STATE OF CALIFORNIA

EDMUND G. BROWN JR., Governor

PUBLIC UTILITIES COMMISSION
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3298

April 6, 2015

FILED

4-06-15
Agenda
ID#13887
12:56 PM
Alternate to Agenda
ID#13794
Ratesetting

TO PARTIES OF RECORD IN APPLICATION 14-07-009
Enclosed is the Alternate Proposed Decision of Commissioner Picker to the Proposed
Decision of Administrative Law Judge (ALJ) Yacknin previously mailed to you. This
cover letter explains the comment and review period and provides a digest of the
alternate decision.
When the Commission acts on this agenda item, it may adopt all or part of it as written,
amend or modify it, or set aside and prepare its own decision. Only when the
Commission acts does the decision become binding on the parties.
Public Utilities Code Section 311(e) requires that an alternate to a proposed decision or
to a decision subject to subdivision (g) be served on all parties, and be subject to public
review and comment prior to a vote of the Commission.
Parties to the proceeding may file comments on the alternate proposed decision as
provided in Article 14 of the Commission’s Rules of Practice and Procedure (Rules),
accessible on the Commission’s website at www.cpuc.ca.gov. Pursuant to Rule 14.3
opening comments shall not exceed 15 pages.
Comments must be filed pursuant to Rule 1.13 either electronically or in hard copy.
Comments should be served on parties to this proceeding in accordance with Rules 1.9
and 1.10. Electronic and hard copies of comments should be sent to ALJ Yacknin at
hsy@cpuc.ca.gov and Commissioner Picker’s advisor, Nicolas Chaset, at
nlc@cpuc.ca.gov. The current service list for this proceeding is available on the
Commission’s website at www.cpuc.ca.gov.

/s/ KAREN V. CLOPTON
Karen V. Clopton, Chief
Administrative Law Judge
KVC:jt2
Attachment

150452081

 DIGEST OF DIFFERENCES BETWEEN
ADMINISTRATIVE LAW JUDGE YACKNIN’S PROPOSED
DECISION AND THE ALTERNATE PROPOSED DECISION
OF COMMISSIONER PICKER
Pursuant to Public Utilities Code Section 311(e), this is the digest of the
substantive differences between the proposed decision of Administrative Law
Judge Yacknin (mailed on 3/6/2015) and the proposed alternate decision of
Commissioner Picker (mailed on 4/6/2015).
The alternate proposed decision of Commissioner Picker differs
from the ALJ PD in that it conditionally approves SDG&E’s
application for authority to enter into a purchase power tolling
agreement with Carlsbad Energy Center subject to two conditions.
The first condition is that the project contract capacity is reduced
from 600 MWs to 500 MWs while otherwise subject to the same per
unit price, and other terms and conditions. The second condition is
that all of the 100 MWs in residual procurement authority resulting
from the amendment of the purchase power tolling agreement must
consist of preferred resources or energy storage.

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Agenda ID #13887
Alternate to Agenda ID #13794
Ratesetting

Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER
PICKER (Mailed 4/6/15)
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)

DECISION CONDITIONALLY APPROVING SAN DIEGO GAS & ELECTRIC
COMPANY’S APPLICATION FOR AUTHORITY TO ENTER INTO PURCHASE
POWER TOLLING AGREEMENT WITH CARLSBAD ENERGY CENTER, LLC

150452470

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Table of Contents

Title

Page

DECISION CONDITIONALLY APPROVING SAN DIEGO GAS &
ELECTRIC COMPANY’S APPLICATION FOR AUTHORITY TO ENTER
INTO PURCHASE POWER TOLLING AGREEMENT WITH CARLSBAD
ENERGY CENTER, LLC .................................................................................................. 1 
Summary ............................................................................................................................ 2 
1.  Procedural Background ........................................................................................... 2 
2.  Compliance With Procurement Authority ........................................................... 5 
3.  Adjustment for Transmission Projects .................................................................. 7 
4.  PPTA Reasonableness ............................................................................................ 10 
4.1.  Summary ......................................................................................................... 10 
4.2.  Best Fit.............................................................................................................. 12 
4.2.1.  Timing ...................................................................................................... 12 
4.2.2.  Resource Type ........................................................................................... 19 
4.3.  Additional Benefits ........................................................................................ 22 
4.4.  Competitiveness of Price, Terms and Conditions ..................................... 25 
5.  Cost Allocation Mechanism Treatment .............................................................. 28 
6.  CEQA Applicability ............................................................................................... 29 
7.  Conclusion ............................................................................................................... 31 
8.  Comments on the Alternate Proposed Decision................................................ 31 
9.  Assignment of Proceeding .................................................................................... 32 
Findings of Fact ............................................................................................................... 32 
Conclusions of Law ........................................................................................................ 34 
ORDER ........................................................................................................................... 36 

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DECISION CONDITIONALLY APPROVING SAN DIEGO GAS & ELECTRIC
COMPANY’S APPLICATION FOR AUTHORITY TO ENTER INTO PURCHASE
POWER TOLLING AGREEMENT WITH CARLSBAD ENERGY CENTER, LLC
Summary
This decision conditionally approves San Diego Gas & Electric Company’s
application for authority to enter into a purchase power tolling agreement with
Carlsbad Energy Center, LLC. Approval is subject to the following conditions:
1) The purchase power tolling agreement with Carlsbad Energy
Center, LLC is amended to reduce the contract capacity from
600 MW to 500 MW, and is otherwise subject to the same per-unit
price, and other terms and conditions; and
2) All of the 100 MW in residual procurement authority resulting
from the amendment of the purchase power tolling agreement
must consist of preferred resources or energy storage.
1.

Procedural Background
Decision (D.) 14-03-004, the Commission’s “Track 4” decision in the

2012 long-term procurement planning (LTPP) proceeding (Rulemaking
(R.) 12-03-014), authorized San Diego Gas & Electric Company (SDG&E) to
procure between 500 and 800 megawatts (MW) of new resources by 2022 to meet
the local capacity reliability (LCR) need caused by the retirement of the
San Onofre Nuclear Generating Station (SONGS).1 The Track 4 decision required
SDG&E to procure at least 200 MW, and up to 100 percent, of this amount from
preferred resources (energy efficiency, demand response and renewable
resources) or energy storage. The Track 4 decision required SDG&E to issue an
all-source request for offers (RFO) for some or all of the identified local capacity
1

The Track 4 decision also determined and authorized Southern California Edison Company
(SCE) to procure its LCR need caused by retirement of SONGS.

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need, and also allowed it to solicit offers through bilateral negotiations, subject to
Energy Division approval of its procurement plan.2 SDG&E issued its all-source
RFO on September 5, 2014, and received offers on January 5, 2015; it expects to
identify a preliminary shortlist of viable offers by mid-May 2015 and file an
application for approval of selected contracts in early 2016. (See Ex. 17 and
Ex. 20.)
By this application, SDG&E seeks authority to enter into a purchase power
agreement (Carlsbad PPTA) with the Carlsbad Energy Center, LLC, (Carlsbad
Energy Center) to fill 600 MW of its local capacity need as identified in D.14-03004. The Carlsbad PPTA would provide approximately 600 MW of nominal
capacity from a natural gas-fired, simple cycle peaking generating facility
(Carlsbad project) located adjacent to the existing Encina Power Station in
Carlsbad, California. The Carlsbad project would consist of six generating units
utilizing General Electric LMS 100 technology with each unit capable of multiple
starts and stops per day. The Carlsbad project has an expected on-line date of
November 1, 2017, and is expected to provide power for 20 years.
The issues to be determined, as identified in the scoping memo for the
proceeding, are:
1. Does the application comply with SDG&E’s procurement
authority as granted by D.14-03-004?
2. Should the local capacity requirement identified in D.14-03-004
be adjusted to account for transmission projects identified in the

2

The Track 4 decision, D.14-03-004, followed on the heels of D.13-02-015 (the “Track 1” decision
in R.12-03-014) and D.13-03-029 (in SDG&E’s Application (A.) 11-05-023) which determined and
authorized SCE’s and SDG&E’s respective LCR needs assuming the continued operation of
SONGS.

