Advice 3372-E, Submission of Agreement Between Southern ...

STATE OF CALIFORNIA Edmund G. Brown Jr., Governor

PUBLIC UTILITIES COMMISSION

SAN FRANCISCO, CA 94102-3298

March 28, 2017 Advice Letter 3372-E and 3372-E-A

Russell G. Worden

Director, Regulatory Operations

Southern California Edison Company

8631 Rush Street

Rosemead, CA 91770

Subject: Submission of Agreement Between SCE and Tesoro Refining and

Marketing Company LLC and Supplemental Filing

Dear Mr. Worden:

Advice Letter 3372-E as supplemented by 3372-E-A is effective as of March 23, 2017 per

Resolution E-4800.

Sincerely,

Edward Randolph

Director, Energy Division

P.O. Box 800 8631 Rush Street Rosemead, California 91770 (626) 302-4177 Fax (626) 302-4829

Russell G. Worden Managing Director, State Regulatory Operations

February 29, 2016

ADVICE 3372-E (U 338-E)

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION

SUBJECT: Submission of Agreement Between Southern California Edison Company and Tesoro Refining & Marketing Company LLC

PURPOSE

The purpose of this Advice Letter is to seek approval of an agreement for the purchase of energy, capacity and all related products between Southern California Edison Company (“SCE”) and Tesoro Refining & Marketing Company LLC (“Tesoro”) (the “Agreement”).

BACKGROUND

A. Combined Heat and Power Settlement

In 2008, diverse parties with divergent interests, including the three investor-owned utilities (“IOUs”), representatives of Qualifying Facilities (“QFs”), 1 customer advocacy groups, and the California Public Utilities Commission ( “Commission”), engaged in settlement negotiations to, among other things, resolve numerous disputes between the IOUs and QFs before the Commission and state court. After a year and a half of negotiations, the participating parties reached an agreement that, among other things, developed a state Combined Heat and Power (“CHP”) program, which included

1 The Public Utility Regulatory Policies Act of 1978 (“PURPA”) established a class of

generating facilities known as QFs, which, in the furtherance of a variety of energy policy goals, receive special rate and regulatory treatment. QFs fall into two categories: (1) qualifying small power production facilities and (2) qualifying cogeneration facilities. For the purpose of this Advice Letter, QFs are defined as: “An electric energy generating facility that complies with the qualifying facility definition established by PURPA and any FERC rules . . . implementing PURPA and has filed with FERC (i) an application for FERC certification, . . . which FERC has granted, or (ii) a notice of self - certification . . . . .” CHP Settlement Agreement, Term Sheet, Glossary of Defined Terms, at p. 73.

ADVICE 3372-E (U 338-E) - 2 - February 29, 2016

megawatt (“MW”) and greenhouse gas (“GHG”) emissions reduction targets, and settled all outstanding CHP/QF litigation issues.

The parties then filed a joint motion for Commission approval of the QF and CHP Settlement Agreement, Term Sheet and attached Exhibits (“Settlement”). 2 Rule 12.1(d) of the Commission’s Rules of Practice and Procedure provides that “[t]he Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and the public interest.” To assess reasonableness, the Commission considers, among other things, whether the settlement negotiations were at arms-length and whether the parties were adequately represented.3

After considering the Settlement as a whole, its individual elements, as well as the interests at stake, the Commission approved the Settlement, finding it to be (1) reasonable, (2) the product of protracted, arms-length negotiations between sophisticated and well-represented parties with divergent interests, all of whom were required to compromise on some things, and none of whom received everything they wanted,4 and (3) in furtherance of the state policy objectives embodied in California Public Utilities Code Section 372(a), Assembly Bill 32, and the Energy Action Plan II.5

Of specific relevance to this Advice Letter, the Settlement allows for “[b]ilaterally negotiated and executed [Combined Heat and Power Purchase Power Agreements (“CHP PPAs”)]” as one of “the procurement options in this CHP Program.”6 The Settlement also provides that the pricing, terms, and conditions for those PPAs will be “according to the executed and approved PPA.”7 In addition, in furtherance of the state’s policies, the Settlement’s state CHP program sets forth GHG emissions reduction targets.8

