5. The Geysers PPSA should be approved

As discussed below, we have considered SCE's request and have determined that the Geysers PPSA should be approved without modification.

5.1. SCE's Procurement Review Group participated in Review of the Contract

In D.02-08-071, the Commission required each utility to establish a "Procurement Review Group" (PRG) whose members, subject to an appropriate non-disclosure agreement, would have the right to consult with the utilities and review the details of:

1. Overall transitional procurement strategy;

2. Proposed procurement processes including, but not limited to, the request for proposal (RFP); and

3. Proposed procurement contracts before any of the contracts are submitted to the Commission for expedited review.

SCE's PRG was formed on or around September 10, 2002. Recent participants include representatives from the Commission's Energy Division, the Division of Ratepayer Advocates, The Utility Reform Network, the Natural Resources Defense Council, the Consumers' Union, California Utility Employees, and California Department of Water Resources. SCE consulted with its PRG during each step of the renewable procurement process. Among other things, SCE provided solicitation materials and pro forma contracts to the PRG for review and comment before commencing the RFP; informed the PRG of the initial results of the RFP; explained the evaluation process; and updated the PRG periodically concerning the status of contract formation. On April 11, 2007, SCE briefed the PRG concerning the successful conclusion of discussions with CES. Although Energy Division is a member of the PRG, it reserved its conclusions for review and recommendation on the PPA to the application process.

5.2. The Geysers PPSA is Consistent with SCE's CPUC Adopted 2005 RPS Plan

California's RPS statute requires the Commission to review the results of a renewable energy resource solicitation submitted for approval by a utility. The Commission will then accept or reject proposed PPAs based on their consistency with the utility's approved renewable procurement plan.¹⁶ In accordance with the RPS legislation and D.03-06-071, SCE submitted its 2005 RPS procurement plan and bid solicitation materials for Commission approval. The Commission approved SCE's 2005 procurement plan and bid solicitation materials in D.05-07-039. As required by statute, it includes an assessment of supply and demand to determine the optimal mix of renewable generation resources, consideration of compliance flexibility mechanisms established by the Commission, and a bid solicitation setting forth the need for renewable generation of various operational characteristics.¹⁷

5.3. The Geysers PPSA Selection is Consistent with RPS Solicitation Protocol

On September 2, 2005, SCE released its 2005 RPS solicitation consistent with its approved 2005 RFP protocol. Applying the evaluation criteria required by the RPS Legislation, as implemented by the Commission in D.04-07-029, SCE established a short list for the 2005 solicitation and subsequently entered into discussions with parties on the short list. SCE communicated with its PRG throughout the evaluation, selection and contracting process that ultimately led to the execution of ten contracts from its 2005 solicitation, including the Geysers PPSA.

5.4. The Geysers PPSA fits with Identified Renewable Resource Needs

In its 2005 RPS RFP, SCE sought resources that would provide maximum benefit to SCE's customers and count towards the RPS program. As provided by Commission decisions and statute, SCE solicited proposals for PPAs with terms of 10-, 15-, and 20-year terms. The Protocol encouraged existing, new, expanded, and repowered renewable resources to participate in the RFP.

The Geysers project fits SCE's renewable resource needs as a baseload geothermal facility that is currently online and generating energy for SCE. The contract will contribute significantly to SCE's RPS goal, providing the equivalent of 2.35% of SCE's 2010 retail sales.¹⁸

5.5. The Bid Evaluation Process is Consistent with the Least-Cost Best-Fit (LCBF) Decision

The LCBF decision¹⁹ directs the utilities to use certain criteria in their bid ranking. It offers guidance regarding the process by which the utility ranks bids in order to select or "shortlist" the bids with which it will commence serious negotiations.

SCE's LCBF bid review process is detailed in its prepared testimony.²⁰ The described process is in compliance with the applicable Commission decisions. SCE's LCBF analysis evaluates both quantitative and qualitative aspects of each proposal to estimate its value to SCE's customers and relative value in comparison to other proposals.

In addition to the factors always considered in SCE's LCBF evaluation, SCE included an analysis of the monetary loss associated with terminating the Existing Agreement. Overall, the Geysers project compares favorably to other projects in SCE's 2005 solicitation. In particular, the Geysers project will substantially and immediately assist SCE towards its RPS goals without having to overcome any permitting, transmission, construction, financing or environmental issues before it begins operation.

5.6. Contract Pricing is Reasonable

As explained in D.04-06-015, D.04-07-029, and D.05-12-042, if the net present value of the sum of payments to be made under a PPA is at or below the net present value of payments that would be made at the MPR for the anticipated delivery, the PPA will be considered per se reasonable.

SCE has negotiated a contractual pricing mechanism²¹ that results in a price that is currently at or below the 2005 MPR. The mechanism includes an indexed unit price and a fixed premium unit price. For that reason, the actual prices that will be charged are unknown. For the purposes of this application, we find this pricing mechanism to be reasonable. However, this finding should not be considered as a precedent for the use of such a pricing mechanism. Our finding of reasonableness here is based on the fact that it currently yields a reasonable price and in many other respects the contract is desirable. It provides near-term delivery of significant quantities of renewable energy; it requires no transmission upgrades; and it has a favorable benefit-cost ratio. Also, the application is unopposed.

5.7. Viability of Project

SCE asserts that the Geysers project is viable. In general, we agree. As described below, the only potential concern is Calpine's ability to emerge from its current Chapter 11 bankruptcy.

¹⁶ Section 399.14(c).

¹⁷ Section 399.14(a)(3).

¹⁸ Exhibit 1 (Confidential) and Exhibit 2 (Public) Appendix G.

¹⁹ D.04-07-029.

²⁰ Exhibit 1 (Confidential) and Exhibit 2 (Public), pp. 9-16.

²¹ A description of the pricing mechanism is included in Exhibit 1 (Confidential), p. 22. The PPSA also includes an option for SCE to purchase additional renewable power above the baseload amounts. The price set forth in the PPA for this additional power is also at or below the 2005 MPR.