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California Independent System Operator’s (CAISO) 2013-2014
Transmission Planning Process (TPP)? If so, how?
3. Is the Carlsbad PPTA a reasonable means to meet the 600 MW of
identified LCR need that D.14-03-004 determined may be met by
conventional resources? This issue includes consideration of the
following:
 Should the Carlsbad PPTA be required to submit to SDG&E’s
RFO process, whether for the entirety of SDG&E’s LCR need
or only for the 600 MW identified as permissible to be met by
non-preferred resources?
 Is the Carlsbad PPTA the best fit for the identified need? This,
in turn, encompasses consideration of whether there are better
and available alternatives to meet this need.
 Does the Carlsbad PPTA provide additional benefits above
and beyond the identified need?
 Will the Carlsbad PPTA enhance the safe and reliable
operation of SDG&E’s electrical services?
 Are the price, terms and conditions of the Carlsbad PPTA
reasonable?
 Are any other commitments made by SDG&E that are
contingent on approval of the Carlsbad PPTA reasonable?
4. Is Cost Allocation Methodology (CAM) treatment appropriate
ratemaking treatment for the costs of the Carlsbad PPTA? This
issue encompasses consideration of whether SDG&E properly
complied with its obligation pursuant to D.07-12-052 to establish
and consult with a CAM group.
5. Is the Commission required to conduct an environmental review
of the Carlsbad project pursuant to the California Environmental
Quality Act (CEQA)?

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Evidentiary hearings were held on November 12 and 13, 2014. Parties
filed opening briefs on December 10, 2014, and reply briefs on December 22,
2014. SDG&E served late-filed Ex. 203 on January 13, 2015. Parties filed
comments on Ex. 20 on January 20, 2015, and reply comments on January 26,
2015, upon which the matter was submitted.
2.

Compliance With Procurement Authority
As an initial matter, we consider whether D.14-03-004 authorizes SDG&E

to bring this application for approval of a bilateral contract to meet some of its
procurement authority. We conclude that it does. By its plain terms, D.14-03-004
authorized SDG&E to conduct an all-source solicitation and to pursue contracts
on a bilateral basis, subject to the Commission’s Energy Division approval of
SDG&E’s procurement process, and to procure up to 600 MW of the authorized
LCR need from any resource type including conventional resources.
(D.14-03-004 at 1, 4 and passim.) The Energy Division approved SDG&E’s
procurement plan, which included going forward concurrently with an
all-source solicitation for the entirety of SDG&E’s procurement authority and this
application for approval of the Carlsbad PPTA. D.14-08-008, which denied a
petition to modify D.14-03-004, affirmed that, as there was no assurance that the
Commission would approve this application and as D.14-03-004 requires that
3

Exhibit 20 is a list of the offers, by resource type, megawatt size and on-line date, that were bid
into SDG&E’s September 5, 2014, all-source request for offers to meet its procurement
requirements. SDG&E cautions that it is providing this information before it has completed
conformance checks, reviewed contract template mark‐ups and before preliminary analysis has
been completed to examine project viability and to understand the relationship between the
various offers, which may include multiple pricing offers for the same underlying resource.
Therefore, if one were to try and add up the number of MW associated with a particular
product type, such a total would be very misleading (and would vastly overstate the total MWs
offered).

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only 200 MW of SDG&E’s authorized procurement be met with preferred
resources, SDG&E’s procurement plan was consistent with D.14-03-004.4
Sierra Club and the California Environmental Justice Alliance (jointly,
Sierra Club/CEJA) contend that, by aiming to fulfill the entirety of its LCR need
that is not set aside for preferred resources, this application violates D.14-03-004’s
requirement that SDG&E issue a meaningful all-source request for offers for
“some or all” of its resource requirement, the State’s Loading Order policy that
prioritizes preferred resources (energy efficiency, demand response and
renewable resources) over fossil-fuel resources, and D.14-03-004’s requirement
that the request for offers be technology-neutral. This contention implicates the
issue of whether the PPTA should be approved as reasonable, which we discuss
below. However, it does not inform the issue of whether SDG&E is authorized
to bring this application. As D.14-08-008 affirms, D.14-03-004 authorizes SDG&E
to bring this application.
Californians for Renewable Energy, Inc. (CARE) contends that the
application does not comply with the procurement authority granted in
D.14-03-004 because the Carlsbad PPTA allows capacity payments for up to
633 MW which is 33 MW more than D.14-03-004 authorizes SDG&E to procure
from non-preferred resources. This contention implicates the issue of whether
the terms of the PPTA are reasonable, which we discuss below. However, it does
not inform the issue of whether SDG&E is authorized to bring this application.

4

By the same token, Energy Division’s approval of SDG&E’s procurement plan does not
prejudge the reasonableness of a bilateral contract in lieu of procurement through an RFO. We
address that issue further below.

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D.4-03-004 authorizes SDG&E to procure up to 600 MW of non-preferred
local capacity resources and, with a nameplate capacity of 600 MW, the Carlsbad
project reasonably represents 600 MW of local capacity resources. The fact that it
is capable of producing more than that when operating at maximum capacity
under optimal conditions does not make it a larger facility or reasonably bar this
application.
3.

Adjustment for Transmission Projects
D.14-03-004 authorizes SDG&E to procure between 500 and 800 MW by

2022 to meet local capacity needs stemming from the retirement of SONGS, and
requires SDG&E to procure at least 200 MW from preferred resources.
D.14-03-004 largely bases its determination of the utilities’ LCR needs on the
results of the CAISO’s model of long-term capacity needs in the absence of
SONGS. The CAISO’s analysis did not assume new transmission resources that
might be identified in the CAISO’s 2013-2014 TPP which, at the time, was
anticipated to be completed by March 2014. However, recognizing (among other
things) the possibility of such transmission upgrades, D.14-03-004 authorized
procurement based on the lower end of the range of results of the CAISO’s
analysis, noting as follows:
If some level of new transmission resources is identified in the
2013/2014 TPP which would reduce LCR needs in the SONGS
service area by 2022 […], the total amount of overall procurement
needed in the SONGS service area would be reduced. However, we
have already considered the possibility of the Mesa Loop-In going
forward in analyzing procurement authorizations. Nevertheless, it
is possible that the [2013]/2014 TPP results would mean that fewer
of the resources identified in this subjection [regarding the
2013/2014 TPP results] ultimately would be needed. However, this
does not mean there would be a need to change or update this
decision. Instead, some combination of the following would occur:
a) procurement at or near the minimum levels authorized in this
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decision; b) less procurement or no procurement authorized in
future LTPP proceedings; and c) less of a need to delay retirements
of [once-through cooling (OTC)] plants.
The range of procurement authorized for both utilities in this
decision is intended to provide flexibility to meet a variety of
circumstances. The 2013/2104 TPP is unlikely to result in major
changes to the analysis in this decision. (D.14-03-004 at 116-117.)
Recognizing the possibility that the 2013-2014 TPP might nevertheless give
cause to adjust the LCR need, the assigned Commissioner’s scoping memo
identified it as an issue to be determined in this proceeding. (See Section 2,
above.)
The CAISO’s 2013-2014 TPP bulk transmission reliability study has been
completed. The study modeled SDG&E’s and SCE’s authorized procurement
amounts5 -- in part with a hypothetical 558 MW combined cycle generation
project in the Carlsbad area by 2018 (Ex. 4 at 3) -- in order to identify
transmission and resource deficiencies. The CAISO staff identified four new
transmission projects to partially mitigate the identified deficiencies, which have
been approved by the CAISO Board of Governors. The modeling shows that,
assuming conservative estimates for the transmission projects’ overall
effectiveness, there is a residual need of up to 900 MW in the SONGS study area
by 2022. (Ex. 4 at 4-5.)6

5

This includes the amounts authorized for SDG&E in D.13-03-029 (in SDG&E’s A.11-05-023), for
SCE in the Track 1 decision, D.13-02-015, and for both SDG&E and SCE in the Track 4 decision,
D.14-03-004.

