to meet RPS requirements. The Commission has no jurisdiction to determine whether a project is an ERR. Neither can the Commission determine, prior to final CEC certification of a project, that any energy sold or dedicated to SCE pursuant to specific agreements will constitute procurement from an ERR.

Thus, while we make the requested finding, we do so subject to specific qualification. The finding is consistent with our requirement for a similar standard, non-modifiable clause in all RPS contracts that involve CPUC Approval.12 As we have before, however, we qualify this finding by noting that this provision has never been intended, and shall not be read now, to allow the generation from a non-RPS-eligible resource to count towards an RPS compliance obligation. Nor shall such finding absolve the seller of its obligation to obtain CEC certification, or the buyer of its obligation to pursue remedies for breach of contract, if necessary. Such contract enforcement activities shall be reviewed pursuant to the Commission's authority to review SCE's contract administration.13

All procurement under the Letter Agreement and the Buy-Out Agreements meets all Commission requirements to count towards the RPS. (Status Report at 4.)

We make this finding, but again do so subject to specific qualification. The CEC verifies whether electricity is eligible to be counted towards RPS targets, including that it is only counted once for the purpose of meeting RPS requirements in this or any other state. (§ 399.13(b).) The final counting of electricity procured from the MVPP facility via the Buy-Out and Letter Agreements is subject to verification by the CEC.

Payments made by SCE under the Letter Agreement and the
Buy-Out Agreements (including broker fees with respect to such transactions) are fully recoverable in rates over the life of the Letter Agreement and the Buy-Out Agreements, subject to Commission review of SCE's administration of the Letter Agreement and the
Buy-Out Agreements. (Status Report at 4.)

We know of no reason not to make this finding, and we do so.

5 As early as 2002, we stated that one Commission goal was to transition full responsibility for energy market related activities from DWR back to the utilities as soon as possible, making every effort to relieve DWR from the responsibility of performing any functions that should be performed in the long term by utilities.
(D.02-12-069 at 7-8.) In 2008 we addressed a process for renegotiating and novating DWR contracts so that DWR would no longer be a supplier of power. (D.08-11-056.)

6 The five buy-out agreements are: (1) the 3Degrees Buy-Out Agreement, (2) Grey K Buy-Out Agreement, (3) Grey K II Buy-Out Agreement, (4) CE2 CC Buy-Out Agreement, and (5) CE2 EO Buy-Out Agreement.

7 SCE notes in its Status Report that SCE and MVPP entered into a separate 10-year agreement for the delivery of RPS-eligible energy from the MVPP facility that began on October 1, 2011. That agreement was approved by the Commission on June 19, 2009 in Resolution E-4248.

8 CARE asserts that the MVPP Novation and Replacement Agreements are neither just nor reasonable, and should not be approved. (CARE Brief at 10.) We need not address CARE's position on these two specific agreements given that SCE no longer requests their approval. We, however, address CARE's concerns relative to the remaining agreements.

9 As the Commission noted in D.11-12-052, at 54, the TREC price cap instituted by
D.10-03-021 is not affected by the changes made by SB 2 (1X). The MPR requirements were repealed by SB 2 (1X), but we accept DRA's analysis as indicative of price reasonableness for the MVPP Transaction.

10 These agreements do not create a new procurement obligation for SCE, but only reunite RECs with the energy already contracted for in the DWR Contract. The Commission therefore evaluates the reasonableness of the agreements within the anticipated, limited, timeframe of the agreements.

11 CARE's comparisons, even if relevant (which they are not), are not persuasive. For example, CARE compares the TREC price cap ($50 per MWh) to a price paid by Pacific Gas and Electric Company (PG&E) for as-delivered capacity (which CARE says is $6.29/MWh). (June 9, 2011 Reply Brief at 6.) CARE fails to demonstrate that comparing the TREC price cap with an as-available capacity price is meaningful. Further, even if the price comparison is relevant (which it is not), CARE fails to explain why a price paid by PG&E is a reasonable measure for a transaction that involves SCE.

12 See D.08-04-009, Appendix A, at 3, Standard Term and Condition 1 (CPUC Approval).

13 See this same qualification, for example, in Resolution E-4438 issued February 6, 2012.

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