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1 THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Pacific Gas and Electric Company for Expedited Approval Of The Tesla Generating Station And Issuance of a Certificate of Public Convenience and Necessity and Request for Interim Order Authorizing Early Project Commitment to Stabilize Costs. Application (Filed July 18, 2008 SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E RESPONSE TO MOTION OF THE INDEPENDENT ENERGY PRODUCERS ASSOCIATION FOR AN INVESTIGATION MICHAEL D. MONTOYA KAREN I. LEE Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: ( Facsimile: ( Karen.Lee@sce.com September 4, 2008 LAW#

2 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Pacific Gas and Electric Company for Expedited Approval Of The Tesla Generating Station And Issuance of a Certificate of Public Convenience and Necessity and Request for Interim Order Authorizing Early Project Commitment to Stabilize Costs. Application (Filed July 18, 2008 SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E RESPONSE TO MOTION OF THE INDEPENDENT ENERGY PRODUCERS ASSOCIATION FOR AN INVESTIGATION I. INTRODUCTION Pursuant to Rule 11.1 of the California Public Utilities Commission s ( Commission s Rules of Practice and Procedure, Southern California Edison Company ( SCE provides the following response to the Motion for Investigation ( Motion filed by The Independent Energy Producers Association ( IEP on August 20, IEP requests the Commission institute a formal investigation proceeding to examine utility behavior under the hybrid market structure. This motion was triggered by the Application of Pacific Gas and Electric Company ( PG&E for expedited approval of its proposed Tesla Generating Station ( Tesla Application. SCE opposes IEP s motion because it is procedurally improper and because there is no basis for the Commission to institute a formal investigation proceeding. 1

3 II. IEP S MOTION IS PROCEDURALLY IMPROPER IEP attempts to make its Motion pursuant to Rule 11.1, 1 which states that a motion is a request for the Commission or the Administrative Law Judge to take a specific action related to an open proceeding before the Commission. 2 IEP s Motion requesting a broad Commission investigation into utility behavior under the hybrid market structure, however, does not constitute a specific action related to this proceeding as required by Rule The current proceeding, which relates to PG&E s Tesla application, is not the appropriate forum for raising the broader issue of utility behavior under the hybrid market structure. If IEP would like to request that the Commission institute a formal investigation, it must do so by filing a petition for rulemaking pursuant to Section of the California Public Utilities Code ( Code and Rule 6.3 of the Commission s Rules of Practice and Procedure and it must meet the requirements set forth therein. 3 In particular, IEP must comply with Rule 6.3(a which requires that a petition that contains factual assertions must be verified if the assertions are to be afforded full weight by the Commission. IEP does not meet this requirement because it failed to verify the factual assertions contained in its Motion. Because IEP improperly attempts to make its Motion pursuant to Rule 11.1, and not pursuant to Section and Rule 6.3, and because IEP does not fulfill the requirements set forth in Rule 6.3, IEP s Motion is procedurally deficient and should be dismissed. 1 See IEP s Motion, at 1. 2 See Rule 11.1 of the Commission s Rules of Practice and Procedure. 3 See Public Utilities Code Section ; see also Rule 6.3 of the Commission s Rules of Practice and Procedure. 2

4 III. THERE IS NO NEED FOR A COMMISSION INVESTIGATION INTO UTILITY BEHAVIOR UNDER THE HYRBRID MARKET STRUCTURE A. Most of SCE s New Generation Resources Are Procured from Independent Power Producers in Contrast to IEP s Misleading Claim The concerns about the hybrid market structure raised by IEP in its Motion have already been evaluated by the Commission in the 2006 Long-Term Procurement Plan ( LTPP proceeding. In the 2006 LTPP proceeding, a number of parties argued that utility owned generation ( UOG projects should not be authorized by the Commission and that all new generation resources should come from independent power producers ( IPPs. 4 The Commission evaluated that argument as well as other concerns about the hybrid market structure raised by various parties in that proceeding. 5 In Decision ( D , the Commission rejected these proposals to prohibit new UOG and set forth a process for evaluation of UOG proposals within a competitive Request for Offer ( RFO process as well as evaluation of UOG proposals outside a competitive RFO process. 6 Although IEP s concerns regarding the hybrid market mechanism were evaluated by the Commission in the 2006 LTPP proceeding and rejected in D , IEP nonetheless asserts an investigation is necessary because non-renewable resource acquisitions since the utilities resumed procurement [in] 2003 have favored UOG. 7 In response to IEP s unfounded 4 See R and D SCE advocated that the Commission should reject a head-to-head competition model because of the inherent differences between IPP and UOG projects. Instead, SCE proposed that new UOG should be limited to those projects designed to ensure grid reliability, improve fuel diversity, or serve as a market backstop. Although the proposed decision adopted SCE s position, the final decision retained the Commission s head-to-head competitive model, but provided for specified circumstances under which new UOG projects could be pursued outside of a competitive RFO. SCE remains supportive of its original new UOG proposal. 5 See D , at Id. 7 See IEP s Motion, at

