Procedural History

On May 17, 2002, Edison filed this application seeking Commission authorization to either 1) recognize that Mohave will no longer function as a coal-fired plant after the end of 2005 and establish the appropriate balancing accounts for closure costs, or 2) authorize Edison to spend up to $58 million in 2003 on the pollution controls and related capital expenses necessary to allow the facility to continue as a coal-fired plant post-2005.

Protests were filed by the Navaho, the Hopi, Salt River, the Center for Energy and Economic Development (CEED), Coalition of California Utility employees (CUE), Peabody, the Utility Reform Network (TURN), Natural Resources Defense Council (NRDC), and the Office of Ratepayer Advocates (ORA).

On October 11, 2002, a combined Prehearing Conference (PHC)/ Public Participation Hearing (PPH) was held at the Navajo Nation Chapter House in Tuba City, Arizona. After hearing the statements of the parties, and listening to over 100 concerned members of the Hopi Tribe and Navajo Nation, the local people, the mine and slurry workers, neighbors of the mine, environmental groups, and interested people from all walks of life and geographic locations, we concluded that we could not adequately address the full panoply of issues raised by Edison's application by the beginning of 2003. Instead, on January 7, 2003, Commissioner Lynch issued a Scoping Memorandum setting forth the scope of the proceeding and the issues to be addressed, along with a procedural schedule for the filing of the first round of testimony, on January 30, 2003, by Edison and on March 28, 2003, by the Intervenors. Concurrent rebuttal testimony was served April 25, 2003. Since the initial rounds of testimony, the Commission has requested additional testimony and/or briefing on numerous specified subjects, including cost and legal issues. Evidentiary hearings were held June 14 through July 9, 2004, and in advance of the hearings, parties served updated and/or supplemental testimony.

Concurrent post-hearing briefs were filed on August 9, 2004, and reply briefs were filed on August 24, 2004, by Edison, Hopi, NRDC, WEC, TURN, ORA, Navajo, Peabody, Salt River and UWUA/ UMWA/CCUE.

The proposed decision (PD) was mailed on October 20, 2004. On September 15, 2004, the Navajo filed a request for Final Oral Argument (FOA). On November 9, 2004, comments were received from the Hopi, Navajo, NRDC, WEC, Edison, Peabody, ORA and UWUA/UMWA/CCUE. In their comments, Peabody and the Hopi also requested FOA. On November 15, 2004, reply comments were received from the Hopi, Navajo, NRDC, ORA, Peabody, Edison, TURN and UWUA/UMWA/CCUE. On November 30, 2004, FOA was held. Following is a summary of the parties' comments and reply comments and a discussion of the modifications or clarifications the Commission adopts.

To begin, no party questions the value of Mohave to those most affected by its operation: the Hopi, the Navajo and the mine, plant and pipeline workers. In addition, Mohave is a key and valuable resource for Edison consumers as the utility ramps up its resource adequacy reserves. The parties universally recognize the importance of preserving the "Mohave-open" option. The major difference that divides the parties is on the topic of how much authority the Commission can give Edison now, in light of the inchoateness of the water and coal issues. The Hopi, Navajo and Peabody urge the Commission to amend the PD and give Edison now all the authority it will ever need to do the environmental upgrades and other capital improvements if the water and coal issues are resolved favorably. All of the other parties favor proceeding more thoughtfully and do not want the full authority given now, absent the Commission's ability to make a finding that authorizing the spending of $1.1 billion is in the ratepayer and public interest. What we will do is to authorize Edison to spend any money necessary to preserve the "Mohave-open" option, but do not authorize Edison to proceed with the pollution controls, related capital improvements and construction costs for those items now.

To address that concern we are clarifying what Edison should do if, and when, the water study reaches a favorable conclusion. Edison is to file an application in the Long-Term Procurement docket, R.04-04-003, that specifically addresses the future of Mohave. The application should be served on the service list for the Mohave proceeding, which list will be made a sub-list in R.04-04-003. While we cannot bind future Commissions to any particular process or timeline, this Commission can stress in this decision the importance of processing the application in as expeditious manner as possible that still allows for the vetting of sufficient information for a determination that keeping Mohave as a coal-burning plant is in the public and ratepayer interest. Issues that have already been litigated and are resolved in this decision will not need to be re-litigated in the application. This includes the costs for the pollution equipment and upgrades, upgrades to the slurry line, and costs related to the new water supply.