B. SCE’s Third CHP Request for Offers (“RFOs”)

Section 4.2.1 of the Term Sheet directs the IOUs to “conduct RFOs exclusively for CHP resources” as a means of achieving the MW and GHG emissions reduction targets set forth in the Settlement. Section 5.1.4 of the Term Sheet requires the IOUs to conduct three RFOs during the Initial Program Period under the Settlement. SCE’s 2014 CHP

2 Any capitalized terms used in this Advice Letter but not defined herein have the meaning

set forth in the Combined Heat and Power Settlement Agreement Term Sheet at § 1.1. 3 Decision (“D.”) 88-12-083, 30 CPUC 2d 189, 89 (approving Pacific Gas and Electric

Company’s Diablo Canyon settlement as in the public interest). 4 D.10-12-035 at pp. 28, 35, Conclusion of Law No. 21. 5 Id. at pp. 35, 37, 38, Conclusion of Law No. 19. 6 Term Sheet § 4.3.1. 7 Term Sheet § 4.3.3. 8 Term Sheet §§ 2.3.2.3, 6.2.2.1. The GHG emissions reduction targets are modified in

D.15-06-028, Ordering Paragraph (“OP”) 1.


RFO (“CHP RFO 3”), launched on November 13, 2014, was the third of the three RFOs that SCE had conducted during the Initial Program Period.

SCE entered into two agreements as a result of CHP RFO 3: one with Coalinga Cogeneration Company and one with an additional counterparty. The second agreement was terminated prior to its advice letter filing due to counterparty default, leaving SCE short of its first period target of 1,402 MW (“MW Target”).

Following the termination, SCE contacted competitive participants that were not awarded in CHP RFO 3, to gauge interest in a bilateral agreement with SCE to enable SCE to meet its MW Target in the Initial Progam Period. SCE began negotiations, which are described in more detail below, with Tesoro for the Wilmington Qualifying Facility (“Wilmington QF”). SCE also finalized and executed an 11.97 MW AB 1613 feed-in-tariff agreement with GFP Ethanol, LLC (“Calgren Renewable Fuels Agreement”), with whom SCE had been in discussions for over a year. SCE achieved its MW Target upon executing the Calgren Renewable Fuels Agreement. SCE continued discussions with Tesoro for the Wilmington QF, however, given Wilmington QF’s potential to contribute toward SCE’s GHG emissions reduction target (“GHG Target”).

C. Negotiations Between Tesoro and SCE

SCE and Tesoro utilized the negotiated agreement from CHP RFO 3 as a starting point for bilateral negotiations. Bilateral negotiations resulted in the execution of the Commission-approved CHP Settlement Agreement pro forma PPA with minor modifications to address the bottoming cycle process of the facility. See Confidential Appendix A for more detail on negotiations and evaluation of the Agreement.

The terms of the Agreement were presented to SCE’s Energy Procurement Risk Management Committee (“epRMC”) and Cost Allocation Methodology (“CAM”) group participants on December 1 and 2, 2015, respectively. The effective date of the Tesoro Agreement is December 30, 2015. See Confidential Appendix C for additional detail on specific transaction terms.

DESCRIPTION OF TESORO FACILITY AND AGREEMENT

A. Wilmington Qualifying Facility Summary

Project Summary

Project Name Wilmington Qualifying Facility

Owner/Developer Tesoro Refining & Marketing Company

LLC

Technology GE Steam Turbine Generator

Capacity (MW) 31

Expected Generation (GWh/Year) 238

Delivery Pattern (As-available, Firm, As-Available


Utility Prescheduled Facility)

Delivery/Contract Term (months) 48

Vintage (New / Existing / Repower/Expanded/Utility Prescheduled

Facility) Existing

Location (city and state) Wilmington, CA

Source of Agreement (e.g., RFO or Bilateral Negotiations)

Bilateral Negotiations

The Agreement is attached as Confidential Appendix B. A summary of the Agreement is attached as Confidential Appendix C. A comparison of the Agreement with the CHP Pro Forma PPA is attached as Confidential Appendix D. Copies of the safety documentation provided by Seller are attached as Confidential Appendix E.9

B. Wilmington Qualifying Facility Description

The Wilmington QF is owned and operated by Tesoro. Tesoro is a Delaware limited liability company with its principal place of business in San Antonio, Texas, and is a wholly-owned subsidiary of Tesoro Corporation. Tesoro Corporation, through its subsidiaries, is an independent refiner and marketer operating six refineries in the Western United States for the manufacture of transportation fuels and other refined products.

