XI. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Hallie Yacknin is the assigned ALJ in this proceeding.
1. PG&E requested an expedited Commission order on this application by November 2006 on the basis that delaying an order until after that time creates the risk that necessary resources will not be on line by the 2009 and 2010 summer peak periods.
2. PG&E conducted an open, competitive and fair solicitation and contract selection process.
3. The 2,250 MW represented by the selected contracts reasonably meets the 2,200 MW procurement amount authorized in D.04-12-048.
4. PG&E selected and negotiated the bilateral agreement for the Contra Costa 8 project, which was authorized in D.06-06-035, outside of the competitive bid solicitation and contract selection process.
5. The Commission evaluated and approved the bilateral agreement for the Contra Costa 8 project on its individual merits, without revising our prior procurement authorization.
6. The selected contracts reasonably meet the resource need identified in D.04-12-048.
7. Taking into account non-quantitative factors, the Colusa PSA is comparable to the optional Colusa PPA.
8. The 163 MW represented by the 10-engine Humboldt replacement project falls within the maximum replacement generation recommended by PG&E's transmission planning personnel.
9. The 10th engine generator provides value at a relatively low incremental price.
10. The counterparties to the Calpine Hayward PPA are bankruptcy-remote from the Calpine entity that is currently in bankruptcy, and include General Electric, which is one of the nation's soundest counterparties.
11. The Humboldt and Colusa fixed contract costs were vetted through the competitive solicitation and contract selection process.
12. PG&E's estimated owner's costs for the Colusa and Humboldt project were reviewed for reasonableness in this proceeding. PG&E's estimated owner's costs for the Colusa project were also included in its project bid price analyzed in the contract selection process.
13. It will not be known, until operation of the projects, whether performance incentive payments will be paid or performance incentive penalties will be due to PG&E under the Humboldt and Colusa contracts.
14. The advice letter procedure provides a timely means for adjusting the initial capital cost to reflect actual incentive payments or penalties without disadvantage to PG&E.
15. PG&E bases its need for outside counsel for Humboldt project siting work on the fact that it has not worked on such issues for over 20 years.
16. PG&E bases its estimate of outside counsel costs for Humboldt project siting work on discussions with environmental firms that routinely do this work.
17. PG&E's estimate of electrical interconnection costs falls near the lower end of the range of its estimated costs.
18. PG&E's estimate of fuel interconnection costs falls within the range of its estimated costs, albeit at the top of the range.
19. Net commissioning fuel costs are capitalized under the Federal Energy Regulatory Commission Uniform System of Accounts and Generally Accepted Accounting Principles.
20. The project bid price for the Colusa project included PG&E's proposed owner's contingency for the project.
21. All eligible project bids for the Humboldt project were for utility ownership. As a result, PG&E's estimated owner's costs and proposed contingency for the Humboldt project were not evaluated in the contract selection.
22. The record does not support a predetermination that additional costs resulting from operational enhancements to the Colusa or Humboldt projects are necessarily reasonable.
23. The record does not support a predetermination that additional costs of the Humboldt project resulting from delay in the closing date or undefined external events are necessarily reasonable.
24. The payroll tax factor from PG&E's current GRC (7.84%) is the most current payroll tax forecast.
25. PG&E's O&M estimate assumes a higher staffing level than recommended by the developer in order to ensure high reliability and quick start-up and shut-down that is particularly necessary in Humboldt's transmission-constrained area.
26. If Humboldt and Colusa become operational by their planned operation dates of May 2009 and May 2010, respectively, PG&E's current GRC schedule will not permit update of their O&M costs on the basis of actual operation until test year 2013. If the Commission approves a proposed settlement between PG&E and DRA to extend the next test year from 2010 to 2011, it will be possible to update Humboldt's, but not Colusa's, O&M costs on the basis of actual operation.
27. The costs of increased staffing levels due to permitting requirements and of a change in the timing of the O&M expense stream are presumably reasonable.
28. An O&M adjustment to reflect additional costs that result from deviations from the assumed plant operations is redundant of an O&M contingency factor for the possibility of unplanned outages and curtailment-related repair costs, increased inflation, and increased labor and contractual services costs.
29. The Humboldt project will replace the existing power plant at Humboldt Bay, which is at the end of its useful life.
30. The Humboldt Bay area is transmission-constrained so that it cannot be fully supplied by any other plant.
31. PG&E requests to transfer the costs that it has tracked in the Long Term Procurement Memorandum Account, established pursuant to Resolution E-3914, to the ERRA account, and to seek recovery of these costs in a future ERRA proceeding.
32. D.06-07-029, which directs utilities to make an election at the time they apply for approval of power purchase agreements as to whether they intend to use the decision's cost allocation mechanism, issued several months after PG&E filed this application.
