BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA

Application of San Diego Gas & Electric Company
(U 902 E) for Authority to Partially Fill the Local Capacity
Requirement Need Identified in D.14-03-004 and Enter
into a Purchase Power Tolling Agreement with
Carlsbad Energy Center, LLC.

FILED
12-22-14
04:59 PM

Application 14-07-009
(Filed July 21, 2014)

REPLY BRIEF OF SAN DIEGO GAS & ELECTRIC COMPANY (U 902 E)

Steven C. Nelson
Attorney for
SAN DIEGO GAS & ELECTRIC COMPANY
101 Ash Street
San Diego, California 92101-3017
Telephone: (619) 699-5136
Facsimile: (619) 699-4488
Email: SNelson@sempra.com

December 22, 2014

 TABLE OF CONTENTS
I. 

INTRODUCTION..............................................................................................................1 

II. 

DISCUSSION .....................................................................................................................5 

A.  The Application Complies with SDG&E’s Procurement Authority as
Granted by the Commission in D.14-03-004....................................................................5 
B. 

The LCR Need Identified in D.14-03-004 Should Not Be Adjusted to Account
for Transmission Projects Identified in the CAISO’s 2013-2014 TPP........................10 

C.  The Carlsbad Energy Center PPTA is a Reasonable Means to Meet the
600 MW of Identified LCR Need that D.14-03-004 Determined May Be
Met by Conventional Resources .....................................................................................11 
1. 

Delaying Action on the Carlsbad Energy Center PPTA to Await the
Results of SDG&E’s All-Source RFO Jeopardizes Timely Retirement
of the Encina Once-Through-Cooling Units.............................................................. 11 

2. 

The Carlsbad Energy Center PPTA is the Best Fit for the Identified Need ........... 16 

3. 

The Carlsbad Energy Center PPTA Provides Additional Benefits Above
and Beyond the Identified Need ................................................................................. 16 

4. 

The Carlsbad Energy Center PPTA Will Enhance the Safe and Reliable
Operation of SDG&E’s Electrical Services ............................................................... 17 

5. 

The Price, Terms and Conditions of the Carlsbad PPTA are Reasonable ............. 18 

6. 

It is Premature to Consider in this Application the Utility Property
Transfers Contemplated Under the City of Carlsbad Settlement Agreement,
Which SDG&E Anticipates Will be Subject to Commission Review
and Approval in a Subsequent Commission Proceeding ......................................... 21 

D.  SDG&E’s Requested CAM Treatment for the Carlsbad Energy Center
PPTA is Reasonable .........................................................................................................22 
E. 

The Commission is not Required to Conduct an Environmental Review
of the Project Pursuant to the California Environmental Quality Act. ......................24 

F. 

SDG&E Respectfully Requests that the Commission Promptly Approve this
Application........................................................................................................................25 

III. 

CONCLUSION ................................................................................................................26 

i

 TABLE OF AUTHORITIES
STATUTES AND LEGISLATION
Cal. Pub. Util. Code § 851 .............................................................................................................22
CALIFORNIA PUBLIC UTILITIES COMMISSION DECISIONS
D.13-02-015, 2013 Cal. PUC LEXIS 57 ...................................................................................7, 15
D.13-03-029, 2013 Cal. PUC LEXIS 101 .....................................................................................14
D.13-10-040, 2013 Cal. PUC LEXIS 577 .......................................................................................4
D.14-02-016, 2014 Cal. PUC LEXIS 78 .............................................................................9, 15, 18
D.14-03-004, 2014 Cal. PUC LEXIS 124 ............................................................................. passim
D.14-06-053, 2014 Cal. PUC LEXIS 336 ...............................................................................15, 18
D.14-08-008, 2014 Cal. PUC LEXIS 412 .......................................................................................6
D.14-11-027, 2014 Cal. PUC LEXIS 574 ...............................................................................22, 24
OTHER AUTHORITIES
Commission Rules of Practice and Procedure, Rule 13.11 .............................................................1

ii

 SUMMARY OF RECOMMENDATIONS
San Diego Gas & Electric Company (“SDG&E”) respectfully recommends that the
California Public Utilities Commission (“Commission”):


Find that the Carlsbad Energy Center Power Purchase Tolling Agreement
(“PPTA”) partially meets the need identified by the Commission in Track 4 of
the 2012 Long Term Procurement Plan (“LTPP”), Decision (“D.”) 14-03-004;



Find that the price, terms and conditions of the Carlsbad Energy Center PPTA
are just and reasonable;



Find that it is appropriate for SDG&E to record the net capacity costs associated
with the Carlsbad Energy Center PPTA in its Local Generation Balancing
Account (“LGBA”) and upon commencement of the PPTA, recover those costs
through its Local Generation Charge (“LGC”) on a non-bypassable basis from
its bundled service, Direct Access (“DA”) and Community Choice Aggregation
(“CCA”) customers on an equal per kilowatt-hour (“kWh”) basis by customer
class consistent with the Commission-approved Cost Allocation Mechanism
(“CAM”);



Expeditiously approve the instant Application; and



Grant such other relief as is necessary and proper.

iii

 BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
Application of San Diego Gas & Electric Company
(U 902 E) for Authority to Partially Fill the Local Capacity
Requirement Need Identified in D.14-03-004 and Enter
into a Purchase Power Tolling Agreement with
Carlsbad Energy Center, LLC.

Application 14-07-009
(Filed July 21, 2014)

REPLY BRIEF OF SAN DIEGO GAS & ELECTRIC COMPANY (U 902 E)
I.

INTRODUCTION
Pursuant to Rule 13.11 of the Rules of Practice and Procedure of the California Public

Utilities Commission (“Commission”), San Diego Gas & Electric Company (“SDG&E”)
respectfully submits this Reply Brief in the above-captioned proceeding.1
In their opening briefs, the California Independent System Operator Corporation
(“CAISO”) and the Carlsbad Energy Center, LLC (“Seller”) support SDG&E’s instant
Application requesting authority to enter into a long-term power purchase tolling agreement
(“PPTA”) with the Carlsbad Energy Center, LLC to purchase the output of a new, efficient
natural gas-fired facility (“Carlsbad Energy Center” or “Project”) which would add
approximately 600 MW2 of needed local capacity in SDG&E’s service area.
In contrast, Californians for Renewable Energy, Inc. (“CARE”), Center for Biological
Diversity (“CBD”), Office of Ratepayer Advocates (“ORA”), Protect Our Communities

1

Pursuant to Rule 13.11, the September 12, 2014 Assigned Commissioner’s Scoping Memo and
Ruling (“Scoping Memo”) (at p. 4) provided that reply briefs would be due on December 22, 2014;
thus, SDG&E’s brief is timely filed.

2

The Project has a nominal capacity of 600 MW. Since the amount of available capacity from a
combustion turbine varies according to ambient conditions at the plant site, capacity payments are
capped at 633 MW.

