VI. Intervenors' Analysis of the Application

LBG, as the owner and developer of the project and the counter-party with SCE to the contract, did not initially participate in the proceeding and did not submit testimony for the evidentiary hearing. However, on December 18, 2006, LBG filed a motion to become a party and submitted a proposed post-hearing brief. As discussed below, LBG's motion is granted and its brief was considered.

In particular, LBG addresses the issue of SCE's need for the LBG project - the major argument presented by opposing parties to the contract. LBG does not see a controversy: the Commission, in D.06-07-029, directed SCE to procure up to 1,500 MW of new generation, a need number based on D.04-12-048. The LBG project will contribute 260 MW toward meeting that need. According to LBG, the question whether that 260 MW is needed in Long Beach by summer 2007 is a different issue and one that cannot be answered with any certainty. LBG also asks the Commission to refer to the CEC Report that shows that the addition of the LBG resource increases the probability that SP26 will have sufficient resources to prevent a Stage 1, 2 or 3 emergency. LBG urges the Commission to approve SCE's application and find that the contract is reasonable and prudent.

In its comments supporting the PD, LBG reiterates the benefits the additional power will provide against outages in the near term and in support of local reliability benefits for the duration of the PPA.

TURN urges the Commission to deny SCE's request for approval of the LBG contract because from TURN's analysis "it offers only trivial value at a very high cost."12 Specifically, TURN posits that the project is not needed to provide reliable service in 2007 because of the following: this project is in addition to SCE's new peakers that will come on-line in summer 2007. It is not scheduled to come on line until August 2007, thereby missing one half of the summer and it is not cost-effective.

Primarily, TURN does not believe that the LBG contract is needed for SCE to meet its PRM. Following the PRM metric established by the Commission, SCE should meet, or even exceed, the 15-17% PRM requirement.13 In fact, SCE's own predictions show an expected physical PRM in 2007 of 19.1%. TURN also believes that a sufficient amount of SCE's resources should be available, without the addition of the LBG units, to meet load in summer 2007 so that CAISO does not need to do backstop procurement.

To support its application, SCE produced a table that measures resource adequacy using metrics not adopted by the Commission for use by an LSE. SCE explained that the table included measures that a system operator might rely on when planning for upcoming peak seasons. TURN faults SCE's reliance on these metrics. As TURN states, SCE's arguments that its actual load and resources may differ from assumptions is to state the obvious - actual measurements are not the same as forecast assumptions. From TURN's perspective "the virtual certainty that `actuals' will differ from forecasts is not a justification for adding resources beyond those needed to meet the PRM."14

With a 19.1% RPM, TURN does not find that SCE has presented a need for this new resource. TURN recognizes that SCE is operating in response to the August ACR, but TURN does not see any evidence that this project is needed, even if there is a repeat of the 2006 Heat Storm.

TURN is also concerned that that the LBG project, with a projected on-line date of August 1, 2007 would only be available" - at best - for half of the summer of 2007," and possibly not for any of the summer .15 TURN acknowledges that SCE built completion incentives into the contract, but argues that incentives are not a guarantee of performance especially given such a "rushed permitting, development and construction schedule."16

And finally, TURN does not believe that the LBG project is a reasonable business deal for SCE customers. When TURN compares this project with any of the projects the Commission recently approved for PG&E in A.04-06-012, the LBG project is not cost effective. However, TURN concedes that the LBG project and PG&E's projects are not comparable, especially because of SCE's required on-line date of August 1, 2007. However, in just evaluating the LBG project on its own, TURN still finds that its high heat rate and cost make it unduly costly for SCE customers. TURN does not support this project. However, if the Commission approves the project anyway, TURN urges that at a minimum the Commission should require SCE and LBG to provide an unequivocal guarantee that the LBG project will have a thirty-year design life when it is completed.

