Details for: PG&E Reply to Protests of AL 4761-E.pdf

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Erik Jacobson
Regulatory Relations

Pacific Gas and Electric Company
77 Beale St., Mail Code B10C
P.O. Box 770000
San Francisco, CA 94177
Fax: 415-973-7226

January 22, 2016

Energy Division
Attention: Tariff Unit
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, CA 94102

Reply to Protests of Advice Letter 4761-E Regarding
Forbearance Agreements for Ivanpah Units #1 and #3


Dear Energy Division Tariff Unit:
Four parties filed comments on Advice Letter 4761-E (“Advice Letter”), which seeks
approval of Forbearance Agreements between Pacific Gas and Electric Company
(“PG&E”) and Solar Partners II, LLC and Solar Partners VIII, LLC (jointly “Solar
Partners”) related to Ivanpah Units #1 and #3 (the “Projects”). NRG Energy supports
the Forbearance Agreements. The Office of Ratepayer Advocates (“ORA”), Marin
Clean Energy (“MCE”), and Helping Hands Tools (“Helping Hands”) oppose the
Forbearance Agreements on various grounds. This reply addresses the concerns
raised by ORA, MCE, and Helping Hands.
In short, none of the parties protesting the Advice Letter has provided a substantive
reason for rejecting the Forbearance Agreements. Indeed, most of the issues raised
by these parties have either already been addressed by the California Public Utilities
Commission (“Commission”) or are outside the scope of the issues addressed in the
Advice Letter. In addition, the modifications proposed by the protesting parties are
legally and factually flawed. The Commission should reject the protests and approve
the Advice Letter by no later than March 31, 2016.
ORA Protest
ORA maintains that the Commission should reject the Advice Letter and, instead,
PG&E should terminate the Power Purchase Agreements (“PPAs”) associated with
the Projects. 1 ORA assumes that PG&E could declare an event of default and
quickly terminate the PPAs. However, ORA fails to recognize that any action taken
by PG&E to terminate the PPAs could potentially lead to a costly and timeconsuming dispute, even if PG&E firmly believes that it has a right to terminate the

ORA Protest at p. 4.