6

The CAISO’s preliminary reliability analyses in the 2014-2015 transmission planning cycle,
which will assess residual need in light of more current load forecast information and “the
specifics of conventional and preferred resources and storage,” indicate that there may not be
any residual need. (Ex. 4 at 6.)

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It is now clear that the LCR need determined in D.14-03-004 should not be
reduced based on the new transmission projects identified in the 2013-2014 TPP.
This is because the effectiveness and need for the identified transmission projects
is based on an analysis that models the generation procurement that was
authorized in D.14-03-004, including a rough equivalent of the Carlsbad project.
(CAISO reply brief at 3-4.) The CAISO’s explanation is irrefutable, if somewhat
circular: The new transmission projects identified in the 2013-2014 TPP study
cannot be found to reduce the LCR need determined in D.14-03-004 because the
2013-2014 TPP study assumes the procurement of that LCR need.7
CARE suggests that the 2013-2014 TPP study is unreliable because it
allegedly contains different planning assumptions than the modeling
assumptions in Track 4 of the 2012 LTPP proceeding. As evidence of its
inconsistency, CARE cites to findings of fact and dicta in D.14-03-004 that three
of the four identified transmission upgrades -- the Mesa In-Loop project, the
Imperial Valley flow controller project, and the additional dynamic reactive
support at San Luis Rey -- would reduce LCR needs.8 CARE asserts that this

7

While the Office of Ratepayer Advocates (ORA) and Sierra Club/CEJA suggest that the
Imperial Valley flow controller project, which is scheduled to be in service May 2017, should
mitigate concerns that there might be a need to delay the retirement of OTC plants (which we
discuss in greater detail below), they do not advocate adjustment of SDG&E’s LCR need
determination. (ORA opening brief at 9; Sierra Club/CEJA opening brief at 9-10.) We address
this argument in the context of the reasonableness of the PPTA outside of an RFO, below.
8

“The Mesa Loop-In project would reduce the amount of gas-fired generation that would need
to be sited in the LA Basin by approximately 1,200 MW, or 734 MW if there is no load shedding
or additional gas-fired generation in the SDG&E territory.” (D.14-03-004, Finding of Fact 36.)
“SDG&E’s proposed 500 kV Direct Current transmission project from Imperial Valley to
SONGS would reduce the San Diego generation requirement by 850 MW and would reduce the
generation requirement for the LA Basin by 551.” (Id. Finding of Fact 40.) “Therefore, we find
that any estimate of whether or how much additional reactive support would change LCR
Footnote continued on next page

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alleged inconsistency demonstrates that the transmission projects will therefore
eliminate any need for the Carlsbad PPTA. (CARE opening brief at 6-9.) To the
contrary, as cited above, D.14-03-004 determined a range of LCR needs
recognizing the possibility of these transmission projects, and concluded that the
appropriate response to these transmission projects’ approval is not to revise the
LCR need determinations, but rather to procure at the lower end of the range,
adopt a lower LCR need determination than otherwise in future LTTP
proceedings, and/or avoid the potential need to delay the retirement of OTC
units. In any event, as explained above, the new transmission projects address
transmission and resource deficiencies that were identified assuming
procurement of the LCR need determined in D.14-03-004. They do not reduce it.
4.

PPTA Reasonableness
4.1.

Summary

We generally agree with the Independent Evaluator that “[an] RFO to meet
resource needs should be the default option and contracting bilaterally should be
the fall[-]back position if unique options exist or if it is not feasible time-wise or
based on some other reason to issue an [RFO],” and “implementation of a robust
competitive solicitation process is the best means to assess the availability of
generation options and competitive market prices.” (Ex. 1, App. D (“Report of
the Independent Evaluator”) at 32, 39.)
Here we believe that both elements cited by the Independent Evaluator as
justifying bilateral contracting are present. The Carlsbad project is a unique
option that has the support of the city where it would be constructed and is
needs to be speculative, and will not make any adjustment to the ISO’s study for this purpose.”
(Id. at 33-34.)

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ready to move forward with construction once the necessary regulatory
approvals are obtained. Rejection of the proposed contract now, even without
prejudice, could result in a complete failure of the project or an increase in the
price per MWh. In any case, the result is uncertainty and risk.
Likewise, it may not be feasible time-wise to complete the RFO and get the
selected projects on line before the reliability need becomes critical. SDG&E
estimates that it could file an application for approval of RFO projects in the first
quarter of 2016. Assuming normal application processing times, a decision is
unlikely before the end of 2016. That would leave only one year before the
scheduled closure of Encina at the end of 2017. While a few small projects might
be able to reach commercial availability in that amount of time, there is a real risk
that a reliability gap could occur that threatens the continued provision of
reliable electric service in the SONGS area (see discussion of Best Fit – Timing,
§ 4.2.1, below). Additionally, there is a risk of significant costs to ratepayers if
the proposed contract is rejected, even without prejudice. (CAISO reply brief,
at 6-7; Carlsbad Energy Center opening brief at 18; Ex. 3 at 8-9.) At present, the
price of energy per MWh from the Carlsbad Energy Center, and by extension the
cost borne by ratepayers, is on par with competitive purchase power alternatives.
That said, we do not find that the full 600 MW capacity of the proposed
Carlsbad Project is needed by 2018. A 500 MW project would address our
reliability concerns, while supporting the goal of meeting the state’s OTC policies
and satisfying a significant portion of the need identified in D.14-03-004 from
preferred resources and energy storage. Therefore, based on: (1) the fit to the
identified need, (2) the additional benefits provided by the PPTA, (3) the
reasonableness of the price per MWh, terms and conditions of the PPTA, and
(4) the safety and reliability concerns addressed by the PPTA, we find it
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reasonable to approve the Carlsbad PPTA conditioned on the reduction of the
capacity of the proposed facility from 600 MW to 500 MW subject to the same
per-unit price and other terms and conditions. The 100 MW in residual
procurement authority resulting from the reduction of the Carlsbad PPTA must
consist of preferred resources or energy storage.
4.2.

