X. Assignment of Proceeding

President Michael R. Peevey is the assigned Commissioner and Carol Brown is the assigned Administrative Law Judge in this proceeding.

Findings of Fact

1. SCE seeks Commission approval of a 10-year PPA with LBG for 260 MW of peaking capacity from the Long Beach Generation Facility, to be on-line by August 1, 2007, to insure sufficient resources for summers 2007 through 2009 for SP26.

2. LBG plans on repowering four units at the LBG facility in the Port of Long Beach, to have the units on-line by August 1, 2007, producing 260 MW from combustion turbines.

3. It is appropriate to allow SCE to apply the cost-sharing mechanism from D.06-07-029 to the LBG PPA and allocate the benefits and costs from the contract with all benefiting customers.

4. SCE conducted an RFO in response to the August ACR directing SCE to add new black-start utility-owned resources, to increase its demand reduction program and to search for other resources that could be on-line by August 1, 2007.

5. The LBG project was the most cost-effective bid received in response to the Summer 2007 RFO that indicated that it could be on line by August 1, 2007.

6. SCE also conducted an RFO for an IE to perform monitoring and evaluating functions for the summer 2007 solicitations.

7. SCE retained an IE who performed monitoring and evaluating functions for all required aspects of the Summer 2007 RFO, including a review of the bids and the final bid selection.

8. This PPA is measured against the benefits of increased capacity in SP26 and the cost of a Stage 3 service interruption and the cost of back-up procurement by the CAISO.

9. SCE has sufficient resources for its long-term planning purposes based on the Commission's requirement that the utility, as a load-serving entity, maintain a PRM of 15 to 17%, since SCE has a 19.1% PRM for summer 2007.

10. Many new resources are slated to come on-line, in accordance with the IOUs' procurement plans, in both SCE's service territory and SP26 beginning in 2010.

11. The Heat Storm of summer 2006 was unexpected and taxed the electricity resources of the state beyond what the Commission and the LSEs had planned for.

12. A PRM is not the only measurement metric for reliability; the CEC also looks at operating reserves under adverse conditions.

13. The CEC Report indicates that the CAISO Southern California control area, SP26, [that includes SCE's service territory], has a 93.3% chance of avoiding a Stage 3 blackout summer 2007 without the LBG contract and SCE's other new peaking units and demand reduction programs, but with the proposed resources the probability is 99% that SP26 will have enough operating reserves under adverse conditions to avoid a Stage 3 emergency.

14. Based on the CEC's predictions, with the addition of the LBG PPA and other 2007 resources, the probability of avoiding a Stage 3 emergency summer 2007 is 99%, but without the new resources the probability is only 93.3%.

15. Even though SCE has a predicted PRM of 19.1%, actual loads and resources may differ from forecasts.

16. In the face of assumptions, predictions and forecasts, rather than certainty about the weather in summers 2007 through 2009 and the availability of reserves at any given date at any given time, we find it prudent to add the 260 MW from the LBG PPA to SP26.

17. The LBG PPA is an insurance policy against interruptions in business and residential services and possible blackouts in 2007 through 2009.

18. The cost of the LBG PPA is balanced against the fact that it was the least-cost conforming bid with an on-line date of August 1, 2007; an interruption in service has a cost to business and residential customers; and the economy of the state as a whole suffers under a cloud of an unreliable electricity supply.

Conclusions of Law

1. LBG's bid was the most cost-effective conforming bid into SCE's Summer 2007 RFO that committed to an August 1, 2007, on-line date.

2. SCE operated the Summer-2007 RFO in conformity with the Commission's direction in the August ACR and SCE's selection of the LBG PPA is reasonable.

3. The PPA contains sufficient construction and permitting milestones and financial incentives to provide sufficient assurance that the units will be on-line by August 1, 2007.

4. It is reasonable to approve the LBG PPA to provide reliability insurance in the face of uncertainties about the weather, demand, and resource availability for summers 2007 through 2009 until new resources come on-line beginning in 2010.

5. It is consistent with our commitment to insure reliable electric service at fair and reasonable rates to approve the LBG PPA as it provides increased capacity in SP26 and the cost of interruptions in service, blackouts and back-up procurement by CAISO could exceed the cost of the PPA.

6. This decision should be effective immediately so that SCE can implement the PPA.

ORDER

IT IS ORDERED that:

1. Southern California Edison Company's (SCE) 10-year power purchase agreement (PPA) with Long Beach Generation LLC for 260 megawatts of electric power from the repowering of four combustion turbines at the Long Beach Generation facility at the Port of Long Beach with an on-line date of August 1, 2007, is approved.

2. The benefits and costs of this resource are to be allocated to all benefiting customers in SCE's service territory pursuant to the cost sharing mechanism adopted by the Commission in Decision 06-07-029.

3. SCE is to scrutinize the environmental and construction milestones set forth in the PPA to determine if it would be prudent to exercise any legal options to terminate its obligations under the PPA to protect benefiting customers.

4. Application 06-11-007 is closed.

This order is effective today.

Dated January 25, 2007, at San Francisco, California.

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