Word Document

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3805

RESOLUTION

Resolution E-3805. Pacific Gas and Electric Company requests Commission approval of the renewable energy contracts it selected pursuant to D.02-08-071. Pacific Gas and Electric Company's Advice Letter 2303-E is approved.

By Advice Letter 2303-E filed on November 15, 2002.

__________________________________________________________

SUMMARY

Pacific Gas and Electric (PG&E) filed Advice Letter (AL) 2303-E on November 15, 2002, requesting Commission review and approval of several renewable energy contracts. AL 2303-E was submitted in compliance with Ordering Paragraphs 3, 4, and 5 of Decision (D.) 02-08-071, which authorized PG&E to enter into procurement contracts with the credit support provided by the California Department of Water Resources (DWR) between the effective date of the decision and January 1, 2003. The contracts, for which PG&E is seeking approval, were solicited under PG&E's September 16, 2002 request for offers (RFO) for renewable generation capacity and energy products.

PG&E demonstrated that the bid solicitation was conducted in an open competitive manner and that the evaluation methodology used to select the renewable power procurement contracts was reasonable. PG&E also showed that these contracts meet the price benchmark provided in D.02-08-071.

PG&E requests AL 2303-E to be effective no later than December 17, 2002, under the shortened notice authority under Section V. B. of General Order 96-A and Section 491 of the Public Utilities (PU) Code.

AL 2303-E was protested by the California Biomass Energy Alliance (CBEA). The Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), and DWR also filed comments.

This resolution approves AL 2303-E effective today.

BACKGROUND

Assembly Bill (AB)X1 1, chaptered on February 1, 2001, granted authority to DWR to buy and then sell retail electric power to the customers of PG&E, Southern California Edison Company (SCE), and San Diego Gas and Electric Company (SDG&E). It required DWR to enter into contracts for the purchase of electric power to meet the utilities energy requirements net of existing resources until January 1, 2003.

On July 3, 2002, AB 57 was enrolled1, adding Section 454.5 to the PU Code, to provide guidance to the utilities and the Commission for the procurement of electricity and electricity demand reduction products. The bill requires the Commission to review and adopt a procurement plan for each utility in accordance with specific plan elements and objectives to ensure that no later than January 1, 2003, the utilities resume procurement for those needs that will no longer be met by DWR.

In D. 02-08-071, issued on August 22, 2002, the Commission:

Specifically, the Commission authorized the utilities to procure up to their forecasted maximum on-peak hourly residual net short (RNS)3 requirements reflected in a low-case RNS scenario for products with contract terms up to five years. The Commission also authorized the utilities to procure necessary ancillary services as reflected in a low-case RNS scenario.

The decision ordered a separate renewables solicitation by each utility for at least one percent of annual electricity sales. This set-aside is roughly equivalent to the Renewables Portfolio Standard Program approach enacted in Senate Bill (SB) 10784 and reflected in AB 57. The renewable energy provisions of D.02-08-071 were adopted by the Commission in anticipation of SB 1078's passage, therefore the decision's requirements were conformed to the controlling language of the bill.

The Commission required each utility to establish a "Procurement Review Group" (PRG) whose members, subject to an appropriate non-disclosure agreement, would have the right to consult with the utilities and review the details of:

The PRG for PG&E is comprised of Aglet Consumer Alliance, California Energy Commission (CEC), California Utility Employees (CUE), Consumers Union (CU), Department of Water Resources (DWR), Energy Division, Office of Ratepayer Advocates (ORA), Natural Resources Defense Council (NRDC), and The Utility Reform Network (TURN).

Following the completion of each utility's evaluation of the bids received pursuant to the RFO process, each utility must file by advice letter its proposed contract(s), procurement processes, and PRG recommendations. As stated in Appendix B of D.02-08-071, approval of the advice letter would constitute a determination by the Commission that costs incurred by the utility under the contract itself and/or under contracts conforming to the procurement process are "reasonable" and "prudent" for purposes of recovery in retail rates under the PU Code for the full term of the contract(s).

