XVIII. Incentives

The PPA has two incentive mechanisms built in: the heat rate incentive and the availability incentive mechanisms. The heat rate incentive is designed to motivate MVL to maintain the plant in a reasonable condition so that the heat rate does not unreasonably degrade and the plant functions at an efficient heat rate. Edison revised Section 12.01 of the PPA to specify that the target full load heat rate for the Facility is 7,000 Btu/kWh HHV at a "new & clean" condition, and the heat rate should not exceed 7,210 Btu/kWh HHV.

The availability incentive mechanism, section 12.03 of the PPA, is designed to encourage efficient operation of the plant for the entire expected operating life of the plant.

The PD was not clear as to whether we were adopting TURN's recommendation that the availability targets in the PPA that are tied to incentive payments be increased by 2% in both summer and winter months. TURN is concerned that the targets proposed by Edison in the PPA are too "lenient" in light of the Contractual Services Agreement (CSA) with General Electric that established certain relevant guarantees. We agree with TURN and its witness Marcus that the 2% increase is appropriate and insures that MVL is motivated to keep the unit serviceable to the greatest extent possible. Therefore, we find that the heat rate and availability incentives as described in the PPA should be subject to the changes proposed by TURN, and we adopt those recommendations.