Best Fit

4.2.1. Timing
The main argument for contracting bilaterally rather than awaiting the
results of an RFO is that “delaying action on this Application to await the results
of SDG&E’s all-source RFO likely will jeopardize the timely retirement of the
Encina [Power Station] and/or create a significant reliability gap.” (SDG&E
opening brief at 12.) The Encina Power Station (Encina) has a nameplate capacity
of 950 MW and uses OTC technology and is subject to the State Water Resources
Control Board (SWRCB) Statewide Water Quality Control Policy on the Use of
Coastal and Estuarine Waters for Power Plant Cooling (OTC Policy), which
requires Encina to demonstrate compliance with stringent water use standards
by December 31, 2017. Encina’s compliance path is to retire all OTC units on or
before the deadline. SDG&E and the CAISO maintain that the Encina retirement
will create a potential reliability issue in the event that it is not immediately
replaced with generation facilities at or near its location.
The Carlsbad PPTA has an on-line date of November 1, 2017, which would
avoid any such reliability gap. In contrast, SDG&E anticipates that it will
identify a preliminary shortlist of offers in response to its RFO mid-May 2015
and file an application for approval of its results in the first quarter of 2016,
making it unlikely any such results will match the Carlsbad PPTA’s on-line date.
(Ex. 20.)
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SDG&E states, “Ultimately, the determination regarding the appropriate
timeline for new resource procurement will require balancing of the State’s
policies regarding retirement of OTC facilities, competitive procurement and
system reliability.” (SDG&E opening brief at 14.) However, SDG&E’s statement
of the balancing equation omits the State’s policy regarding the Loading Order:
Consistent with [Pub. Util. Code § 454.5(b)(9)(C)], the Commission
has held that all utility procurement must be consistent with the
Commission’s established Loading Order, or prioritization. The
Loading Order, first set forth in the Commission’s 2003 Energy
Action Plan, was presented in the Energy Action Plan II adopted by
this Commission and the California Energy Commission (CEC) in
October 2005. The Loading Order, which has been reiterated in
multiple forums (including D.12-01-033 in the predecessor to this
docket, and D.13-02-015 in this docket), requires the utilities to
procure resources in a specific order:
“The ‘Loading Order’ established that the state, in meeting its
energy needs, would invest first in energy efficiency and
demand-side resources, followed by renewable resources, and
only then in clean conventional electricity supply.” (Energy
Action Plan 2008 Update at 1.)
In the 2008 Energy Action Plan Update at 20, the Commission
further interpreted this directive to mean that the [investor- owned
utilities (IOUs)] are obligated to follow the Loading Order on an
ongoing basis. Once procurement targets are achieved for preferred
resources, the IOUs are not relieved of their duty to follow the
Loading Order. In D.07-12-052 at 12, the Commission stated that
once demand response and energy efficiency targets are reached,
“the utility is to procure renewable generation to the fullest extent
possible.” The obligation to procure resources according to the
Loading Order is ongoing. [D.12-01-033 at 19.] In D.12-01-033 at 21,
the Commission recognized that procuring additional preferred
resources is more difficult than “just signing up for more
conventional fossil fuel generation,” but consistency with the
Loading Order and advancing California’s policy of fossil fuel

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reduction demand strict compliance with the loading order.
(D.14-03-004 at 13-14, footnotes omitted.)
Compliance with the Loading Order is a guiding principle for
procurement, but as the Track 4 decision states, the procurement of preferred
resources 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.” (Id. at Finding of Fact 83.) Indeed, Public
Utilities Code Section 454.5(b)(9)(C) mandates that procured preferred resources
are “cost effective, reliable and feasible.”
To be clear, D.14-03-004 authorized SDG&E to procure from 500 MW up to
800 MW by 2022, of which at least 200 MW must be -- and up to 100 percent may
be -- preferred resources. (D.14-03-004 at 2.) If approved, the Carlsbad PPTA for
600 MW of conventional generation resources would categorically preclude any
procurement of preferred resources beyond the mandatory minimum. It would
relieve SDG&E of the duty “to procure renewable generation to the fullest extent
possible” once it achieves the 200 MW minimum target for preferred resources,
as mandated by the Commission. Thus, a better statement of the fundamental
issue before us is whether the benefit of a competitive procurement process and
its potential for procuring additional preferred resources beyond the minimum
required by D.14-03-004 outweighs the risk of delaying Encina’s timely
retirement and/or creating a reliability gap upon its retirement. We conclude
that it does not, based on the reliability concerns raised in this proceeding.
However, the tension between system reliability and procuring additional
preferred resources is mitigated if the approval of the Carlsbad PPTA is
conditioned upon a reduction of the capacity from 600 MW to 500 MW, with the
residual 100 MW procurement authority limited to preferred resources. This

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reduction coupled with the additional 100 MW available to only preferred
resources would address system reliability concerns while still achieving the
State’s policies regarding retirement of OTC facilities, competitive procurement,
and the loading order.
In determining SDG&E’s LCR need for the planning horizon 2011 to 2020,
the Commission carefully considered and accounted for the anticipated
retirement of the Encina OTC units. Starting with the results of the CAISO’s
OTC model of its recommended base case scenario,9 D.13-03-029 subtracted
forecasted amounts of uncommitted energy efficiency, demand response, and
combined heat and power resources, and determined an LCR need of 343 MW to
account for the 2018 OTC retirements, with the assumption that SONGS would
remain in operation. In so doing, D.13-03-029 acknowledged that the OTC’s
modeling assumptions reflected the CAISO’s statutory responsibility to consider,
for transmission planning purposes, only those resources that are certain to
materialize, but emphasized that the Commission’s statutory responsibility
requires us to ensure just and reasonable rates. (D.13-03-029 at 9.) Shortly
thereafter, the Commission authorized SDG&E to enter into a PPTA with the
Pio Pico Energy Center to meet this authorized need and, in so doing, rejected
efforts to revisit its previous need determination. (D.14-02-016 at 5 and
Conclusion of Law 1, “Absent an unforeseen emergency situation that requires a
9

This is the same OTC model used to determine SCE’s LCR need in the Track 1 decision.
(D.13-02-015 at 14-15.) The OTC study evaluated the LCR for 2021 under the four Renewables
Portfolio Standard (RPS) resource additions scenarios that were developed in the 2010 LTPP:
the cost-constrained scenario, with 909 MW of RPS additions in the SDG&E service territory by
2020 (which the CAISO recommended as its base case); the trajectory scenario, with 508 MW;
the environmentally-constrained scenario, with 317 MW; and the time-constrained scenario,
with 74 MW. (See D.13-03-029, fn. 4.)

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patent response, the public interest in regularly conducting and acting on a
sound analysis of long-term need for procurement outweighs the unavoidable
risk that the future will not exactly adhere to our forecasts.”)
When the Commission subsequently reviewed SDG&E’s (and SCE’s)
incremental local capacity needs for the planning horizon 2012 to 2022 stemming
from the retirement of SONGS, it directed SDG&E to procure its authorized
additional resources by 2022, but did not make any specific findings of need for
the intervening years. Nonetheless, SONGS has already shut down and Encina
is scheduled to shut down at the end of 2017, so it is reasonable that some
intermediate need will exist, albeit perhaps at less than the full 800 MW
authorized, prior to 2022. SDG&E, the CAISO, and Carlsbad Energy Center
point to the statement in D.14-03-004 that “[p]rocurement needs may become
critical as early as 2018…” as evidence that the Commission recognized an
urgent need to procure new resources that overcomes the default RFO option.
(D.14-03-004 at 113 and Finding of Fact 91.) But the decision also states that
“[b]oth SCE and SDG&E have sufficient supplies to meet projected demands in
the SONGS service area through at least 2018, even with the unexpected early
retirement of SONGS.” (D.14-03-004, Finding of Fact 5.) These statements can be
reconciled by recognizing that Encina’s retirement in 2018 is the key factor in
moving from a situation of sufficient supplies to one where reliability needs may
become critical.
The CAISO argues that its Track 4 testimony (Ex. 31) and its 2013-2014 TPP
study (Ex. 32) demonstrate a 2018 need for generation in the Carlsbad area.
(CAISO reply brief at 2-3.) The Commission previously considered the CAISO’s
Track 4 testimony in reaching its Track 4 decision and found that “[p]rocurement