The Wilmington QF is associated with Tesoro’s calciner, which produces high quality anode grade calcined coke that is used in the manufacture of aluminum and for other industrial uses. The Wilmington QF is a bottoming cycle cogeneration facility with zero GHG emissions for power production because it uses waste heat from the industrial process to make electricity. The waste heat is exhausted into a heat recovery steam generator (“HRSG”) to produce steam, which in turn is used in a steam turbine to generate up to 35 MW of power, of which approximately 4 MW is used internally by the host.

The Wilmington QF is located within the area operated by the California Independent System Operator (“CAISO”) in SP15 within the Los Angeles Basin. SCE’s and the Wilmington QF’s electrical systems are interconnected at SCE’s Carbogen Substation at a distribution voltage of 12.47 kV. SCE constructed Carbogen Substation and associated equipment and facilities to interconnect the Tesoro Wilmington Calciner generation facility with SCE’s distribution system. Carbogen Substation is owned, operated and maintained by SCE. SCE steps up the power to 66 kV and delivers it the CAISO grid at the 230 kV bus at SCE’s Hinson Substation.

9 SCE expresses no opinion regarding whether the Safety Plan submitted by Tesoro satisfies

the Commission’s requirement.


C. Safety

The standard terms in all of SCE’s PPAs attempt to secure energy products that are produced in a safe and reliable manner by requiring the generator – the entity with legal and physical control over onsite decisions -- to warrant that it will conform to certain safety requirements, including, but not limited to, operating and maintaining the generating facility in accordance with Prudent Electrical Practices.10

Additionally, the Seller has provided to SCE: (a) a report from an independent, California-licensed professional engineer certifying that Seller has a feasible written plan that obligates Seller to operate the Wilmington QF in accordance with existing applicable state and federal standards and in compliance with Prudent Electrical Practices; (b) a description of its written safety plan; and (c) an attestation that certifies that the Wilmington QF will abide with its safety plan and applicable state and federal laws during the term of the PPA.11 Copies of these documents are attached as Confidential Appendix E.

SETTLEMENT ACCOUNTING FOR GHG EMISSIONS REDUCTION TARGET

Set forth below is SCE’s GHG Target,12 as outlined in the Settlement and revised by D.15-06-02813 pursuant to Term Sheet Section 6.6, and the amount countable toward the GHG Target.

10 See Exhibit A to Agreement. Prudent Electrical Practices means those practices, methods

and acts that would be implemented and followed by prudent operators of electric generating facilities in the Western United States, similar to the Generating Facility, during the relevant time period, which practices, methods and acts, in the exercise of prudent and responsible professional judgment in the light of the facts known at the time a decision was made, could reasonably have been expected to accomplish the desired result consistent with good business practices, reliability and safety.

Prudent Electrical Practices includes, at a minimum, those professionally responsible practices, methods and acts described in the preceding sentence that comply with the manufacturer’s warranties, restrictions in this Agreement, and the requirement of Governmental Authorities, WECC standards, the CAISO and Applicable Laws...”

11 See note 9, supra. 12 The Settlement also indicated that SCE must procure at least 1,402 MW of CHP through

the CHP Procurement Processes by the end of the Initial Program Period (“MW Target”). SCE met its MW Target in the Initial Program Period, as outlined in SCE’s October 2015 Semi-Annual Report.