33. PG&E's offer in support of its request to extend the 10-year non-bypassable charge established in D.04-12-048 consists of its statement that a longer recovery period will create a greater incentive for the development of long-term contracts to construct new generation facilities.
34. PG&E makes no showing with respect to the current state of its customer base, as required in D.04-12-048, to justify a longer cost recovery period than the 10-year non-bypassable charge.
1. The selected contracts should be approved as reasonable.
2. An initial capital cost for the Colusa project equal to the sum of its fixed contract costs (excluding incentive payments or penalties) plus PG&E's estimated owner's costs and PG&E's proposed contingency should be adopted and approved as reasonable.
3. An initial capital cost for the Humboldt project equal to the sum of its fixed contract costs (excluding incentive payments or penalties) plus PG&E's estimated owner's costs and a 5% owner's contingencies should be adopted and approved as reasonable.
4. PG&E should be authorized to adjust the initial capital cost by advice letter filing to reflect any performance incentive payments paid under the Humboldt and Colusa contracts.
5. PG&E should be direct to adjust the initial capital cost by advice letter filing to reflect any performance incentive penalties due to it under the Humboldt and Colusa contracts.
6. PG&E should be authorized to apply for recovery of additional capital costs for the Humboldt and Colusa projects that are attributable to operational enhancements to the project upon a showing of reasonableness.
7. PG&E should not be authorized to seek recovery of other additional costs of the Colusa project.
8. PG&E should be authorized to seek recovery, through application, of other additional costs of the Humboldt project upon a showing of reasonableness.
9. PG&E should be directed to retroactively true up the projects' initial capital cost in the next GRC following operation to reflect 50% of any other savings relative to the initial capital cost for Colusa and 100% of any other savings relative to the initial capital cost for Humboldt.
10. PG&E's O&M forecast estimate (excluding PG&E's proposed O&M contingency factors), adjusted to reflect a 7.84% payroll tax factor, should be adopted for purposes of establishing an initial revenue requirement for the Humboldt and Colusa projects.
11. PG&E's requested O&M contingency amounts should be placed in a one-way balancing account, which PG&E may recover if and when they are actually expended prior to revision in the GRC following operation.
12. PG&E should not be authorized to adjust the initial revenue requirement for changes to its O&M expense forecast that may occur as a result of deviations from the assumed plant operations.
13. PG&E should be authorized to file an advice letter to adjust the initial revenue requirement for changes to its O&M forecast estimate that may occur as result of (1) increased staffing levels due to permitting requirements, and (2) a change in the commercial operation date, which will change the timing of the O&M expense streams. PG&E should be directed to file an advice letter to also adjust the revenue requirement in the event that the plants become operational earlier than assumed.
14. PG&E should be authorized to file an advice letter to adjust the initial revenue to reflect changes to the Commission-authorized cost of capital, franchise and uncollectibles factors, and property tax factors prior to the first GRC following operation of the projects.
15. The initial revenue requirement for Colusa should begin to accrue in the UGBA as of the date of closing of the Colusa PSA, and should be included in rates on January 1 of the following year.
16. The initial revenue requirement for Humboldt should begin to accrue in the UGBA as of its commercial operation date, and should be included in rates on January 1 of the following year.
17. PG&E should be authorized to recover fuel costs for the Humboldt and Colusa projects through the ERRA proceeding.
18. In the event that it is required to finance transmission upgrades related to Humboldt, PG&E should be authorized to file an advice letter adjusting the revenue requirement to allow it to collect any difference between the interest rate used to reimburse PG&E for its finance costs and its then-authorized weighted average cost of capital on a pre-tax basis.
19. PG&E should be granted a CPCN for the Humboldt project.
20. The projects at issue in this proceeding are exempt from CEQA review by this Commission.
21. PG&E should be authorized to recover costs associated with the power purchase agreements approved in this decision, including the bridge tolling agreement for the Colusa project, through the ERRA.
22. PG&E should be authorized to transfer the costs that it has tracked in the Long Term Procurement Memorandum Account, established pursuant to Resolution E-3914, to the ERRA account and to seek recovery of these costs in a future ERRA proceeding upon a showing that costs are incremental to the GRC approved revenue requirement.
23. PG&E should be permitted to defer its election of cost allocation mechanism for its power purchase agreements until after the Commission issues a final decision in R.06-02-013 or upon further Commission direction in that proceeding.
24. PG&E's request for a non-bypassable charge for the Humboldt and Colusa projects that is longer than the 10-year period adopted in D.04-12-048 should be denied.