1

 Foundation (“POC”), Shell Energy North America (US), L.P. (“Shell”), and Sierra Club and
California Environmental Justice Alliance (“Sierra Club/CEJA”) challenge various aspects of
SDG&E’s Application.
As SDG&E has explained in its testimony and opening brief, the evidence presented by
SDG&E in this proceeding clearly demonstrates that the PPTA is reasonable and offers many
and, in some cases, unique benefits. SDG&E will not repeat those arguments here, but would
like to emphasize the need for timely and affirmative action on its Application.
Since the Commission issued Decision (“D.”) 14-03-004 (the “Track 4 Decision” from
the 2012 Long Term Procurement Plan (“LTPP”) proceeding) on March 14, 2014, SDG&E has
attempted to act with a sense of urgency, consistent with the Commission’s directives in the
Track 4 Decision. SDG&E submitted its initial conventional resources procurement plan to the
Energy Division on March 31, 2014 (ten days after the Track 4 Decision was issued) and when
the Energy Division approved SDG&E’s modified conventional plan on July 18, 2014, SDG&E
filed this Application three days thereafter on July 21, 2014.
SDG&E believes this sense of urgency is warranted in light of the retirement of the San
Onofre Nuclear Generation Station (“SONGS”) and impending once-through cooling (“OTC”)
deadlines. The need for prompt action was recognized during the pendency of the Track 4
proceeding. For example, when debating whether to await the results of the CAISO’s 2013/2014
Transmission Planning Process (“TPP”), it was ruled that:


3

“[D]ue to long lead times for new resources . . . it was urgent to start [to]
identify and fill any identified need as soon as possible,”3 and

D.14-03-004 at p. 10.

2

 

“With long lead-time resources requiring several years of effort, and
potential reliability issues surfacing starting in 2018, we cannot wait for
further information at this point. Further, additional information
inevitably becomes available as time passes. It is simply not possible to
both incorporate all information and make timely decisions.”4

The Commission affirmed this sense of urgency in its unanimous Track 4 Decision:


“There is a need for expeditious action to procure further resources in
response to the retirement of SONGS . . . We cannot wait another 18
months or more beyond the date of this decision for consideration of
Track 4-authorized procurement.”5



“Procurement authorized by this decision should begin as soon as
possible.”6



“Procurement needs may become critical as early as 2018, and certainly
by 2020.”7



“To the extent authorized, SCE [Southern California Edison] and SDG&E
must expeditiously pursue procurement of any gas-fired generation
expected to take several years to develop.”8



“[U]tilities should not wait until very close to when the need is critical to
acquire such resources.”9

In this Application, SDG&E has presented the Commission with a fully-negotiated PPTA
with an established developer for a highly viable and competitively priced project that should
help enable the State to timely meet its December 31, 2017 OTC retirement goal for the 950 MW
Encina Power Station (“Encina”). If the Commission denies this Application and directs
SDG&E to fill its entire procurement need through an all-source Request For Offers (“RFO”),
the Commission may make it next to impossible for the State to meet its OTC objective and/or

4

Id. at p. 11.

5

Id at p. 110.

6

Id. at p. 140, Conclusion of Law (“COL”) 48. See also id. at p. 113.

7

Id. at p. 134, Finding of Fact (“FOF”) 91. See also id. at p. 113.

8

Id at p. 113.

9

Id.

3

 create a significant reliability gap between the time the Encina facility retires and other resources
become available. SDG&E’s schedule for its all-source RFO anticipates the establishment of a
short list by June 2015 and finalization of contracts for submission to the Commission for
approval in the first quarter of 2016. Commission approval of any PPTAs from that all-source
RFO would not occur until the end of 2016 at the earliest (this assumes no rehearing requests or
court challenges, which is highly optimistic). Assuming a two-year construction schedule,
commercial operation would not occur until mid or late 2019 at the earliest.
One way or the other, prompt action on this Application is necessary in order to preserve
SDG&E’s current schedule for its all-source RFO. If the Commission delays acting on this
Application, SDG&E will not be in a position to timely select the best mix of resources to fulfill
the Local Capacity Requirement (“LCR”) needs the Commission identified in the Track 4
Decision. As the Commission recognized in the Track 4 Decision, “[i]t is necessary that a
significant amount of [the authorized] procurement be met through conventional gas-fired
resources in order to ensure LCR needs will be met” and “[p]ursuing procurement of preferred
resources consistent with the Loading Order must be balanced by ensuring that grid operations
are not potentially compromised by excessive reliance on intermittent resources and resources
with uncertain ability to meet LCR needs.”10 Further, in the Track 4 Decision, the Commission
also recognized that one megawatt of preferred resources is not the same as one megawatt of
conventional generation resources for purposes of meeting LCR needs,11 so it will be important

10

Id. at p. 133, FOF 82 and FOF 83.

11

Id. at pp. 128-129, FOF 49 (“The energy storage targets adopted in D.13-10-040 cannot be assumed
to count toward meeting the LCR need on a megawatt-for-megawatt basis. Potential amounts of
demand response, energy efficiency or solar PV resources also cannot be assumed to count toward
meeting the LCR need on a megawatt-for-megawatt basis.”).

4

 for SDG&E to understand what procurement target it has to work with prior to establishing its
“short list” of projects.
II.

DISCUSSION
A.

The Application Complies with SDG&E’s Procurement Authority as
Granted by the Commission in D.14-03-004

In their opening brief, Sierra Club/CEJA argue that SDG&E’s Application is
“inconsistent with the competitive all-source RFO process the Track 4 Decision mandated for
‘some or all’ of the any resource authorization” and that “[i]n direct contravention of the Loading
Order, Application approval would also foreclose the possibility of environmentally superior
outcomes by denying preferred resources and energy storage the opportunity to compete with
and displace fossil fuels in the any resource procurement authorization.”12
ORA, in its opening brief, acknowledges that “[t]he Track 4 decision authorized SDG&E
to procure capacity via a bilaterally negotiated contract,” but asserts that “[s]ubmission of a 600
MW PPTA to fulfill the entirety of the authorized any source capacity is nevertheless hard to
square with the decision’s requirement that SDG&E issue an all-source RFO, since approval of
the 600 MW PPTA would eliminate the opportunity for all resources to compete head to head in
meeting the any source capacity requirements.”13 ORA also asserts that “SDG&E cannot
credibly argue that the Carlsbad PPTA complies with the Loading Order in advance of
comparing the Carlsbad PPTA with the results of the RFO [because] [w]ithout reviewing the
RFO results, it is impossible to know if other options that include more preferred resources and
less conventional gas-fired generation can meet all or part [of] SDG&E’s any source LCR

12

Sierra Club/CEJA Opening Brief at p. 2.

13

ORA Opening Brief at p. 10.

