Details for: PG&E's Reply to Protest of AL 5422-E.pdf


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Erik Jacobson
Director
Regulatory Relations

Pacific Gas and Electric Company
77 Beale St., Mail Code B13U
P.O. Box 770000
San Francisco, CA 94177
Fax: 415-973-3582

December 3, 2018

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

Pacific Gas and Electric Company’s Reply to the Protest of Advice
Letter 5422-E (2018 Bundled RPS Energy Bilateral Sale and
September 2018 Bundled RPS Energy Sale Solicitation; Power
Purchase and Sale Agreements Between Pacific Gas and Electric
Company and Multiple Buyers)

Dear Energy Division Tariff Unit:
Pacific Gas and Electric Company (“PG&E”) hereby replies to a protest, dated
November 26, 2018, from the Public Advocates Office at the California Public Utilities
Commission (“Cal Advocates”) of Advice Letter 5422-E regarding PG&E’s 2018
Bundled RPS Energy Bilateral Sale and September 2018 Bundled RPS Energy Sale
Solicitation. In the Advice Letter, PG&E sought approval of ten power purchase and
sale agreements with durations of less than five years (the “PPSAs”) for the sale by
PG&E of Renewables Portfolio Standard (“RPS”)-eligible products from PG&E’s
existing portfolio. 1 Cal Advocates’ protest is focused on only one of the PPSAs (the
“San Jose Bilateral Contract”), which resulted from bilateral negotiations with San Jose
Clean Energy. With respect to the San Jose Bilateral Contract, PG&E utilized the
approved pro forma agreement submitted with its 2017 RPS Plan, with necessary
modifications based on the specific facts and circumstances associated with the
transaction and counterparty.
1

To promote transparency and provide Energy Division with as much information as possible
for ease of evaluation and comparison of the terms and conditions of the PPSAs, PG&E
combined the San Jose Bilateral Contract and the solicitation-derived PPSAs into a single
Advice Letter given their similarity in content and close execution dates. Without commenting
on the confidential specific terms and conditions of any particular PPSA, PG&E notes that,
while the protest makes certain factual assertions about the terms and conditions of the
PPSAs, such factual assertions in the protest do not in all cases accurately reflect the
necessary modifications made to PPSAs based on the specific facts and circumstances
associated with the various transactions and counterparties. Advice Letter 5422-E details all
such necessary modifications in confidential appendices and should be relied upon rather
than the mischaracterizations contained in the protest. Given the procedural nature of the
protest, as described below, the specific terms and conditions of the contracts are not
material to resolving the issues it raises.