13 See D.15-06-028, OP 1.


Target SCE’s Revised

Second Program Period Target14

Quantities Procured from Tesoro Agreement

Toward SCE’s Settlement Target

GHG Emissions Reduction Target 1.22 MMT15 0.104875 MMT

In D.15-06-028, OP 12 states: “Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company shall consider all renewable-fueled and bottoming-cycle Combined Heat and Power facilities ‘new’ and treated as a ‘GHG Credit’ instead of ‘Neutral,’ for Settlement greenhouse gas accounting purposes only.”16

D.15-06-028 also limits the attribution of GHG emissions associated with electricity from a bottoming-cycle facility to only the supplemental firing used, because no new fuel is used during the production process.17 Because the Wilmington QF does not utilize supplemental firing in the electric generation process, there are no GHG emissions associated with its electric output. Thus, all output counts towards SCE’s GHG Target as a credit in accordance with the Settlement. See Confidential Appendix A for additional details about the GHG calculation.

EMISSIONS PERFORMANCE STANDARD

Pursuant to D.07-01-039, the EPS is applicable to “covered procurement,” meaning long-term financial commitments, such as an electricity contract with a term of five years or more, for “baseload generation.” While the Wilmington QF is expected to have an annualized capacity factor of over 60%, qualifying it as “baseload generation,”18 the Agreement has a term of less than five years, and is therefore not a “long-term financial commitment.”19 Because of this, the Agreement is not a “covered procurement” and not subject to the EPS requirements. Regardless of whether the Agreement is subject to the EPS requirements, as previously described, the bottoming-cycle facility uses only waste heat from an existing industrial process, with no extra fuel consumed in the electric generation process. Thus, the emissions rate of the Wilmington QF is 0 lbs per MWh. The maximum allowable emissions rate for the EPS is 1,100 lbs per MWh.20

14 The second program period runs from November 24, 2015 to December 31, 2020. 15 MMT = million metric tonnes. 16 D.15-06-028, OP 12. 17 See id., at p. 3. 18 D.07-01-039 at p. 4; Publ. Util. Code § 8340 (a). 19 D.07-01-039 at p. 4; Publ. Util. Code § 8340 (j). 20 D.07-01-039, Finding of Fact No. 57.


COST ALLOCATION MECHANISM (“CAM”) GROUP PARTICIPATION

The Settlement authorizes the utilities to enter into contracts for CHP resources and to recover the net costs of the resources from all bundled service customers, direct access (“DA”) customers, and community choice aggregation (“CCA”) customers, and others.

SCE’s CAM Group includes representatives from various divisions within the Commission, the Office of Ratepayer Advocates, The Utility Reform Network, California Utility Employees, the Union of Concerned Scientists, the California Department of Water Resources, and certain non-wholesale market participant representatives from bundled service, DA and CCA customers.

SCE consulted with its CAM Group regarding the Tesoro Agreement on December 2, 2015.

INDEPENDENT EVALUATOR (IE)

SCE engaged Merrimack Energy Group, Inc. (“Merrimack Energy”) to act as the IE for its CHP RFO 3 and related Settlement procurement activities. Although not required by the Settlement, SCE engaged Merrimack Energy as the IE for the evaluation of this bilateral agreement. Merrimack Energy was copied on exchanges of all key documents and was present at the epRMC meeting. Merrimack Energy also served as an independent third party reviewer of all material related to Tesoro’s bilateral offer, and has reviewed SCE’s valuation methodology for the Tesoro offer. Merrimack Energy’s IE report is found in Public Appendix F-1 (public version) and Confidential Appendix F-2 (confidential version).

CONFIDENTIALITY

In accordance with D. 91-05-007, D. 06-06-066, D. 08-04-023, D. 11-07-028 and General Order (GO) 96-B, SCE requests confidential treatment of the material in the confidential appendices as set forth below.