5

 need.”14 Finally, ORA states that “[s]ubmitting a bilaterally-negotiated contract for gas-fired
generation to fill the entire 600 MW of the any source capacity in advance of the RFO deprives
other resources of the opportunity to compete on a fair basis.”15
Contrary to ORA’s and Sierra Club/CEJA’s assertions, SDG&E demonstrated in its
Opening Brief (at pp. 6-9, Section III.A) that its Application is fully consistent with the
Commission’s directives in the Track 4 Decision, which authorized SDG&E to conduct an allsource solicitation and pursue contracts on a bilateral basis, subject to Energy Division approval
of its procurement process (which SDG&E received).
The Commission confirmed SDG&E’s compliance with the Track 4 Decision in its
decision (D.14-08-008) in response to several petitions for modification (“PFM”) of the Track 4
Decision by Sierra Club and other parties. Indeed, in D.14-08-008, the Commission expressly
addressed and rejected the specific argument Sierra Club/CEJA and ORA raise, i.e., that
SDG&E’s Application precludes other resources from fairly competing in its all-source RFO:
The Petitions’ proponents . . . argue that . . . in combination with
SDG&E’s recently-filed Carlsbad Application, “under the process
contemplated by the Procurement Plans approved by Energy Division,
there is no possibility of a solicitation that allows clean and fossil fuel
resources to actually compete for any megawatts of authorized
procurement.”16
In rejecting this argument, the Commission explained that:
While SDG&E has now applied to fill 600 MW of local capacity with the
Carlsbad plant (also consistent with the edited language of the approved
preferred resources procurement plan), there is no assurance that this
Application will be approved by the Commission. Thus, during the
pendency of the Carlsbad application and in the event that it is not
approved by the Commission, SDG&E is committed by its approved
procurement plan to seek offers for any resource to fill up to 800 MW.
14

Id. at p. 13.

15

Id. at pp. 13-14.

16

D.14-08-008 at p. 13.

6

 The only set-aside (consistent with D.14-03-004) is for 200 MW of
preferred resources; in other words, preferred resources may bid in any or
all portions of the RFO. Thus, the Petitions’ proponents’ arguments are
not persuasive and the proposed decision is not modified.17
In summary, there is no basis for the assertion that SDG&E’s Application is inconsistent
with the Commission’s directives in the Track 4 Decision.
With specific respect to ORA’s and Sierra Club/CEJA’s related assertions above
regarding compliance with the Loading Order, which CARE reiterated in its opening brief,18
SDG&E also addressed this issue at length in its Opening Brief (at pp. 16-19, Section III.C.2).
ORA, Sierra Club/CEJA and CARE wholly ignore the Commission’s specific findings in
the Track 4 Decision that compliance with the Loading Order must be balanced by reliability
concerns and that a “significant amount” of conventional gas-fired resources would be necessary
“in order to ensure LCR needs will be met.” In particular, the Commission found that:
Pursuing procurement of preferred resources consistent with the Loading
Order must be balanced by ensuring that grid operations are not
potentially compromised by excessive reliance on intermittent resources
and resources with uncertain ability to meet LCR needs.19
The Commission also specifically found that:
D.13-02-015, Finding of Fact 30 continues to be valid: “It is necessary
that a significant amount of this procurement level be met through
conventional gas-fired resources in order to ensure LCR needs will be
met.”20

17

Id.

18

In its opening brief (at p. 6), CARE asserts that SDG&E violated the Loading Order because
“SDG&E did not consider any preferred resources for the 600 MW now allocated to the Carlsbad
PPTA.” This is not true. As further explained above, SDG&E considered the possibility but did not
foresee that further expansion of preferred resources as a best fit or prudent strategy for fulfilling its
2018 LCR need.

19

D.14-03-004 at p. 133, FOF 83.

20

Id. at FOF 82.

7

 Although the 600 MW Carlsbad project represents a significant portion of SDG&E’s
procurement authorization, it will be balanced by an equal amount of preferred resources for an
approximately 50/50 split. As SDG&E described in its opening brief (at p. 16):
In the case of the need identified in the Track 4 Decision, SDG&E
anticipates that approximately half of that need – 608 MW – will be filled
by preferred resources and SDG&E cannot foresee further expansion of
preferred resources as a ‘best fit’ or prudent strategy for fulfilling the
remaining procurement authority granted to SDG&E.
The 608 MW of preferred resources to be procured by SDG&E represents the 408 MW
of incremental preferred resources above current levels assumed to exist in the Track 4 need
analysis plus the additional minimum 200 MW ordered in the Track 4 Decision. As SDG&E
explained:
The Track 4 need analysis assumed that SDG&E would add 408 MW of
preferred resources beyond what currently exists in its portfolio.21 These
preferred resources were assumed to exist in SDG&E’s portfolio for
purposes of determining SDG&E’s LCR need in Track 4, but SDG&E will
be required to procure these resources through the relevant dedicated
Commission proceedings. It is important to note that this 408 MW of
additional preferred resources is separate from and in addition to the
resources to be procured through SDG&E’s Track 4 all-source RFO
(which is a minimum of 200 MW).22
SDG&E’s procurement of preferred resources is ongoing and occurs on a portfolio-wide
basis. This is acknowledged by the Track 4 Decision in its adoption of SDG&E’s LCR need,
which takes into consideration the 408 MW of incremental preferred resources the Commission
assumed would be procured and in place by 2022.23 As stated above, the procurement of
preferred resources must be balanced by reliability concerns.

21

This 408 MW of assumed preferred resources includes 338 MW of new energy efficiency, 30 MW of
rooftop solar, 20 MW of combined heat and power and 20 MW of dependable peak reduction
associated with local renewable generation. D.14-03-004 at p. 80, fn. 169. See also id. at p. 96.

22

SDG&E Opening Brief at pp. 16-17. (emphasis original)

23

See, e.g., D.14-03-004 at p. 80, fn. 169.

8

 In its testimony and opening brief, SDG&E also demonstrated that it has a need for
resources that have the necessary flexibility – like the proposed Carlsbad Energy Center - to
meet dual resources needs in SDG&E’s service territory – resources to meet the demand in the
late afternoon (generally between 4:00 PM and 5:00 PM) and a second resource need between
8:00 PM and 10:00 PM when loads are relatively high but supply of renewables has dropped off
substantially. Fully dispatchable conventional resources, like the Carlsbad Energy Center, are
near-ideal for meeting this dual-resource need in that they can ramp up and down, follow load
and be started multiple times within a single day. Besides this dual resource need, as more
renewable generation resources are added to the grid, these resources will be valuable in
accommodating the variability associated with renewable generation and to provide a backstop
when those resources are not available. In contrast, preferred resources lack the operational
flexibility required to accommodate the increasing amounts of intermittent renewable generation
SDG&E expects to see on its system. Thus, SDG&E cannot foresee further expansion of
preferred resources as a “best fit” or prudent strategy for fulfilling its 2018 LCR need.
In summary, there is no basis for the assertion that SDG&E’s Application is inconsistent
with the Commission’s directives in the Track 4 Decision and/or the Loading Order.24

24

In its opening brief (at p. 5), CARE also argues that the Carlsbad PPTA Contract Capacity of 633
MW exceeds the procurement authority granted in the Track 4 Decision. As SDG&E explained in its
rebuttal testimony (Exh. 9 at p. 2), CARE’s argument “assumes that it is possible to procure exactly
600 MW. . . [e]ach of the Project’s six LMS100 turbines have a ‘design capacity’ of 100 MW for a
total of 600 MW, which is squarely within SDG&E’s authorized need finding. Combustion turbine
output is dependent on atmospheric conditions and although there may be times when the Carlsbad
Energy Center generators would produce more than 600 MW total, there will be times when the plant
may generate only 600 MW or less. This would occur when ambient temperatures are high such as in
high load situations.” See also Seller’s testimony on this issue, Exh. 2 at pp. 9-10 and Exh. 11 at pp.
5-6. In summary, the Commission should reject CARE’s argument, as the Commission did in
response to a similar argument in SDG&E’s Pio Pico proceeding. See D.14-02-016 at p. 15, COL 5:
“It is reasonable to approve the PPTA for the 305 MW Pio Pico generation facility notwithstanding
the identified need is 298 MW.”