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PG&E’s Reply to Protest of Advice Letter 5422-E -2- December 3, 2018 Cal Advocates’ protest specifically states that Cal Advocates does not oppose PG&E’s requested relief. 2 The protest does not suggest that approval of the San Jose Bilateral Contract would be inappropriate based on any substantive matter. Rather, Cal Advocates’ protest is procedural in nature and based solely on the erroneous belief that the rules established by the California Public Utilities Commission (“Commission”) dictate that PG&E must submit the San Jose Bilateral Contract via a Tier 3 Advice Letter, as opposed to a Tier 1 Advice Letter. On that basis alone, Cal Advocates recommends that the Commission reject Advice Letter 5422-E in its entirety and require PG&E to refile it as a Tier 3 Advice Letter. As explained below, the premise underlying Cal Advocates’ procedural protest reflects an incorrect and incomplete interpretation of relevant Commission precedent. When reviewed in detail, it is clear from Commission precedent that submission via Tier 1 Advice Letter of short-term bilaterally negotiated contracts that utilize the approved pro forma agreement with necessary modifications is both authorized by the Commission and reasonable; therefore, the Commission should reject Cal Advocates’ protest and approve Advice Letter 5422-E as filed. DISCUSSION I. Cal Advocates Fails to Recognize that Submission of the San Jose Bilateral Contract via Tier 1 Advice Letter Is Both Authorized by Commission Decisions and Reasonable Because PG&E Utilized the Approved Pro Forma Agreement and Made Necessary Modifications in Accordance with Commission Directives Cal Advocates’ procedural protest is based on an incorrect and incomplete interpretation of prior Commission decisions establishing the process for submission of short-term renewable energy credit (“REC”) sales agreements like the San Jose Bilateral Contract. Specifically, the assertion of Cal Advocates that through “collective RPS decisions, the Commission established criteria for . . . requesting approval of REC sales using an unaltered Commission-approved pro forma sales agreement through a Tier 1 advice letter,” 3 is belied by the actual language set forth in Decision (“D.”) 14-11042 and D.17-12-007. While Cal Advocates’ protest would lead the Commission to believe that the approved pro forma sales agreement is a non-negotiable “standard” contract, D.14-11-042 and D.17-12-007 directly contradict that claim such that Cal Advocates’ protest must fail. As explained below, D.14-11-042 and D.17-12-007 do not require that investor-owned utilities execute only “unaltered” Commission-approved pro forma REC sales contracts for submission via Tier 1 Advice Letter. To the contrary, together, the Decisions adopt a streamlined process for submission of short-term agreements via Tier 1 Advice Letter and a pro forma contract (not a “standard” contract) for these short-term agreements, 2 3 Cal Advocate Protest, p. 2. Cal Advocate Protest, p. 2 (emphasis added).
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PG&E’s Reply to Protest of Advice Letter 5422-E -3- December 3, 2018 with express recognition that parties may negotiate the approved pro forma contract as needed. 4 D.14-11-042 explains that parties appear to prefer pro forma contracts over “standard” contracts because standard contracts limit the ability to balance counterparty risks through a negotiated contract, while pro forma contracts do not. 5 In D.14-11-042, the Commission determined that a Tier 1 Advice Letter process may be utilized for submission of REC sales contracts with terms under five years. 6 The Commission further adopted a negotiable pro forma contract (not a non-negotiable “standard” contract) for these short-term agreements, stating: We further find that adoption of a separate pro forma contract, but not a separate standard contract, for these short-term contracts will benefit the parties and the ratepayers by providing additional structure for the negotiation process. Consistent with current practice in the annual RPS solicitation, parties are permitted to rely on a pro forma contract filed and approved by the Commission as part of the annual RPS Procurement Plans. Parties may negotiate the contract as needed. We seek to avoid unnecessary involvement or control of the RPS contracting and negotiation process to avoid having the Commission micromanaging and unduly restraining the contracting process through a standard contract. 7 Importantly, PG&E’s final, approved 2017 RPS Plan makes clear that negotiation of the approved pro forma sales agreement filed with the 2017 RPS Plan was anticipated, and that filing of any such executed sales agreements by Tier 1 Advice Letter for Commission approval is consistent with the streamlined Tier 1 Advice Letter process authorized in D.14-11-042 for short-term sales agreements. 8 This language in the 2017 RPS Plan was approved by the Commission. 4 D.14-11-042, p. 77 and Conclusion of Law 42 (“Providing a pro forma contract specifically designed for negotiation for short-term transaction is reasonable because this modification will provide additional structure for the negotiation process.”). 5 See D.14-11-042, p. 76 (“. . . parties also state that the standard contract provision should be eliminated because it would limit the ability to balance counterparty risk through a negotiated contract. . . . Parties appear to prefer a pro form contract.”). 6 D.14-11-042, pp. 74-78 and Conclusion of Law 40, and implemented in PG&E’s approved 2014 RPS Plan. 7 D.14-11-042, p. 77. 8 2017 RPS Plan, pp. 57-58 (“PG&E anticipates that minimal negotiations will be needed with respect to the form sales agreement and proposes filing any executed sales agreements by a Tier 1 Advice Letter for Commission approval. This approach is consistent with the streamlined Tier 1 Advice Letter process authorized in D.14-11-042 for short-term sales agreements.”). The same language is set forth in PG&E’s Revised Draft 2018 RPS Plan, filed October 8, 2018 in R.18-07-003, at pages 57-58.
