ORDER Modifying RESOLUTION E-4770, and DENYING

L/rbg Date of Issuance August 22, 2016 Decision 16-08-027 August 18, 2016

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application for Rehearing of Resolution Application 16-04-015 E-4770 filed by San Diego Gas & Electric (Filed April 18, 2016) Company (U 902 E)

Application for Rehearing of Resolution Application 16-04-016 E-4770 filed by San Diego Gas & Electric (Filed April 18, 2016) Company (U 902 E) (Not Consolidated)

ORDER MODIFYING RESOLUTION E-4770, AND DENYING REHEARING OF THE RESOLUTION, AS MODIFIED

I. INTRODUCTION On April 18, 2016, San Diego Gas & Electric Company (“SDG&E”) timely filed two separate applications for rehearing of Resolution (“Res.”) E-4770. 1 Among other things, Res. E-4770 required California’s three large investor-owned utilities to procure 50 megawatts (“MW”) of electricity from facilities utilizing biofuel from high fire hazard zones. This procurement was to be conducted using the established Renewable Auction Mechanism (“RAM”), with the solicitation targeted to facilities utilizing biofuel from high hazard zones (“targeted RAM solicitation”). This action responded to an Emergency Proclamation issued by the Governor on October 30, 2015. We have carefully considered all the arguments presented in both rehearing applications, and have concluded that good cause for rehearing has not been shown. However, to prevent misunderstanding, we will modify Res. E-4770 to clarify our holdings. Accordingly, rehearing of Res. E-4770, as modified, is denied.

1 Copies of Resolutions can be found on the Commission’s internet website at: .

165772622 1 A.16-04-015, A.16-04-016 L/rbg

II. BACKGROUND In Res. E-4770, we responded to an Emergency Proclamation addressing a severe die-off of trees in California, and the die-off’s attendant fire risk. The Governor found this fire risk to be a matter beyond the control of public services and equipment in any particular city or county, and a state-wide emergency was declared. Several state agencies and departments were given a role in combatting the emergency, including this Commission. Our role was to exercise authority so that utilities entered into contracts with bioenergy facilities receiving forest feedstock from high hazard zones, including initiating the targeted RAM solicitation. On March 17, 2016, we issued Res. E-4770, which authorized the targeted RAM solicitation, and took other steps. For the RAM solicitation, we required Pacific Gas and Electric Company (“PG&E”), Southern California Edison Company (“SCE”) and SDG&E to procure a minimum of 50MW from facilities that utilized biofuel from high hazard zones. These three utilities were also allowed to procure more capacity than the required minimum. Of the 50MW minimum requirement, PG&E and SCE were allocated 20 MW each, and SDG&E was allocated 10MW. SDG&E filed two separate rehearing applications challenging this result. The first rehearing application challenged the allocation of 10MW from the targeted RAM solicitation to SDG&E, claiming, instead, that SDG&E should be allocated only 4 MW (“Capacity Allocation Rehearing Application”). That rehearing application claims that the 10MW allocation is not supported by findings of fact and produces a result that is inconsistent with our past decisions. PG&E filed a response to the Capacity Allocation Rehearing Application. PG&E’s response states that the procurement requirements SDG&E seeks to avoid cannot be allocated to PG&E, among other things. SDG&E’s second rehearing application addresses how the costs of the contracts procured through the targeted RAM solicitation will be allocated (“Cost Allocation Rehearing Application”). The Cost Allocation Rehearing Application alleges that we were obligated to implement the Cost Allocation Mechanism (“CAM”) described

2 A.16-04-015, A.16-04-016 L/rbg in Public Utilities Code section 365.1(c)(2)(A)2 or another “nonbypassable charge” (“NBC”) in Res. E-4770, at the same time as we established the targeted RAM solicitation. Res. E-4770 declined to take such a step, because it was contrary to language in Adopting the Renewable Auction Mechanism (2012) [D.10-12-048] (“D.10-12-048”)3 and a resolution was not the proper vehicle in which to modify the results of that decision. We did not preclude the subsequent adoption of CAM, or similar treatment, for these costs (if appropriate), but determined not to address this issue in Res. E-4770. Marin Clean Energy filed a response to the Cost Allocation Rehearing Application, claiming that this Commission was legally permitted to find that CAM issues were outside the scope of Res. E-4770. In parallel with its Cost Allocation Rehearing Application, SDG&E filed a petition to modify D.10-12-048, to allow costs of the targeted RAM solicitation to be made subject to an NBC or, alternatively, the CAM as a result of formal proceedings.