TURN entitled its comments to the PD, "Reliability at any Cost??" That summarizes TURN's position in a nutshell. In its comments TURN, again, requests that the Commission reject the LBG PPA. Instead, TURN suggests that NRG bid the project into one of SCE's other New Gen RFOs at a more competitive price, with a later on-line date. In addition to the arguments TURN made in its testimony and in its brief against the project, in its Comments TURN posits that the Commission itself should honor the adopted PRM, a metric established by the Commission to provide reliable service. TURN asks that the Commission not add additional, high cost resources that are not needed when SCE clearly has resources in excess of its required PRM. In summary, TURN urges the Commission to reject the LBG project because under every reliability criterion the Commission has ever considered, this project is not needed to provide reliable service in southern California in 2007 and beyond. TURN also requested two corrections to the PD that were adopted.

DRA recommends that the application be denied on the grounds that there has been no needs assessment showing that the project is needed for summer 2007, and it is an expensive resource. DRA's arguments against the project parallel some of the same concerns raised by TURN. DRA finds SCE's argument that there is "some possibility"17 that the actual resource or load levels may differ from the assumptions used by SCE too weak to justify this "additional layer of capacity insurance."18

DRA questions "how much insurance is enough and at what cost?"19 DRA recognizes that SCE was responding to the August ACR in conducting its Summer 2007 RFO, but DRA does not find the LBG project worthy of an expedited approval schedule in the absence of a need assessment.

DRA also worries that SCE's timetable is unrealistic, especially vis-à-vis environmental reviews making it probable that the facility will not be on-line by August 1, 2007. Even if it is on-line by August, from DRA's perspective that is too late to mitigate a July Heat Storm such as occurred in 2006. Furthermore, the capacity will not count for resource adequacy purposes until at least October 2007 because of the RA counting rules.

In addition, DRA finds the high heat rate of the LBG project to be inconsistent with the Commission's GHG policy and questions whether it is the best resource for SCE to be adding to its portfolio.

In its Comments on the PD, DRA again opposes the PPA, repeating the same concerns about lack of need for the resource that will be a financial drain on ratepayers for 10 years. DRA did provide some new information from the CEC about the increase in probability that SP26 will have sufficient resources to avoid a Stage 3 situation. Without any new resources in SP26, the probability is 93.3% that the region will have sufficient resources. SCE provided data that with the addition of its peakers, the increased demand response programs and the LBG project the probability increases to 99%. What DRA learned from the CEC is that with the SCE peakers and demand reduction programs, and NO LBG project, the probability is 98.7% that a Stage 3 will be avoided. From DRA's perspective, the CEC figures do not support approving the LBG project.

As CARE succinctly states "SCE may be paying way to[o] much to get some old and inefficient peaker turbines back in operation. According to CARE, it may be significantly cheaper to bring new efficient simple-cycle turbines online instead."20 In addition to the cost of the LBG project, CARE's other concern is the environmental consequences of repowering the Long Beach facility since the area where the units are located is contaminated with asbestos. CARE is understandably skeptical that LBG can meet all the environmental application and permitting milestones in time to have the units repowered and on-line by August 1, 2007. CARE even opines that the repowering may trigger review under the California Environmental Quality Act (CEQA) and that process can take as long as two to three years. CARE is also interested in LBG's credit worthiness and whether that poses a risk to ratepayers. In summary, CARE asks that the application be denied since the units are expensive and dirty.

In its Comments to the PD, CARE repeats its concerns about the environmental permitting issues. In particular, CARE argues that the PD deprives CARE of its rights under CEQA, Title VI of the Civil Rights Act of 1964, the California Government Code, and the federal and state Constitutions. More specifically, CARE argues that it will be impossible for the LBG project to be on line by August 2007 because the plans of the Port of Long Beach and Port of Los Angeles, along with the South Coast Air Quality Management District (SCAQMD) have goals to reduce emissions and have set mandatory compliance targets. CARE does not find the LBG project to be part of these plans and, in fact, LBG would significantly increase air pollution. CARE is also concerned that a Health Risk Assessment is required. Once again, CARE does not see how the LBG project can meet all of the environmental requirements and CARE opposes any attempt to circumvent the established processes.

