Discussion

A. Background

In 1998, SDG&E and Kelco executed a Uniform Standard Offer 1 (USO1) power purchase agreement for the Kelco facility. In accordance with the agreement, Kelco sold excess energy from the facility to the California Power Exchange (PX). USO1 was terminated by the Commission on December 31, 2001.

In the fall of 2001, Kelco approached SDG&E requesting a new negotiated power purchase agreement. Kelco claimed it was entitled to SRAC pricing under the Public Utility Regulatory Policies Act of 1978 (PURPA) but SDG&E disagreed. Shortly thereafter, Kelco filed C.01-12-002 against SDG&E. Because SDG&E was interested in entering into a power purchase agreement that could benefit its customers, negotiations between SDG&E and Kelco began in the first quarter of 2002. By mutual agreement of the parties and the rulings of the Assigned Administrative Law Judge (ALJ), SDG&E was granted several extensions of time to file its answer to the complaint as negotiations continued. The proposed PPA is the product of those negotiations.

The instant PPA resolves C.01-12-002. Section 5 of the Settlement Agreement and Release of Claims (Settlement) filed in that docket requires that, in order for the Settlement to take effect, the Commission must first find that the prices, terms, and conditions of the PPA, taken as a whole, are reasonable, and that SDG&E should be permitted to recover in rates its full costs for power purchased under the PPA, subject to SDG&E's prudent administration of the PPA. By resolving the complaint through the Settlement and a PPA, the parties state that they have conserved valuable resources of themselves and the Commission, as well as honoring the public policy favoring purchase of QF power, thereby adding to the public interest that will be served by the Commission's approval of the PPA.

B. Terms and Ratepayer Benefits

SDG&E asserts that it agreed to purchase energy from Kelco under the PPA because it could do so under terms and conditions that were economically advantageous to SDG&E's ratepayers and notes that the energy purchase is subject to a price cap to manage price volatility in the event that natural gas prices rise during the PPA term.

The effective date of the PPA commences upon a "Determination Date" following Commission approval, and extends for a period of five years from the Determination Date. The terms include a fixed, non-time differentiated price for nonfirm energy and for capacity. However, the PPA price terms include an adjustment clause to account for changes in natural gas prices that could occur before the Commission approval date. This adjustment clause includes a cap on the maximum adjustment that SDG&E can be forced to accept, although SDG&E has discretion to accept a higher price. During the term of the contract, Kelco has the right to enter into sales with third parties, but the underlying PPA remains in place. All interconnection facilities are to remain in place, and the existing interconnection agreement remains in effect.

SDG&E has compared the payments to be made to Kelco under the terms of the PPA to payments made at projected SRAC energy and capacity prices. SDG&E has forecasted its SRAC energy prices based on gas market prices plus basis differentials from the NYMEX. SDG&E calculates potential energy prices savings based on a high, expected, and low range of forecast natural gas prices, with the expected case based on the NYMEX market gas prices at Malin. In the high case, natural gas prices were increased by 10% from the expected case, and in the low case, gas prices were decreased by 10% from the expected case. The capacity payments were based on the current capacity prices of $70.34/kW-Yr, as converted to a non-TOU¢/kWh and posted in SDG&E's Commission approved SRAC formula, and estimated annual kWh deliveries based on an average as-available capacity of 15,000 kW. The three cases yielded cost savings over the five-year term.

C. Motion for Protective Order

SDG&E is filing both a public (redacted) and confidential (unredacted) version of this application and its attachments. Attachment A to the application is the PPA, with power purchase prices, projected gas prices, and gas purchase requirements excluded from the public version. Attachment B, attached to the confidential version only, is SDG&E's economic analysis of the ratepayer benefits. By motion filed with this application, SDG&E requests leave to file the redacted material in section IV.B. of the application, the redacted material in Attachment A, and all of Attachment B under seal, and to designate that material as confidential since it contains commercially sensitive competitive information, the public disclosure of which would harm both Kelco and SDG&E in future PPA negotiations with other parties. For the reasons stated we grant the protective order. (See Pub. Util. Code §§ 583, 585, and General Order 66-C.)