9

 B.

The LCR Need Identified in D.14-03-004 Should Not Be Adjusted to Account
for Transmission Projects Identified in the CAISO’s 2013-2014 TPP

In its opening brief, ORA agrees with the CAISO’s testimony that the transmission
projects that the CAISO identified in its 2013/2014 TPP “do not obviate the need for the
procurement of Track 1 and Track 4 resources.”25 ORA further states that it “does not
recommend that the Commission revise SDG&E’s Track 4 procurement authorization at this
time to reflect the 2013/2014 TPP transmission upgrades.”26 Finally, ORA states that it does not
recommend “that SDG&E procure at the lower end of its 500 – 800 MW authorized procurement
range, even though the CAISO states the transmission upgrade options have the potential to
reduce LCR need by up to 1680 MW (not including the Miguel Valley 500 kV voltage support
and 375 MVAR of reactive support shown in Table 1 of Exhibit 4).”27
Notwithstanding the above, ORA suggests that “the Commission should recognize the
expected reduction in LCR need of the Imperial Valley Flow Controller, which has an expected
on-line date of May 2017 and will reduce LCR need anywhere from 400 to 840 MW” and
“[a]ccounting for the LCR reduction of Imperial Valley Flow Controller should allow
consideration of the RFO results without creating a ‘need to delay retirement[]’ of the Encina
‘OTC plant[]’.”28
SDG&E appreciates ORA’s statements in general support of the CAISO’s positions with
respect to the 2013/2014 TPP, but disagrees that this one particular transmission project – the
Imperial Valley Flow Controller – would be sufficient to enable the timely retirement of the 950
MW Encina facility. As the CAISO has made very clear – and as ORA recognizes above – the
25

ORA Opening Brief at p. 9, quoting Exh. 4, p. 4.

26

Id. at p. 9.

27

Id.

28

Id. at pp. 9-10.

10

 various transmission projects that the CAISO identified in its 2013/2014 TPP are needed “in
addition” to the Track 1 and Track 4 authorizations.29 Moreover, the CAISO has made it very
clear that “the effectiveness of the transmission solutions [in its 2013/2014 TPP] rely on the
realization of the generation assumed in the CAISO’s studies. In other words, the transmission
solutions approved by the CAISO [in its 2013/2014 TPP] may not be effective if there is no
generation in the Carlsbad area.”30
In summary, there is nothing in the record that would support a finding that completion of
the Imperial Valley Flow Controller project would enable the timely retirement of Encina. In
fact, this is pure speculation. As such, the Commission should reject ORA’s suggestion to delay
acting on SDG&E’s Application.
C.

The Carlsbad Energy Center PPTA is a Reasonable Means to Meet the 600
MW of Identified LCR Need that D.14-03-004 Determined May Be Met by
Conventional Resources
1.

Delaying Action on the Carlsbad Energy Center PPTA to Await the
Results of SDG&E’s All-Source RFO Jeopardizes Timely Retirement
of the Encina Once-Through-Cooling Units

In its opening brief (at pp. 4-6), ORA argues that “[t]here is no clear need to approve the
Carlsbad PPTA in advance of reviewing the results of SDG&E’s RFO . . . [because] [n]either
SDG&E nor the CAISO requested that the Commission authorize procurement of 600 MW by
2018 in Track 4 of the 2012 LTPP proceeding” and because “[t]he Track 4 decision recognized
the need to address potential reliability concerns promptly but did not find a need for SDG&E to
procure 600 MW of capacity or any other amount by 2018.”

29

For this reason and for the further reasons summarized in SDG&E’s opening brief (at pp. 9-11,
Section III.B), the Commission should reject CARE’s argument set forth in its opening brief (at p. 9)
that “[t]he transmission projects approved in the [CA]ISO 2013/2014 TPP completely eliminate any
need for the Carlsbad PPTA.”

30

CAISO Opening Brief at p. 8.

11

 Sierra Club/CEJA similarly assert (at p. 2) in their opening brief that “[t]he Track 4
Decision neither identifies numerical need by 2018 nor references Encina’s closure as triggering
need” and that “[t]o the contrary, replacement capacity for Encina, a once-through-cooling
(“OTC”) facility currently scheduled to retire at the end of 2017 under State Water Board
regulations, was already addressed in separate Commission proceedings that ultimately resulted
in approval of the Pio Pico gas plant.”
Finally, POC and Shell argue that it should be relatively easy for the State to simply
extend the OTC deadline for Encina, thus allowing more time for the all-source RFO to play out.
For example, POC argues (at p. 10 of its Opening Brief) that “[i]f the Commission denies this
application and instead requires that SDG&E to fill its D.14-03-004 authorized procurement
through a 2022 all-source RFO . . . the CAISO would be bound to pursue a deadline extension if
Encina’s continued operation was necessary to ensure grid reliability.” Shell argues (at pp. 5-6
of its Opening Brief), that “[i]f the current OTC deadline of December 31, 2017 can be extended
by four or five years, alternative project developers will have a greater opportunity to compete to
meet the need for local capacity resources in the San Diego sub-area.” (emphasis added).
The Commission should reject these unsupported recommendations for delay.
First, although SDG&E believes that the language in the Commission’s Track 4 Decision
itself – not the positions parties took leading up to the decision – should guide the Commission’s
deliberations with respect to this Application, ORA and Sierra Club/CEJA have not fully and
accurately characterized SDG&E’s positions. As the Commission summarized in the Track 4
Decision, SDG&E specifically requested authority to move forward on a bilateral basis to
support the policy goals of the State related to the timely retirement of OTC facilities:

12

 SDG&E seeks to issue an all-source RFO or to contract bilaterally.
SDG&E contends that moving forward on an expedited basis with a
bilateral contract to address a portion of LCR need would support the
policy goals of the State related to timely retirement of OTC facilities and
would promote system reliability – the sooner new local resources are
added to the portfolio, the lower the reliability risk.31
Encina is SDG&E’s last remaining OTC facility, so there can be no question that the reference in
the Track 4 Decision is to the retirement of Encina.32
Second, although the Commission in the Track 4 Decision did not identify a specific
numerical amount of LCR need for 2018, the Commission clearly stated that SDG&E’s
“[p]rocurement needs may become critical as early as 2018 . . .”33 As SDG&E explained in its
opening brief, this was based on the CAISO’s 2018 interim studies:

31

D.14-03-004 at pp. 95-96 and fn. 193 citing SDG&E’s September 30, 2013 Comments (at pp. 5-6).
With respect to the size of SDG&E’s requested LCR authorization, SDG&E originally requested 500550 MW plus a separate amount for preferred resources to be procured through other dedicated
proceedings, but as the Commission noted in its Track 4 Decision (at p. 122), the Commission
ultimately increased SDG&E’s maximum procurement authorization from 700 MW to 800 MW
based on comments on the proposed Track 4 Decision.