III. DISCUSSION

A. SDG&E’s Minimum Procurement Requirement for the Targeted RAM Solicitation Was Based on the Specific Situation the Emergency Proclamation Addressed, As Described in Comments A draft of Res. E-4770 was issued to the public, and several individuals and organizations filed comments. Many of these comments addressed the size of the minimum procurement requirement for the targeted RAM solicitation. SDG&E’s minimum procurement requirement was set at 6 MW in the draft resolution, and in its Capacity Allocation Rehearing Application proposes that this requirement should be set at only 4 MW. However, the record contains comments urging us to avoid setting small procurement requirements for the targeted RAM solicitation. According to one commenter, CalFire, low minimum procurement requirements risk being misread as a signal that we have low expectations for the utilities. Setting higher targets would, on the

2 Subsequent section references are to the California Public Utilities Code, unless otherwise noted. 3 All citations to Commission decisions are to the official pdf versions which are available on the Commission’s website at: .

3 A.16-04-015, A.16-04-016 L/rbg other hand, avoid the risk that utilities would fail to contract for power on the mistaken assumption that obtaining RAM from facilities using fuel from the high hazard zones was not a regulatory priority. Comments in the record also stressed that the targeted RAM solicitation should be open and available to the existing fleet of biomass facilities capable of using fuel from high hazard zones. The California Biomass Energy Aliance observed that some existing plants were idle, while some were operating under contracts that were close to expiring. Comments provided by Assembly Member Dahle stated that it was important to adopt policies that would give open facilities a chance to continue in operation, by obtaining replacement contracts. Such facilities would not likely reopen if they were allowed to close. Comments also point out that the utilities’ procurement requirements must be set so they are related to the size of the biomass facilities that would be potential bidders in the targeted RAM solicitation. According to the California Forestry Association (“CFA”), plants whose contracts are close to expiring are generally sized above 20 MW, and none are sized below 10 MW. CFA stated that, when all types of plants are considered, only 2 of the 20 plants are sized below 10 MW. Another party, California Biomass Energy Aliance pointed out the importance of designing the RAM solicitation so that the solicitation was not constrained because it placed practical limitations on the participation by any specific categories of facilities. These comments all support the inference that smaller plants are few in number and a small minimum procurement requirement would not provide market opportunities. Therefore, contrary to SDG&E’s claims, the record supports setting minimum procurement requirements at a level that does not restrict market opportunities. This includes giving plants with expiring contracts an opportunity to bid for contracts which would allow them to continue in operation. Doing so responds to the emergency identified by the Governor’s proclamation by creating a meaningful opportunity for plants to properly dispose of fuel from high hazard zones. The Resolution took this approach, holding that the size of the RAM solicitation for facilities capable of using fuel

4 A.16-04-015, A.16-04-016 L/rbg from high hazard zones would be set by taking into account the size of existing facilities, as suggested in comments. (Res. E-4770, p. 10.) The Capacity Allocation Rehearing Application, however, claims that each utility’s minimum procurement requirement should not be established in MW, looking to the size of the facilities that will participate in the targeted RAM solicitation. Instead SDG&E claims its minimum procurement requirement should be set by allocating to SDG&E a percentage of the total size of the RAM solicitation based on technical measures of peak demand. (Capacity Allocation Rehearing Application, pp. 5-6.) Specifically, SDG&E claims that it should procure just over 8% of the capacity required by Res. E-4770, or 4 MW. The ratio of SDG&E’s coincident peak demand to the total system statewide peak demand is approximately 8%. This claim does not demonstrate error because this Commission may choose, based on the circumstances presented here, what method should be used to allocate the 50MW minimum procurement requirement among the utilities. Although SDG&E supports using a percentage allocation method, we are not required to use the measure proposed by any one commenter on the draft resolution. To the contrary, we may lawfully allocate capacity requirements by choosing a method that reflects the policy approach we believe will produce the best result. Moreover, as noted above, the method used by Res. E-4770 had ample record support.4 SDG&E is mistaken when it alleges that the resolution is in error because SDG&E’s 10MW minimum requirement was adopted “without any legal or factual substantiation.” (Capacity Allocation Rehearing Application, p. 2.) The resolution explicitly refers to some of this record, although it does not address each utility’s allocation individually. (See Res. E-4770, p. 10, citing Comments of CFA, Feb. 16, 2016, p. 6.) For clarity, however, Res. E-4770 will be modified so the link between the comments previously identified and the minimum requirement adopted for SDG&E is made explicit.