Confidential Appendix A: Offer Evaluation Methodology

Confidential Appendix B: Agreement

Confidential Appendix C: Agreement Summary

Confidential Appendix D Comparison of Agreement with SCE’s CHP Pro Forma PPA

Confidential Appendix E: Seller-Submitted Safety Documentation

Public Appendix F-1/ Confidential Appendix F-2: Independent Evaluator Report


Public Appendix G: Confidentiality Declaration

Public Appendix H: Proposed Non-Disclosure Agreement

The confidential material in this Advice Letter will be made available to non-market participants in accordance with and upon execution of SCE’s Proposed Non-Disclosure Agreement (“NDA”). Parties wishing to obtain access to the confidential material of this Advice Letter may contact Nathan Hardy in SCE’s Law Department at [email protected] to obtain an NDA.

The information in this Advice Letter for which SCE requests confidential treatment, and the length of time it should remain confidential, are provided in Public Appendix G. This information is entitled to confidentiality protection, as provided in the IOU Matrix, pursuant to D. 06-06-066. The specific provisions of the IOU Matrix that apply to the confidential information in this Advice Letter are identified in Public Appendix G.

REQUEST FOR COMMISSION APPROVAL

Commission approval is a condition precedent of the Agreement. SCE therefore requests that the Commission issue a final and non-appealable resolution containing:

1. Approval of the Agreement in its entirety;

2. A finding that the Agreement, and SCE’s entry into the Agreement, is reasonable and prudent for all purposes, subject only to further review with respect to the reasonableness of SCE’s administration of the Agreement;

3. A finding that the 34 MW associated with the Agreement applies toward SCE’s

procurement target of 1,402 MW of CHP capacity, as established by the QF/CHP Program;21

4. A finding that the 0.104875 MMT of GHG emissions reductions associated with the Agreement applies toward SCE’s GHG Target;

5. A finding that the Agreement is not subject to EPS compliance;

21 While SCE has executed CHP agreements with sufficient countable CHP MW to meet

SCE’s Initial Program Period MW Target, SCE still has one outstanding advice letter seeking approval of an agreement with countable MW from the Initial Program Period (Advice 3254-E). SCE requests that MW from this Agreement count towards SCE’s MW Target in case SCE does not receive approval of Advice 3254-E. The Wilmington QF is listed as log number 2015 in SCE’s January 2000 Cogeneration and Small Power Production Report with a contract nameplate of 34 MW. Accordingly, the Agreement contributes 34 MW toward SCE’s MW Target.


6. A finding that SCE’s costs under the Agreement shall be recovered through SCE’s CAM; and

7. Any other relief the Commission finds just and reasonable. SCE asks the Commission to approve the Agreement within 180 days to meet the requirements of the contract.

TIER DESIGNATION

Pursuant to Section 4.10.2 of the Settlement, which provides that “IOUs will utilize a Tier 3 Advice Letter for all other PPAs (new, repowering, or existing PPAs that contain any material modification of the PPAs approved in this Settlement),” SCE submits this Advice Letter with a Tier 3 designation.

EFFECTIVE DATE

This Advice Letter will become effective upon Commission approval.

NOTICE

Anyone wishing to protest this advice filing may do so by letter via U.S. Mail, facsimile, or electronically, any of which must be received no later than 20 days after the date of this advice filing. Protests should be submitted to:

California Public Utilities Commission, Energy Division Attention: Tariff Unit 505 Van Ness Avenue San Francisco, California 94102 E-mail: [email protected]

California Public Utilities Commission, Energy Division Attn: Noel Crisostomo 505 Van Ness Avenue San Francisco, California 94102 E-mail: [email protected]

In addition, protests and all other correspondence regarding this advice letter should also be sent by letter and transmitted via facsimile or electronically to the attention of:

Russell G. Worden Managing Director, State Regulatory Operations Southern California Edison Company 8631 Rush Street Rosemead, California 91770 Facsimile: (626) 302-4829 E-mail: [email protected]


Michael R. Hoover Director, State Regulatory Affairs Southern California Edison Company c/o Karyn Gansecki

601 Van Ness Avenue, Suite 2030 San Francisco, California 94102 Facsimile: (415) 929-5544 E-mail: [email protected]

With a copy to: Nathan Hardy Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3rd Floor Rosemead, CA 91770 Facsimile: (626) 302-1926 E-mail: [email protected] There are no restrictions on who may file a protest, but the protest shall set forth specifically the grounds upon which it is based and must be received by the deadline shown above.