5 allegation, SCE emphasizes that it has complied with the Commission s directives since resuming procurement activities in 2003 and stands behind its procurement actions, which have provided significant investment opportunities to IPPs. In fact, as IEP s own Motion states, SCE has acquired a relatively modest 34% of completed or pending projects as UOG. 8 Thus, by IEP s own admission, two-thirds of SCE s non-renewable new generation projects are non-uog. In addition, IEP s discussion of UOG fails to acknowledge two important facts with respect to SCE. First, D (the 2003 LTPP decision and D (the decision that authorized SCE s Mountainview ( MVL UOG project were adopted nearly contemporaneously, and the 1,054 MW MVL unit was obtained by SCE as the direct result of a market failure of the deregulated marketplace. Thus, IEP s reference to SCE s MVL capacity as UOG, while technically accurate, fails to recognize that its origin was due to competitive market failure. 9 Second, the 225 MWs of peaker units ordered by President Peevey in his August 15, 2006 Assigned Commissioner s Ruling, were designed to enhance resource adequacy in time for peak summer loads in As such, SCE has not built any new UOG since resuming procurement authority in 2003 that was not for the purpose of addressing a competitive market failure or in response to a Commission directive to enhance resource adequacy. It should also be noted that when SCE s natural gas plants were divested in 1998, SCE owned 4,985 MWs of UOG and its contract capacity was 5,561 MWs. By the end of 2007, SCE owned 5,298 MWs of UOG (a 313 MW, or six percent, increase while contract capacity increased to 16,870 MWs (a 11,309 MW, or 203 percent, increase. 8 Id., at 5. SCE has not verified the accuracy of IEP s calculations. Therefore, SCE s citation to IEP s Motion should not in any way be construed as an endorsement of its calculation of the percentage of SCE s UOG resources. 9 Considering the shut down of the Mohave generating station that coincidentally occurred at approximately the same time as the start up of MVL, there was no significant incremental increase in the amount of UOG capacity held by SCE. Since 2002, SCE s UOG capacity has increased from approximately 4,950 MW to approximately 5,300 MW. 10 President Peevey s ruling also instructed SCE to expand its demand response programs and to acquire new IPP capacity in advance of Summer 2007 peak demands if possible. In response, SCE increased the capacity of its air conditioning cycling program and contracted for the refurbishment of two units at NRG s Long Beach Generation Station. 4

6 IEP further asserts that an investigation is necessary to examine the problems with the Renewable Portfolio Standard ( RPS procurement process. 12 IEP does not provide any substantive support for this baseless assertion. Indeed, more than 95% of SCE s renewable energy portfolio comes from third-party owned projects and since 2002 SCE has executed approximately 40 contracts with IPPs for a planned installed capacity of 3, MW with an expected energy production of billion kwh per year. As evidence of SCE s strong reliance on non-uog resources, SCE notes that 75% of its August 2008 Resource Adequacy compliance showing consisted of non-uog resources. Thus, IEP's assertions regarding the lack of opportunities for third party generators and the significant increase in utility generation simply do not stand the test of any serious scrutiny. Given SCE s procurement results and heavily weighted IPP-based capacity portfolio, it is inaccurate for IEP to argue that the utilities behavior under the hybrid market structure necessarily results in discrimination against non-uog projects and must be investigated. B. Concerns with Specific Procurement Practices Should Not Be Addressed through a General Investigation into Utility Behavior In D , the Commission set forth a process for consideration of a new UOG project outside of a competitive RFO process. 13 Under that process, if an IOU proposes a new UOG project outside of a competitive RFO process, it must make a showing that a competitive RFO is infeasible and that the project falls under one of five unique sets of circumstances that may justify a new UOG project. 14 Through its Tesla Application, PG&E is complying with this process. To the extent that IEP has specific concerns regarding the Tesla Application, the related application proceeding is the appropriate forum to address those concerns. IEP should not, however, use the Tesla Application as a forum to collaterally attack D and re-litigate 12 See IEP s Motion, at See D at See Id. at