There were a few other common threads that ran through many of the comments. One primary thread was the recommendation that the alternatives study not just be viewed as a substitute for Mohave, but that renewables be studied as an energy source that could work in concert with Mohave. We agree and clarify that alternatives should be studied not just to replace Edison's share of Mohave's output in the scenario where Mohave is permanently closed, but that alternatives need to be studied as a compliment to Mohave.

Edison asks that the Commission clarify or revise the PD with regard to the following: (1) Commission forum in which Mohave's extended operation is to be compared against possible alternative generation sources; (2) Edison's ability to recover the costs that it will incur in connection with the alternatives study; (3) the legal basis for the Commission's conclusion on the reasonableness of the Mohave capital costs; and (4) the Commission's treatment of the contingency amount included in Edison's cost estimates. We have adopted some of these recommendations in the body of the decision.

Peabody, along with the Hopi and Navajo, still want the Commission to issue a definitive order giving Edison the authority now to upgrade Mohave on condition that the C-Aquifer water source is found to be feasible. In addition, Peabody challenges the premise in the PD that Mohave must close post 2005 pursuant to the Consent Decree. The Commission relied on the record in the proceeding for that premise and the Commission has no authority or jurisdiction to extend the Consent Decree. If circumstances change and the Consent Decree is modified, the Commission will amend or clarify its decision on Mohave as appropriate.

Peabody further argues that the PD puts the Commission in the position of perhaps being the impediment to extending Mohave's life post 2005. We agree with Peabody, the Hopi and Navajo that the closure of Mohave, even for a limited time, will have devastating effects on the Hopi and Navajo people and tribes as a whole, as well as on the workers at the Mohave facility, at the mines and on the pipeline. In order to make certain that all parties understand the Commission's desire to do what ever is possible to keep the "Mohave-open" option in play, we clarify sections of the PD. However, we are still convinced that we cannot find at this time, based on the record of the proceeding, with the water and coal issues still uncertain, that authorizing $1.1 billion for Mohave is in the public and ratepayer interest.

ORA urges the Commission to clarify that its approval of interim spending is limited to $58 million, the amount Edison requested in its original application for preliminary retrofit work. This $58 million is in addition to Edison's share of the reasonable costs of the C-Aquifer study and the coal and water negotiations, and 100% of the alternatives feasibility study. Instead, we authorize Edison to spend what is necessary to preserve the "Mohave-open" option, but do not authorize the pollution controls, related capital expenses and construction costs at this time.

ORA is also concerned about cost recovery for the interim spending if the retrofit of Mohave never occurs. ORA wonders if events transpire that make continued operation of Mohave impossible, such as a final conclusion that water is unavailable, and Edison continues to make critical path investments that basically are moot, should Edison still be able to recover those costs as reasonable, regardless of the circumstances. We refine our findings so Edison knows it will not be able to recover costs that are not focused on the keep "Mohave-open" option.

ORA also asked the Commission to clarify whether the cost estimates for the retrofit work were sufficient to guarantee cost recovery, even if there were overruns, or whether they were a "cap" and Edison would need to seek further Commission authorization if the costs increased. We find the cost estimates to be reasonable. Although Edison objected to the cost-cap concept, we agree with ORA that it is a good starting point as estimates go, and if there are increases in the project's costs, Edison must seek authorization for the increased recovery by way of an Advice Letter (AL).⁷

In light of comments made by ORA, Edison and others that CEQA might apply to the Mohave retrofits, especially considering the long-term effects that might result from the continued operation of Mohave as a coal-burning facility, we retract our finding that CEQA does not apply. Instead, we will leave open that issue for determination when the actual retrofitting is ready to begin.

In its comments NRDC asks the Commission to clarify that the outcome of the alternatives study should not be prejudged, to factor into the cost of the retrofit the realistic expectation that if Mohave is extended carbon emissions will be regulated sometime during its lifetime, and that intervenors should be eligible for compensation for follow-up activities ordered in the PD. In addition, NRDC wants the opportunity to participate in Edison's review of the Ganatt time-line and to participate in the decision as to whether Mohave should be returned to service. We adopt some of NRDC's recommendations. Specifically, we are not prejudging the outcome of the alternatives study, and find that it is appropriate for intervenors to seek compensation for additional work contemplated by the decision. And we agree that Edison's cost estimates of $720 million for environmental controls do not include the cost for controlling mercury and carbon, selective catalytic reduction, coal washing, post 2026 cooling water⁸ and the slurry right-of-way. However, we know that Edison's estimates were just that and were based on factors that Edison knew it had to address. Edison's contingency of 30-plus % in its $1.1 billion estimate was meant to cover some of these unknown costs. As discussed above, we will take Edison's estimates as a cap, and if and when Edison knows it has increased costs, it must seek further authorization for cost recovery assurance. As for carbon regulation and the other unaddressed costs enumerated above, when Edison files its application for full authorization to do the Mohave retrofits, it should alert the Commission as to the status of carbon regulation, and its estimated costs in relation to Mohave so the cost can be factored in when we make the final determination on Mohave. And Edison is to consider any suggestions it receives for shortening the Ganatt time-line.