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needs may become critical as early as 2018…” We see no basis for a contrary
finding here.
We recognize the limitations of forecasting long-term procurement needs
and the reliability risk that is posed by miscalculating and under-procuring
future needs. To this, Sierra Club/CEJA, ORA, Protect Our Communities, and
Shell Energy North America (US), L.P. (Shell) counter that, to the extent the
Encina OTC retirement were to cause a system reliability gap, the SWRCB,
pursuant to CAISO recommendation, can extend the operation of Encina beyond
its December 31, 2017, OTC compliance date while SDG&E completes its
all-source RFO. Specifically, Section 2(b)(2)(b) of the OTC regulations allows for
compliance date extensions of more than 90 days, as follows:
If CAISO determines that continued operation of an existing power
plant is necessary to maintain the reliability of the electric system,
CAISO shall provide written notification to the State Water Board,
the Regional Water Board with jurisdiction over the existing power
plant, and the [Statewide Advisory Committee on Cooling Water
Intake Structures]. If the Executive Directors of the CEC and CPUC
do not object in writing within 10 days to CAISO’s determination,
the notification provided pursuant to this paragraph will suspend
the final compliance date for 90 days. During the 90-day time
suspension or within 90 days of receiving a written notification from
CAISO, the State Water Board shall conduct a hearing in accordance
with paragraph (d) to determine whether to suspend the final
compliance date for more than the original 90 days pending, if
necessary, full evaluation of amendments to final compliance dates
contained in the policy.
The CAISO and Carlsbad Energy Center counter there is no assurance that
the CAISO would recommend or the SWRCB would adopt an extension of the
Encina compliance deadline. (CAISO opening brief at 10; Carlsbad Energy
Center opening brief at 18-19.) The CAISO further objects that an extension

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could potentially be costly to ratepayers, especially if necessary for a long period
of time. (CAISO reply brief at 6-7.)10
We weigh the risk of a reliability gap and/or delay in the Encina OTC
retirement (and its potential ratepayer costs) against the possibility that SDG&E
might be able to procure more than the minimum amount of an additional
200 MW of preferred resources and storage as a result of its current RFO. On
balance, we find that the public interest in awaiting the results of SDG&E’s RFO
is outweighed by reliability, safety and cost risk. The Track 4 decision already
assumed 338 MW of future energy efficiency,11 in addition to the 200 MW of new
preferred resources that the company was directed to acquire. (D.14-03-004 at 80,
n.169.) While we remain optimistic that the utility can meet and even exceed
these goals, we cannot base the future of safe and reliable electric service in
southern California on hope. Furthermore, although CAISO may move to
suspend compliance for 90 days, there is no reasonable certainty that the SWRCB
will continue to suspend OTC compliance beyond those 90 days. A failure to
extend operations of Encina beyond those 90 days could result in serious
reliability problems.
Nonetheless, to ensure that opportunities for preferred resource and
energy storage procurement are not lost, we condition approval of the Carlsbad
PPTA upon a reduction from 600 MW to 500 MW and mandate that the residual

10

Carlsbad Energy Center claims that Encina has reached the end of its useful life, and states
that the capital improvement planning and maintenance plans for Encina are predicated on
retirement by December 31, 2017. (Carlsbad Energy Center opening brief at 18; Ex. 3 at 8-9.)

11

Additionally, it assumes 30 MW of rooftop solar, 20 MW of Combined Heat and Power
resources and 20 MW of dependable peak reduction associated with local renewable generation.
(D.14-03-004 at 80, n.169.)

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100 MW procurement authority be limited to preferred resources and energy
storage. This will address near-term reliability concerns, while advancing the
state’s clean energy goals by allowing SDG&E to pursue 100 MW of preferred
resources and energy storage in addition to the 200 MW required in the Track 4
decision.
4.2.2. Resource Type
SDG&E argues that preferred resources are not the best resource type for
fulfilling its any-source procurement authority, first, because SDG&E’s LCR need
determination assumed that it would also add 408 MW of preferred resources
beyond what currently exists in its portfolio and, second, because (as it testified
in the Track 4 proceeding), SDG&E requires a significant amount of its
authorized procurement to be able to integrate renewable resources, for which
fully dispatchable conventional resources are near ideal. (SDG&E opening brief
at 16-17.) SDG&E maintains that other gas-fueled generation resources would
likely take seven or more years to complete, making it unreasonable to await the
results of the RFO in favor of the Carlsbad PPTA. (SDG&E opening brief at
17-19.)
SDG&E’s RFO has produced a robust number of offers for preferred
resources and energy storage which could potentially meet some, if not all, of the
300 MW to 600 MW of SDG&E’s LCR need that may be procured from any
source. (Ex. 20.) However, we must acknowledge SDG&E’s important caveats
regarding the viability of these offers: SDG&E has not yet completed
conformance checks or analyzed project viability; the offers include multiple
offers for different configurations of the same project; and some offers that
include more than one technology may be duplicate offers. (Id.) Thus, this
limited evidence does not lead us to presume that the RFO will produce reliable,
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feasibly available and cost-effective preferred resource options to meet SDG&E’s
procurement requirement beyond the 200 MW minimum of preferred resources
and energy storage.
For various reasons, CARE contends that the Carlsbad PPTA is not a
reasonable means to meet the 600 MW of LCR need that may be met by
conventional resources. First, CARE contends the Carlsbad PPTA would be
rejected from the RFO as nonconforming because it exceeds the maximum
allowable capacity at 630 MW and because it does not conform to certain
conditions for participation in the RFO, e.g., that a repowered facility submit
evidence that it has received all interconnection agreements and permits, and
that conventional bids must offer a specified minimum guaranteed availability
factor. (CARE opening brief at 9.) We reject CARE’s contention with regard to
project capacity for the reasons discussed previously. We reject CARE’s
contention with regard to the Carlsbad PPTA’s conformance with the
requirements of SDG&E’s all-source RFO, first, because this is not a bid into the
RFO and therefore its adherence to them is of marginal relevance, and second,
because the referenced RFO requirements are not in evidence,12 and their
meaning is not capable of immediate and accurate determination by resort to the
referenced source document.13
Next, CARE, as well as Shell and World Business Academy, contend that
the Carlsbad project peaker units are not the optimal resource type to meet
SDG&E’s LCR need. Shell contends that other resources, including pumped
12

CARE merely offers a footnote with a page cite and a link purportedly to the source
document. (CARE opening brief, fn. 24 and 25.)
13

SDG&E contests CARE’s characterization of requirements. (SDG&E reply brief, fn. 44.)

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hydro storage, provide regulation, provide better renewable resource integration
because they offer VAR support and ancillary services in addition to the ramping
capability offered by the Carlsbad project. (Shell opening brief at 2.) CARE
contends that the 540 MW combined-cycle Carlsbad project that was previously
permitted by the CEC is a better alternative to the 600MW single-cycle Carlsbad
project because it has fast start and fast ramping along with substantially lower
greenhouse gas emissions and lower operating costs than the single cycle project.
(CARE opening brief at 12-13.) World Business Academy contends that a similar
facility comprised of fuel cells, particularly fuel cells running on hydrogen, are a
better choice from an environmental perspective than the Carlsbad project’s gas
turbines. (World Business Academy opening brief at 8.) However, as between
non-preferred resources, the test of reasonableness is not whether the resource is
the least polluting, or the best able to integrate renewable resources, or the least
expensive. Furthermore, it need not be the optimum act, but must be within the
spectrum of reasonable acts. (Re Southern California Edison Company [D.90-09-088]
37 CPUC2d 488, 499-500.) The attributes of the Carlsbad facility resource
technology, along with the additional benefits of the Carlsbad PPTA as discussed
below, allow us to conclude that the Carlsbad PPTA and its technology are a
reasonable means of meeting SDG&E’s LCR need.
Lastly, the Commission has become aware of the potential for the
proposed LMS-100 units to provide even greater benefits through the addition of
a clutch inserted between the turbine and the generator unit, which would allow
the unit to operate in synchronous condenser mode (without the burning of fuel)
when positive MW output is not required. This minor modification could offer
valuable VAR support in an area of the grid that otherwise requires it.

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Therefore, we direct SDG&E to evaluate the feasibility and cost-effectiveness of
this clutch technology.
4.3.