4 Another example of countervailing policy considerations is the necessity to consider the three large utilities’ total responsibility to procure 50 MW. SDG&E’s approach would likely result in PG&E and/or SCE being allocated a greater share of the minimum procurement requirement, but PG&E outlines a number of factors weighing against this result. (PG&E’s Response to Application by SDG&E for Rehearing, May 3, 2016, pp. 2-3, 5.)

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In addition to alleging that Res. E-4770’s approach was not supported with record-based findings,5 SDG&E claims that the percentage-based approach it prefers is required by our past decisions. (Capacity Allocation Rehearing Application, p. 5, citing, e.g., D.10-12-048, pp. 27-31, Contracts for Water, etc. Customers to Sell Electricity (2007) [D.07-07-027], p. 9.) This claim does not demonstrate error because it does not acknowledge that Res. E-4770 is based on the unique facts of the emergency situation that the Governor’s proclamation addresses. The law does not require us to copy our past decisions without regard to specific characteristics of the situation we are facing. Here, although we chose to use the established RAM solicitation procedures as the mechanism through which the utilities would enter into standard contracts with facilities that use fuel from high hazard zones, that RAM solicitation was targeted, and taking the size of the targeted facilities into account was appropriate. Moreover, D.10-12-048 does not hold that the percentage approach to allocating RAM capacity among the utilities should be applied generally, or as a default rule. That decision specifically noted that when the percentage allocation method is applied, care must be taken to ensure that the amount of MW allocated to each utility “is sufficiently large to provide market opportunities[,]” because a small allocation would

5 SDG&E is inconsistent in its description of the Findings of Fact contained in Res. E-4770. In its rehearing application on capacity allocation, the utility claims that these findings should not be considered legally valid because the section heading on page 15 does not contain the words “of fact,” but in its rehearing application on cost allocation, SDG&E acknowledges that the resolution’s findings are, indeed, findings of fact. (Cost Allocation Rehearing application, p. 2, fn. 7.) Res. E-4770 will be modified for the sake of clarity.

6 A.16-04-015, A.16-04-016 L/rbg have the undesirable consequence of limiting the number of transactions.6 (D.10-12-048, pp. 28, 31.) The Capacity Allocation Rehearing Application is also incorrect when it alleges that SDG&E’s allocation of the minimum procurement requirement should be based on the amount of forest fire fuel present in SDG&E’s service territory.7 According to SDG&E, “there is a minimal amount of tree mortality in SDG&E’s service territory compared to the rest of the State.” (Capacity Allocation Rehearing Application, p. 7.) Contrary to SDG&E’s claims, its service territory is not segmented from or independent of the rest of the state in this matter, and California as a whole is under a State of Emergency. The Emergency Proclamation was issued specifically because the tree die- off is a matter of statewide concern, to which the entire state must respond as a whole. The proclamation states: … the tree die-off, by reason of its magnitude, is or is likely to be beyond the control of the services, personnel, equipment and facilities of any single county, city and county, or city and require the combined forces of a mutual aid region or regions to combat[.]

This means not just that addressing the tree die-off requires the resources of the State as a whole, but also that combatting fires outside SDG&E’s service territory could require the use of forces from within that service territory. In addition, to the extent wildfires threaten the electrical grid, the reliability concerns created would be

6 In D.10-12-048, we expressed concern that SDG&E should not offer less than 20MW in a RAM solicitation. The Capacity Allocation Rehearing Application cites to several other sources but none of these are directly on point, and none state that the percentage method should be followed in all circumstances. Contracts for Water,etc. Customers to Sell Electricity (2007) [D.07-07-027], at p. 9, like D.10-12-048, does not find the percentage allocation approach to be required to the exclusion of other approaches. Instead, that decision stated that we would adopted this approach for the pragmatic reason that it was jointly agreed upon by the parties. Revising Feed In Tariff Program (2012) [D.12-05-035], at pp. 77-79 models its approach on D.07-07-027 “for reasons of simplicity and administrative convenience” but does not analyze or discuss whether this approach should be adopted in other circumstances. Both Implementing Senate Bill 1122 (2014) [D.14-12-081] and Green Tariff Shared Renewable Program (2015) [D.15-01-051] are based on statutes that do not apply here, and therefore are not on point. The rehearing application also cites to advice letters written by SDG&E that were not adopted by resolution or other Commission order, but such materials do not constitute legal authority. 7 By making this claim, SDG&E concedes that the Commission may lawfully base SDG&E’s allocation on the specific facts present here, because it alleges that the Commission may base its decision on a “principled method that would take into account the unique aspects of” the targeted RAM solicitation. (Capacity Allocation Rehearing Application, p. 7.)

