12. The CSA should be approved
The CSA sets forth terms by which SCE, CES and Geysers agreed to settle their dispute related to CES' motion in Bankruptcy Court to reject the Existing PPA with SCE. The terms of the CSA involve (1) the Existing PPA and (2) the Geysers PPSA, the 2007 RA Confirmation, the 2008 RA Confirmation and the 2009-2011 RA Confirmation, all of which would replace the Existing PPA.
We have considered SCE's request to approve the CSA. As discussed below, the CSA meets our criteria for settlement approval and should therefore be approved.
12.1. Standard of Review for Settlements
We have specific rules regarding approval of settlements:
"The Commission will not approve settlements whether contested or uncontested, unless settlement is reasonable in light of the whole record, consistent with law, and in the public interest."29
12.2. The CSA is Reasonable in Light of the Record
Earlier in this decision, we determined that the Geysers PPSA and the 2009-2011 RA Confirmation were reasonable and that those transactions should be approved. Also, SCE is currently authorized to enter into the 2007 RA Confirmation and the 2008 RA Confirmation pursuant to its approved LTPP. Under the CSA, these transactions would replace the Existing PPA.
Based on SCE's filing, in order to determine whether the CSA itself is reasonable, it would be appropriate to consider whether the CSA constitutes a reasonable compromise of the litigation positions of the parties.30 That is whether it provides value to SCE's ratepayers within a reasonable range between the CES prevails scenario and the SCE prevails scenario, reflecting the relative merits of the parties' claims. However, based on the October 3, 2007 information provided by SCE (the pending dismissal of the appeal and Calpine's plan of reorganization which provides for the assumption of the old contracts) it appears that Calpine will more than likely continue to perform under the old contract. Therefore, under these circumstances, it would be more appropriate to directly compare the CSA to the Existing PPA to determine the reasonableness of the CSA.
In its RPS LCBF quantitative analysis, SCE counted the full remaining value of the Existing PPA as a cost.31 The analysis showed that the Geysers PPSA provided customer value in relation to continuing the Existing PPA through April 30, 200832 and utilizing of one of the other available short list alternatives for the remainder of the Geysers PPSA contract term. Given the choice of one or the other, SCE's ratepayers would be in a stronger position with the Geysers PPSA than they would be with the Existing PPA.
Regarding RA, the CSA provides comparable or better benefits than would the Existing PPA over the remaining life of the Existing PPA (through April 30, 2008). The 2008 RA Confirmation would provide a needed 714 MW of RA product for SCE's BC/V Local Area. The Existing PPA would provide 200 MW of capacity, none of which would be eligible to serve SCE's Local Area RA needs. Beyond that, the 2009-2011 RA Confirmation would also provide the same 714 MW for SCE's BC/V Local Area, at a competitive price, after the Existing PPA would have ended. From the RA perspective, SCE's ratepayers are therefore in a stronger position than they would have been in under the Existing PPA.
Since SCE ratepayers would be in a better position under the CSA than they would under the Existing PPA, the CSA is reasonable.
12.3. The CSA is Consistent with Law
As discussed above, the Geysers PPSA and the 2009-2011 RA Confirmation are consistent with a number of previous related Commission decisions that detail policies and requirements. Also, we do not detect that any element of the CSA is inconsistent in any way with Public Utilities Code Sections, other Commission decisions, or the law in general.
12.4. The CSA is in the Public Interest
The CSA is also in the public interest in that ratepayers are better off under the terms of the CSA than they would be under the Existing PPA. Also, we do not detect that any element of the CSA is inconsistent in any way with the public interest.
29 Rule 12.1(d) of the Commission's Rules of Practice and Procedure.
30 Had SCE prevailed in the dispute and preserved the Existing PPA, it would have preserved for its ratepayers the entire value of the remaining PPA. Had CES prevailed, the Existing PPA would have terminated subject to a claim by SCE in Calpine's bankruptcy for the below market portion of the Existing PPA that remained as of the rejection date. That claim would have been secured up to the $20 million amount held by SCE as collateral for Calpine's obligations, and unsecured for any balance. SCE's ratepayers stood to lose whatever portion of its bankruptcy claim that was not secured and payable as part of a Chapter 11 reorganization plan or in liquidation.
31 An amount equal to the net present value of the monthly difference of the Existing PPA (June 1, 2007 through April 30, 2008) from a forecast of the payments that SCE would have had to make if it had procured 200 MW of renewable energy at prices equal to those in the forecast of SP-15 power prices.
32 In accordance with the unilateral termination rights under the Existing PPA, CES notified SCE on January 16, 2007 that it elected to terminate the agreement after the first five years.