Additional Benefits

SDG&E claims that the Carlsbad PPTA provides additional benefits
including reliability benefits by virtue of being able to meet SDG&E’s LCR need
by 2018, renewable resources integration benefit due to its flexible
dispatchability, and locational benefits by virtue of being highly compatible with
the existing transmission system and on previously disturbed land. (SDG&E
opening brief at 2-3.)14 We acknowledge these attributes as being beneficial, as
we discuss below, based on the fact that its price per MWh, terms and conditions
are therefore otherwise reasonable, we conclude that these additional benefits
support approval of the Carlsbad PPTA outside of the RFO process. SDG&E
claims that the Carlsbad PPTA will provide the additional benefit of enabling
Encina to timely retire and replace its older, less-efficient generation facilities
with more efficient and less polluting technology. (Id.) We recognize the
incremental risk reduction to be a benefit of the Carlsbad PPTA’s early on-line
date. Our approval of a 500 MW facility still allows for the benefits discussed
above, but also allows for the procurement of an additional 100 MW of preferred
resources and storage.
CARE and Sierra Club/CEJA take issue with SDG&E’s claim that the
Carlsbad PPTA provides an additional benefit by replacing the Encina units with
less polluting technology, noting that the purpose of SDG&E’s procurement
14

SDG&E also claims that the Carlsbad PPTA provides the added locational benefit of being
located in the San Diego LCR area. (Id.) This attribute is required, by definition, of all of
SDG&E’s LCR need procurement and we do not recognize it as a benefit relative to alternatives.

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authorized by D.14-03-004 is to replace SONGS’ criteria pollutant-free baseload
generation (and, CARE adds, that SONGS had no minimum operating
requirement, while the Carlsbad project is subject to operating constraints
pursuant to its air permit). CARE and Sierra Club/CEJA therefore contend that,
contrary to providing an environmental benefit, the Carlsbad PPTA would
significantly increase California’s carbon emissions. (CARE opening brief at 12;
Sierra Club/CEJA opening brief at 13-14.) We reject both arguments. The issue
is whether the Carlsbad PPTA provides an environmental benefit relative to the
continued operation of the existing Encina plant, and we find that it clearly does
so.
CARE contends that the Carlsbad project is not capable of achieving its
contractual on-line date because it is expected to have a 23-month construction
period so it will not be available on November 1, 2017, if construction is not
commenced in November of 2015. (CARE opening brief at 11.) CARE’s
argument and the evidence that it cites in its support do not demonstrate the
Carlsbad project’s inability to meet its November 1, 2017, on-line date, while
Carlsbad Energy Center offers persuasive testimony and evidence to the
contrary. (See, e.g., Ex. 2 at 6-8; Carlsbad Energy Center/Piantka, RT 236:11-18.)15
SDG&E claims that the Carlsbad PPTA provided the added benefit of
being competitively priced. We address this issue separately below with respect
to the issue of the competitiveness of price per MWh, terms and conditions.

15

Carlsbad Energy Center, in its opening brief, also references a December 9, 2014, letter from
the CEC to Carlsbad Energy Center that purportedly supports its claimed ability to meet the
November 1, 2017, on-line date. (Carlsbad Energy Center opening brief, fn. 63.) This document
is not in the record and we do not give it any weight.

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SDG&E claims that the Carlsbad PPTA provides the added benefit of the
City of Carlsbad’s support for the project. We agree, as such support is not easy
to find in the current environment.
SDG&E claims that the Carlsbad PPTA provides the added benefit of
enabling the relocation and construction of a new service center. However, as
SDG&E states in its testimony, these activities are not encompassed in the
Carlsbad PPTA. Rather, they are part of a settlement between SDG&E, the City
of Carlsbad, and Cabrillo Power I, LLC,16 pursuant to which the City of Carlsbad
will help SDG&E find a site for a new service center, SDG&E will transfer
properties including the site of the existing center to the City, NRG will pay the
costs of the new service center as well as demolish the Encina facility and
remediate the site, and Carlsbad Energy Facility commits not to run the Carlsbad
project between midnight and 6:00 a.m. except in case of a system emergency or
as otherwise required by the CAISO tariff. (Ex. 1 at 12-14.) SDG&E anticipates
that the utility property transfers contemplated in this settlement will be subject
to a subsequent Commission proceeding pursuant to Pub. Util. Code § 851 and,
accordingly, asserts that it is premature to consider the contemplated utility
property transfers in this application. (SDG&E opening brief at 24-25.) As the
claimed benefit of a new service center is contingent on the contemplated utility
property transfers, it is likewise premature to consider it in this application.

16

Cabrillo Power I LLC is an indirect wholly-owned subsidiary of NRG and an affiliate of
Carlsbad Energy Center. (Ex. 3 at.1.)

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Competitiveness of Price, Terms and
Conditions

While an RFO is the best means to assess the availability of generation
options and competitive market prices, it is by definition necessary to resort to
other comparisons and evaluations to assess the reasonableness of a bilateral
contract. In this case, we have the report of the Independent Evaluator who
assessed the Carlsbad PPTA contract provisions, pricing, consistency with
regulatory policy and other market and competitive considerations in
conformance with the Commission’s direction for such reports. (See D.04-12-048,
D.06-05-039, D.06-07-029, D.07-12-052, D.08-11-008, D.09-06-050, and
D.10-07-042.)
The Independent Evaluator expresses concern regarding the inability to
assess the availability of generation options (including reducing the size of the
Carlsbad project) and competitive market prices outside of an RFO. However,
accepting the need to procure new generation by 2018, and considering the
pricing for the recent Pio Pico Energy Center PPTA as well as costs for
comparable generating units in the ISO New England, capacity costs in the
New York ISO, and the CEC’s May 2014 draft staff report entitled “Estimated
Cost of New Renewable and Fossil Generation in California” (Ex. 1, App. D
at 30-32), the Independent Evaluator concludes that the Carlsbad PPTA generally
balances risk and adequately protects the interests of customers (Ex. 1, App. D
at 39-40).17

17

The Independent Evaluator conducted an economic price analysis by comparing the pricing
of the Carlsbad PPTA to the pricing for the PPTA for the Pio Pico Energy Center (which uses
the same technology as the Carlsbad project), as well as costs for comparable generating units in
the ISO New England, capacity costs in the New York ISO, and the CEC’s May 2014 draft staff
Footnote continued on next page

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We agree and therefore find that the price per MWh, term and conditions
of the Carlsbad PPTA are reasonable. However, in an effort to balance the
reliability risks with the public interest in achieving our clean energy goals, we
will condition approval of the Carlsbad PPTA on a reduction of the capacity
from 600 MW to 500 MW, subject to the same per-unit price and other terms and
conditions.
Shell argues that the Carlsbad PPTA price must be compared against the
prices for local resource adequacy capacity cited in the Energy Division’s “2012
Resource Adequacy Report” (issued April 2014.) (Shell opening brief at 14.)18
SDG&E counters that this is not a fair comparison because the report addresses
only selected existing facilities that do not have long-term purchase power
agreements, not new facilities; and because the Carlsbad PPTA price includes
payment for capacity, energy, ancillary services and resource adequacy benefits,
not just resource adequacy benefits. (SDG&E reply brief at 19, citing to
SDG&E/Baerman, RT 56:24-57:3 and 59:4-10.) Shell offers no reply to SDG&E’s
contention, and we are persuaded by SDG&E that it would not be a meaningful
comparison.
CARE takes issue with assessing the price competitiveness of the Carlsbad
PPTA on the basis of its price comparison with the Pio Pico Energy Center PPTA
because the two PPTAs have significant differences in operating restrictions and
performance guarantees which limit the value of the Carlsbad PPTA compared
report entitled “Estimated Cost of New Renewable and Fossil Generation in California.” (Ex. 1,
App. D at 30-32.)
18

We take official notice of this report, as the cited information is not reasonably subject to
dispute and is capable of immediate and accurate determination by resort to sources of
reasonably indisputable accuracy. (Evid. Code § 452(h).)

