X. Comments on the Proposed Decision

The proposed decision of Administrative Law Judge (ALJ) Brown in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Rules of Practice and Procedure. Comments were received from the following parties on December 6, 2004: CAC/EPUC; CAISO; Calpine; CCC; CEERT; Chula Vista; CLECA/CMTA; Constellation; CUE; DENA; DWR; IEP; Modesto; NRDC; ORA; PG&E; SANDAG ¹⁶⁶; SCE; SDG&E; SEGE; SSJID; Strategic Energy; SVMG; TURN; UCAN; UCS; WCP; WPTF. On December 13, 2004, reply comments were received from: CEERT; NRDC; ORA; PG&E; SCE; SSJID; Strategic and TURN. Following is a summary of the parties' comments and reply comments and a discussion of the modifications or clarifications the Commission adopts.

PG&E

In its comments to the PD, PG&E requests that the Commission change the PD to: (1) clarify the cost recovery for IOU owned generation; allow PG&E to continue with its current solicitations without an Independent Evaluator (IE) and for future solicitations, an IE is only required if there are affiliate bidders;

(3) clarify that bids should be evaluated for LCBF; (4) approve a DE of 30%; (5) order that contracts with terms of ten years or less do not need preapproval; (6) see that compliance filings are expeditiously processed; and (7) clarify that the duration of stranded cost recovery mechanisms should be the same as the duration of PG&E's new commitments, especially in light of the fact that new renewable projects require long-term commitments in the range of 10 to 20 years.

SCE

SCE requests that the Commission change the PD in the following areas: all-source RFOs should not have IOU and turn-key projects competing with PPAs; all customers, not just bundled service customers, should pay for stranded costs for the length of the contract; contracts up to five years should be allowed without preapproval; Liquidated Damage contracts should be allowed to count for RA purposes; full DE consideration should be allowed; the ban on affiliate transactions for all transactions should be lifted, not just for long-term contracts; and the scope of the ERRA disallowance cap should be clarified. In its comments filed December 6, 2004, SCE opposed the requirement of a GHG adder in evaluating proposals. However, since that time SCE has modified its stance and now supports the GHG adder to the evaluation of new utility commitments or contracts with terms greater than five years.

SDG&E

SDG&E details in its comments where it believes the PD needs revisions. Specifically, SDG&E urges that DE be 30%, instead of the 10% in the PD; believes employing a GHG adder is premature, or if one is adopted, it should apply to all resources; finds the requirement to file additional DR programs duplicative; seeks clarification as to the provider of last resort vis-à-vis CCA and resource planning; wants compliance filings tied to a 30-day time frame if there are no protests; wants the discussion on procurement risk committees eliminated; and seeks other revisions and/or clarifications.

ORA

ORA supports certain aspects of the PD, especially the endorsement of the GHG adder, the coordination of forecast planning with the CEC's IEPR and the deferment of the approval of SDG&E's 500 kV lines. However, ORA does question the adoption of DE, the use of an IE for certain resource procurements and the adoption of ten/twelve of SCE's proposed modification to the 2004 procurement decision. ORA thinks DE should be deferred to the cost of capital proceeding and adopting it in this procurement decision is in direct contradiction with other Commission decisions. And, ORA asks the Commission to reconsider the use of an IE since ORA believes there is no guarantee that an IE contributes transparency or insures that the bid solicitation and selection is fair.

TURN

Initially TURN advocated that the Commission preapprove contracts over three years in length. TURN has reconsidered its position and now recommends preapproval for contracts over five years in length. This comports with the recommendations of most of the other parties. With that clarification, TURN's primary focus in the comments is on protecting bundled customers from unfairly being burdened with stranded cost. TURN argues against the ten-year recapture period and instead urges the Commission to have all who benefit from a utility's procurement of new resources pay for the life of the contract. TURN also seeks clarification on IOU cost recovery for utility-owned resources. In addition, TURN advances again its argument in favor of having PG&E and SCE solicit bids to obtain 500 MW of new capacity each as interim agents of the Commission's RA policy. And finally, TURN asks the Commission to clarify that all IOUs are expected to issue RPS solicitations in 2005; that the GHG adder will only apply to resource commitments of greater than five years in length; that a potential CCA could present the utility with a binding "notice of intent" that would terminate the IOU planning responsibility for the affected load and the CCA's customers would not bear stranded cost responsibility; allow any firm LD contract to be eligible for RA counting purposes until there is a decision in Phase 2 of the RA decision; and specify that intervenor compensation is available for participation in processes that will feed into the next round of LTPP filings.