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PG&E’s Reply to Protest of Advice Letter 5422-E -4- December 3, 2018 D.17-12-007 further supports the use by PG&E of a Tier 1 Advice Letter for Commission approval of any short-term sale “that both utilizes the pro forma sales agreement submitted with its 2017 RPS Procurement Plan and is executed after PG&E receives bids for a sales solicitation resulting from its 2017 RPS Procurement Plan.” 9 Importantly, D.17-12-007 does not in any way suggest that the Commission’s permission from D.14-11-042 to negotiate a pro forma contract as needed prior to submission via Tier 1 Advice Letter is revoked, or that the pro forma agreement has somehow been transmuted into a non-negotiable “standard” contract. In fact, D.17-12007 states that only bilateral sales transactions “that do not utilize the pro forma sales agreement submitted with its 2017 RPS Procurement Plan or that are not executed after PG&E receives bids for a sales solicitation resulting from its 2017 RPS Procurement Plan” must be submitted with a Tier 3 Advice Letter. 10 Thus, D.17-12-007 supports use of the Tier 1 Advice Letter process when PG&E utilizes the pro forma sales agreement submitted with its 2017 RPS Procurement Plan, and makes necessary modifications in accordance with the directives in D.14-11-042. In light of the language from the relevant Decisions that permits use of Tier 1 Advice Letters for submission of short-term agreements based on a negotiable pro forma contract (not a “standard” contract), Cal Advocates’ argument that only an “unaltered” Commission-approved pro forma sales agreement can be submitted through a Tier 1 advice letter 11 must be rejected as baseless. In fact, the very concept that a pro forma sales agreement is non-negotiable and must be “unaltered” is disproved by the language in D.14-11-042 that is cited in Cal Advocates’ own protest. Specifically, D.1411-042 makes clear that “standard” contracts are non-negotiable, but pro forma contracts are negotiable as needed, 12 subject to compliance with the non-modifiable standard terms and conditions set forth in D.08-04-009, as modified by D.08-08-028 and D.13-11-024 and by Appendix C of D.10-03-021, as modified by D.11-01-025. 13 As explained above, only bilateral sales transactions that are not based on the negotiable pro forma contract submitted with PG&E’s 2017 RPS Procurement Plan would require submission through a Tier 3 Advice Letter; 14 on the other hand, those that are based on the negotiable pro forma contract submitted with PG&E’s 2017 RPS Procurement Plan are properly submitted through Tier 1 Advice Letter, as authorized in 9 D.17-12-007, Ordering Paragraph 7. D.17-12-007, Ordering Paragraph 7. 11 Cal Advocate Protest, p. 2 (emphasis added). 12 See D.14-11-042, p. 76. 13 PG&E notes that modification of the non-modifiable standard terms and conditions in the San Jose Bilateral Contract would not be permitted. Importantly, the non-modifiable standard terms and conditions in the San Jose Bilateral Contract conform exactly to the non-modifiable terms set forth in Attachment A of D.08-04-009, as modified by D.08-08-028 and D.13-11-024 and by Appendix C of D.10-03-021, as modified by D.11-01-025; only modifiable terms were negotiated and modified in the PPSAs. 14 For example, this would be the case if PG&E utilized a WSPP form as the base for its negotiations with a counterparty, instead of the pro forma contract submitted with PG&E’s 2017 RPS Procurement Plan. 10
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PG&E’s Reply to Protest of Advice Letter 5422-E -5- December 3, 2018 D.14-11-042 and D.17-12-007. Given that PG&E utilized the negotiable pro forma contract submitted with PG&E’s 2017 RPS Procurement Plan for the San Jose Bilateral Contract, in conformance with the Commission orders authorizing PG&E to contract, and showed all negotiated changes to the pro forma contract as part of its Tier 1 Advice Letter filing, PG&E’s actions are both authorized and reasonable and fully consistent with General Order 96-B. Accordingly, Cal Advocates’ protest and recommendation are entirely without merit and should be rejected. II. Adherence to the Streamlined Process for Commission Approval is Required in Order to Allow for Transactions to Occur in 2018 PG&E urges the Commission to reject the protest as soon as possible in order to preserve the streamlined process for contracts under five years. As stated in D.14-11042, the Commission has recognized that such a streamlined process is appropriate and “maintains the appropriate level of Commission oversight for short-term contracts.” 15 Any undue delay in rejection of the protest may prevent PG&E from transacting during the remainder of 2018 and would frustrate the purpose of the Commission Decisions described above that expressly approve of streamlined processes for approval of short-term contracts such as the PPSAs. CONCLUSION Because PG&E utilized the approved pro forma agreement for the San Jose Bilateral Contract and made necessary modifications in accordance with Commission directives, the San Jose Bilateral Contract is appropriate for submission via the Tier 1 Advice Letter process. PG&E has demonstrated that the issues presented in Cal Advocates’ procedural protest are without merit and respectfully requests that the Commission reject the protest and approve Advice Letter 5422-E as filed. Erik Jacobson Director, Regulatory Relations cc: Anna Wright, Anna.wright@cpuc.ca.gov Violeta Mangundayao, Violeta.Mangundayao@cpuc.ca.gov Brandon Gerstle, Brandon.Gerstle@cpuc.ca.gov 15 D.14-11-042, Conclusion of Law 40.
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