ALJ/RAB/avs Mailed 6/6/2003

Decision 03-06-026 June 5, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of San Diego & Electric Company (U 902 E) for Approval of Power Purchase Agreement with CP Kelco U.S., Inc.

Application 02-10-030 (Filed October 21, 2002)

OPINION APPROVING POWER PURCHASE AGREEMENT
BETWEEN SDG&E AND CP KELCO U.S., INC.

Summary

A Power Purchase Agreement (PPA) was entered into between SDG&E and CP Kelco U.S., Inc. (Kelco) for excess energy generated at Kelco's Qualifying Facility (QF) located in SDG&E's service territory. The PPA was negotiated during the first half of 2002, after Kelco's Standard Offer No. 1 contract expired on December 31, 2001, pursuant to Decision (D.) 96-10-036. The PPA consists of a "Master Power Purchase and Sale Agreement Confirmation Letter" and a "Master Power Purchase and Sale Agreement" which, collectively, are referred to as the PPA (Appendix A).

We find that the PPA is in the public interest. SDG&E asserts that the PPA will provide Kelco a purchaser for its QF output, and at the same time honor state and federal policies encouraging the purchase of QF excess energy. Moreover, the prices in the PPA are expected to provide SDG&E ratepayers with the benefits of local generation at a savings greater than projected short run avoided costs (SRAC) of SDG&E, which is expected to exceed the PPA price. Finally, the PPA resolves all outstanding issues in the matter of Kelco's Case (C.) 01-12-002 against SDG&E. SDG&E requests approval of the terms and conditions of the PPA and an order allowing SDG&E to recover its full costs for purchased power under the PPA, subject to SDG&E's prudent administration of the PPA. There are no protests. A public hearing is not necessary.