7 its broader concerns regarding the hybrid market structure. To the extent that IEP wishes the Commission to reconsider its evaluation of the hybrid market structure and to make corresponding modifications to D , IEP should make such a request within the LTPP proceeding (R through a petition to modify. IV. CONCLUSION Because IEP s motion is procedurally deficient and because there is no justification for the requested investigation, IEP s Motion should be denied. Respectfully submitted, MICHAEL D. MONTOYA KAREN I. LEE /s/ Karen I. Lee By: Karen I. Lee Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: ( Facsimile: ( Karen.Lee@sce.com September 4,

8 CERTIFICATE OF SERVICE I hereby certify that, pursuant to the Commissioner s Rules of Practice and Procedure, I have this day served a true copy of SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E RESPONSE TO MOTION OF THE INDEPENDENT ENERGY PRODUCERS ASSOCIATION FOR AN INVESTIGATION on all parties identified in the attached service list(s. Transmitting the copies via to all parties who have provided an address. First class mail will be used if electronic service cannot be effectuated. Executed this 4th day of September, 2008, at Rosemead, California. /s/raquel Ippoliti Raquel Ippoliti Project Analyst SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Ave. Post Office Box 800 Rosemead, California

9 CPUC - Service Lists - A Page 1 of 3 9/4/2008 CPUC Home CALIFORNIA PUBLIC UTILITIES COMMISSION Service Lists PROCEEDING: A PG&E - TELSA GENERAT FILER: PACIFIC GAS AND ELECTRIC COMPANY LIST NAME: LIST LAST CHANGED: SEPTEMBER 3, 2008 DOWNLOAD THE COMMA-DELIMITED FILE ABOUT COMMA-DELIMITED FILES Back to Service Lists Index Parties DANIEL W. DOUGLASS PAUL F. FOLEY ADAMS BROADWELL JOSEPH & CARDOZO DOUGLASS & LIDDELL 601 GATEWAY BOULEVARD, STE OXNARD STREET, SUITE 1030 SO. SAN FRANCISCO, CA WOODLAND HILLS, CA FOR: COALITION OF CALIFORNIA UTILITY FOR: WESTERN POWER TRADING EMPLOYEES & CALIFORNIA UNIONS FOR FORUM/ALLIANCE FOR RETAIL ENERGY MARKETS RELIABLE ENERGY MICHEL P. FLORIO NOEL OBIORA THE UTILITY REFORM NETWORK (TURN LEGAL DIVISION 711 VAN NESS AVENUE, SUITE.350 ROOM 4107 SAN FRANCISCO, CA VAN NESS AVENUE FOR: TURN SAN FRANCISCO, CA FOR: DIVISION OF RATEPAYER ADVOCATES MICHAEL P. ALCANTAR NORA SHERIFF ALCANTAR & KAHL, LLP ALCANTAR & KAHL, LLP 120 MONTGOMERY STREET, SUITE MONTGOMERY STREET, SUITE 2200 SAN FRANCISCO, CA SAN FRANCISCO, CA FOR: COGENATOR ASSOCIATION OF CA FOR: ENERGY PRODUCERS & USERS COALITION MICHAEL S. HINDUS BRIAN T. CRAGG GOODIN, MACBRIDE, SQUERI, DAY & LAMPREY PILLSBURY WINTHROP SHAW PITTMAN LLP 505 SANSOME STREET, SUITE FREMONT STREET SAN FRANCISCO, CA SAN FRANCISCO, CA FOR: INDEPENDENT ENERGY PRODUCERS FOR: PATTERSON PASS LLC ASSOCIATION LISA COTTLE CHARLES R. MIDDLEKAUFF PACIFIC GAS AND ELECTRIC COMPANY WINSTON & STRAWN LLP PO BOX CALIFORNIA STREET, 39TH FLOOR SAN FRANCISCO, CA SAN FRANCISCO, CA FOR: PACIFIC GAS AND ELECTRICT COMPANY FOR: MIRANT CALIFORNIA, LLC/MIRANT DELTA, LLC/MIRANT POTRERO LLC BRIAN K. CHERRY BARRY F. MCCARTHY PACIFIC GAS & ELECTRIC COMPANY MCCARTHY & BERLIN, LLP PO BOX , MAIL CODE: B10C 100 W. SAN FERNANDO ST., SUITE BEALE STREET, 1093 SAN JOSE, CA SAN FRANCISCO, CA FOR: CITY OF TRACY FOR: PACIFIC GAS & ELECTRIC COMPANY MARTIN HOMEC ANDREW B. BROWN PO BOX 4471 ELLISON SCHNEIDER & HARRIS LLP DAVIS, CA H STREET FOR: CALIFORNIANS FOR RENEWABLE ENERGY SACRAMENTO, CA (CARE FOR: CONSTELLATION ENERGY COMMODITIES GROUP GREGGORY L. WHEATLAND ELLISON, SCHNEIDER & HARRIS, LLP 2015 H STREET SACRAMENTO, CA FOR: PITTSBURG POWER COMPANY

