VII. Comments on Draft Decision

Pursuant to Section 311(g)(2) of the Public Utilities Code that this decision must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission. Section 311(g)(2) provides that this 30-day period may be reduced or waived upon the stipulation of the parties in the proceeding.

At the PHC held on May 5, 2004, the parties stipulated to a shortened comment period. Accordingly, opening comments were filed onMay 28, 2004 and reply comments were filed on June 4, 2004. Opening comments were received from the CEERT Parties, Green Power, SCE, Ridgewood, SDG&E, PG&E, TURN, Solargenix and the CalWEA Parties; reply comments were received from the CEERT Parties and the three utilities.

In its opening comments, Green Power suggested changes to the definition of the environmental attributes contained in a Renewable Energy Credit (REC). The REC is the fundamental unit of accounting for purposes of RPS compliance, and could be considered a fundamental currency in RPS transactions. Green Power argues that, for purposes of assessing the benefits of renewable generation, we should directly associate in our definition of a REC the production of renewable energy with the displacement of conventional alternatives. This association is fundamental to the goals of the RPS program - a megawatt-hour of renewable generation avoids a definable amount of emissions or hazards associated with a conventional generation alternative. The definition provided by the CEERT Parties and adopted in the Draft Decision establishes this relationship. For purposes of clarity, however, we make a minor adjustment to the definition, inserting language in Appendix A that makes this association with displaced conventional sources explicit.

Green Power also suggests a modification to the Draft Decision's treatment of environmental attributes associated with electrical production from landfill gas and biomass facilities. The Draft Decision recognizes that such facilities may receive tradable environmental attributes based on the amount of greenhouse gas (GHG) emissions that are avoided via their fuel use, while at the same time, these facilities may emit some amount of GHGs in the course of generating electricity.

The appropriate amount of offset emissions would therefore be the net GHG savings from using biomass or landfill gas as fuel, rather than disposing of these materials via traditional methods, such as open-field burning or landfill decomposition. Green Power recommends that we extend this "netting out" treatment to all emissions, not just GHGs. We agree with this principle, and modify Appendix A accordingly.

In its comments, SCE argues that it should not be ordered to issue a solicitation at this time. According to SCE, it already expects that in 2004 it will procure 20% of its retail sales from eligible renewable resources currently under contract, and accordingly it would be unnecessary and counterproductive for the Commission to require SCE to conduct an additional solicitation for 2004. SCE raises a valid point. As SCE points out, solicitations are to be made pursuant to a Commission-approved renewable procurement plan, and SCE will be filing its plan on June 14, 2004. If, as expected, SCE's renewable procurement plan indicates that it need not conduct a solicitation for 2004, then no such solicitation will be required. We will modify the relevant Findings of Fact, Conclusions of Law, and Ordering Paragraphs to clarify this point. Since we have not yet reviewed SCE's renewable procurement plan, however, it would be premature to pre-exempt SCE from a 2004 solicitation. SCE may continue and conclude its negotiations with short-listed bidders from its August 2003 renewable solicitation.

SCE and the CEERT Parties seek restoration of aspects of the "CPUC Approval" language originally proposed by the CEERT Parties. However, neither set of comments mentions the reason why that language was modified in the draft decision: the language was overbroad, and could have been construed to prevent the CPUC from taking appropriate action even if (for example) a particular solicitation or agreement were subsequently determined to be fraudulent. The Commission certainly does not intend to unreasonably bar rate recovery of utility payments to renewable generators, but the parties have not alleviated or even attempted to address this Commission's concerns regarding the possible implications of the proposed language.

The CEERT Parties recommend modifications to the terms "Net Out of Settlement Amounts" and "Eligibility," and the reinstatement of the provision entitled "Right of First Refusal Option", which was deleted in the Draft Decision.

In their March 26, 2004 joint brief, the CEERT Parties conditioned adoption of the "Right of First Refusal Option" (under Supplemental Energy Payment (SEP) Awards, Contingencies) on Commission adoption of subsection (1) under CPUC Approval. Since that subsection (1) was not adopted as proposed, the Draft Decision eliminated the CEERT Parties' proposed language regarding the Right of First Refusal Option.