32

See, e.g., Exh. 31 (the CAISO’s Track 4 testimony) at p. 12.

33

Although the Track 4 Decision sometimes uses conflicting language to describe when SDG&E’s LCR
need arises – at pp. 11, 113 and 134 (FOF 91), the Commission states either that “potential reliability
issues surface[e] starting in 2018” or “[p]rocurement needs may become critical as early as 2018
whereas at pp. 23 and 124 (FOF 5), the Commission states that “both SCE and SDG&E have
sufficient supplies to meet projected demands in the SONGS service area through at least 2018” –
there can be no doubt that SDG&E’s LCR need is tied to the December 31, 2017 OTC retirement
deadline for the 950 MW Encina facility because the CAISO assumed the retirement of Encina in its
Track 4 studies. Exh. 31 at p. 12.
Moreover, the CAISO has repeatedly emphasized the need to get resources in place in San Diego
“prior to the summer 2018 period” or “before summer of 2018” to ensure reliability. See, e.g., Exh. 4
at p. 4 (an “overloading concern was identified for summer 2018 peak load conditions under the
scenario in which the Encina power plant is retired due to compliance with the State Water Resources
Control Board’s Policy on once-through cooling plants and SDG&E does not receive authorization
from the Commission for its requested LCR needs to be in operation prior to summer 2018”), at p. 5
(“The [2013/2014] TPP assumes that SDG&E will have Track 4 resources operational prior to 2018
peak load conditions to resolve this constraint”), at p. 6 (“The 600 MW of new resource capacity is
needed before summer 2018 along with the transmission projects in Table 1 to ensure LCR needs are
met”), at p. 7 (“The [Carlsbad Energy Center] facility is expected to be operational in November,
2017, prior to the summer 2018 period in which the CAISO has identified system reliability issues”),
and at p. 8 (“Having the 600 MW Carlsbad plant in-service before summer of 2018 will help mitigate

13

 Although the Track 4 planning studies performed jointly by SDG&E and
SCE did not examine local area need in 2018, the studies performed by the
CAISO did include this analysis. The CAISO developed studies to assess
both the interim (2018) and long-term (2022) local reliability needs in the
Los Angeles Basin local area and San Diego sub-area resulting from an
extended SONGS outage.34 Indeed, the Track 4 LTPP testimony of
Robert Sparks on behalf of the CAISO indicates a 920 MW need in San
Diego beginning in 2018.35 The CAISO’s determination that new local
capacity resources will be required in the San Diego sub area in 2018
formed the basis for the Commission’s finding in the Track 4 Decision
that “[p]rocurement needs may become critical as early as 2018 . . .’36
Third, there is no basis for Sierra Club/CEJA’s assertion that “replacement capacity for
Encina . . . was already addressed in separate Commission proceedings that ultimately resulted in
approval of the Pio Pico gas plant.”37 Although the Commission, in its Pio Pico decisions –
arising out of SDG&E’s 2010 LTPP – directed SDG&E to “coordinate” the PPTA start date for
the 300 MW Pio Pico facility with the anticipated retirement of the 950 MW Encina facility,38
the Commission’s Pio Pico decisions did not include any analysis of any modeling with respect
to the retirement of the 2,200 MW SONGS facility.39 In contrast, in the Track 4 proceeding –
the 2012 LTPP – the CAISO modeled both the “retirement of OTC plants in the SONGS study
area, along with the retirement of SONGS, to produce an analysis of need for the area.”40 This

the degradation of deliverability of renewable generation in the Imperial zone expected to be inservice at that time”). (emphasis added)
34

D.14-03-004 at p. 16.

35

Exh. 31 at p. 19, Table 9.

36

D.14-03-004 at p. 134, FOF 91. See also id. at p. 113.

37

Sierra Club/CEJA Opening Brief at p. 2.

38

See, e.g., D.13-03-029 at p. 25, COL 8: “It is reasonable to authorize SDG&E to procure up to 298
MW of local generation capacity to come on-line beginning in 2018, as coordinated with the
anticipated retirement of once-through cooling generation units or other changing circumstances in its
service territory.”

39

See, e.g., id. at p. 23, FOF 13 (“There is no record evidence of the impact of a prolonged SONGS
outage on SDG&E’s LCR need.”).

40

D.14-03-004 at p. 124, FOF 7 (emphasis added). See also id. at pp. 23-24: “In this Track 4
proceeding, the [CA]ISO modeled retirement of OTC plants in the SONGS study area, along with the

14

 analysis – and the Commission’s Track 4 Decision – already assumed the Pio Pico facility would
be built.41
Finally, with respect to the proposals by POC and Shell to simply delay the OTC deadline
for Encina – by as much as “four to five years” – the Commission’s reasonable planning
assumption in the Track 4 Decision was that the OTC facilities in the SONGS study area would
be timely retired.42 Even more recently – in the context of ruling on an application for rehearing
in SDG&E’s Pio Pico case in June 2014 – the Commission made specific findings with respect
to Encina that the continued operation of Encina – beyond the OTC deadline - is “undesirable”
and should “only occur as a response to an emergency:”
Claims that the Encina facility might not retire on the date it is currently
scheduled to do so are speculative, and material in the record leads us to
infer that this facility is undesirable and its continued operation would
only occur as a response to an emergency.43
There is no basis in the record for changing the planning assumptions with respect to the
retirement of the Encina OTC facility, particularly given the undesirability from a policy
retirement of SONGS, to produce an analysis of need for the area. The [CA]ISO essentially used the
same models as in Track 1 to determine LCR needs for 2022 (including the expected retirement of
OTC plants), but modified its modeling to reflect the loss of SONGS. Thus, the [CA]ISO did not
narrowly attempt to identify how much local capacity will be needed to replace SONGS, but modeled
overall LCR needs in the SONGS service territory through 2022.”
41

See, e.g., D.14-03-004 at p. 4 showing that SDG&E’s “Total [Procurement] Authorization” is 800 –
1,100 MW, which represents the 300 MW Pio Pico facility approved in D.14-02-016 plus the 500 –
800 MW Track 4 authorization.

42

D.14-03-004 at p. 86: “In D.13-02-015, Finding of Fact 10 stated: ‘It is reasonable to assume that the
OTC plants in the SCE territory required to comply with SWRCB [State Water Resources Control
Board] regulations will comply through retirement or repowering consistent with the SWRCB
schedule, for the purpose of LCR forecasting in this proceeding. However, no finding on this point is
intended to apply to SONGS’ [Footnote 183: The reference to SONGS in this Finding of Fact was
intended to reference SONGS as an OTC plant. In other words, there was no Finding of Fact about
whether SONGS would remain in service, retire, or repower in any given timeframe’]. We do not
revisit this Finding. At the same time, we agree with ORA’s observation that it may be possible to
extend OTC deadlines if it is necessary to ensure reliability. Any such action will occur through the
appropriate process.”

43

D.14-06-053 at p. 38, Ordering Paragraph 12, adding new FOF 10a to D.14-02-016.

15

 perspective of such an approach. For this and the other reasons set forth above, the Commission
should move forward promptly and approve SDG&E’s Application.44
2.

