Comments on Draft Decision
Rule 77.7(f)(9) provides for reduction or waiver of the 30-day period for public review and comment when public necessity requires such reduction. We must balance whether the public necessity of adopting an order outweighs the public interest in having the full 30-day review and comment. We are convinced that this draft decision falls under Rule 77.7(f)(9), and for that reason, we established a shortened period for comments on the draft decision.
On February 6, 2001, comments were received from SDG&E. SCE requests that we accept the comments attached to its January 30, 2001 motion for acceptance of comments. The motion is granted. The Docket Office is directed to file Attachments A and B to the January 30, 2001 motion effective February 6, 2001. PG&E joined SCE's motion for acceptance of comments, and its comments, Attachment C to the January 30, 2001 motion, should also be filed effective February 6, 2001.
SDG&E suggests that it would be premature to adopt this decision while the California Department of Water Resources (DWR) is expected to purchase sufficient energy to cover the utilities' net short positions. If the Commission chooses to act now, SDG&E suggests a pre-approval mechanism with a 10-day review period with contracts deemed pre-approved unless they are rejected within the 10-day window. SDG&E, SCE, and PG&E believe that adoption of a total generation portfolio cost benchmark is outside of the scope of the proceeding and that the bilateral benchmarks adopted in both the draft and alternate decisions do not reflect today's market conditions.
PG&E proposes that any purchases by DWR be excluded from individual or portfolio benchmarks adopted by the Commission. PG&E believes that reliance on solicitations may prevent procurement of non-standard products.
SCE recommends that the price benchmarks in the draft decision be removed. SCE states that its forward contracting limits must be increased to account for load growth, among other reasons.
1. A reasonable purchaser of electricity will engage a variety of strategies to serve its energy needs including owning generation, entering into long term, medium and near term contracts, purchasing in the open market, and utilizing various financial instruments to ensure a stable electricity supply at reasonable rates.
2. Adoption of a total generation cost benchmark will best promote exercise of good judgement by utility management in making procurement decisions.
3. The approaches to forward contract prudency proposed by SDG&E, SCE, and PG&E would require the Commission to micromanage procurement decisions by specifying the appropriate resource mix, product mix, contract terms, and approve contracts prior to the utilities entering into them.
4. Parties are unanimous that 5¢/kWh is too low a standard for prudency of bilateral forward contracts in today's market.
5. A 6¢/kWh total generation cost benchmark will be challenging to achieve, but given the tools we have given the utilities, steps we have taken to reform qualifying facility pricing, and developments federally, will be achievable.
1. We should encourage utility management to exercise good judgement in making procurement decision and give them flexibility to adjust to changing times.
2. A total generation cost benchmark of 6¢/kWh for 2001 should be adopted.
3. The price benchmark should be compared to 2001 annual average generation costs to determine if the price benchmark has been met.
4. We should not specify the resource of product mix that utilities should enter into to achieve the benchmark, but should allow utility management to exercise its judgement to reach this benchmark.
5. Any contracts or financial instruments entered into by a utility with its affiliates must comply with all Affiliate Transaction Rules adopted by D.97-12-088, and modified by D.98-08-035 and other Decisions.
6. No later than February 15, 2002, each utility should file an application for audit and verification of its 2001 generation costs.
7. If the utility meets the cost benchmark, no reasonableness review should be conducted.
8. If the annual average 2001 generation cost is between 5.5¢/kWh and the adopted price benchmark, the utility should be allowed to apply that difference to past PX costs incurred between August and December 2000.
9. If the annual average 2001 generation cost is below 5.5¢/kWh, the difference between the annual average and 5.5¢/kWh should be refunded to ratepayers.
10. If the annual average 2001 generation cost exceeds the adopted cost benchmark, the utility should have the option to undergo a reasonableness review of its full portfolio or absorb costs in excess of the benchmark.
11. If a reasonableness review is conducted, the standard that should be applied is whether the action (or inaction) to enter into a particular transaction or strategy was reasonable based upon what was known, or should have been known, at that the time the transaction was finally executed.
IT IS ORDERED that:
1. The reasonableness standards for bilateral forward contracts adopted in Decision (D.) 00-08-023 and D.00-09-075 are modified and shall be replaced with a total generation cost benchmark of 6¢/kilowatt hour (kWh).
2. If the annual average 2001 total generation costs of a given utility meet the benchmark, no reasonableness review shall be conducted. If utility costs are below the benchmark, utilities shall be allowed to apply the difference between 5.5¢/kWh and the cost benchmark towards past Power Exchange costs incurred between August and December 2000, with the remainder returned to ratepayers. If utility costs exceed to benchmark, the utility shall either undergo a reasonableness of its full portfolio or absorb the costs above the benchmark.
3. No later than February 15, 2002, each utility shall file an application for audit and verification of its 2001 generation costs.
4. On April 23, 2001, Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company shall file, and other parties may file, proposals for a 2002 total generation cost benchmark in this docket.
This order is effective today.
Dated , at San Francisco, California.