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to the Pio Pico PPTA. (CARE opening brief at 14-17.) SDG&E counters that the
appropriate comparison of the two PPTAs is of their levelized costs taking into
account the capacity payments, fixed operations and maintenance, startup costs
and escalation and that, on this basis, the PPTAs are comparably priced.
(SDG&E reply brief, fn. 55; Ex. 9 at 9.) Neither CARE nor SDG&E makes a
persuasive case. In any event, the Independent Evaluator’s economic analysis
purports to take into account contract pricing as well as the operational
parameters of the Carlsbad PPTA. (Ex. 1, App. D at 27.)
CARE contends that the Carlsbad PPTA is not a reasonable means to meet
the 600 MW of LCR need that may be met by conventional resources because it
would be rejected from the RFO as nonconforming because it exceeds the
maximum allowable capacity at 630 MW and because it does not conform to
other conditions for participation in the RFO, e.g., that a repowered facility
submit evidence that it has received all interconnection agreements and permits,
and that conventional bids must offer a specified minimum guaranteed
availability factor. (CARE opening brief at 9.) We reject CARE’s contention with
regard to project capacity for the reasons discussed previously. We decline to
evaluate CARE’s contention with regard to its conformance with the
requirements of SDG&E’s all-source RFO because the referenced RFO
requirements are not in evidence,19 and their meaning is not capable of
immediate and accurate determination by resort to the referenced source
document.20
19

CARE merely offers a footnote with a page cite and a link purportedly to the source
document. (CARE opening brief, fn. 24 and 25.)
20

SDG&E contests CARE’s characterization of requirements. (SDG&E reply brief, fn. 44.)

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5.

ALTERNATE PROPOSED DECISION

Cost Allocation Mechanism Treatment
Pursuant to Pub. Util. Code § 3654.1(c)(2)(A) and (B), if the Commission

determines that new generation is required to meet local or system area
reliability needs for the benefit of all customers in a utility’s service are, the
utility must allocate the net capacity costs for the new capacity to all benefitting
customers including direct access, community choice aggregation, and bundled
load customers. The Commission adopted the CAM in D.06-07-029, and refined
it in D.11-05-005, as a mechanism for allocating such net capacity costs to all
benefitting customers.
D.14-03-004 and D.14-11-027 definitively addressed the question of
whether the net capacity costs associated with procurement authorized pursuant
to D.14-03-004 should be allocated to all consumers. In D.14-03-004, the
Commission found that “the procurement authorized in this decision is for the
purpose of ensuring local reliability in the SONGS service are for the benefit of
all utility distribution customers in that area,” and further concluded that
“procurement authorized in this decision meets the criteria of § 365.1(cc)(2)
(A)-(B) for the purposes of cost allocation.” (D.14-03-004, Finding of Fact 92 and
Conclusion of Law 50.) In D.14-11-027, which rejected a petition to modify
D.14-03-004 to provide that the final determination about whether to allocate
costs to all customers would be made in specific applications for procurement
approval, the Commission affirmed that the clear intention of D.14-03-004 is that
the costs of all resources procured pursuant to the procurement authority
granted by that decision be allocated to all customers. As D.14-11-027 explained,
however, D.14-03-004 recognized that the CAM was developed for generation
resources and might not be an appropriate cost allocator for some preferred
resources. While the cost of such resources must nevertheless be allocated to all

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customers, D.14-11-027 clarified that “the actual mechanism utilized to
accomplish this could be CAM or another mechanism. The question of
appropriate mechanism remains to be determined in applications pursuant to
D.14-03-004.” (D.14-11-027 at 9-10.) SDG&E proposes the CAM as the
mechanism for allocating the net capacity costs associated with the Carlsbad
PPTA to all consumers. No party recommends an alternative mechanism, and
we find no reason to adopt one.21
6.

CEQA Applicability
The Center for Biological Diversity (CBD) and Sierra Club/CEJA contend

that a contract for purchase power by the regulated entities is a “project”
pursuant to CEQA, and that the Commission cannot make a discretionary
decision on whether to approve the contract unless and until environmental
review has been completed. To the contrary, CEQA Guidelines, long-standing
case law, and Commission precedent all make clear that Commission review of
purchase power contracts does not trigger CEQA.
A contract for purchase power by a regulated entity is not a “project”
pursuant to CEQA. CEQA defines a "project" as "[a]ctivities involving the
issuance to a person of a lease, permit, license, certificate, or other entitlement for
use by one or more public agencies." (Public Resources Code § 21065.)

21

Shell contends that, as SDG&E’s LCR need stems from the need to replace SONGS, and as
SONGS provided energy and capacity to SDG&E’s bundled customers, the costs of the Carlsbad
PPTA should be charged exclusively to SDG&E’s bundled customers. (Shell opening brief
at 15-16.) As discussed here, D.14-03-004 squarely addressed and rejected that position, and we
will not revisit the issue. CARE contends that the CAM should not be applied to the 33 MW of
the Carlsbad project’s operating capacity in excess of its 600 MW nameplate capacity. (CARE
opening brief at 20.) As discussed previously, we reject CARE’s position that the Carlsbad
PPTA exceeds SDG&E’s allowable procurement amount.

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Commission approval of a purchase power contract does not confer a lease,
permit, license, certificate, or any other entitlement on the seller. Rather, it is an
assurance that the utility will recover through its rates the costs that it incurs
under the contract. It is well-settled that “[s]uch a ratemaking order is not
‘project’ under CEQA. All Commission orders concluding that CEQA does not
apply to a ratemaking proceeding have been upheld. (E.g., Samuel C. Palmer, III
v. Public Utilities Commission SF# 23980, writ denied 5/10/79.)" (D.86-10-044
at 16-17, 1986 Cal. PUC LEXIS 642, 16-17 (Cal. PUC 1986).)22
Likewise, the Commission is not a "responsible agency" under CEQA
when it approves purchase power contracts. A "responsible agency" is defined
as a public agency other than the lead agency which has discretionary approval
power over the project. (Public Resources Code § 21069.) While the Commission
has considerable discretion over whether to approve a purchase power contract,
it does not have power to approve or deny the underlying generation project.
The project underlying the purchase power contract could proceed regardless of
the Commission's decision. (Id. at 16-18.)23

22

In its reply brief, CBD challenges this precedent as being stale because, “[f]or example, in
1986, prior to deregulation, purchase power agreements did not play the same role they do in
today’s market as investor owned utilities owned much of their own generating facilities.”
(CBD reply brief at 3.) CBD does not explain how that fact changes the Commission’s role and
responsibilities under CEQA, and none is apparent to us. CBD goes on to say, “Over the past
three decades, there has also been significant changes made to the jurisdiction of the
Commission and the CEC and a large body of applicable CEQA precedent has been
developed.” (Ibid.) CBD does not identify any specific changes to the Commission’s and CEC’s
jurisdiction or to CEQA precedent since 1986, and none that would be relevant to this issue are
apparent to us.
23

CBD also contends that the application is incomplete for lacking a Preliminary Environmental
Assessment (PEA) as required by Rule 2.4 of the Commission’s Rules of Practice and Procedure.
To the contrary, Rule 2.4 requires a PEA in applications for approval of “projects” as defined
Footnote continued on next page

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This is not the first time that CBD and one of CEJA’s allied organizations,
the Center for a Better Environment (CBE),24 have contended that Commission
review and approval of purchase power contracts is subject to CEQA. CBE made
these same arguments in Pacific Gas and Electric Company’s A.09-09-021 for
approval of the results of its request for offers, and the Commission rejected
them. (D.10-07-045 at 21.) CBD made these same arguments with regard to
SDG&E’s Advice Letter 1963-E requesting approval of a renewable resource
procurement contract, and the Commission rejected them. (Resolution E-4171.)
We find no cause to deviate from our precedent.
7.