The Carlsbad Energy Center PPTA is the Best Fit for the Identified
Need

In its opening brief (at pp. 16-19, Section III.C.2), SDG&E summarized why the
Carlsbad Energy Center is the best fit for a portion of the LCR need the Commission identified
for SDG&E for 2018 in the Track 4 Decision. SDG&E also discusses this issue at Section II.A
of this Reply Brief.
3.

The Carlsbad Energy Center PPTA Provides Additional Benefits
Above and Beyond the Identified Need

SDG&E summarized the overall benefits of the proposed Carlsbad project in its opening
brief (at pp. 2-3, Section I and at p. 20, Section III.C.3). In its opening brief, the CAISO also
describes the additional benefits associated with the proposed Project, with some references to its
specific locational value.45
44

In its opening brief (at pp. 9-11), CARE argues that “The Carlsbad PPTA should be required to
submit to SDG&E’s [all-source] RFO but as proposed would be a non-conforming offer.” Whether
any future bids will or will not conform to the requirements of SDG&E’s all-source RFO is an issue
beyond the scope of this proceeding, but CARE has mischaracterized several aspects of SDG&E’s
all-source RFO. First, CARE argues that the Carlsbad PPTA would be rejected because “Projects
must have a capacity of no less than 5 MW and no greater than 600 MW.” In order to reflect the
variable nature of power plant capacity, SDG&E drafted this eligibility requirement without
specifying whether the number would be judged on nominal, nameplate, designed or contract
capacity. This language gives SDG&E the flexibility it needs to review the specifics of each bid and
determine whether the project’s size is eligible for the solicitation.
Second, CARE argues that the Carlsbad PPTA would be rejected because it does not meet the
standards required for repowered facilities that bid into the RFO. Because NRG Energy (owner of
Encina), will install brand new turbines instead of refurbishing the existing Encina turbines, the
project is not a repowered facility and those requirements would not apply. Finally, CARE also
claims that SDG&E’s all-source RFO requires all conventional bids to offer a specified minimum
guaranteed availability factor; however, as indicated by the bracketed language in the model PPTA,
this is an issue subject to negotiation.

45

See, e.g., CAISO Opening Brief at p. 11: “In addition to providing an electrically effective means to
meet LCR in the San Diego and LA Basin, the Carlsbad Energy Center PPTA will provide renewable
integration benefits for resources from the Imperial Valley area. The change of flow patterns caused
by the loss of SONGS adversely impacted the deliverability of new renewable resources in the

16

 4.

The Carlsbad Energy Center PPTA Will Enhance the Safe and
Reliable Operation of SDG&E’s Electrical Services

In their opening briefs, both CARE and Shell suggest that the proposed Carlsbad Energy
Center, if approved, would not run enough to ensure reliability and/or lack the ability to provide
sufficient ancillary services to provide system support.46 This is not true. The PPTA is
structured in a way that will allow the CAISO to rely on the Project whenever it is needed for
reliability purposes.47 Moreover, the CAISO has confirmed that the Carlsbad Energy Center
would be an electrically effective means for SDG&E to meet its LCR needs and that the
Carlsbad Energy Center provides significant operational benefits in terms of capacity and
flexibility. In particular, the CAISO explained that:
[T]he CAISO has prepared studies and testimony showing the benefits of
replacing once-through-cooling generation with flexible generation with
the following characteristics: (1) quick response to changes in load and
renewable resource intermittency, (2) the ability to provide ancillary
services, (3) inertia or governor control to respond to changes in frequency
and provide system stability and (4) faster starting to respond to changes
more quickly, rather than having to be online prior to the change in
condition. It is my understanding that Carlsbad has these
characteristics.48

Imperial zone. Imperial zone deliverability would have been further reduced if the CAISO TPP
policy studies had not assumed that a Carlsbad generation project would be in-service by 2018. The
Carlsbad Energy Center will help mitigate the degradation of deliverability of renewable generation
in the Imperial zone.” See also id. at p. 8: “The CAISO cautions that determination of LCR in the
San Diego and LA Basin area is not conducive to a linear calculation of resources . . . Residual need
in the San Diego and LA Basin is dependent on the results of actual procurement by SDG&E and
SCE, the effectiveness and timing of the transmission solutions identified in the CAISO’s 2013-2014
TPP and the implementation and effectiveness of incremental energy efficiency, demand response
and distributed generation. Further, the effectiveness of the transmission solutions rely on the
realization of the generation assumed in the CAISO’s studies. In other words, the transmission
solutions approved by the CAISO may not be effective if there is no generation in the Carlsbad area.”
46

See, e.g., CARE’s Opening Brief at pp. 12 and 14 and Shell’s Opening Brief at pp. 2 and 7-10.

47

Exh. 9 at p. 9.

48

Exh. 4 at p. 7 (emphasis added).

17

 Therefore, there is no basis to CARE’s and Shell’s assertions regarding the significant
reliability attributes of the Carlsbad Energy Center.49
5.

The Price, Terms and Conditions of the Carlsbad PPTA are
Reasonable

In their opening briefs, several parties challenge the competitiveness of the pricing for the
Carlsbad Energy Center PPTA, alleging that SDG&E’s sole basis for comparison was the
Amended PPTA with Pio Pico, which the Commission recently approved in D.14-02-016 and
D.14-06-053.50 These assertions do not accurately reflect the record. As SDG&E explained in
its opening brief (at pp. 23-24), there are other meaningful pricing comparisons in the record in
this proceeding:
The Independent Evaluator’s report, for example, compares the pricing of
Carlsbad with not only Pio Pico (Exhs. 1 and 1-C, Appendix D at pp. 2830), but with (1) costs for comparable GE LMS 100 units in the ISO New
England (“ISO-NE”) (id. at p. 30), (2) capacity costs in the New York ISO
(id. at p. 31), and (3) costs collected by CEC staff and published in a May
2014 draft report (id. at pp. 31-32). The IE’s overall conclusions with
respect to the Carlsbad Energy Center PPTA pricing are set forth in
Paragraph 2 of the report at p. 39 (under Section H. titled “Conclusions”).
SDG&E’s comparison of the pricing for the Carlsbad Energy Center with the pricing for
the Pio Pico facility represents a reasonable market test of the competitiveness of the pricing for
Carlsbad because Pio Pico utilizes the same technology as Carlsbad and is scheduled to come
online earlier than Carlsbad, but it is not the only meaningful pricing comparison in the record,
as some parties allege.
In its opening brief (at pp. 2-3), Shell recommends that the Commission assess the
competitiveness of the price of the proposed Carlsbad PPTA by comparing “the price under the

49

See also SDG&E Opening Brief at pp. 20-22, Section III.C.4 for a more detailed discussion of this
issue.

50

See, e.g., CARE’s Opening Brief at p. 14 and Sierra Club/CEJA’s Opening Brief at p. 12.

