ALJ/HSY/avs Mailed 12/4/2006

Decision 06-11-048 November 30, 2006

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Approval of Long-term Request for Offer Results and for Adoption of Cost Recovery and Ratemaking Mechanisms.

Application 06-04-012
(Filed April 11, 2006)

OPINION APPROVING RESULTS OF
LONG-TERM REQUEST FOR OFFERS

TABLE OF CONTENTS

Title Page

OPINION APPROVING RESULTS OF LONG-TERM
REQUEST FOR OFFERS 2 2

I. Summary 2 2

II. Procedural Background 3 3

III. Long Term RFO Results 6 6

A. Summary and Review Criteria 6 6

B. Solicitation and Contract Selection Process 7 7

C. MW Amount 7 7

D. Cost-Effectiveness and Reasonableness 10 10

IV. Cost Recovery for Humboldt and Colusa 13 13

A. Capital Costs 13 13

1. Background and Summary 13 13

2. PG&E's Proposal 15 15

3. Aglet's Proposal 16 16

4. DRA's Proposal 16 16

5. Discussion 17 17

a) Fixed Contract Costs and Incentive Payments 17 17

b) Estimated Owner's Costs 18 18

c) Owner's Contingency 20 20

d) Cost of Capital and Other Updates 23 23

e) Additional Capital Costs 23 23

f) GRC True-Up of Capital Cost Savings 25 25

C. Operations and Maintenance Costs 26 26

1. PG&E's Proposal 26 26

2. DRA's Proposal 26 26

3. TURN's Proposal 27 27

4. Discussion 28 28

a) Initial O&M Cost Estimate 28 28

b) O&M Contingency 29 29

c) Advice Letter Adjustments 30 30

D. Effective Date of Revenue Requirement 31 31

E. Other Ratemaking Details 32 32

V. Humboldt CPCN 32 32

VI. CEQA Exemption 32 32

VII. Cost Recovery for PPAs and RFO Administrative Costs 33 33

VIII. Cost Allocation 33 33

Title Page

IX. Authority to Condition Conclusion of
RFO on Particular CPUC Action 36 36

X. Comments on Proposed Decision 37 37

XI. Assignment of Proceeding 38 38

Findings of Fact 38 38

Conclusions of Law 42 42

ORDER 45 45

OPINION APPROVING RESULTS OF
LONG-TERM REQUEST FOR OFFERS

I. Summary

We approve the seven long-term agreements to procure 2,250 megawatts (MW) of new generation resources resulting from Pacific Gas and Electric Company's (PG&E) 2004 Long-Term Request for Offers (RFO).¹ We also adopt ratemaking mechanisms for the recovery of the reasonable costs of the approved contracts and projects.

Decision (D.) 04-12-048 adopted a long-term plan for each utility that provides direction on the procurement of resources over a 10-year horizon through 2014. Taking into account the expected load growth and retirements of aging power plants through the turn of the decade, energy efficiency and demand response programs, solar and other renewable development and combined heat and power on-site generation incentives, the long-term procurement plan adopted for PG&E established that there is a need for 2,200 megawatts (MW) of new generation in northern California by 2010. Accordingly, D.04-12-048 directed PG&E to initiate an all-source solicitation to secure these resources.

PG&E conducted its all-source solicitation, receiving over 50 bids for projects totaling in excess of 12,000 MW. Of these, PG&E selected and seeks approval for five power purchase agreements (PPAs) with terms from 10 to 20 years, a Purchase and Sale Agreement (PSA) for the Colusa project that will be developed by a power plant developer and purchased and operated by PG&E after the plant is operable and has passed performance tests, and an Engineering, Procurement and Construction (EPC) contract for new generation at PG&E's Humboldt Power Plant (Humboldt) which, together, will result in the construction of 2,250 MW of new generation facilities in northern California.

¹ PG&E first issued the RFO on November 2, 2004, but suspended it on January 7, 2005, in order to conform it to the requirements contained in D.04-12-048, and reissued it on March 18, 2005.