Discussion
After reviewing both the public and non-public versions of Edison's filings, we conclude that the contract extensions with the seven landfill QFs are reasonable, and we approve them.
Our principal reason for doing so is that under the extensions, Edison is obliged to pay fixed energy prices for only a limited period, and it may terminate the contracts without penalty after a certain time has elapsed even within the fixed-price period.
Although we agree with Edison that the fixed energy price it has agreed to pay should remain under seal pursuant to Pub. Util. Code § 583 and G.O. 66-C, we can state that this price is below the 5.37 cent per kilowatt-hour benchmark that we established last year in Decision (D.) 01-06-015. In that decision, in order to encourage maximum energy production by QFs in the hope of averting blackouts during Summer 2001, we ruled that amendments between QFs and the three major investor-owned utilities that (1) were entered into by July 15, 2001, and (2) substituted a fixed, five-year energy price of 5.37 cents per kilowatt-hour (kWh) for Short Run Avoided Cost (SRAC) energy payments, would automatically be deemed reasonable. In D.01-09-021, we extended the "safe harbor" deadline for deeming such amendments reasonable to July 31, 2001.
However, due in part to the significant fall in gas prices between June and September 2001, we subsequently declined to extend any further the date for deeming such contract amendments reasonable. In D.01-10-069, for example, after noting that "no one can accurately predict what gas prices will be over the next five years," we declined to grant Edison's petition to extend the safe harbor date for QF contract amendments to September 6, 2001. We characterized the decisions after D.01-06-015 as clearly demonstrating "that the Commission was cognizant of changing market conditions, and did not want to deem reasonable contract amendments entered into after a certain date. The recent drop in gas prices reflects a change in market condition, and the utilities and QFs should [now] seek approval of these amendments through the application process rather than have the amendments automatically deemed reasonable." (Mimeo. at 12.)
Gas prices now are slightly higher than in Fall 2001, but the fixed energy price that Edison has agreed to pay the landfill QFs during the first part of the contract extension term is reasonable in relation to them. Moreover, as noted above, Edison has a right to terminate the contract without penalty after a certain point during the fixed-price period, so we agree with Edison that its "ability to exercise an early termination . . . 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." (Application, p. 13.) We also agree with Edison that the pricing terms it has agreed to for the remainder of the contract extension (which terms Edison has filed under seal) are reasonable.
Two issues remain. The first issue is whether we should grant Edison's request for a finding that "all payments to be made to Sellers by [Edison] under the Contracts, as amended by the Amendments, are reasonable and prudent and recoverable in full by [Edison] through rates or such other cost recovery mechanism as the Commission may authorize, subject only to [Edison's] prudent administration of the Contracts, as amended by the Amendments." (Id. at 18.)
This request for approval of payments to be made under the contract extensions is reasonable, and consistent with language we have used in other, recent decisions approving amendments to QF contracts and settlements with QFs. In Ordering Paragraph (OP) 3 of D.01-06-015, for example, we held that under the three QF contract amendments deemed reasonable if entered into by July 15, 2001, the three investor-owned utilities should "be authorized to recover all reasonable payments made under the contracts subject to their prudent administration of the amendments." (Mimeo. at 11.) Similarly, OP 2 of D.02-04-014 authorized Edison to recover in rates all prudently-made payments to a QF, NP Cogen, with which Edison had recently entered into a settlement agreement. (Mimeo. at 10.)7
The second remaining issue -- one on which we feel obliged to express our disapproval -- is Edison's recent practice of insisting in QF contract extensions and settlements that the Commission take action by a certain date, or the amendment or settlement will be deemed null and void. In this case, for example, each of the seven original contract amendments required the Commission to issue a decision "approving the Amendment in its entirety, without conditions or modifications unacceptable to either Party, that has become final and is no longer subject to appeal and which contains the Required Findings," no later than April 30, 2002.8 Since a Commission decision is not normally considered final and no longer subject to judicial review until both the 30-day period for seeking rehearing and the 30-day period for seeking judicial review have passed, this language seemed to mean that the parties expected the Commission to issue a decision approving the amendments no later than February 21, 2002, less than a week after expiration of the 30-day period for protesting the application.9
Including such a limitation in an application is unreasonable, and in certain contexts is contrary to our rules. For example, Rule 51.1(d) states that stipulations and settlements "should ordinarily not include deadlines for Commission approval."10 Notwithstanding this rule, Edison included a deadline for Commission action in its settlement agreement with NP Cogen.11 In D.01-10-069, one of Edison's arguments for extending the July 31 "safe harbor" date to September 6, 2001 was that some of the standard QF contract amendments it had negotiated after July 31 "terminate automatically if the Commission does not approve them by certain prescribed dates." (Mimeo. at 4.) These passages show that Edison's decision to include a "drop dead" date for Commission action in the contract extensions here was not an aberration, and Edison's attempt to apply unnecessary time pressure, if acceded to, could result in inadequate review of applications.
While we are approving these contract extensions because they appear favorable to ratepayers, we place Edison on notice that we will look with strong disfavor in future applications on "drop dead" provisions like those quoted above.
7 D.02-04-014 also noted that the proper accounting vehicle for recovery of the settlement payments was the Annual Transition Cost Proceeding (ATCP) or its successor mechanism. We described the ATCP as follows:"The ATCP was established in D.97-06-060 as part of the establishment of the transition cost balancing accounts. The reasonableness of the QF contract administration is to take place in the ATCP, to the extent that such reviews have not been eliminated by the standard offers or other approved contracts." (Mimeo. at 7; footnotes omitted.)8 In amendments entered into on April 29, 2002, the parties acknowledged that this deadline could not be met and extended the deadline for a final and non-appealable Commission decision to August 26, 2002. 9 Notice of the filing of this application did not appear in the Commission's Daily Calendar until January 17, 2002. Under Rule 44.1 of the Rules of Practice and Procedure, protests to applications must ordinarily be filed within 30 days of such notice. 10 Rule 51.1(d) also provides that in the "rare case" where delay beyond a certain date would "invalidate the basis for the [settlement] proposal," the timing urgency should be "clearly stated and fully justified" in the motion seeking approval of the settlement. 11 This is clear from footnote 3 of D.02-04-014, the decision approving the NP Cogen settlement. That footnote states:
"The Settlement Agreement provides it shall terminate by January 25, 2002, if 'Commission Approval' as defined in the agreement is not obtained or waived by Edison by that date. Edison proposed a 15-day extension to February 9, 2002, a date that has passed." (Mimeo. at 4, n. 3.)