18

 PPTA with the price of local RA [resource adequacy] capacity in the San Diego sub-area for the
2012-2016 period, as compiled by the Energy Division in its annual report on resource
adequacy.”51 Although Shell did not introduce the Energy Division report into evidence, Shell
quoted from selected portions of the report during its cross-examination of SDG&E’s witness.
For the reasons set forth below, the Commission should reject Shell’s proposed
comparison. As Mr. Baerman explained during the hearings, this is not a “fair comparison”
because the Energy Division report addresses only selected existing facilities, not new facilities:
This report [by the Energy Division] is a report on, you know, bilateral
contracting in, you know, existing power plants. So you know, to
compare these prices to RA prices that may be paid for a new facility I
think is probably not a fair comparison. These are four facilities that do
not have long-term, you know, PPAs.52
Mr. Baerman also explained that there is no meaningful way to compare the RA prices in
the Energy Division report to the PPTA price because RA represents only a “portion” of the
overall Carlsbad PPTA price:
We’re giving them a capacity payment. Whether – I would assume RA is
a portion of that capacity payment. It’s included in the payment. The
PPTA payment that we make to them for the capacity of the project is all
in. So I don’t know what portion of that is RA.53
Indeed, this is confirmed in the PPTA itself, which describes the “Product” that is the
subject of the PPTA to include (1) Capacity, (2) Energy, (3) Ancillary Services and (4) Resource
Adequacy Benefits.54
In summary, the Commission should reject Shell’s inappropriate proposed pricing
comparison.55
51

See also Shell Opening Brief at p. 14.

52

SDG&E/Baerman, Transcript (“Tr.”) at p. 56, line 24 – p. 57, line 3.

53

SDG&E/Baerman, Tr. at p. 59, lines 4-10.

54

Exh. 1-C, Confidential Appendix E at Sections 1.1.l, 1.1.2, 1.1.3 and 1.1.4 of the PPTA.

19

 Finally, in their opening briefs, ORA and the Sierra Club/CEJA argue that SDG&E’s
failure to adopt the Independent Evaluator’s suggestion to consider contracting for the Carlsbad
Energy Center in phases and/or to solicit a firm cost estimate for such an approach reinforces
their view that the Commission should delay consideration of SDG&E’s Application until the
results of the all-source RFO are known.56
ORA and Sierra Club/CEJA appear to ignore or place little weight on the fact that
SDG&E did in fact raise the possibility of phasing the Project, but NRG (the parent company of
Seller) rejected the idea. As the Independent Evaluator explained in his report:
SDG&E indicated that it did discuss phasing after 2017 with Carlsbad but
it was rejected because phasing was expected to be significantly more
expensive as the prices of turbines and ancillary equipment cannot be held
to 2014-2015 prices and the EPC [Engineering, Procurement and
Construction contractor] will not agree to a fixed cost of construction over
a longer period.57
Because the concept of phasing was rejected, there would have been no point in soliciting
a firm cost estimate. In any event, the overall cost of a phased-in project necessarily would have
been higher than the cost of the Project as proposed in this Application in SDG&E’s view. As
Mr. Baerman explained in response to Sierra Club’s cross-examination:
55

In its opening brief (at p. 17), CARE asserts that SDG&E should have conducted a Net Market Value
(“NMV”) analysis for the Carlsbad Energy Center. As SDG&E explained in the hearings, because
SDG&E already had performed an NMV analysis for the Pio Pico project and the technologies of the
two projects are very similar, it was not necessary to perform a new NPV analysis for the Carlsbad
Energy Center: “we had done a new market value analysis for the Pio Pico facility, and because these
two sites were substantially similar, a repeat exercise was not done for this project.”
SDG&E/Baerman, Tr. p. 104, lines 5-9.
As SDG&E further explained in its rebuttal testimony (Exh. 9 at p. 9): “the appropriate ‘apples-toapples’ comparison of the two PPTAs is to compare the levelized costs of the two PPTAs taking into
account the capacity payments, fixed O&M, startup costs and escalation. SDG&E conducted this
analysis and found that on a levelized cost basis ($/kw-yr), the Carlsbad PPTA is priced comparably
to the Pio Pico PPTA.” This comparison is set forth in SDG&E’s Revised Confidential Appendix C
(Exh. 15-C).

56

ORA Opening Brief at p. 12 and Sierra Club/CEJA Opening Brief at p. 13.

57

Exh. 1, Appendix D at p. 37.

20

 I think we are talking about overall what it would cost us to get 600
megawatts on the ground and 600 megawatts constructed as one project
upfront versus 400 and then another chunk at 200. It seems reasonable to
believe that 200 in phases would be more expensive.58
In addition, it is highly questionable whether a smaller project (or a “phased” project with
no firm guarantee for the second phase) would result in the retirement of Encina.59
In summary, SDG&E considered but reasonably rejected the concept of contracting for
the Carlsbad Energy Center in phases.
6.

It is Premature to Consider in this Application the Utility Property
Transfers Contemplated Under the City of Carlsbad Settlement
Agreement, Which SDG&E Anticipates Will be Subject to
Commission Review and Approval in a Subsequent Commission
Proceeding

In its opening brief (at pp. 18-19), CARE challenges an aspect of the Settlement
Agreement between the City of Carlsbad, NRG and SDG&E that relates to the proposed
relocation of SDG&E’s North Coast Service Center. As SDG&E explained in its opening brief
(at pp. 24-25), it is premature to consider in this Application the proposed utility property
transfers contemplated under the City of Carlsbad Settlement Agreement, which SDG&E

58

SDG&E/Baerman, Tr. at p. 35, lines 11-17. With respect to the Sierra Club/CEJA argument at p. 13
of its opening brief that Pio Pico could “offer additional phased-in capacity at lesser cost than
provided in the original PPTA by taking advantage of the economics of the current plant design and
location,” there is no evidence in the record to substantiate this claim. Moreover, as the Carlsbad
Energy Center explained in its rebuttal testimony (Exh. 11 at p. 3), “this concept [of using economics
of current plant design] does not apply when adding a new unit to an already built power plant.” As
the Carlsbad Energy Center further explained (id. at p. 4): “Adding a fourth unit to Pio Pico does not
offer the same advantages due to the need to conduct a second procurement, permitting, site
mobilization, and construction effort to add the fourth unit, which would extend total construction
time.” SDG&E concurs with this assessment; SDG&E’s experience is that economies of scale are
maximized at the forefront of project design, not after.

59

See also Exh. 1, Appendix D at p. 40: “The [Independent Evaluator] also recognizes that should
other projects prove economic and feasible for an early 2018 in-service date, any reduction in project
size will likely result in higher contract prices for the power that would need to be factored into any
decision on the contract amount.”

21

 anticipates will be subject to Commission review and approval in a subsequent Commission
proceeding pursuant to California Public Utilities Code Section 851.
D.