UCAN

UCAN supports the PD in many respects, especially in the areas of ratification of the EAP's loading order, denial of SDG&E's 500 kV line, requiring the "maximum feasible amount of renewable generation," the finding that the transmission elements of the plans were insufficient for both Commission and CAISO's purposes, the order to the IOUs to file updated gas forecasts and the determination that local reliability should be part of the procurement process. However, UCAN found the PD deficient in the following areas: it fails to provide a realistic mechanism to implement the EAP loading order; there is a lack of the traditional resources proposed; there is no mechanism to integrate EE, DR and renewables later in the LTPPs; the IOUs' LTPPs are approved; it fails to consider local transmission constraints in the SDG&E service territory; and wrongly concludes that SDG&E's bottom-up planning process is acceptable. UCAN urges the Commission to modify the PD to correct these deficiencies.

UCS

UCS overall supports the PD but offers suggestions for revisions it opines would ensure greater consistency with the EAP and prior Commission directives and facilitate future IOU planning and procurement. In particular, UCS recommends that the Commission order a single supplement/compliance filing by the IOUs in March 2005 for their LTPPs as the vehicle for their updates, rather than doing it piecemeal with multiple updates and filings. In addition, UCS urges the following revisions to the PD: require the IOUs to perform sensitivity analyses of GHG adders by using a range of values and clarify the adder is being used to mitigate financial risk not to quantify externalities; direct the IOUs to use the GHG adder in the development of LTPPs as well as in the evaluation of procurement bids; acknowledge UCS' contributions on the subject of GHG; clarify that the IOUs are to conduct RPS solicitations pursuant to rules already established by the Commission and in addition conduct all-source RFOs that invites renewable participation; streamline transmission planning requirements to accommodate renewable resources; adopt a 5% DE for renewables; require the IOUs to model a range of gas price forecasts; provide greater guidance on how the IOUs are to add clean, fossil-fueled generation pursuant to the EAP loading order and clarify that intervenors participating at the CEC in energy planning activities will be eligible for CPUC intervenor compensation. In addition, UCS wants PG&E and SCE to revise their renewable resource analyses to mirror SDG&E's plan that includes a considerable amount of detail.

CEERT

CEERT commends the PD's policy statements in furtherance of promoting environmentally responsible energy generation but suggests modifications and clarifications that will signal that the Commission is not altering or delaying renewable solicitations. CEERT urges the Commission to firmly state that the 20% renewables procurement by 2010 is a "hard target," commit to getting rid of the current electric generation fleet that is old, inefficient, inflexible and dependent on scarce and expensive natural gas supplies, and replace it with more renewables by following the current RPS law and permit regular and routine RPS solicitations that meet and exceed RPS targets. In addition, CEERT finds PG&E and SCE's procurement sections inadequate, and like UCS, wants those IOUs to file more detailed plans.

NRDC

NRDC voices many of the same arguments presented by UCS and CEERT. In particular, NRDC supports the GHG adder. But like UCS, NRDC asks that the Commission clarity that the GHG adder represents the financial risk associated with carbon emissions and is not an externality value. In addition, NRDC, like UCS, wants the IOUs to use the GHG adder in developing their LTPPs as well as in evaluating bids, and to include fuel types and different portfolio options in the LTPPs. NRDC also asks the Commission to ensure that future LTPPs are a long-term roadmap against which the Commission can judge individual procurement requests, clarify how the 2006 LTPP will coordinate with the CEC's IEPR, and clarify that RPS solicitations must continue, but that renewables are also allowed to bid in all-source RFOs. And finally, NRDC requests that the Commission clarify that the staff's report on a potential "carbon cap" be coordinated with other state agencies.

Modesto, SSJID and Chula Vista

Modesto, SSJID and Chula Vista, while each uniquely situated, share a common concern about the IOUs over procuring and expecting departing load, whether it departs to a CCA, an irrigation district or a municipality, to pay for stranded costs. All three parties commented that the IOUs' LTPPs do not plan adequately for departing load, and if stranded cost recovery is allowed, the IOUs have no incentive to plan appropriately or wisely. Modesto argues that PG&E regularly forecasts departing load for both Modesto and Merced Irrigation Districts as part of its resource planning and therefore the utility can predict with sufficient accuracy what load might be lost. PG&E is well situated to prevent stranded costs and therefore Modesto urges the Commission to reject PG&E's request for the imposition of non-bypassable charges. To allow for these charges does nothing to encourage prudent planning for PG&E and thwarts competition.

SSJID presents similar arguments to those advanced by Modesto and argues that allowing non-bypassable charges provides the IOUs with "cover" for what may be unsound procurement decisions. SSJID also asks that the Commission clarify that irrigation districts have the same opportunities as CCAs to work out alternative strategies with the IOU regarding the sharing of procurement risks.