In accordance with General Rule 4 of GO 96-B, SCE is serving copies of this advice filing to the interested parties shown on the attached GO 96-B, R.13-12-010, and A.08-11-001 et al service lists. Address change requests to the GO 96-B service list should be directed by electronic mail to [email protected] or at (626) 302-3719. For changes to all other service lists, please contact the Commission’s Process Office at (415) 703-2021 or by electronic mail at [email protected].

Further, in accordance with Public Utilities Code Section 491, notice to the public is hereby given by filing and keeping the advice filing at SCE’s corporate headquarters. To view other SCE advice letters filed with the Commission, log on to SCE’s web site at https://www.sce.com/wps/portal/home/regulatory/advice-letters.

For questions, please contact Dawn Anaiscourt at (415) 929-5518 or by electronic mail at [email protected].


/s/ Russell G. Worden

Russell G. Worden RGW:ks:cm Enclosures

CALIFORNIA PUBLIC UTILITIES COMMISSION

ADVICE LETTER FILING SUMMARY ENERGY UTILITY

MUST BE COMPLETED BY UTILITY (Attach additional pages as needed)

Company name/CPUC Utility No.: Southern California Edison Company (U 338-E)

Utility type: Contact Person: Darrah Morgan

ELC GAS Phone #: (626) 302-2086

PLC HEAT WATER E-mail: [email protected]

E-mail Disposition Notice to: [email protected]

EXPLANATION OF UTILITY TYPE

ELC = Electric GAS = Gas PLC = Pipeline HEAT = Heat WATER = Water

(Date Filed/ Received Stamp by CPUC)

Advice Letter (AL) #: 3372-E Tier Designation: 3

Subject of AL: Submission of Agreement Between Southern California Edison Company and Tesoro Refining & Marketing Company LLC

Keywords (choose from CPUC listing): Compliance, Agreements, Procurement

AL filing type: Monthly Quarterly Annual One-Time Other

If AL filed in compliance with a Commission order, indicate relevant Decision/Resolution #:

Does AL replace a withdrawn or rejected AL? If so, identify the prior AL:

Summarize differences between the AL and the prior withdrawn or rejected AL:

Confidential treatment requested? Yes No See Appendix H

If yes, specification of confidential information: Confidential information will be made available to appropriate parties who execute a nondisclosure agreement. Name and contact information to request nondisclosure agreement/access to confidential information:

Nathan Hardy, Law Department, (626) 302-6986 or [email protected]

Resolution Required? Yes No

Requested effective date: Upon Commission Approval

No. of tariff sheets: -0-

Estimated system annual revenue effect: (%):

Estimated system average rate effect (%):

When rates are affected by AL, include attachment in AL showing average rate effects on customer classes (residential, small commercial, large C/I, agricultural, lighting).

Tariff schedules affected: N/A

Service affected and changes proposed1:

Pending advice letters that revise the same tariff sheets: None

1 Discuss in AL if more space is needed.

Protests and all other correspondence regarding this AL are due no later than 20 days after the date of this filing, unless otherwise authorized by the Commission, and shall be sent to:

CPUC, Energy Division Attention: Tariff Unit 505 Van Ness Avenue San Francisco, California 94102

E-mail: [email protected]

Russell G. Worden Managing Director, State Regulatory Operations Southern California Edison Company 8631 Rush Street Rosemead, California 91770 Facsimile: (626) 302-4829 E-mail: [email protected] Michael R. Hoover Director, State Regulatory Affairs c/o Karyn Gansecki Southern California Edison Company 601 Van Ness Avenue, Suite 2030 San Francisco, California 94102 Facsimile: (415) 929-5544 E-mail: [email protected] With a copy to:

Nathan Hardy, Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3rd Floor Rosemead, CA 91770 Facsimile: (626) 302-1926 E-mail: [email protected]

CONFIDENTIAL Appendix A

Offer Evaluation Methodology

Confidential Protected Materials – Public Disclosure Prohibited

CONFIDENTIAL Appendix B

Agreement


CONFIDENTIAL Appendix C

Agreement Summary


CONFIDENTIAL Appendix D

Comparison of Agreement with SCE’s CHP Pro Forma PPA


CONFIDENTIAL Appendix E

Seller-Submitted Safety Documentation


PUBLIC Appendix F-1

Independent Evaluator Report


Public Version


Bilateral Negotiation

and

Power Purchase Agreement with

Tesoro Marketing & Refining Company LLC

February 2016

Prepared by Merrimack Energy Group, Inc.

and

New Energy Opportunities, Inc.