25. PG&E does not have the authority to condition concluding the RFO on approval of its proposed cost allocation in R.06-02-013, or on any other Commission action with respect to cost recovery for the results of the RFO.
26. An order in this proceeding should be effective immediately.
27. Application 06-04-012 should be closed.
IT IS ORDERED that:
1. The five power purchase agreements (PPAs), the Humboldt Power Plant (Humboldt) Engineering, Procurement and Construction (EPC) contract, and the Purchase and Sale Agreement (PSA) for the Colusa project are approved as reasonable.
2. Pacific Gas and Electric Company (PG&E) is granted a certificate of public convenience and necessity for the Humboldt project, subject to compliance with this decision and California Energy Commission permitting requirements.
3. An initial capital cost for the Colusa project equal to the sum of its fixed contract costs (excluding incentive payments or penalties) plus PG&E's estimated owner's costs, including PG&E's proposed owner's contingency, is adopted and approved as reasonable.
4. An initial capital cost for the Humboldt project equal to the sum of its fixed contract costs (excluding incentive payments or penalties) plus PG&E's estimated owner's costs, including a contingency equal to 5% of the fixed contract and estimated owner's costs, is adopted and approved as reasonable.
5. PG&E is authorized to adjust the initial capital cost by advice letter filing to reflect any performance incentive payments paid under the Humboldt and Colusa contracts.
6. PG&E is directed to adjust the initial capital cost by advice letter filing to reflect any performance incentive penalties due to it under the Humboldt and Colusa contracts.
7. PG&E is authorized to apply for approval, and recover the reasonable costs, of operational enhancements to the Humboldt and Colusa projects.
8. PG&E is authorized to apply for recovery of additional capital costs for the Humboldt project upon a showing of reasonableness.
9. PG&E is directed to retroactively true up the projects' initial capital cost in the next GRC following operation to reflect 50% of any other savings relative to the initial capital cost for Colusa and 100% of any other savings relative to the initial capital cost for Humboldt.
10. PG&E's Operations and Maintenance (O&M) forecast estimate (excluding PG&E's proposed O&M contingency factors), adjusted to reflect a 7.84% payroll tax factor, is adopted for purposes of establishing an initial revenue requirement for the Humboldt and Colusa projects.
11. PG&E's requested O&M contingency amounts shall be placed in a one-way balancing account, which PG&E may recover if and when these amounts are actually expended prior to revision in the GRC following operation.
12. PG&E is authorized to file an advice letter to adjust the initial revenue requirement for changes to its O&M forecast estimate that may occur as result of (1) increased staffing levels due to permitting requirements, and (2) a change in the commercial operation date, which will change the timing of the O&M expense streams.
13. PG&E is directed to file an advice letter to adjust the revenue requirement in the event that the plants become operational earlier than assumed.
14. PG&E is authorized to file an advice letter to adjust the initial revenue to reflect changes to the Commission-authorized cost of capital, franchise and uncollectibles factors, and property tax factors prior to the first GRC following operation of the projects.
15. The initial revenue requirement for Colusa shall begin to accrue in the Utility Generation Balancing Account (UGBA) as of the date of closing of the Colusa PSA, and shall be included in rates on January 1 of the following year.
16. The initial revenue requirement for Humboldt shall begin to accrue in the UGBA as of its commercial operation date, and shall be included in rates on January 1 of the following year.
17. PG&E is authorized to recover fuel costs for the Humboldt and Colusa projects through the Energy Resources Recovery Account (ERRA) proceeding.
18. In the event that it is required to finance transmission upgrades related to Humboldt, PG&E is authorized to file an advice letter adjusting the revenue requirement to allow it to collect any difference between the interest rate used to reimburse PG&E for its finance costs and its then-authorized weighted average cost of capital on a pre-tax basis.
19. PG&E is authorized to recover costs associated with the power purchase agreements approved in this decision, including the bridge tolling agreement for the Colusa project, through the ERRA.
20. PG&E is authorized to transfer the costs that it has tracked in the Long Term Procurement Memorandum Account, established pursuant to Resolution E-3914, to the ERRA account and to seek recovery of these costs in a future ERRA proceeding upon a showing that costs are incremental to the GRC approved revenue requirement.
21. PG&E may defer its election of cost allocation mechanism for its power purchase agreements until after the Commission issues a final decision in Rulemaking 06-02-013 or upon further Commission direction in that proceeding.
22. PG&E is directed to conclude the results of the RFO as approved in this decision.
23. PG&E's request for a non-bypassable charge for the Humboldt and Colusa projects that is longer than the 10-year period adopted in Decision 04-12-048 is denied.
24. Application 06-04-012 is closed.
This order is effective today.
Dated November 30, 2006, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