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PG&E’s Reply to Protests of Advice 4761-E -2- January 22, 2016 PPAs under the circumstances. Given the size of the facilities and length of the contracts, as well as the multiple financing parties and investors involved in the Projects, it is unlikely that the Solar Partners will simply accept a notice of default and accede to terminating the PPAs without any contest. It has been PG&E’s experience that developers generally contest any notice of default, especially a notice of default that can result in termination of a PPA. Accordingly, it is likely that the Solar Partners will contest any notice of default, starting a lengthy and costly dispute resolution process including mediation and arbitration that could lead to uncertain results. The Forbearance Agreements avoid the time, cost and uncertainty of dispute resolution by providing a limited period during which the Solar Partners can demonstrate that the Projects will be able to meet the Guaranteed Energy Production (“GEP”) going forward. The Forbearance Agreements also provide compensation for PG&E’s customers during this limited period. If, after the limited Forbearance Agreement period, the Solar Partners are still unable to demonstrate that the Projects can satisfy the GEP requirements, then any claim that declaring an event of default is improper would be substantially weaker given the additional time the Solar Partners had to demonstrate performance and PG&E’s good faith efforts working with the Solar Partners. ORA also argues the Forbearance Agreements are a “short term solution for a longer 2 term problem.” This ignores the fact, however, that the performance of the Projects has been improving and that the Forbearance Agreements require the Solar Partners to demonstrate continued improvement. 3 In Confidential Attachment C to the Advice Letter, as well as in a response to an ORA discovery request, PG&E provided confidential generation data demonstrating the improving performance of the Projects. Rather than being a short-term solution to a long-term problem, the Forbearance Agreements may simply provide the Solar Partners the time that they need to fix initial problems that limited performance and to ensure that the Projects perform as contractually required for the rest of the term of the PPAs. If the Solar Partners are unable to improve the Projects’ performance, PG&E and its customers retain all of their contractual rights under the PPAs after the initial six-month Forbearance Agreement period expires. ORA asserts that the Forbearance Agreements do not provide long-term benefits for customers. 4 However, the Commission has already determined that the PPAs are just, reasonable, and beneficial to customers. 5 Nothing in the Forbearance 2 Id. at p. 5. 3 Advice Letter at pp. 3-4. 4 ORA Protest at pp. 5-6. 5 See Resolution E-4266, Findings 14 and 17.
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PG&E’s Reply to Protests of Advice 4761-E -3- January 22, 2016 Agreements changes this determination. Rather, the Forbearance Agreements simply give the Solar Partners a limited opportunity to improve the Projects’ performance, and provides for compensation to customers that they would not otherwise receive. Finally, ORA argues that if the Advice Letter is not rejected, the Commission should require renegotiation of the Forbearance Agreements to provide that the Solar Partners pay higher consideration. 6 ORA proposes that the consideration for failure to meet the GEP requirements be based on the PPA prices. Under the Forbearance Agreements, PG&E reserves all of its rights under the PPAs in the event that the Projects fail to meet the GEP requirements at the end of the Forbearance Agreement period, and PG&E may choose to negotiate with Solar Partners for further consideration for any agreement (subject to Commission review) not to terminate the PPAs in such circumstances. However, the consideration provided for in the Forbearance Agreements is consistent with other GEP damage provisions approved by the Commission, which generally base GEP payments on a rate substantially lower than the contract price. For example, in PG&E’s most recent Renewable Portfolio Standard (“RPS”) Request for Offers (“RFO”) form PPA, approved by the Commission in 2014, GEP damages are calculated as the difference between the current market price and the contract price, with a minimum amount of $20/MWh for 7 GEP damages. Accordingly, PG&E believes that the approach proposed in the Forbearance Agreements should be approved by the Commission. MCE Protest MCE does not assert that the Forbearance Agreements are unreasonable, nor does MCE dispute the benefits of these agreement that are described in the Advice Letter. Instead, MCE seeks to use the Forbearance Agreements as a basis for exempting its customers from paying their share of the costs associated with the PPAs that were incurred on their behalf. 8 The issue of cost responsibility has already been decided. When the Commission approved the PPAs, it determined that “[a]ny stranded costs that may arise from the PPA are subject to the provisions of D.08-09-012 that authorize recovery of stranded renewable procurement costs over the life of the contract.” 9 The Forbearance Agreements do not amend the PPAs, nor do these agreements justify any change to the Commission’s earlier determination. 6 ORA Protest at p. 7. 7 PG&E’s 2014 RPS RFO form PPA is available at The form PPA is Attachment H1 and GEP damages are calculated in Appendix VII of the form PPA. 8 MCE Protest at p. 3. 9 Resolution E-4266, Finding 12.
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PG&E’s Reply to Protests of Advice 4761-E -4- January 22, 2016 MCE argues that PG&E can terminate the PPAs, and thus the PPA payments are now “avoidable.” 10 This argument suffers from the same flaws as ORA’s claim that PG&E should declare an event of default and terminate the PPAs immediately. Any event of default will likely be protested by the Solar Partners and result in a lengthy and costly dispute resolution process, with uncertain results. Finally, MCE argues that future departing Community Choice Aggregation (“CCA”) customers, who depart after the Forbearance Agreements are approved, should 11 receive the benefit of the Forbearance Agreement payments. They will. Payments under the Forbearance Agreements will be credited to PG&E’s Energy Resource Recovery Account (“ERRA”). Current bundled customers will receive the benefit of these payments through ERRA, and should these customers later decide to depart for CCA service, they will already have received their share of the benefits through ERRA. Helping Hands Protest Helping Hands argues that PG&E has not demonstrated that the PPA terms are just and reasonable, and that PG&E should have retained an Independent Evaluator 12 (“IE”) to review the price increase in the PPAs. These arguments are based on a misunderstanding of the Forbearance Agreements. As PG&E explained in its Advice Letter, the Forbearance Agreements do not amend or modify any PPA terms. 13 The PPA terms and conditions, that the Commission found just and reasonable in two Resolutions (i.e., Resolutions E-4266 and E-4369), are unchanged. The Advice Letter concerns the Forbearance Agreements, not the reasonableness of the underlying PPAs. Moreover, the PPA prices have not changed and thus no IE is required. Helping Hands’ concerns should have been raised when PG&E sought approval of the PPAs and are outside the scope of issues presented in the Advice Letter. Helping Hands also raises certain environmental concerns regarding the Projects, such as greenhouse gas (“GHG”) emissions and avian deaths, as well as concerns 14 Again, these are issues outside of the scope of the about the impact of aircraft. Advice Letter. Helping Hands’ own protest makes clear that these environmental and aviation issues are being addressed by other agencies, such as California Energy Commission. To the extent Helping Hands has environmental or aviation concerns about the Projects, it should raise those concerns in the appropriate 10 MCE Protest at p. 3. 11 Id. at pp. 3-4. 12 Helping Hands Protest at p. 3. 13 Advice Letter at p. 4. 14 Helping Hands Protest at pp. 4-6.
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PG&E’s Reply to Protests of Advice 4761-E -5- January 22, 2016 venues, not through a protest to the Forbearance Agreements, which do not address environmental or aviation issues. Conclusion For the forgoing reasons, and based on the evidence and information presented in the Advice Letter, the Commission should reject the protests and approve the Forbearance Agreements by no later than March 31, 2016. Sincerely, /S/ Erik Jacobson Director, Regulatory Relations cc: Chloe Lukins, Office of Ratepayer Advocates Jeremy Waen, Marin Clean Energy Robert Sarvey, Helping Hands Tools Diane Fellman, NRG Energy, Inc. on behalf of Solar Partners II, LLC and Solar Partners VIII, LLC
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