10 CPUC - Service Lists - A Page 2 of 3 9/4/2008 Information Only CURTIS L. KEBLER BOHDAN BUCHYNSKY GOLDMAN, SACHS & CO NORTHY ENTRADA WAY 2121 AVENUE OF THE STARS, STE 2600 GLENDORA, CA LOS ANGELES, CA DON LIDDELL MARC D. JOSEPH DOUGLASS & LIDDELL ADAMS BRADWELL JOSEPH & CARDOZO ND AVENUE 601 GATEWAY BLVD. STE 1000 SAN DIEGO, CA SOUTH SAN FRANCISCO, CA DIANE I. FELLMAN JEANNE M. SOLE DIRECTOR, REGULATORY AFFAIRS CITY AND COUNTY OF SAN FRANCISCO FPL ENERGY PROJECT MANAGEMENT, INC. CITY HALL, ROOM VAN NESS AVENUE 1 DR. CARLTON B. GOODLETT PLACE SAN FRANCISCO, CA SAN FRANCISCO, CA FOR: CITY AND COUNTY OF SAN FRANCISCO JAMES HENDRY BRUCE T. SMITH UTILITIES SPECIALIST PACIFIC GAS AND ELECTRIC COMPANY SAN FRANCISCO PUBLIC UTILITIES COMM. 77 BEALE STREET, ROOM 965, B9A 1155 MARKET STREET, FOURTH FLOOR SAN FRANCISCO, CA SAN FRANCISCO, CA LARRY NIXON CASSANDRA SWEET PACIFIC GAS AND ELECTRIC COMPANY DOW JONES NEWSWIRES 77 BEALE STREET, MC B10A 201 CALIFORNIA ST., 13TH FLOOR SAN FRANCISCO, CA SAN FRANCISCO, CA MARTIN A. MATTES CALIFORNIA ENERGY MARKETS 425 DIVISADERO ST. SUITE 303 NOSSAMAN LLC SAN FRANCISCO, CA CALIFORNIA STREET, 34TH FLOOR SAN FRANCISCO, CA KERRY C. KLEIN LYNNE BROWN VICE PRESIDENT PACIFIC GAS AND ELECTRIC COMPANY CALIFORNIANS FOR RENEWABLE ENERGY, INC. PO BOX HARBOR ROAD SAN FRANCISCO, CA SAN FRANCISCO, CA FOR: PACIFIC GAS AND ELECTRIC COMPANY MIKE BOYD CALIFORNIA ENERGY MARKETS CALIFORNIANS FOR RENEWABLE ENERGY 425 DIVISADERO ST., SUITE HARBOR RD. SAN FRANCISCO, CA SAN FRANCISCO, CA CASE COORDINATION PACIFIC GAS AND ELECTRIC COMPANY PO BOX ; MC B9A SAN FRANCISCO, CA KERRY HATTEVIK DIRECTOR OF REG. AND MARKET AFFAIRS NRG ENERGY 829 ARLINGTON BLVD. EL CERRITO, CA ALLAN THOMPSON GARRETT EVANS PITTSBURG POWER COMPANY DG POWER 65 CIVIC AVENUE 10 VALLEY VIEW ROAD PITTSBURG, CA ORINDA, CA SEAN P. BEATTY DALE E. FREDERICKS SR. MGR. EXTERNAL & REGULATORY AFFAIRS DG POWER INTERNATIONAL LLC MIRANT CALIFORNIA, LLC PO BOX 4400 PO BOX 192 WALNUT CREEK, CA PITTSBURG, CA DAVID MARCUS ELIZABETH MCCARTHY PO BOX 1287 CALIFORNIA ENERGY CIRCUIT BERKELEY, CA PO BOX 2174 BERKELEY, CA PHILLIP MULLER SUSAN M. O'BRIEN SCD ENERGY SOLUTIONS 436 NOVA ALBION WAY MCCARTHY & BERLIN, LLP SAN RAFAEL, CA W. SAN FERNANDO STREET, SUITE 501 SAN JOSE, CA FOR: CITY OF TRACY GREG SALYER JOY A. WARREN MODESTO IRRIGATION DISTRICT MODESTO IRRIGATION DISTRICT TH STREET TH STREET MODESTO, CA MODESTO, CA ROGER VANHOY BOB SARVEY MODESTO IRRIGATION DISTRICT 501 W. GRANT TH STREET TRACY, CA MODESTO, CA WILLIAM MARCUS JBS ENERGY KENNETH SWAIN NAVIGANT CONSULTING, INC.