In their comments on the Draft Decision, the CEERT Parties reconsidered the elimination of this option, requesting that even with changes to the "CPUC Approval" term, the "Right of First Refusal Option" be reinstated as subpart (b) of the "PGC Funding Termination Event" in the SEP Awards, Contingencies term. Specifically, the Buyer (utility), in its advice letter filing requesting approval of its RPS contracts, will also have the opportunity to request rate recovery for payments to be made under this "Right of First Refusal Option." We have accordingly reinstated "Right of First Refusal Option" as subpart (b) of the "PGC Funding Termination Event" in the SEP Awards, Contingencies term in Appendix A.

With regards to the "Eligibility" term, the Draft Decision adopted the CEERT Parties' recommended language, including the phrase "as such code provisions may be amended or modified from time to time", thus offering language that could be used in current and future solicitations. However, in their comments, the CEERT Parties have concluded that this phrase injects uncertainty into the ongoing status of the seller after the contract has been signed, as a seller cannot ensure that it will meet changeable standards. This renders the contract potentially unfinanceable. The proposed solution is for the Commission to direct the replacement of currently stated code section numbers with any newly adopted code sections, if applicable in future solicitations. We agree with this recommendation and have modified the "Eligibility" term in Appendix A to reflect the revised language proposed by the CEERT Parties.

The CEERT Parties also note in their comments that the language adopted in the Draft Decision on "Net Out of Settlement Amounts" provision in the "Non-Performance/Termination Penalties" term reflects the language proposed in Appendix A of the CEERT Parties' Joint Opening Brief (March 26, 2004). However, in their Reply Brief at page 14, the CEERT Parties altered this position, and adopted the language suggested by the CalWEA Parties. The language provided in the CEERT Parties' Reply Brief is intended to protect a non-defaulting party from having to enrich a defaulting party by paying the defaulting party in the event that the net settlement amount calculation reflects a positive amount owing from a non-defaulting party upon termination of the RPS contract. We agree with the altered position of the CEERT Parties and have modified the "Net Out of Settlement Amounts" term in Appendix A to reflect the revised language proposed by the CEERT Parties.

The CEERT Parties, SCE, and the CalWEA Parties note that a Joint Ruling issued on March 8, 2004 (in R.01-01-024) identified which terms and conditions could be modified by the parties through negotiation, but the draft decision omits that identification. Consistent with the March 8 Joint Ruling, Appendix A now indicates the negotiability of each standardized term and condition.

The CalWEA Parties's opening comments argue that that the draft decision lacks the legally-required level of analysis, primarily because it does not address in detail the rejected proposals of the CalWEA Parties. We agree that the Commission must indeed support its decisions by sufficient analysis. The Commission has done that here, and has provided a fully adequate basis for the standard contract terms and conditions that it has adopted. A perceived paucity of discussion of rejected positions does not mean that the decision is legally insufficient. In addition, the reply comments of the CEERT Parties clearly and specifically rebut each of the substantive criticisms of the CalWEA Parties.

TURN argues that the Commission should provide more direction regarding Annual Procurement Targets for the years 2005 through 2007, as the utilities need to be shown more specifically how to reach the target of 20% renewables by the year 2010. We decline to provide more specific numbers at this time, but we reiterate our commitment to the Energy Action Plan, reaffirmed in the OIR that opened this proceeding, which calls for attainment of the 20% RPS goal by 2010. This is not particularly complex to understand, and utilities should bear this in mind in planning their renewable procurement.

TURN also takes exception to the draft decision's treatment of incremental geothermal procurement. As discussed in the reply comments of PG&E and SCE, the adopted treatment of incremental geothermal procurement is consistent with both the law and with previous Commission decisions. In order to clarify our treatment of this issue, we have added a footnote to Appendix B.

In its opening comments, Solargenix states that under the "Performance Standards/Requirements" there is no specific renewable exemption for solar thermal, which may have limitations associated with the renewable "fuel" or resource associated with the technology, similar to other forms of renewable energy. Consequently, Solargenix proposed specific language be added to the "Performance Standards/Requirements" term to address specific exemptions for solar thermal. While no other parties addressed this (either in support or opposition) in reply comments, we are reluctant to adopt this provision, as this issue was not previously addressed on the record in this proceeding. Solargenix may wish to raise this issue again as this proceeding moves forward in refining the standard contract terms and conditions adopted today.