On September 16, 2002, PG&E issued two separate RFOs. The first RFO was a general request for generation capacity, energy, and related products. The second RFO was only for renewable capacity and energy products. The term of the existing units must begin no later than June 1, 2003, while the term of the new units must begin no later than December 31, 2003. The contracts may be for 5, 10, or 15 years. The products solicited include:

On November 15, 2002, PG&E filed Advice Letter 2303-E, requesting Commission approval of several renewable energy and capacity contracts selected as part of PG&E's Renewable RFO process. Confirmation of these contracts is subject to: (1) Commission approval; (2) approval of the Bankruptcy Court Northern District of California5; (3) execution of EEI Master Power Purchase and Sale Agreement by both DWR and the seller; and (4) DWR confirmation.

NOTICE

Notice of Advice Letter 2303-E was made by publication in the Commission's Daily Calendar. PG&E states that a copy of the Advice Letter excluding the confidential appendices was mailed and distributed in accordance with Section III-G of General Order 96-A.

PROTESTS

D. 02-08-071 adopted an expedited advice letter processing schedule that requires a significantly reduced protest period. Protests were due within seven days of the advice letter filing and replies to protests were due within three days of the protest.

AL 2303-E was timely protested by the California Biomass Energy Alliance (CBEA). The Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), DWR also filed comments.

PG&E responded to the protest and the comments on November 25, 2002.

Parties mainly commented on the evaluation criteria used by PG&E, certain bids that were not selected by PG&E, and the eligibility of the selected projects for the one percent set-aside requirement. These issues will be described in detail below.

CBEA's protest: CBEA protests AL 2303-E on the ground that: (1) PG&E may be counting power from existing geothermal facilities toward its one percent renewable requirement, (2) PG&E has not shown that it increased its total sales of renewable power by one percent, and (3) certain biomass projects should have been selected by PG&E.

First, CBEA argues that PG&E is violating the terms of D.02-10-062 by counting power from existing geothermal facilities toward its one percent renewables requirement. By doing so, PG&E "...[is] denying other renewables facilities the opportunity to provide power." (CBEA Protest, p.2) It is CBEA's understanding that D.02-10-062 does not allow power from geothermal sources to be counted for the required incremental increase. CBEA requests that, "the Commission should order PG&E to comply with D.02-10-062 and to fulfill its one percent requirement by procuring additional power from permissible (i.e., non-geothermal) renewable sources." (CBEA Protest, p.4)

Second, CBEA is concerned that three biomass facilities, Madera Power, Dinuba Energy, and the Sierra Pacific Industries at Sonora, have not been offered contracts by PG&E. CBEA states that these facilities have contracts with DWR that expire at the end of the year, and argues that these biomass facilities may have been excluded at the expense of existing geothermal facilities. CBEA is concerned that, "The sudden loss of business for these biomass facilities will likely result in their swift and permanent closure - a major and irreversible loss of renewable resources to the State of California." (CBEA Protest, p. 4) CBEA requests that the Commission take action to prevent closure of the biomass facilities by ordering PG&E to sign contracts with them at the same prices as the current contracts with DWR or ask DWR to extend its existing contracts with these facilities. CBEA also suggests that the Commission work with the California Power Authority (CPA) to explore another option, where CPA might purchase power from such facilities.

Finally, CBEA argues that PG&E misstated the Commission's transitional renewables requirement: "The Commission`s requirement is for PG&E to increase its total retail sales of renewable power by at least an additional 1% of [its] annual electricity sold beginning January 1, 2003." (CBEA Protest, p.4) CBEA argues that PG&E should demonstrate that its total retail sales of renewable power in 2003 would increase by one percent of its total sales.

PG&E's comments to CBEA's protest: In its reply to CBEA's protest, PG&E states:

PG&E also disagrees with CBEA's understanding of how the one percent set-aside requirement should be calculated.