WEC's comments presented some clarification recommendations, some of which we adopted. The main point presented by WEC was that the PD must make it clear that the alternatives study is not putting renewables in direct competition with Mohave, but that alternatives can work to compliment generation from Mohave.

UWUA/UMWA/CCUE's comments are focused on ensuring that Edison is authorized to take all feasible steps to ensure Mohave's future operations. One of the unions' primary concerns was that the alternatives feasibility study could side-track Edison from focusing on keeping Mohave open. We find that the two paths are not incompatible. We give Edison the necessary spending authority and cost recovery direction so it can pursue both avenues simultaneously.

In its comments and reply comments, the Navajo are still requesting that the Commission issue a "conditional spending order" as part of this decision. We do issue an order that authorizes Edison to spend money on preliminary retrofit work, the C-Aquifer study, the alternatives feasibility study and the water and coal negotiations. We do not think labeling our orders with the nomenclature demanded by the Navajo changes the efficacy of our order or improves on it in any way. We carefully considered the positions of all the parties, determined the direction we wanted to go which was to preserve the "Mohave-open" option, crafted our decision accordingly and chose the terminology that best expressed our intentions.

While we want to avoid "unnecessary human suffering"⁹ as the Navajo describe the impact on the Navajo and Hopi people if the plant is shut down, we are still convinced that the record supports the steps we have outlined in this PD for keeping the Mohave-open option available and agree with the Navajo that there are significant conditions that must be met before Edison begins major upgrade expenditures. Those conditions involve the C-Aquifer, resolution of all outstanding water issues, a determination that mine use of the water complies with the Endangered Species Act, resolution and dismissal of the Navajo equitable claims relating to the Black Mesa Mine Leases and Edison's certification to the Commission that there is sufficient agreement on these issues to support going forward with the major expenditures. Without torturing the point further, we believe we have set the stage to keep Mohave open for the benefit of all stakeholders while simultaneously protecting the Edison consumers and ratepayers.

The Hopi's primary request is that the Commission clarify that the feasibility study of alternatives is not linked to Mohave's continued operation, but that the alternatives should be viewed as complementary to Mohave. The Commission's immediate objective should be on keeping Mohave open, and in the long term the focus can be on future replacement options. Next the Hopi ask the Commission to direct Edison to include in its resource planning an allocation of at least 885 MW of base load power from Mohave so that Edison does not fill that MW allocation with commitments for other power and then there is no need for Mohave. And finally, the Hopi urge the Commission to keep this proceeding open as a vehicle for oversight and reporting functions, rather than folding issues from Mohave into the procurement Rulemaking, R.04-04-003. We do clarify the PD as requested for the alternatives study, and in the Long Term Procurement proceeding, Edison was instructed to prepare its resource scenarios with a "Mohave-in" and "Mohave-out" options, and we will continue to have Edison do that to insure that Mohave is not accidentally forgotten and Edison becomes fully resourced with no need for Mohave.

TURN agrees with the recommendation presented by Edison and ORA that the PD should strike any references to AB57. We agree and have so modified the PD. TURN also echoes ORA and NRDC that the costs of Mohave's refurbishment should not be deemed reasonable. We carefully considered this issue and determined that the record supports finding that the $720 million for pollution equipment and upgrades, $200 million for upgrades to the coal slurry pipeline and $160 million for costs associated with delivery of the new water supply in cost estimates was reasonable, and we now clarify that it is a cap for those costs, subject to Edison seeking approval for increases in the estimates. The additional 30 to 40 % that Edison identified as a contingency amount we are not finding reasonable at this time. TURN also asks the Commission to clarify that Edison is not authorized to spend that money now, and we do. Once the water and coal issues are resolved, Edison is to file an application, and at that time, if the total costs, including fuel and water, indicate that continuing with Mohave is in the public interest, we can expeditiously authorize Edison to go forward with the upgrades. We will not need to relitigate those cost estimates. TURN also urges us to not modify the PD as requested by Peabody, the Hopi and the Navajo.