Background Facts

Monsanto operates a gas-fired cogeneration plant. Beginning in 1983, Monsanto sold as-available capacity and energy to SDG&E under a non-standard power purchase agreement. The original agreement expired on October 18, 1998. Monsanto and SDG&E executed a new USO1 contract in December 1997 governing energy and capacity deliveries after October 19, 1998. Because of the timing of the executed contract, Monsanto is considered a "new" QF under D.96-10-036. There is no dispute that the new contract governs current energy and capacity deliveries. (See Petition, p. 16.)

The executed USO1 includes Section 30, which is designed to implement D.96-10-036. Section 30 states:

"In accordance with CPUC Decision 96-10-036 (which is incorporated herein by this reference) and after the Power Exchange, described in California Public Utilities Code sections 330(l)(4) and 365(b)(1) begins operations, Seller will have to bid directly into the Power Exchange and clear the market at its bid price in order to operate and receive payment at the Power Exchange clearing price. The details of this process will be governed by applicable instructions provided by the CPUC, the Federal Energy Regulatory Commission, and the Power Exchange. This Section will supersede Sections 1, 6, 7, 13, 14, 17 and any other provisions of the Agreement at odds with this Section once the Power Exchange begins operations." (Emphasis in original.)

Monsanto and SDG&E dispute how to interpret the USO1 contract. Monsanto believes that the new contract requires SDG&E to purchase Monsanto's excess energy² at short-run avoided cost (SRAC) until the Commission makes certain findings under Section 390. SDG&E believes the contract requires Monsanto to bid its excess energy into the Power Exchange (PX) and receive payment by the PX for that energy once the PX begins operations. Both SDG&E and Monsanto rely on D.96-10-036 to support their interpretation.