In response to CBEA's suggestion to select certain biomass projects, PG&E notes that, "This is clearly not consistent with the competitive procurement process for renewable resources mandated by the Commission in D.02-08-071. These three biomass QFs were not selected simply because they were not competitive in comparison to many other qualified offers PG&E received in this solicitation." (PG&E Reply, p.7)

DWR's comments: In its comments, DWR states that, "(1) The Department has previously communicated to PG&E that any interim procurement contracts entered into by DWR would be limited to a one-year term, (2) Contrary to PG&E's assertion, the Department was not included in renewable contract negotiations." (DWR Comment, p.1)

DWR also expresses its "willingness to enter into one-year power purchase agreements in connection with PG&E's interim procurement, but only if certain contractual provisions either previously provided to PG&E or as set forth in the Department's forms of EEI cover sheet and confirmation developed in connection with the interim procurement process are included in such agreements." (DWR Comment, p.1)

PG&E's Response to DWR Comments: PG&E states that, "[it] was not aware that DWR intended to limit the term of any renewable contracts to one year. PG&E has discussed this change of direction with DWR, and will work with DWR to develop contract terms that will enable DWR to sign contracts that match the five year term of the PG&E contracts, and enable PG&E to comply with D.02-08-71's direction to sign 5, 10 or 15 year renewable contracts." (PG&E Reply, p.1-2)

PG&E also acknowledged that DWR did not participate in all the renewable contract negotiations and stated that DWR was invited to participate, but declined to do so.

ORA's comments: ORA recommends that the Commission accept PG&E's proposed contracts as filed in AL 2303-E and comments on changes and improvements needed for the future renewable procurement process.

Specifically, ORA comments on the definition of the "new" one percent renewable set-aside, and suggests that PG&E's proposed contracts may not count toward meeting PG&E's one percent renewable set-aside requirement. ORA also comments on PG&E's contract evaluation method used in the general and renewable RFO process, and suggests the use of probabilistic methods to make a valid comparison between the contracts received under different RFO processes.

PG&E's response to ORA's comments: In response to ORA's concern about definition of one percent renewable set-aside requirement, PG&E states that, "Decision 02-08-071 does not require that utilities contract with new resources, or exclude preexisting capacity. Rather, the decision directs the utilities to give a preference to existing renewable resources if their prices are equal to or lower than prices offered by new projects." (PG&E Reply, p. 33-34)

In response to ORA's suggestions of using a probabilistic method, possibly Black's model, PG&E expresses willingness to work with ORA and the rest of the PRG to "further refine its analytical methods." (PG&E Reply, p.3) PG&E explains, "The GenTrader model does take a probabilistic approach in that the value of dispatchable contracts (General RFO and Renewables) are run through a simulation. The results used are on that basis." PG&E recognizes the use of Black-Scholes type evaluation for basic options but argues that, "the physical constraint aspects of dispatchable contracts make it more appropriate to simulate the value of embedded options with tools such as GenTrader." (PG&E Reply, p.3) The GenTrader is the commercial software used by PG&E to evaluate the contracts received during the general and renewable RFO process.

TURN's Comments: In its comments, TURN does not recommend that the Commission reject any of the contracts submitted by PG&E. However, TURN points out that, "the solicitation practices exhibited by PG&E are cause for concern and suggest that the future implementation of SB 1078 may be frustrated unless careful Commission oversight of the RFO process is preserved." TURN specifically comments on the disqualification of certain wind and landfill gas projects and compares PG&E's selection process with the interim solicitations conducted by other utilities and argues that, "ratepayer interests have not been effectively served by PG&E's interim solicitation process." (TURN Comment, p.1)

TURN commented on the following issues: (1) out-of-state resources deemed ineligible, (2) disqualification of the projects that were unable to guarantee online deliveries by the end of 2003, (3) the rejection of the bidders seeking to negotiate contractual language, (4) the disqualification of the projects smaller than 3 MW in size, and (5) existing QF expansions or renegotiations that were not considered.

