Summary of Contract Extension Terms

Edison begins its discussion of the contract extension terms by reiterating its view that it was not obliged to renew these contracts "under PURPA, or otherwise," because "the so-called 'societal benefits' attributed to QF projects cannot properly be used to coerce public utilities into making purchases from QFs that they are not obligated to make." Rather, Edison continues, it viewed its negotiations with the landfill projects' owners as voluntary, and made it clear to the owners that Edison would not agree to contract extensions unless it obtained "terms and conditions that offered ratepayer benefits and protections." (Application, p. 12.)

For the following reasons, Edison concludes that such ratepayer benefits and protections have been achieved in the contract extensions at issue: ⁵

". . . SCE concluded that the energy pricing terms agreed to for the extension period would likely produce cost benefits when compared to probable market rates. In addition, the fixed pricing aspect during the first ** months of the Amendments will provide `hedging' value against potentially volatile `avoided cost' rates that could arise if natural gas markets were again to experience the instability that was demonstrated in the latter part of 2000 and early 2001. Finally, SCE's ability to exercise an early termination after ** months into the new, extended term[⁶] provides significant protection should it turn out that the fixed prices have become non-cost effective or if it is ascertained that the as-available capacity provided by Seller is no longer needed because of minimum load conditions, or otherwise." (Id. at 12-13.)

Edison is convinced that the fixed price terms it has negotiated for the first part of the contract extension are reasonable in relation to what gas prices are expected to be during that time period:

"As to the cost-effectiveness of the agreed-to energy prices, the fixed rates provided for during the first ** months of the extended Contract term (***) are projected to be between 66% and 97% of the price that SCE would pay if it had to procure the same amount of electricity from an alternative source, as described briefly below and in more detail in Exhibit SCE-4. For the remainder of the Contracts' terms, Sellers will receive ***." (Id. at 13.)

This conclusion is based upon an analysis of three different measures of the replacement price that Edison believes it would have to pay for energy from alternative sources. This analysis is presented in the prepared testimony of Richard B. Davis (which Edison has filed in both unredacted and redacted versions) and is summarized in the application as follows:

"The first approach was to ascertain a likely future South Path 15 (`SP15') market price based on a recent (***) broker quote for SP15 from Natsource LLC. The average fixed energy price that would be payable to Sellers under the Amendments is projected to be approximately 97.4% of the average SP15 price obtainable from the quoted source over the same period.

"The second SP15 price measure used Topock gas price data from the *** gas forecast by Data Research Inc. (`DRI'), coupled with an assumed heat rate, gas intrastate transportation price and 'spark spread.' The spark spread (in cents/kWh) is a measure of the price of construction and operation of a gas-fired project excluding fuel. The average energy price (over ** months) that would be payable to Sellers under the Amendments is projected to be approximately 72% of the SP15 price developed in this manner.

"The third SP15 price measure SCE consulted is NYMEX gas price data from *** and ***, as reported in the Wall Street Journal, coupled with an assumed heat rate, gas intrastate transportation price, and spark spread. The average price (over ** months) that would be payable to Sellers under the Amendments is projected to be 66% of the SP15 price developed in this manner." (Id. at 13-14; footnotes omitted.)