IV. Summary of Parties' Positions

A. Overview of Individual Parties' Positions

Edison seeks Commission authorization to own and operate Mountainview as a utility wholly-owned subsidiary, dedicating all the output of the fully dispatchable facility to Edison customers in accordance with a cost-based, unit-contingent, gas tolling PPA. The PPA was drafted by Edison to provide security to the investors in light of Edison's financial health and Edison's claim that the regulatory scheme in California is uncertain.⁴ In support of the application, Edison requests that the Commission make the following findings:

· The PPA is reasonable.

· Required findings under Section 32(k) of the Public Utility Holding Company Act (PUHCA).

· The Commission's Affiliate Transaction Rules (ATR) are not applicable to the interactions between Edison and MVL.

· The Environmental Review done by the California Energy Commission (CEC) is sufficient to satisfy the requirements of the California Environmental Quality Act (CEQA).

· There is no requirement that MVL obtain a certificate of public convenience and necessity (CPCN).

· Edison may use Financing Authorization.

· The Qualifying Facilities (QFs) settlement adopted by D.93-03-021 does not apply.

· Edison may recover the Mountainview PPA costs through the Energy Recovery Resource Account (ERRA).

· Approve an Advice Letter process as proposed by Edison.

· Approve the inclusion of Mountainview decommission studies in the 2006 General Rate Case filing.

· Authorize the creation of a memorandum account as of July 21, 2003, to track option agreement costs.

· Give explicit Commission support for Edison's filing of the PPA at FERC.

TURN found many problems with Edison's application, not the least of which are the lack of a competitive process, the use of FERC jurisdiction with an unregulated utility subsidiary, dubious coordination with the utility's long-term planning process, and the compressed timeframe. Despite all of these "vexing weaknesses," TURN claimed that the potential value Mountainview could provide Edison ratepayers warranted supporting Edison's application so long as the Commission adopts the limitations, modifications, and conditions advanced by TURN. However, TURN would prefer to see the project completed as a traditional utility-owned plant.

ORA characterized Edison's application as a "Frankenstein," made of ill-fitting and poorly defined chunks of FERC jurisdiction and ratemaking, and of federal court filed-rate interference with California regulation policy. Despite this colorful description, ORA's main opposition was that the Commission is being asked to delegate its ratemaking responsibilities to FERC. ORA argued this ceding of jurisdiction is unlawful, is bad policy, and puts California ratepayer protection at risk. To remove these impediments, ORA urged the Commission to direct Edison to finance, construct, and operate Mountainview as a pure utility project.

The Navajo Nation's primary focus in this proceeding was the future of the Mohave Generating Station (Mohave). The Navajo Nation urged the Commission to reject Edison's application on the ground that Mountainview, when compared with Mohave, cannot be in the public interest. The Navajo Nation sought specific findings from the Commission in this proceeding that Mohave surpasses Mountainview in terms of public benefit, and that nothing in this decision should adversely affect the prospect of Mohave continuing as an Edison-owned utility asset after 2005. From the Navajo Nation's perspective, the project is not advantageous no matter whether the facility is under CPUC or FERC jurisdiction.

IEP opposed the application primarily because the proposed PPA represented a new and dangerous level of utility "self-dealing," and through the mechanism created by Edison, Edison will gain all the benefits associated with a rate-based utility project yet avoid what it considers to be the risks of traditional utility ratemaking processes. IEP was concerned that the proposal does not comport with the ATRs, that the required PUHCA findings cannot be made, and that the project was not vetted in the Procurement OIR, R.01-10-024. As an alternative to rejecting the application, IEP suggested that 12 conditions be imposed on the PPA before this Commission approves the deal, so that the conditions will be subject to the federal FRD. These conditions were drafted by IEP as what they believed were the minimum constraints necessary due to the affiliate relationship between Edison and MVL to inject "a modicum of consumer and competitor protection in the PPA."⁵

EPUC urged the Commission to reject Edison's application on the following grounds: (1) the PPA avoids the jurisdiction of this Commission; (2) the PPA shifts risk from shareholders to ratepayers; (3) the PPA violates state and federal laws encouraging the promotion of cogeneration resources; (4) the utility-subsidiary setup presents unfair economic advantage to MVL and discriminates against other market participants; (5) the structure violates the ATRs since revenues will flow from MVL to Edison's parent; (6) the resource may not be needed; and (7) the facility may not be cost effective since there was no competitive bidding process. In sum, EPUC argued that the PPA is not in the public interest from a ratepayer perspective.

