ALJ/VSK/tcg Date of Issuance 9/7/2007
Decision 07-09-010 September 6, 2007
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of San Diego Gas and Electric Company (U902-E) for Approval of Power Purchase Agreement with J-Power, USA Development Company, LTD and Wellhead Power Margarita, LLC for Recovery of Costs and for a limited Exemption from the Requirements of Public Utilities Code Section 851. |
Application 07-05-023 (Filed May 11, 2007) |
OPINION APPROVING POWER PURCHASE AND
LEASE OPTION AGREEMENTS
ORDERING RECOVERY OF COSTS RELATED TO THOSE AGREEMENTS,
AND FOR A LIMITED EXEMPTION FROM THE REQUIREMENTS
OF PUBLIC UTILITIES CODE SECTION 851
This decision approves power purchase agreements (PPAs) and corresponding leases between: (1) San Diego Gas and Electric Company (SDG&E) and J-Power, USA Development Company, Ltd. (J-Power); and (2) between SDG&E and Wellhead Power Margarita, LLC (Wellhead). For each of these sets of agreements, SDG&E shall grant options to lease its land to a developer (J-Power and Wellhead, respectively), who shall construct gas-powered peaker generators (peakers) on the leased land. The PPAs commit the output of those peakers to SDG&E for a period of 25 years,1 after which the leases shall expire and title to the peakers shall transfer to SDG&E at no additional cost.
Because the public interest is served by these arrangements, this decision also finds that these leases of utility land fall within the exceptions to the requirements of Pub. Util. Code § 851 found in Pub. Util. Code § 853(b).2
This decision further orders full recovery of costs associated with the PPAs from bundled customers through SDG&E's Energy Resources Recovery Account (ERRA). Any rental revenues in excess of the revenue requirement associated with the land values in rate base will also be recorded to SDG&E's ERRA account, for the benefit of bundled customers.
In total, these agreements will provide approximately 130 megawatts (MW) of power to meet future energy and reliability needs of SDG&E's bundled customers starting in 2008. This proceeding is closed.
1. Introduction
In response to the unusually hot summer of 2006, we ordered Southern California Edison Company to immediately procure up to 250 MW of additional peaking capacity to be placed into service by the summer of 2007, and directed SDG&E and Pacific Gas and Electric Company to file reports addressing the potential need for similar action in their service areas.
After SDG&E reviewed its long-term procurement plan (LTPP) needs, it identified a need for additional capacity as early as the summer of 2008. SDG&E consulted with its Procurement Review Group (PRG) and with its Independent Evaluator (IE). Subsequent to these meetings, SDG&E issued a Request for Offers (RFO) on October 17, 2006.3
1.1 J-Power and Wellhead Projects
SDG&E evaluated the projects offered into the RFO4 and selected the agreements with J-Power and Wellhead, which are the subject of the present application.5 Each offer consists of an option agreement to enter into a lease of SDG&E real property for the purpose of constructing peaker generators and a PPA to purchase the output of the new peakers.
Under the J-Power agreements, J-Power would construct two simple gas-fired peaker turbines with a combined capacity of about 86.5 MW, to be constructed on 16.5 acres of SDG&E's 202 acre Pala substation site in northern San Diego County, to which the generators would be connected. The commercial online date will be May 31, 2008, and the delivery term of the PPA is expected to be from May 31, 2008 through May 31, 2033.6
Under the Wellhead agreements, J-Power would construct one simple gas-fired peaker turbine with a capacity of about 44 MW, to be constructed on 1.68 acres of SDG&E's 19 acre Margarita substation site in Orange County, to which the generators would be connected. The commercial online date will be July 1, 2008, and the delivery term of the PPA is expected to be from July 1, 2008 through December 31, 2033.7
For both projects, during the duration of the PPA, the developer would own and operate the facility, and SDG&E would have exclusive off-take rights to both energy and ancillary services from units. SDG&E will serve as the scheduling coordinator for the units with the California Independent System Operator Corporation (CAISO). The units would be considered resource adequacy units subject to the dispatch and operational rules under the CAISO tariff.8
At the end of each lease, ownership of the peaker generators constructed on that site will transfer to SDG&E without cost.
1 The Wellhead PPA will terminate on December 31 of the year in which the 25th anniversary of initial delivery occurs, and so will be in effect for longer than 25 years but less than 26 years.
2 All further code references are to the Public Utilities Code, unless otherwise stated.
3 Application, p. 2.
4 SDG&E's analysis is at the center of the IE's report, Exhibits 1 and C-1, and is also described in Exhibits 4 and C-4 on pp. 1-3.
5 SDG&E may elect to submit applications at a future date seeking approval of other offered projects it received pursuant to the October 16, 2006 RFO. The present application does not address those offers in any detail and they are not being considered together with these projects.
6 Application, pp. 3 and 6.
7 Application, pp. 3-4 and 6. The Wellhead PPA will terminate on December 31 of the year in which the 25th anniversary of initial delivery occurs.
8 Application, pp. 3-4.
