II. Background

D.01-06-015 was issued to help bring stability to the electricity supply contracts entered into between the utilities and the QFs. In order to "ensure that QFs generate as much electricity as reasonably possible, and at reasonable prices," the Commission preapproved three types of contract modifications in D.01-06-015, which the Commission viewed as providing incentives to maximize QF production. The Commission stated in D.01-06-015 that these three types of contract modifications "which are made prior to July 15, 2001 are deemed reasonable by the Commission."

The three non-standard contract modifications that D.01-06-015 would find reasonable are: (1) replacing the standard Short Run Avoided Cost (SRAC) formula with a fixed price for five years of 5.37 cents/kWh; (2) allowing supplemental payments to be made to QFs above the specified SRAC for up to one year for QFs that demonstrate to the Commission's Energy Division that the current SRAC is insufficient to recover the QF's actual fuel costs for producing electricity; and (3) providing incentive payments for QFs to increase generation above their normal operating levels based on the terms specified in D.00-08-022, as clarified in D.01-06-015.

Following the July 13, 2001 filing of IEP's petition to modify D.01-06-015, an Administrative Law Judge's (ALJ) ruling was issued on July 19 which addressed the July 15, 2001 date set forth in D.01-06-015. The ALJ ruling extended the July 15, 2001 safe harbor date until the Commission could consider IEP's petition to modify D.01-06-015. The ruling also shortened the time for parties to respond to IEP's petition to modify.

On September 4, 2001, the California Cogeneration Council (CCC) filed a motion for leave to file supplemental comments to IEP's petition to modify D.01-06-015. CCC's supplemental comments identified one contract amendment with a QF that had been entered into after July 31, 2001. The supplemental comments also stated that a number of other agreements between the utilities and the QFs had been entered into after July 31, 2001. The CCC requested that the safe harbor date be extended through September 6, 2001. SCE filed a response to CCC's response that same day in support of extending the safe harbor, but requested that it be extended through September 13, 2001. IEP's petition to modify D.01-06-015 was granted in D.01-09-021, which was adopted on September 6, 2001. However, D.01-09-021 only extended the safe harbor provision through July 31, 2001.

SCE states in its Petition that because of the July 19 ruling, some negotiations for contract modifications between the utilities and qualifying facilities took place for several weeks beyond July 31, and that a number of contract amendments and other agreements were executed by SCE after that date.

SCE's Petition requested that the Commission expedite consideration of its Petition at the September 20, 2001 meeting. Since the Commission did not add SCE's Petition to the September 20 meeting agenda, SCE filed a motion on September 21, 2001 for an order shortening time for interested parties to file a response to SCE's Petition in the hope that the Commission would act on the Petition at the October 11, 2001 meeting.² An ALJ ruling granted SCE's motion to shorten the time on September 25, 2001. The CCC, Chevron U.S.A. Inc. (Chevron) and the Office of Ratepayer Advocates (ORA) filed responses to SCE's Petition. SCE filed a reply to ORA's response.