II. Introduction

On July 20, 2006, the Commission issued D.06-07-029 which adopted a cost-allocation mechanism for long-term contracts for new generation entered into by the investor-owned utilities (IOUs). Under this allocation mechanism the costs and benefits of the new generation are shared by all benefiting customers in an IOU's service territory. The Commission designated the IOUs to procure the new generation, but the capacity and energy components are unbundled. The load-serving entities (LSE) in the IOU's service territory will be allocated rights to the capacity that can be applied toward each LSE's resource adequacy (RA) requirements. The LSE's customers receiving the benefit of this additional capacity pay only for the net cost of this capacity, determined as a net of the total cost of the contract minus the energy revenues associated with dispatch of the contract.

D.06-07-029 also directed SCE to proceed expeditiously to procure up to 1,500 MW of new generation, previously authorized in D.04-12-048. Pursuant to this order, on August 14, 2006, SCE issued a Request for Offers (RFO) for up to 1,500 MWs of PPAs for new generation (New Gen RFO).

In July 2006, California experienced an unexpected and unprecedented heat storm that challenged the electric resources of the state. While the state weathered the storm, this experience raised new concerns about summers 2007 through 2009 when new capacity is expected to come on-line. In response to that reliability concern, President Peevey issued an assigned Commissioner's Ruling (August ACR) on August 15, 2006, directing SCE to pursue new utility-owned generation that can be on-line in time for summer 2007. In addition to those resources, SCE was invited to evaluate any other offers of resources that could be on-line by the same time frame. In response to that ACR, SCE began building new black-start capable and dispatchable generation units and initiated an additional RFO targeting facilities that could be on-line in time for summer 2007.

Based on the bids received in response to the Summer 2007 RFO, SCE accepted an offer from LBG for 260 MW of natural gas-fired peaking capacity from Long Beach Generation Facility Units, 1, 2, 3 and 4. These units were closed in 2005 and are currently not in operation. LBG states that it plans to repower these units utilizing equipment and efficiencies that will make them as environmentally sensitive as possible considering the original age of the basic equipment and the totality of the surroundings of the units' geographical location in the Long Beach commercial harbor.

SCE filed this instant application seeking approval of a 10-year PPA with LBG with a delivery period from August 1, 2007 through July 31, 2017. SCE also seeks approval to allocate the benefits and costs of the LBG PPA to all benefiting customers in accordance with D.06-07-029.