SDG&E’s Requested CAM Treatment for the Carlsbad Energy Center
PPTA is Reasonable

In its opening brief (at p. 16), Shell argues that “[i]f the Commission approves all or any
portion of SDG&E’s proposed PPTA with Carlsbad Energy Center, the Commission should not
approve CAM treatment for the local capacity under that contract [because] [t]he cost of capacity
procured to replace capacity that previously served bundled customers should be charged
exclusively to bundled customers.” In particular, Shell argues that CAM treatment is
inappropriate because the need for the Carlsbad Energy Center arises out of the closure of
SONGS and that “[w]hile SONGS was in-service, ESPs [Energy Service Providers] fulfilled
their own capacity obligations with capacity they acquired on their own.”60
The Commission should reject Shell’s argument as an improper collateral attack. The
Commission already considered and rejected this specific argument in its Track 4 Decision
(which ultimately was re-affirmed in D.14-11-027).
In the Track 4 Decision, the Commission summarized the Alliance for Retail Energy
Markets and the Direct Access Customer Coalition’s (“AReM/DACC”) argument with respect to
this specific issue as follows:
AReM/DACC suggest[] that since SONGS replacement was not discussed
in Track I any determination of CAM applicability to Track I procurement
should not automatically apply for Track 4 procurement as well [and] as a
general principle, CAMs should be applied with circumspection and the
utilities need to justify CAM treatment on a case-by-case basis. For Track
4 procurement, [AReM/DACC] argue that procurement is to meet the
bundled load of SDG&E and SCE customers, as opposed to general local

60

Shell Opening Brief at p. 15.

22

 or system reliability needs. Therefore, only utility bundled customers
should pay SONGS replacement costs.61
In response to AReM/DACC’s argument, Pacific Gas and Electric Company, SCE,
SDG&E and TURN explained that:
Track 4 procurement is for local reliability and not to meet bundled load,
and therefore should be subjected to CAM [and] that any resources the
Commission asks the utilities to make to meet local reliability criteria in
the SONGS service area will benefit both bundled and unbundled
customers.62
TURN further argued that:
[L]ocal reliability needs – including those driven by expected resource
retirements – are not solely the responsibility of bundled customers, even
when they may be driven in part by the retirement of a resource that
served bundled customer needs, such as SONGS. Further, all of the
utilities’ customers will benefit equally from the resources that may be
procured pursuant to Track 4 authorization, so all customers should share
equally in paying for such resources. Finally, SCE and SDG&E have
already met, are continuing to meet and will continue meeting – to the
extent the Commission requires and allows – their bundled customers’
additional capacity and energy needs arising from the retirement of
SONGS. TURN also argue[s] that the utilities are meeting bundled
customers’ needs at bundled customers’ expense, and have no other
obligation to make long-term investments in resources to meet local
reliability needs other than as directed by the Commission in a docket such
as this Long-Term Procurement Plan.63
In response to these arguments, the Commission, in the Track 4 Decision, ruled that “the
procurement authorized in this decision is for the purpose of ensuring local reliability in the
SONGS service area, for the benefit of all utility distribution customers in that area,”64 that
“[t]he procurement authorized in this decision meets the [statutory] criteria . . . for the purposes

61

D.14-03-004 at p. 118.

62

Id.

63

Id. at pp. 118-119.

64

D.14-03-004 at p. 134, FOF 92.

23

 of cost allocation”65 and that “SDG&E shall allocate costs incurred as a result of procurement
authorized in this decision, and approved by the Commission.”66
The Commission reaffirmed its determination that Track 4 procurement is subject to the
CAM in D.14-11-027, which was in response to a PFM by AReM/DACC. In particular, D.1411-027 made clear that the only open question with respect to Track 4 procurement is how the
net capacity costs should be allocated (finding that the mechanism used to allocate costs could be
the CAM or another mechanism, depending on the technology resource), not whether the net
capacity costs associated with Track 4 procurement should be allocated to all consumers (finding
that such costs must be allocated to all consumers).67
In this proceeding, the mechanism for recovery that SDG&E is proposing is the CAM
and no party has proposed any alternative mechanism. As explained in more detail in SDG&E’s
opening brief (at pp. 25-30), the Commission has consistently applied the CAM to allocate costs
of new conventional generation resources necessary to meet LCR needs to benefiting customers.
Consistent with Commission precedent, the CAM also should apply to the Carlsbad Energy
Center PPTA.
E.

The Commission is not Required to Conduct an Environmental Review of
the Project Pursuant to the California Environmental Quality Act.

In their opening briefs, CBD and Sierra Club/CEJA assert that the Commission may not
approve SDG&E’s proposed PPTA with the Carlsbad Energy Center until the California Energy
Commission (“CEC”) completes its environmental review of the Project and/or the Commission
conducts its own environmental review.68
65

Id. at p. 140, COL 50.

66

Id at p. 120 (emphasis added).

67

D.14-11-027 at p. 11, FOF 1.

68

See CBD’s Opening Brief (generally) and Sierra Club/CEJA’s Opening Brief at pp. 15-16.

24

 CBD’s and Sierra Club/CEJA’s arguments wholly ignore the well-established principle
that where a project will be reviewed for California Environmental Quality Act (“CEQA”)
compliance by the CEC and other agencies – as is the case with the Carlsbad Energy Center – the
application seeking approval of such contract at the Commission does not trigger CEQA, as
SDG&E and the Carlsbad Energy Center explained in their opening briefs.69 The Commission’s
approval of the PPTA also will not foreclose the CEC’s consideration of alternatives and
mitigation measures under CEQA. Moreover, the timing of the Commission’s approval of the
PPTA as compared with the CEC’s approval of the amended permit is not relevant because,
simply put, the Project will not be able to go forward without the CEC’s approval.70 As such,
there is no merit to CBD’s and the Sierra Club/CEJA’s arguments with respect to CEQA.
F.

SDG&E Respectfully Requests that the Commission Promptly Approve this
Application

The proposed PPTA requires Carlsbad Energy Center to achieve a commercial operation
date by November 1, 2017. In order to meet this milestone – and to help enable the timely
retirement of the 950 MW Encina OTC facility – the Commission must promptly approve this
Application. SDG&E respectfully requests that the Commission do so for the reasons discussed
above.
/
/
/
/
69

See SDG&E Opening Brief at pp. 30-31 and the Carlsbad Energy Center Opening Brief at pp. 30-34.

70

See, e.g., Section 5.1(b) of the proposed Carlsbad PPTA, which provides that “Seller shall . . . (b)
Acquire, and maintain all entitlements, permits, licenses and approvals necessary for the design,
development, construction, installation, testing, operation, maintenance, and ownership of the
Project.” Exh. 1-C, Confidential Appendix E.

25

 III.

CONCLUSION
In conclusion, SDG&E respectfully requests that the Commission:


Find that the Carlsbad Energy Center PPTA partially meets the need identified by
the Commission in D.14-03-004;



Find that the price, terms and conditions of the Carlsbad Energy Center PPTA are
just and reasonable;



Find that it is appropriate for SDG&E to record the net capacity costs associated
with the Carlsbad Energy Center PPTA in its LGBA and upon commencement of
the PPTA, recover those costs through its LGC on a non-bypassable basis from its
bundled service, DA and CCA customers on an equal per kilowatt-hour basis by
customer class consistent with the Commission-approved CAM;



Expeditiously approve the instant Application; and



Grant such other relief as is necessary and proper.
Respectfully submitted,
By:
/s/ Steven C. Nelson
Steven C. Nelson
Attorney for:
SAN DIEGO GAS & ELECTRIC COMPANY
101 Ash Street
San Diego, CA 92101
Telephone: (619) 699-5136
Facsimile: (619) 699-4488
E-mail: SNelson@sempra.com

DATED this 22nd day of December, 2014

26