7 A.16-04-015, A.16-04-016 L/rbg statewide, and not limited to any particular utility’s service territory.8 (Res. E-4770, p. 7; see PG&E’s Response to SDG&E’s Rehearing Application, May 3, 2016, p. 4, citing Certificate of Public Convenience and Necessity for Sunrise Powerlink Transmission Project (2008) [D.08-12-058], at pp. 208-218.) SDG&E relies on flawed reasoning when it claims that conditions in its service territory should be seen as less severe than those in the rest of the State and that, on that basis, it should be allocated less responsibility for improving the emergency conditions identified by the Governor.

B. The Resolution Correctly Held That the Question of CAM Treatment Should be Resolved in a Formal Proceeding

Res. E-4770 is an order of this Commission, adopted as a result of informal proceedings. As our General Order (“GO”) 96-B9 explains, resolutions are adopted when we resolve a matter outside an application, complaint, petition, investigation or rulemaking proceeding. (GO 96-B, § 3.7; cf. GO 96-B, § 5.1.) This Commission circulates draft proposed resolutions for public comment, but no formal hearing is provided before a resolution is adopted. (See Pub. Util. Code, § 311(g)(1).) Pursuant to GO 96-B, a formal proceeding (initiated by an application, application for rehearing, or petition to modify) must be commenced when it is proposed that we modify one of our past decisions or take other action that affects the result of a decision rendered in a formal proceeding. (GO 96-B, §§ 5.2, 5.3; see Pub. Util. Code, § 1708.) In Res. E-4770, we considered a request from SDG&E, PG&E and SCE to allow the recovery of costs from the targeted RAM solicitation using the CAM mechanism set out in section 365.1(c)(2). In support of this request, the three utilities claimed the benefits of the targeted RAM solicitation were statewide, and affected all electricity consumers. According to the utilities, this would meet one test used by this Commission to determine if costs should be allocated using the CAM. Res. E-4770,

8 One result of this is that SDG&E can contract with any biofuel facility in the state because all biofuel facilities and all three large utilities are interconnected to the California Independent System Operator’s electrical grid and electrical markets. 9 The Commission’s General Orders are publicly available via the Commission’s internet web site at: .

8 A.16-04-015, A.16-04-016 L/rbg however, observed that there were other considerations involved. The targeted RAM solicitation adopted by Res. E-4770 is part of our “RPS” program, and will produce Renewable Energy Credits (“RECs”) that will be subject to the rules of that program. (Res. E-4770, pp. 3, 15.) In D.10-12-048, we held that costs incurred by utilities under the RPS program should be recovered from bundled customers, i.e., would not be subject to the CAM. This factor weighed against providing CAM treatment for recovery of the costs associated with the targeted RAM solicitation. Res. E-4770 did not reject the utilities’ request for CAM treatment on substantive grounds.10 Instead, we found the request could not be addressed in a resolution, because it would mean taking an action that involved determinations in a decision rendered in a formal proceeding, namely, D.10-12-048. (Res. E-4770, p. 15.) This result is not error. We correctly applied the procedures set forth in GO 96-B when we found that the CAM issues raised by the utilities were outside the scope of issues properly addressed in Res. E-4770.11 SDG&E admits that we “rejected for the purposes of the original RAM program any changes in the established methodologies for recovering the costs of PRS-eligible contracts.” (SDG&E Cost Allocation Rehearing Application, p. 4.) However, SDG&E argues that the targeted RAM solicitation required by Res. E-4770 “is different from the RAM solicitations authorized in D.10-12-048” and that the authority we used to adopt a different solicitation should have been sufficient to allow us to adopt CAM treatment for the costs of that solicitation. (SDG&E Cost Allocation Rehearing Application, p. 3.) SDG&E further claims the purpose of the original RAM solicitation

10 The Cost Allocation Rehearing Application contains a series of policy arguments supporting the use of the CAM to recover the costs of the targeted RAM solicitation. (Cost Allocation Rehearing Application, pp. 4-5.) However, policy claims asserting that the purposes of the targeted RAM solicitation are more similar to the procurement of new generation than they are to the procurement of smaller renewable energy projects eligible for RPS credit do not show that we were required to consider this regulatory issue and resolve it in Res. E-4770. SDG&E and the other utilities have now exercised an option to invoke formal proceedings by filing petitions to modify on this issue (cf. Cost Allocation Rehearing Application, p. 3), and there is no legal bar to resolving these questions in response to those petitions. 11 Further, as a general matter, we have discretion to determine how we will resolve the regulatory questions presented to us.