In its Reply Comments CARE again repeats its arguments that for the Commission to go forward and approve the LBG PPA violates CARE and other's right under CEQA, Title VI of the Civil Rights Act of 1964, the Government Code, the equal protection mandates of the Federal and State Constitutions, and the Federal Power Act of 1935. CARE alerts the Commission to its intent to file a complaint with the Federal Energy Regulatory Commission (FERC) challenging the legality of the PPA.

LBG replied to CARE's arguments in its Reply Comments. In particular, LBG addresses the environmental challenges brought by CARE and states that LBG is pressing on with all applicable environmental permitting and review requirements in an expeditious manner, and if any permit or application is denied, then that lies with the other agency and not with this Commission. In addition, CARE makes numerous references to the Commission's deprivation of CARE's rights because the Commission is not undertaking a CEQA review. LBG asserts that the Port of Long Beach has a CEQA process underway that is expected to be concluded well before the August 1, 2007 on-line date for the project. As part of its CEQA review, the Port of Long Beach will conduct a public review process and CARE and its members may comment on CEQA issues during the comment period.

And finally, LBG responds to CARE's claim that two recent orders by the Ninth Circuit requires LBG to file the PPA at FERC. LBG argues that these two orders only indicate that the LBG PPA might be subject to a reasonableness review by FERC, and do not mandate that the FERC approve the PPA before the Commission can proceed on the application.

CMTA/CLECA, although it did not see the confidential data contained in the Application, based on the public testimony urges the Commission to reject the contract because (1) it is very expensive; (2) is relatively inefficient; (3) is not needed in 2007 to meet SCE's 15-17% PRM; and (4) is not even guaranteed to be on-line by August 2007 to provide any of the purported reliability benefits. CMTA/CLECA is concerned that even the IE was hesitant about recommending the project due to the expense of its operating attributes, especially the run-time limitations. CLECA also questions whether it is necessary that SCE have a
10-year PPA when what is needed is just a short-term stop-gap solution; perhaps SCE should try for an interim three-year contract instead to specifically address the need in 2007 through 2009.

CMTA/CLECA is also concerned as to whether SCE has presented a viable needs assessment outside of the long-term procurement process. In summary, CMTA/CLECA does not support the project. While it understands the Commission's need to address changing conditions in the electric industry, it finds there "is a difference between acting quickly and resolutely to address an emergency and acting precipitously,"21 and asks that SCE's application be rejected.

In its Comments to the PD, CMTA/CLECA reminds the Commission that the effect of the project will be an increase in rates of all benefiting customers (including those represented by CMTA/CLECA), while any potential reliability benefit is limited to a short period, 2007 to 2009. CMTA/CLECA agree that service interruptions should be avoided, but they question whether there might be a more cost-effective solution instead of one that is a 10-year burden.

NRG, the parent to LBG, is not a party to the proceeding but did attend the PHC and made witnesses available to answer questions from the PHC participants. NRG addressed issues concerning the repowering or rebuilding of the four existing gas turbines at the site to a 30-year design life, as well as adding air emissions control devices. In addition, to address the concerns of CARE, NRG stated that the environmental issues will be handled through permitting with the South Coast Air Quality Management District as well as the Port of Long Beach. The permits cannot be issued until there is a CEQA certification that there will not be adverse impacts to the environment or to the community. NRG confirmed that pursuant to the terms of the PPA with SCE, NRG is solely responsible for complying with all environmental regulations and permitting processes.

The Coalition of California Utility Employees and California Unions for Reliable Energy (CUE/CURE), and Constellation Energy Commodities Group, Constellation New Energy and Constellation Generation Group (Constellation), and Long Beach Generation LLC, also participated in the PHC but did not present any protest or reply to SCE's application.

12 TURN Direct Testimony, Exhibit 9, p. 2.

13 D.04-01-050, p. 23.

14 TURN Testimony, Exhibit 9, p. 6.

15 Ibid., p. 8.

16 Ibid., p. 12.

17 DRA Testimony, Exhibit 12, p. 3.

18 Ibid., p. 3.

19 Ibid., p. 3.

20 CARE's Testimony, Exhibit 13, p. 3.

21 CMTA/CLECA Brief, December 18, 2006, p. 7.

Previous PageTop Of PageNext PageGo To First Page