Chula Vista's main concern with the PD is that CCA will not be properly coordinated with the development of the IOUs' LTPPs. In particular, Chula Vista is troubled that SDG&E's plan does not incorporate reasonable anticipated CCA departing load. And in addition, Chula Vista asks the Commission to direct SDG&E to not enter into contracts that will increase departing load charges for CCA and to direct the utility to corporate with Chula Vista in the development and implementation of CCA.

CCUE

CCUE's focus in its comments to the PD is on all-source solicitations for new generating plants. In particular, CCUE does not believe head-to-head competition in an all-source RFO is in the best interest of the ratepayers. CCUE argues that there is such an inherent difference in a plant owned by a utility and dedicated to serving ratepayers based on cost of service for its entire life and a plant owned by a third party whose only obligations are defined by contract. Competition between IOU-owned and PPAs, from CCUE's perspective, is "terrible for keeping on the lights." Following the CPCN process for utility-owned generation and requiring an RFP for PPAs is what CCUE advocates. As an alternative, CCUE favors a hybrid market and the 50/50 solicitations presented bb PG&E.

CAISO

CAISO supports the PD's discussion of how future plans should include conceptual scenarios that illustrate the impact of potential generator location and when an IOU proposes a major transmission line, it should also include a scenario without the line in its plan. CAISO recommends that the Commission adopt guidelines for analyzing load pocket requirements for the 2006 long-term plans should local capacity requirements remain pending in the RA process. CAISO also argues that the PD misstates the RA obligation, fails to consider the effect of expanding the IOUs' contracting authority on the RA program and should clarify that SDG&E can recover its costs incurred in evaluating its proposed 500 kV transmission lines. Finally, CAISO suggests that if D.04-07-028 requirements are to be extended, that they be extended until implementation of local reliability requirements are developed in Phase 2 of the RA proceeding.

DWR

DWR submitted comments on the PD that focused on DWR's power purchase program and asks the Commission to clarify that nothing in the PD makes changes to prior Commission decisions, particularly decisions addressing the IOU-DWR Servicing Arrangements or IOU-DWR Operating Agreements. Additionally, DWR asks the Commission to modify the PD to deny SCE's request to permit SCE to implement a seven-step process for treating DWR costs in connection with its procurement activities, to make it consistent with D.04-12-014 issued on December 2, 2004. DWR asks the Commission to allocate certain DWR contracts for operational purposes.

SVMG

SVMG focuses on the following in its comments to the PD: (1) its support of all source bidding, the use of an IE, and a cost cap on winning bids; and (2) its argument that the PD, as written, favors renewables beyond what it should with the GHG adder and that could lead to unacceptably higher costs for consumers.

CCC and CAC/EPUC

CCC and CAC/EPUC represent the interest of QFs, and the PD defers all QF issues to a subsequent phase of this case and to the Commission's companion rulemaking on avoided cost pricing, R.04-01-025. In particular, CCC states that while it plans to participate actively in the QF proceeding, it urges the Commission to insure in this decision that there is not a fatal delay that will prejudice the role QFs will play in the IOUs future procurement activities. There are a number of QF contracts that are due to expire during the long term planning period of 2005 through 2014, and CCC fears that unless these contracts are renewed or replaced with new contracts, many QFs, especially cogeneration QFs, may not be able to continue. Therefore, CCC requests that the Commission have a viable policy that requires sustained procurement from cogeneration QFs through out the planning period. Additionally, CCC is concerned that without such a policy, the IOUs will displace cogeneration with other resources.

CAC/EPUC share many of the same concerns as CCC and ask the Commission to insist that the IOUs assume for planning purposes that their QF contracts are renewed and to prohibit the IOUs from displacing QF capacity. CAC/EPUC also argue that the PD should be modified to take out DE, since DE is not a real cost and is anti-competitive since it favors short-term contracts. At the very least, CAC/EPUC ask that DE not apply to QF contracts. CAC/EPUC also want no exit fees for self or co-generation customers, no GHG adder for co-generation and more open and transparent processes before the Commission.

CLECA and CMTA

CLECA and CMTA are concerned with having adequate generation sources available to serve their customers that provide a cost-effective mix of resources. CLECA and CMTA are concerned that the PD puts too much emphasis on renewables at the expense of cost-effectiveness. CLECA and CMTA favor the development of a competitive wholesale market and argue that if the Commission imposes exit fees to collect stranded costs, the IOUs will have no incentive to exercise prudent planning. From their perspective, exit fees are no substitute for sound and flexible planning. CLECA and CMTA favor all source solicitations with the winners selected on LCBF. The groups also favor the use of an IE, but want the Commission, or the ED to select the IE, not the utility. And finally, CLECA and CMTA do not support what they see as the Commission's preference for renewables because their large industrial customers will be saddled with the costs. The groups also oppose the use of the GHG adder.