9 A.16-04-015, A.16-04-016 L/rbg and the targeted RAM solicitations are different, thereby requiring different cost allocation approaches. These claims do not accurately describe the mechanics of the RAM solicitation tool, as set forth in the controlling decisions. Contrary to SDG&E’s claims, Res. E-4770 is not an exercise of authority to alter the underlying RAM solicitation process to address the State of Emergency. Res. E-4770 makes it clear that the mechanism utilities must use to obtain contracts with facilities using biofuel from high hazard areas is the established RAM, adopted in D.10-12-048 and later revised to clarify its specific attributes in Conditionally Accepting 2014 Renewables Portfolio Standard Procurement Plans (2014) D.14-11-042 (“D.14-11-042”) and later decisions. (Res. E-4770, pp. 3-4; see D.14-11-042, pp. 91-102.) Past decisions make it clear that the RAM framework established in D.10-12-048 has become a “streamlined procurement tool” that can be used in a variety of situations where utilities will engage in renewable procurement.12 The nature of the RAM as a mechanism associated with renewable procurement, as described in D.10-12-048, has not changed, but the structure of the mechanism was streamlined, and it is this streamlined RAM that Res. E-4770 uses for the targeted solicitation to obtain contracts with facilities using biofuel from high hazard areas. (See D.14-11-042, p. 91.) Having the targeted solicitation adopted in Res. E-4770 be conducted using the RAM mechanism, therefore, implements our past decision making the RAM a streamlined procurement tool and does not change the RAM mechanism. Moreover, as it makes its claims, SDG&E acknowledges that cost allocation issues need only be resolved “before deliveries of power” occur, belying its claim that such issues must legally have been acted on in Res. E-4770.

IV. CONCLUSION The rehearing application fails to show that there is any legal error in Res. E-4770. To prevent any misunderstanding, Res. E-4770 will be modified to clarify

12 The RAM can be used, in addition to its role in RPS procurement, “to procure other Commission authorized renewable procurement, such as capacity authorized … pursuant to SB 43, and other system or local needs.” (D.14-11-042, p. 92.)

10 A.16-04-015, A.16-04-016 L/rbg its determinations regarding capacity allocation. Thus, rehearing of the resolution, as modified, will be denied. THEREFORE, IT IS ORDERED that: 1. The second full paragraph on page 10, which paragraph begins, “CFA’s comments reflect that …” is restated to read: CFA’s comments reflect that the capacity of several existing and currently operating biomass facilities is over 20MW, with very few existing facilities having a capacity under 10MW. One factor this Commission considers when establishing capacity allocations in RAM solicitations is the need to ensure allocations are large enough to provide market opportunities. Consequently, to enable more existing facilities to participate in the solicitation, in addition to other facilities and while recognizing the uncertainty regarding fuel availability, it is reasonable to increase the minimum procurement requirement to 50 MW, with individual utility minimum requirements ranging from 10 MW to 20 MW. This result also responds to other points made in comments on the draft resolution.

2. The topic heading on page 15, immediately preceding the numbered Findings of Fact is modified to read, “FINDINGS OF FACT”. 3. Finding of Fact 10 on page 16 is modified to read as follows: The capacity of several existing and currently operating biomass facilities is over 20MW, with very few existing facilities having a capacity under 10MW. 4. Finding of Fact 11 on page 16 is modified to read as follows: To enable more existing facilities to participate in the solicitation, while recognizing the uncertainty regarding fuel availability, it is reasonable to increase the minimum procurement requirement to 50 MW, with individual utility minimum requirements ranging from 10 MW to 20 MW. 5. A new Finding of Fact 11a is added on page 16 to read: Minimum procurement requirements for individual utilities ranging from 10 MW to 20 MW reasonably implements a policy to consider the need to ensure allocations are large

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enough to provide market opportunities, and also avoids the risk associated with small minimum requirements. 6. Rehearing of Res. E-4770, as modified, is hereby denied. 7. A.16-04-015 is closed. 8. A.16-05-016 is closed. This order is effective today. Dated August 18, 2016, at San Francisco, California.

MICHAEL PICKER President MICHEL PETER FLORIO CATHERINE J.K. SANDOVAL CARLA J. PETERMAN LIANE M. RANDOLPH Commissioners