Despite all its concerns, TURN "reluctantly" supports PG&E's request as filed in AL 2303-E.

PG&E's response to TURN's comments: Exclusion of out-of-state bids was an issue for TURN. PG&E explains that its solicitation letter required all bidders' first point of interconnection to be within California, and it does not find it right to change this criterion after the fact. PG&E also mentions uncertainty around qualification of out-of-state resources as base renewables under SB 1078.

PG&E also explains that, "In compliance with the Commission order, PG&E made the 12/31/03 on-line date an essential element of its solicitation to potential bidders. Again, changing this criterion after the fact would have improperly tilted the playing field, as well as ignored an explicit order." (PG&E Reply, p.4)

In response to TURN's suggestion that PG&E should have pursued negotiations with parties who were not in compliance with the RFO requirements, PG&E explained that the interest in the renewable RFO was immense, and that the majority of the offers complied with the requirements. Also, due to the limited time available and the abundance of projects that met the 3 MW minimum requirement, PG&E did not consider projects offering fewer than 3 MW.

PG&E also did not consider renegotiating existing QF contracts for the following reasons:

We address these comments and the protest in the following section.

DISCUSSION

D.02-08-071 adopted a procedural process guiding the review and approval of transitional period procurement contracts. It provided the utilities with an opportunity for an expedited resolution that resolves reasonableness issues, while ensuring effective Commission oversight. D.02-08-071 provided utilities an opportunity to benefit from the bids available in the market to allow them to reduce costs and hedge against possible price spikes, thereby reducing the overall expected cost for the ratepayers. The burden was placed on the utilities to show that the evaluation criteria used in the process were reasonable.

We examine PG&E's request on multiple grounds: solicitation of the bids, evaluation of the contracts, bid selection, and PRG involvement.

Solicitation Process: Finding of Fact 19 and Conclusion of Law 2 of D.02-08-071 state that all products purchased under this authority should be purchased using a competitive process. D. 02-08-071 required each utility to hold a separate competitive solicitation for renewable resources in the amount of at least an additional 1% of their annual electricity sold.

The information provided by PG&E shows that it made sufficient effort to get the largest number of bids for the transitional procurement process. In order to ensure a competitive bid solicitation, PG&E contacted parties that are currently participating in the California market and other potential participants. The list developed by PG&E included suppliers PG&E had contracted with in the past, suppliers that contracted with DWR, and those listed as members of the Western States Power Pool. Suppliers who contacted PG&E after D.02-08-071 was issued were also added to the list. Additionally, PG&E conferred with groups such as the Independent Energy Producers (IEP), California Biomass Energy Alliance (CBEA), The Center for Energy Efficiency and Renewable Technologies (CEERT), the California Wind Energy Association (CalWEA), the California Energy Commission (CEC) and the California Power Authority (CPA) to reach other potential suppliers.

PG&E e-mailed its renewables RFO to 151 market participants on September 16, 2002. The recipients had two weeks to respond to PG&E's solicitation. Thirty-three parties submitted bids. PG&E received and evaluated 77 bids for a total of 8,900 GWh.

Evaluation Methodology: PG&E established an evaluation method, details of which are classified as Confidential Protected Material in accordance with the May 1, 2002, Protective Order issued in Rulemaking (R.) 01-10-024, and pursuant to PU Code Section 583. Energy Division and the members of the PRG who have signed the non-disclosure agreement hold PG&E's confidential data supporting its request.

In order to select the most economic transactions, PG&E evaluated the offers it received according to various criteria. In its initial screening, PG&E eliminated 33 of the 77 offers for not complying with its renewable RFO requirements, i.e., minimum capacity, location, and on-line dates.