CAC also asked the Commission to reject the application. Specifically, CAC argues that the proposed special transactional structure: (1) is a violation of state and federal laws encouraging promotion of cogeneration resources; (2) gives unfair economic advantage to MVL and discriminates against other market participants; (3) will violate the ATRs, or if an exemption is granted, equal treatment should be afforded to all Edison affiliates; and (4) there has not been sufficient demonstration of need.

CCC advised rejection of Edison's application. Primarily, CCC was concerned for its members since Edison stated that it will not purchase power from QFs, unless a QF successfully bids in one of Edison's competitive resource solicitations. Many CCC member contracts have expired, or are due to expire, during the 30-year PPA period. CCC members do not want the approval of Mountainview to obviate Edison's need to purchase QF power in the future, which could undermine the development of coherent long-term procurement policies and discourage independent power producers from investing in California generation. In the alternative, if the Commission is inclined to approve the application, CCC recommended that Edison not be allowed to skirt its obligation to purchase QF power and that the price Edison pays MVL doesn't discriminate against QFs.

CUE supported the application because it was convinced that the additional generation is needed for reliability beginning in 2006, because the plant will be cost-effective for ratepayers, and because there is no need to peform a market test. CUE opined that even if Edison did not need Mountainview in 2006, and it was not cost-effective for ratepayers, ratepayers are better off securing generation now, rather than later, given the abundance of currently available supply.

Sequoia sees Edison's proposal as a good deal for ratepayers because development of Mountainview provides significant reliability and reserve benefits, fills a hole in Edison's portfolio, and does so on a cost-effective basis. Sequoia urges the Commission to stick to the schedule set forth in the scoping memo and support Edison's filing at FERC to approve the PPA, and to support Sequoia's filing at FERC to transfer Mountainview to Edison.

B. Discussion

By denying Edison the proposed PPA but granting a CPCN, we believe the Commission is ensuring that the reliability and reserve benefits of this project will accrue to ratepayers, without complicating the transaction with the FERC jurisdictional PPA and introducing unnecessary risk and legal infirmities into the project. Because we are denying Edison's request to pursue the FERC jurisdictional PPA, and granting Edison a CPCN to acquire, develop, construct, own, and operate Mountainview as a utility-owned generation asset, the following issues are no longer relevant: findings required under Section 32(k) of PUHCA; FERC jurisdiction: applicability of the ATRs; applicability of the QF settlement; analysis of the PPA; and modifications to the PPA. Most importantly, granting Edison a CPCN now gives Edison all the regulatory authority it needs to exercise its option agreement with Sequoia to purchase MVL before the option expiration date of February 29, 2004. This quick resolution will allow Edison to avoid potentially two additional months of option payments to Sequoia, further lowering the cost of the project.

As discussed below, the major objection to Edison's application posited by most of the intervenors is the FERC jurisdictional PPA financing mechanism proposed by Edison and the affiliate issues attendant to that scheme. We find the entirety of the concerns raised by parties and the attendant risks to outweigh the benefits of the project under the proposed PPA and, as such, determine that the PPA is not in the public interest from a ratepayer perspective. By denying the PPA, and ordering Edison to move forward with the project as a utility-owned generation facility, these two significant concerns, the FERC jurisdiction and affiliate rules waivers, are no longer before us.

We are cognizant of the issues raised by IEP, EPUC, CCC, and CAC that the proposed PPA, as well as the acquisition of the Mountainview facility no matter what its ownership and jurisdictional structure, creates concerns for the other producers and providers of electricity-especially the cogenerators and QFs. Our decision on Mountainview in no way impacts or prejudices Edison's ability or responsibility to meet its resource needs from a balanced portfolio that includes QFs, cogeneration, short and long-term contracts, and other utility-owned generation, including power from Mohave.

As in the procurement proceeding, this Commission should evaluate all potential resource sources and compare them against all current resource
sources - especially those aging gas fired plants that are more than 30 years old. In this context, the Mountainview project need not be pitted against the Mohave generating station in our mutual quest to develop secure, just and reasonably priced, environmentally beneficial and diverse supply resources for Edison's power portfolio.

We will examine each of the significant issues raised by parties in more detail in the following sections.