SEGE

SEGE supports the lifting of the affiliate transaction ban, but wants it lifted for all transactions and for the Commission to allow for "blind" purchases between utilities and their affiliates, not limited to just transactions over three years in length. In addition, while SEGE supports parts of the PD, it urges the Commission to do away with the GHG adder, do away with any preference for brownsites and to not allow any updated gas price forecasts to delay scheduled solicitations. Finally, SEGE argues that DE should only be one of the risks considered in evaluating bids.

Constellation, Strategic Energy and WPTF

Constellation supports the direction the state is going in fostering competitive markets at both the wholesale and retail levels but is concerned that unless the PD is modified, that competitive market is at risk. Specifically, Constellation fears that allowing the utilities to recover stranded costs does nothing to encourage prudent procurement decisions. To address this issue, Constellation proposes a "slice of load" option that the PD rejects. Constellation asks the Commission to not be so hasty in rejecting this option as it would provide competitively procured sources of power for the utility's bundled service customers without creating the potential for a stranded cost recovery mechanism that restricts, if not eliminates, the ability of customers to choose competitive alternatives.

Strategic Energy is concerned that the PD would start California down a path where all risk for prospective utility procurement is borne by the consumer-if the Commission allows the utilities to recover stranded costs. Then, the IOUs have no incentive to be prudent managers of their supply on a volume or a price basis and CCA and new DA are faced with economic barriers in the form of new exit fees. Strategic Energy also asks the Commission to consider Constellation's "slice of load" option as a method of protecting bundled ratepayers and promoting competition.

WPTF also supports a competitive market and supports many of the PD's proposals, especially the rejection of PG&E's 50/50 hybrid market proposal, the adoption of a cost cap for utility-owned resources, the requirement that IOUs must use an IE in solicitations where the utility or an affiliate presents a bid, the order to the utilities to provide updated gas price forecasts and the adoption of allowing the IOUs to consider a 10% DE in evaluating PPAs. However, WPTF urges the Commission to modify the PD to clarify that tradable RECs are in play and can be used by a utility to meet its RPS targets. In addition, WPTF believes that the GHG adder is not supportable at this time and that deferring local capacity requirements to Phase 2 of the RA proceeding is "ill-advised." And, following along with Constellation and Strategic Energy, WPTF is concerned that allowing the IOUs to recover their net stranded costs will hamper competition and suggests that Constellation's "slice of load" option might be a solution to be studied further.

IEP

IEP is in substantial accord with the PD, but does have some areas of disagreement-especially on the issue of the application of DE as a bid evaluation factor. Other areas in which IEP disagrees with the PD include the GHG adder, the way confidentiality was handled in this proceeding and the fact that the LTPPs did not model the PacifiCorp planning process. Additionally, IEP suggests that cost caps should apply to IOU-turnkey resource selections and the IOUs should not be the contracting party for the IE. With these modifications, IEP supports approval of the PD.

DENA

DENA is primarily concerned that unless immediate steps are taken in the next three to five years in the utility procurement context, existing capacity such as DENA's may be pushed towards early retirement. DENA believes that Ordering Paragraphs (OP) 14 and 15 of the PD provide the utilities with authority to enter into transactions with entities such as DENA, but asks the Commission to clarify the OPs so there is no question that "at risk" existing capacity will not be prematurely retired.

Calpine

Calpine supports the efforts made in the PD to ensure the procurement of resources results from fair, open and transparent competitive solicitations. To insure this, however, Calpine suggests certain modifications to the PD: clarify that the cost cap applies to all IOU-owned resources, including turnkey and affiliate projects; have Commission staff retain the IE; give no priority to Brownfield projects over Greenfield ones; direct that once an IOU has met its RPS target, additional renewable resources should be obtained through all-source competitive solicitations; and deny the IOUs request to consider DE in evaluating PPAs.

WCP

WCP urges the Commission to revise the PD to give consideration to the role aging power plants play in California's electric resource base and to the negative results that will occur if they are retired in the next few years. To this end, WCP recommends that the Commission integrate the IEPR process and the procurement process. In addition, WCP requests the following specific revisions to the PD: revise the terminology re: brownfields, greenfields and repowering so the decision is clear and consistent; add a discussion of the advantages of repowering; declare the Commission's intention to work for a recognition of repowering in the loading order of the EAP and make appropriate revision to the references in the PD to the EAP's loading order; and require the IOUs to modify their LTPPs to incorporate consideration of repowering.

SANDAG

SANDAG basically supports the PD's direction on renewables and EE goals since these policies comport with the direction SANDAG advocates. In addition, SANDAG is working towards more integration between the community and SDG&E in developing SDG&E's 2006 LTPP.

¹⁶⁶ Concurrently with the filing of comments, SANDAG filed a Motion to Intervene, which motion is granted in this decision.