11 CPUC - Service Lists - A Page 3 of 3 9/4/ D STREET, SUITE A 3100 ZINFANDEL DR., SUITE 600 W. SACRAMENTO, CA RANCHO CORDOVA, CA MARY LYNCH JEFFERY D. HARRIS VP - REGULATORY AND LEGISLATIVE AFFAIRS CONSTELLATION ENERGY COMMODITIES GRP ELLISON, SCHNEIDER & HARRIS LLP 2377 GOLD MEDAL WAY, SUITE H STREET GOLD RIVER, CA SACRAMENTO, CA JAN SMUTNY-JONES KEVIN WOODRUFF INDEPENDENT ENERGY PRODUCERS WOODRUFF EXPERT SERVICES 1215 K STREET, SUITE K STREET, SUITE 204 SACRAMENTO, CA SACRAMENTO, CA RYAN BERNARDO STEVEN KELLY BRAUN BLAISING MCLAUGHLIN, P.C. POLICY DIRECTOR 915 L STREET, SUITE 1270 INDEPENDENT ENERGY PRODUCERS ASSOCIATION SACRAMENTO, CA K STREET, SUITE 900 SACRAMENTO, CA LYNN HAUG ELLISON, SCHNEIDER & HARRIS, LLP 2015 H STREET SACRAMENTO, CA State Service ANDREW CAMPBELL CAROL A. BROWN EXECUTIVE DIVISION DIVISION OF ADMINISTRATIVE LAW JUDGES ROOM 5203 ROOM VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA SAN FRANCISCO, CA DAVID PECK DONALD R. SMITH ELECTRICITY PLANNING & POLICY BRANCH ELECTRICITY PLANNING & POLICY BRANCH ROOM 4103 ROOM VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA SAN FRANCISCO, CA MATTHEW DEAL MELISSA SEMCER EXECUTIVE DIVISION ENERGY DIVISION ROOM 5215 AREA 4-A 505 VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA SAN FRANCISCO, CA PETER SKALA TIMOTHY J. SULLIVAN ENERGY DIVISION DIVISION OF ADMINISTRATIVE LAW JUDGES AREA 4-A ROOM VAN NESS AVENUE 505 VAN NESS AVENUE SAN FRANCISCO, CA SAN FRANCISCO, CA VALERIE BECK KRISTY CHEW CALIFORNIA ENERGY COMMISSION ELECTRIC GENERATION PERFORMANCE BRANCH 1516 NINTH ST., MS 32 AREA 2-D SACRAMENTO, CA VAN NESS AVENUE SAN FRANCISCO, CA DENNIS L. BECK, JR. SENIOR STAFF COUNSEL CALIFORNIA ENERGY COMMISSION 1516 NINTH STREET, MS-14 SACRAMENTO, CA FOR: CALIFORNIA ENERGY COMMISSION TOP OF PAGE BACK TO INDEX OF SERVICE LISTS