4. Who Should Pay for the Peakers

SCE argues that based on the direction it was given in the August 15, 2006 ACR to develop the peaker units to provide urgently needed capacity and grid-reliability benefits for its entire transmission and distribution system as well as the California Independent System Operator (CAISO) grid, and the fact that the ACR invited SCE to seek different rate treatment, its ratepayers are entitled to have the costs borne by all benefitting customers pursuant to the CAM established in D.06-07-029. SCE further contends that the peakers were clearly intended to benefit system-wide customers because the added capacity and grid-reliability from the peakers reduces the risk of shortages and blackouts during peak demand periods and other system emergencies and helps to minimize and contain any such events that do arise. While SCE acknowledges that D.06-07-029 directed that the costs of new UOG would be allocated only to bundled service customers, SCE argues that allowing the costs to be spread to all benefitting customers is consistent with the overall intent and purpose of the Decision.

TURN posits that "Edison's proposal represents the only fair and equitable outcome to the unusual circumstances that gave rise to the construction of the four (and potentially five) SCE-owned peaker plants developed as a result of the ACR."⁵ TURN supports its position by citing to the fact that in D.06-07-029 SCE was directed to procure 1500 MW of new non-utility generating capacity for its service territory, and less than one month later the Commission directed SCE to "pursue the development and installation of up to 250 MW of black-start, dispatchable generation capacity within its service territory . . . ."⁶ From TURN's perspective, when the chronology of events is combined with the language from the ACR that states that the new units "should bring collateral benefits to SCE's transmission and distribution system as well as the CAISO grid,"⁷ it is clear that the peakers are to benefit all customers in SCE's service territory and it is appropriate for all benefiting customers to pay. TURN finds further support for this argument in the ACR language that invited SCE to seek different ratemaking treatment for the peakers.

TURN also contends that it is particularly inappropriate for SCE's bundled customers to pay for the peakers because the cost is quite high considering the expedited construction schedule that SCE was ordered to undertake. As TURN argues "there is no reason why bundled service customers alone should be forced to pick up all of the costs simply because Edison was the party that was available to install the new capacity on the expedited schedule that circumstances required. Bundled service customers did not ask for these peaker plants any more than unbundled customers did."⁸

EPUC, AReM and WPTF,⁹ however, all argue against allowing SCE to allocate the costs of the peakers to all benefiting customers. EPUC asks the Commission to clarify that even if the CAM is applicable to the peakers, that Customer Generation Departing Load is not obligated to pay such a charge.

AReM states that SCE's request to apply the CAM to the peaker costs should be denied for the following reasons: first, it conflicts with the principles that established the CAM in D.06-07-029; second, all new demand side and supply side resources in SCE's territory tangently provide benefits to the system as a whole; third, the ACR did not direct SCE to develop the peakers on behalf of all customers in its service territory -- rather SCE was directed to have new IOU generation on-line by 2007; fourth, the load growth that gave rise to the ACR is from SCE's bundled customers, not from direct access customers; and fifth, principles of cost causation dictate that the SCE peaker costs should be borne by those parties who caused the need for their construction - SCE's bundled customers.¹⁰

From AReM's perspective, D.06-07-029 was carefully crafted to insure that application of the CAM did "not impinge on the energy procurement activities of ESPs [energy service providers]."¹¹ Therefore, according to AReM, the CAM would not be applicable to UOG and when it was applicable to PPAs, the CAM would recover only the net capacity costs of the new generation, following an auction for the energy value of the contract. Furthermore, AReM argues, D.06-07-029 specifically excluded UOG because that generation is essentially dedicated to bundled customers. The capacity and energy from the new generation contracts was unbundled, as AReM contends, "to limit the procurement role of the IOUs."¹² AReM, therefore states that to allow SCE to allocate the costs of the peakers to all benefiting customers would undermine the careful balancing that the Commission did in D.06-07-029 to avoid undermining the competitive market. AReM's clients, other Energy Service Providers (ESPs), have to serve their own customers' needs, and from AReM's analysis of the ACR, the peakers were developed to meet SCE's bundled customers' loads.

In addition, AReM argues that the fact that there might be collateral benefits to SCE's whole system from the peakers is not sufficient reason to have all customers pay for the peakers. As AReM states, any new generation, even if intended solely for bundled customers, will provide reliability benefits for the system, but that does not justify allocating the costs to all bundled and direct access customers. Furthermore, AReM contends, if an ESP adds a new resource or implements an energy efficiency or demand response program, the benefits will inure to the whole grid, yet the utility's bundled customers are not asked to share in the cost.

Finally, AReM reads the ACR differently than SCE or TURN. AReM does not see that the ACR expanded SCE's authorization from D.06-07-029 to procure new generation for all customers. AReM views the need that prompted the ACR arising from IOU load increases from bundled customer growth, and not caused by any growth in the direct access customer base. As AReM reminds the Commission, direct access is closed to new customers, and has been since 2001; direct access commercial and industrial customers have the flattest load profiles in SCE's service territory; and direct access load has declined precipitously in recent years.¹³ Therefore, AReM, argues, cost allocation should follow cost causation and in this case, SCE's bundled customers prompted the need, they should pay.

In the alternative, AReM asks that if the Commission considers applying the CAM to the peaker costs, it should require SCE to follow the auction protocols set forth in D.07-09-044 and not allow the utility to circumvent that process.

⁵ TURN Opening Brief, May 28, 2008, p. 1.

⁶ Id., p. 1, citing the ACR, p. 2.

⁷ Id., p. 2.

⁸ Id., p. 3.

⁹ WPTF joins in the response filed by AReM, but does not file a separate pleading.

¹⁰ AREM's Response, May 28, 2008, p. 3.

¹¹ Id., p. 4.

¹² Id., p. 4.

¹³ Id., pp. 7-8.