Next, PG&E computed mark-to-market (MTM)6 value of each transaction on a total dollar basis and on a dollars per megawatt-hour basis. All the offers were ranked in order of their $MTM/Mwh value, then compared against one another. The MTM value of each offer is calculated based on forecast energy prices and shows the potential savings or costs a contract can offer. That is, a positive MTM value implies that it is more economical to execute the contact rather than purchase energy on the spot market. A negative MTM value indicates that the contract imposes some additional cost on the ratepayer given the forecast energy prices. This does not mean that all contracts with negative MTM values do not provide any benefit to ratepayers. These contracts can still benefit ratepayers by providing insurance against possible price spikes. A short list of contracts with the highest market values was selected. Further negotiations with the bidders in the short list resulted in contracts submitted with AL 2303-E. All the contracts selected cost less than 5.37 cents per KWh, and meet the price benchmark established in D.02-08-071.

Contracts selected: Based on the criteria explained above, PG&E selected several renewable energy contracts, as attached in Appendix A of AL 2303-E. PG&E demonstrated that given the set of bids it received, the recommended offers meet PG&E's RFO requirements, and are more cost-effective than the remaining of the bids.

The contracts selected represent approximately 826 gigawatt-hours of energy annually, or approximately 1.1 percent of 2003 energy sales.

PRG Involvement: PG&E held five meetings (August 29, September 9, September 17, October 11, and October 25, 2002) where the PRG had the opportunity to review and discuss: the draft RFOs, residual net short estimates, types of products sought, bid evaluation method, and PG&E's contract recommendations. These meetings provided the appropriate platform to keep PRG members apprised of transitional procurement developments and issues, and to discuss concerns and ideas. It also provided an opportunity for the PRG to check on the utility's procurement planning process for 2003.

PG&E presented its short list with the PRG on October 25, 2002, and provided PRG members 15 days to provide written comments. PG&E stated that none of the parties provided written comments.

Price refresher: PG&E has not paid any premiums or fees to keep the selected contracts open. Contracts submitted by PG&E for Commission approval do not include a price refresher provision, i.e., contract prices will not be adjusted upon Commission approval.

Backup Data Requirements: In compliance with D. 02-08-071, PG&E attached with AL 2303-E the transitional procurement contacts for which it seeks Commission approval, along with the briefing package provided to the ultimate decision maker(s), quantitative process used to rank offers, relative cost-effectiveness of the offers, break-even spot price equivalent to the contracts, and PRG meeting minutes. All of the attachments are classified as Confidential Protected Material in accordance with the May 1, 2002, Protective Order issued in R. 01-10-024, and pursuant to PU Code Section 583.

Comments and Protest: The comments filed by ORA, DWR, and TURN, plus the protest filed by CBEA, point out important issues and provide further guidance to PG&E's procurement planning.

CBEA argued that PG&E miscalculated its one percent renewables requirement, counted geothermal resources towards one percent set-aside requirement, and did not pick certain biomass projects that should have been selected. PG&E did not make an explicit showing that the selected contracts meet the required amounts, but stated that, "The enclosed contracts represent approximately 826 gigawatt-hours of energy annually, or approximately 1.1 percent of annual energy sales." (AL 2303-E p.2) It is PG&E's understanding that D.01-08-071 required the utilities to solicit bids in the amount of 1% of its 2003 annual sales. However, D.02-10-062 explicitly stated:

According to the FERC 1 Form filed by PG&E as of year-end 2001, PG&E's 2001 retail sales were 79,682 Gwh. The selected contracts represent 1.04 percent of PG&E's 2001 sales, therefore, they would satisfy the one percent requirement, if the renewable energy procured from geothermal projects could be counted towards the "incremental" renewable resource requirement. This issue was raised in ORA's comments as well as CBEA's protest, and the CEC is the authority that will resolve it. Even though the CEC has not filed any comments to AL 2303-E, the CEC communicated the uncertainty surrounding this issue in its comments sent to PG&E on September 16, 2002. PG&E submitted CEC's comments under Confidential Attachment E of AL 2293-E.