Conclusion
We conditionally approve the application for approval of the Carlsbad

PPTA subject to a 100 MW reduction in the capacity requested in the agreement.
The entire 100 MW in residual procurement authority resulting from the
reduction of the PPTA must consist of preferred resources or energy storage. We
find that a 500 MW facility coupled with the additional 100 MW of procurement
dedicated to preferred resources and energy storage will address system
reliability concerns while still achieving the State’s policies regarding retirement
of OTC facilities, competitive procurement, and the loading order.
8.

Comments on the Alternate Proposed Decision
The alternate proposed decision was mailed to the parties in accordance

with Section 311 of the Public Utilities Code and comments were allowed under
Rule 14.3 of the Commission’s Rules of Practice and Procedure. Comments were
under CEQA. As a purchase power contract is not a “project,” this application does not trigger
Rule 2.4.
24

See CEJA Notice of Intent to Claim Intervenor Compensation, filed October 3, 2014.

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filed on __________________, and reply comments were filed on
_______________________ by __________________________.
9.

Assignment of Proceeding
Michel P. Florio is the assigned Commissioner and Hallie Yacknin is the

assigned Administrative Law Judge (ALJ) and presiding officer in this
proceeding.
Findings of Fact
1. The Energy Division approved SDG&E’s procurement plan, which
included going forward concurrently with an all-source solicitation for the
entirety of SDG&E’s procurement authority and this application for approval of
the Carlsbad PPTA.
2. The effectiveness and need for the new transmission projects identified in
the 2013/2014 TPP study is based on an analysis that models the generation
procurement that was authorized in D.14-03-004, including a rough equivalent of
the Carlsbad project.
3. The SONGS Units 2 and 3 permanently closed in June 2013.
4. Notwithstanding the Commission’s LCR need determinations in
D.13-03-029 and D.14-03-004, the potential for miscalculating and
under-procuring future procurement needs upon the retirement of the Encina
OTC units poses a risk of a reliability gap and/or delay in the Encina OTC
retirement.
5. To the extent that the Encina OTC retirement were to cause a system
reliability gap, it is possible that the SWRCB, pursuant to CAISO
recommendation, could adopt an extension of its operation beyond its
December 31, 2017, OTC compliance date, but there is no certainty that the
SWRCB would adopt an extension.
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6. In the event the SWRCB adopted an extension, the duration of the
extension is uncertain.
7. An extension of the Encina retirement could result in significant ratepayer
costs and environmental impacts due to the continued use of OTC.
8. A reliability need could occur as early as 2018.
9. Approval of the full 600 MW Carlsbad PPTA could preclude SDG&E from
procuring preferred resources and energy storage in excess of the required
minimum 200 MW.
10. Reduction of the Carlsbad PPTA to 500 MW while mandating that the
100 MW of residual procurement authority be limited to preferred resources and
storage would address reliability concerns and also allow for the procurement of
preferred resources and energy storage in excess of the required minimum of
200 MW.
11. We affirm Finding of Fact 83 in D.14-03-004 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.
12. SDG&E’s RFO has produced a robust number of offers for preferred
resources and energy storage which could potentially meet more than the
200 MW of SDG&E’s LCR need that may be procured from any source, but such
an outcome is far from assured.
13. Although it is not possible at this juncture to determine the viability of
offers for preferred resources and energy storage the evidence does not lead us to
presume that the RFO will produce preferred resource options to meet SDG&E’s

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procurement requirement beyond the 200 MW minimum of preferred resources
and energy storage.
14. The Carlsbad PPTA would provide additional benefits including reliability
benefits by being able to meet SDG&E’s LCR need by 2018, renewable resources
integration benefits due to its flexible dispatchability, and locational benefits by
virtue of being highly compatible with the existing transmission system and on
previously disturbed land.
15. The Carlsbad PPTA price, terms and conditions compare reasonably to the
recent Pio Pico Energy Center PPTA as well as to costs for comparable
generating units in the ISO New England, capacity costs in the New York ISO,
and the California Energy Commission’s May 2014 draft staff report entitled
“Estimated Cost of New Renewable and Fossil Generation in California.”
16. A 500 MW PPTA with the same per-unit price and other terms and
conditions as the agreement submitted with the application is reasonable.
Conclusions of Law
1. D.14-03-004 authorized SDG&E’s procurement based on the lower end of
the range of results of the CAISO’s analysis, noting that new transmission
resources identified in the 2013/2014 TPP might reduce SDG&E’s LCR need.
2. The new transmission projects identified in the 2013-2014 TPP study
cannot be found to reduce SDG&E’s LCR need.
3. D.13-03-029 authorized SDG&E to procure new generation to meet its LCR
need, which it determined based on the assumption that the Encina OTC units
would retire by 2018 and SONGS would continue in operation, and D.14-02-016
authorized SD&E’s to enter into a PPTA with the Pio Pico Energy Center to meet
that need.

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4. D.14-03-004 determined SDG&E’s incremental LRC need stemming from
the retirement of SONGS, and authorized SDG&E to procure new generation to
meet that need by 2022.
5. D.14-03-004 acknowledged that SDG&E’s LCR need could arise as early as
2018 upon the retirement of the Encina OTC units.
6. D.14-03-004 requires SDG&E to procure at least 200 MW, and allows
SDG&E to procure up to 100 percent, of its LCR need from preferred resources
and energy storage.
7. Consistency with the Loading Order and advancing California’s policy of
fossil fuel reduction demand requires the utility to procure preferred resources
and energy storage to the fullest extent possible, when cost effective, feasible and
consistent with maintaining system reliability.
8. On balance, the public interest in awaiting the results of SD&E’s RFO is
outweighed by the risk of a reliability gap/and or delay in the Encina OTC
retirement (and its potential ratepayer costs).
9. The reduction of the Carlsbad PPTA from 600 MW to 500 MW and limiting
the residual 100 MW of procurement to preferred resources and energy storage is
reasonable and allows for the procurement of preferred resources in excess of the
200 MW minimum.
10. A 500 MW Carlsbad PPTA is a reasonable means of meeting SDG&E’s LCR
need.
11. Pursuant to D.14-03-004 and D.14-11-027, the cost of procurement for the
purpose of meeting the LCR need determined in D.14-03-004 must be allocated to
all customers.
12. The CAM mechanism is a reasonable means for allocating the cost of
procurement of SDG&E’s LCR need to all customers.
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13. Commission review of purchase power contracts does not trigger CEQA.
14. This application should be conditionally approved subject to the submittal
of an amended PPTA reducing the capacity of the project from 600 MW to
500 MW but otherwise subject to the same per-unit price and other terms and
conditions as the PPTA submitted with the application.
15. All pending motions should be deemed denied.
16. This decision should be effective immediately.
17. This proceeding should be closed.

O R D E R
IT IS ORDERED that:
1. Application 14-07-009 is conditionally approved subject to the submittal of
an amended purchase power tolling agreement (PPTA) reducing the capacity
from 600 megawatts (MW) to 500 MW but otherwise subject to the same per-unit
price and other terms and conditions of the PPTA submitted with the
application.
a. San Diego Gas & Electric’s (SDG&E) requested rate recovery and
cost allocation treatment is approved with respect to a PPTA for
500 MW.
b. Within 30 days of the effective date of this decision, SDG&E shall
submit, via a Tier 1 Advice Letter, an amended 500 MW PPTA
consistent with the requirements of this ordering paragraph.
2. All of the 100 megawatts in residual procurement authority resulting from
the reduction of the purchase power tolling agreement must consist of preferred
resources and energy storage.
3. All pending motions are deemed denied.
4. This decision is effective immediately.
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5. Application 14-07-009 is closed.
This order is effective today.
Dated

, at San Francisco, California.

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