We find that the contracts for which PG&E is seeking approval meet the one percent target, pending the CEC review. If the power from these resources is not certified as "incremental", then PG&E needs to make up for the amount of renewable energy it is missing as part of its one percent requirement. PG&E should keep the Energy Division informed regarding the status of the CEC's certification of PG&E's renewable resource contracts and provide copies of its correspondence with the CEC.

While evaluating the contracts it received, PG&E did not categorically reject biomass projects. PG&E's computations showed that the contracts it selected were more economical than the biomass projects CBEA supported. Therefore, we will not order PG&E to enter into contracts with the specified suppliers. However, we strongly encourage PG&E to diversify its renewable resources portfolio in the future.

Parties expressed their concerns regarding the RFO requirements of minimum size, on-line date, and in-state location, and how PG&E acted strictly based on pre-set RFO requirements. Given the effort required to complete bid solicitation and evaluation under a very tight schedule, it was not unreasonable for PG&E to identify certain eligibility criteria in its RFO and eliminate bids that did not conform to it.

Based on the experience gained in this process, we strongly encourage PRG members to openly and consistently express any concern they might have regarding such evaluation criteria early in the process. We note that D.02-10-062 authorizes the continued involvement of each utility's PRG in 2003. Given the ongoing role of the PRG in 2003 procurement, it is incumbent upon each utility to discuss the concerns of the PRG members to further refine the analytics of the evaluation method used as well as the operational requirements set in future RFOs.

Under the terms of the proposed contracts, DWR will be the creditworthy purchaser of the contracts and the costs of the contracts will be recovered by DWR through its remittance rate when they are included in DWR's revenue requirement. PG&E will be the sole purchaser of these contracts on the first business day after PG&E receives a credit rating of at least BBB- from Standard and Poor and of at least Baa3 from Moody's. DWR expressed its unwillingness to enter into contracts with terms more than one year. D.02-10-062 stated that, "Our renewable requirement contained in D.02-08-071 remains in effect under Section 701.3 and should be adhered to, with or without DWR credit support." (p. 23) Therefore, even if DWR does not provide credit over the full term of the proposed contracts, PG&E should use its own credit to comply with the requirements of D.02-08-071 and D.02-10-062. If the terms identifying the purchaser of the contracts change, PG&E should submit copies of the contracts to the Director of the Commission's Energy Division under seal in accordance with PU Code Section 583.

Summary: PG&E requests the Commission find the proposed contacts reasonable and prudent for purposes of recovery in rates without further Commission review. We find that PG&E's bid solicitation process and product selection comply with the requirements of D. 02-08-071.

We do not establish a procurement contract review and approval standard in this resolution, i.e., the approval of the contracts subject to this Resolution is not indicative of the Commission's approval of any contracts to be submitted in the future.

This resolution only applies to the interim renewable energy contracts for which PG&E is seeking Commission approval in AL 2303-E, and does not prejudge issues related to Renewables Portfolio Standard program implementation. Issues related to annual renewable energy procurement targets, flexible compliance mechanisms, and other details are currently being discussed in R.01-10-024.

COMMENTS

PU Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission.

Energy Division requests that the 30-day comment period for this resolution be waived: (1) because of the expedited schedule set forth in D.02-08-071; and (2) because PG&E's Procurement Review Group has been active throughout the interim procurement process leading up to the advice letter and resolution, and, hence, no comments would alter our response to their protests.

In addition, D. 99-11-052 discussed the need to reduce or waive the comment period due to public necessity. Rule 77.7(f)(9) requires this Commission to engage in a weighing of interests and refers to circumstances in which the public interest in the Commission adopting a decision before expiration of the 30-day review and comment period clearly outweighs the public interest in having the full 30-day period for review and comment.

We have balanced the public interest in avoiding the possible harm to public welfare flowing from delay in considering the Resolution against the public interest in having the full 30-day period, or even a reduced period, for review and comment, and have concluded that the former outweighs the latter. Failure to adopt this resolution before the expiration of the 30-day review and comment period would cause significant harm to the public welfare. Public necessity requires the waiver of the 30-day comment period in order to secure the potential benefits of the proposed interim procurement contracts to PG&E customers. Therefore, the 30-day comment period should be waived due to public necessity.

FINDINGS

1. D.02-08-071 directed PG&E, SCE and SDG&E to file an Advice Letter to seek pre-approval of any contract for transitional procurement.

2. The Commission required each utility to establish a Procurement Review Group (PRG) to review the utilities' interim procurement strategy, proposed procurement process, and selected contracts.

3. The PRG for PG&E is comprised of Aglet Consumer Alliance, California Energy Commission (CEC), California Utility Employees (CUE), Consumers Union (CU), Department of Water Resources (DWR), Energy Division, Office of Ratepayer Advocates (ORA), Natural Resources Defense Council (NRDC), and The Utility Reform Network (TURN).

4. PG&E filed AL 2303-E on November 15, 2002, and requested approval of certain contracts.

5. PG&E made a sufficient showing that the bid solicitation process was competitive, and the evaluation methodology was reasonable.

6. AL 2303-E was protested by the California Biomass Energy Alliance (CBEA). DWR, ORA, and TURN also filed comments.

7. CBEA protested AL-2303 on the following grounds: (1) PG&E is counting power from existing geothermal facilities toward its 1 percent renewable requirement, (2) PG&E has not shown that it increased its total sales of renewable power by one percent, (3) Certain biomass projects should have been picked by PG&E.

8. ORA indicated support for the approval of the proposed contracts, and commented on changes and improvements needed for the future renewable procurement process.

9. Despite all its concerns, TURN "reluctantly" supported PG&E's request as filed in Al 2303-E.

10. DWR also expressed its "willingness to enter into one-year power purchase agreements in connection with PG&E's interim procurement, but only if certain contractual provisions either previously provided to PG&E or as set forth in the Department's forms of EEI cover sheet and confirmation developed in connection with the interim procurement process are included in such agreements."

11. We should approve AL 2303-E effective today.

12. We do not establish a contract approval standard in this Resolution, i.e., the Commission's approval of the contracts is not indicative of approval of any contracts to be submitted in the future.

13. We do not prejudge issues related to Renewables Portfolio Standard program implementation in this resolution.

THEREFORE IT IS ORDERED THAT:

1. PG&E's request, as filed in AL 2303-E, is approved.

2. This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at the continuation meeting on December 19, 2002. The following Commissioners approved it:

            _____________________

1 The provisions of this bill were subsequently chaptered into law on September 24, 2002 in Senate Bill 1976.

2 Under the terms of the contracts, DWR will be the buyer until SCE and PG&E regain their investment grade credit ratings. Because SDG&E currently has an investment grade credit rating, it does not need DWR involvement but may nevertheless execute contacts in accordance with the process adopted in the decision.

3 The residual net short is the amount of energy needed to serve utilities' customers net of existing resources, including power provided from DWR's long-term contracts.

4 SB 1078, chaptered on September 12, 2002, requires the Commission to establish a program requiring utilities to purchase a specified minimum percentage of electricity generated by renewable energy resources. The utilities must increase their total procurement of eligible renewable energy resources by at least 1% per year so that 20% of its retail sales are procured from eligible renewable energy resources by December 31, 2017.

5 According to testimony filed by PG&E on November 12, 2002 in the Procurement Rulemaking (R.01-10-024), "[o]n October 25, 2002, PG&E...filed a Motion before the U.S. Bankruptcy Court requesting authorization to enter into these transitional procurement contracts on a joint basis with DWR and to extend certain QF contract."(p.1-8)

6 MTM is a valuation method used to determine the actual market value of a commodity, contract, or a portfolio at a given point in time.

Top Of Page