MMMerrimack

Energy

Merrimack Energy Group, Inc. 1

Table of Contents

I. Introduction and Executive Summary………….…………………………….……..…2 II. The Wilmington Facility, the PPA Negotiations and the Terms of the Tesoro PPA…5 III. The Role of the Independent Evaluator……………………………….……………..8 IV. The Reasonableness of SCE’s Decision to Bilaterally Negotiate the Tesoro PPA…10 VI. Countability of GHG Reductions Under the CHP Settlement……………………...11 VII. Does the Tesoro PPA Merit Commission Approval?.........……………………..…12


I. Introduction and Executive Summary

A. Executive Summary

Effective December 30, 2015, Southern California Edison Company (“SCE”) executed a power purchase agreement (“PPA”) with Tesoro Refining & Marketing Company LLC (“Tesoro”) for the purchase of as-available capacity and energy from Tesoro’s existing 34 MW bottoming cycle combined heat and power generation facility (“Wilmington Facility”). The Wilmington Facility obtains waste heat as its energy input from the Wilmington Calciner, both of which are located at the Wilmington refinery in Los Angeles County, California. The PPA with Tesoro (“Tesoro PPA”) has a contract term commencing on the later of (a) January 1, 2017 or (b) the first day of the calendar month following the 90th day after CPUC approval of the PPA (or an earlier date as agreed by the parties). The contract term is for 48 months;

The Tesoro PPA was entered into pursuant to a bilateral contract negotiation that

began several months after the conclusion of SCE’s third CHP Request for Offers (“CHP RFO”) conducted pursuant to the “Qualifying Facility and Combined Heat and Power Program Settlement Agreement” (“CHP Settlement” or “Settlement Agreement”). Bilaterally negotiated contracts are allowable under the terms of the CHP Settlement, with resulting PPAs subject to approval of the California Public Utilities Commission (“CPUC” or “Commission”).1 The CHP Settlement had been negotiated by SCE and the two other major investor-owned utilities (“IOUs”) in California, four advocacy groups for combined heat and power (“CHP”)/qualifying facilities (“QFs”) and other independent generators and two ratepayer advocacy organizations.2 Necessary regulatory approvals were received from the CPUC in Decision 10-12-035 and subsequent orders3 and the Federal Energy Regulatory Commission (“FERC”),4 with FERC granting an application to terminate the California IOU’s mandatory purchase obligation with respect to QFs in excess of 20 MW pursuant to

1 See Settlement Agreement §§ 4.3.1, 4.10.2. 2 The parties to the CHP Settlement were SCE, Pacific Gas and Electric Company, San Diego Gas & Electric Company, Independent Energy Producers Association, Cogeneration Association of California, California Cogeneration Association, Energy Producers and Users Coalition, The Utility Reform Network, and the Division of Ratepayer Advocates. 3 Decision Adopting Proposed Settlement, D.10-12-035 (December 21, 2010), Decision Granting Petition to Modify Decision 10-12-035, D. 11-07-010 (July 15, 2011), Decision Granting, In Part, Petition to Modify Decision 11-07-010 and Request to Establish a Settlement Agreement Effective Date and Grant Motion for Closure, D. 11-10-016 (October 11, 2011), Order Dismissing Application for Rehearing of Decision 10-12-035 (October 18, 2011), and Order Denying Rehearing of Decision 10-12-035 On Certain Issues Raised by the City and County of San Francisco (October 24, 2011).. 4 Order Granting Application to Terminate Purchase Obligation, 135 FERC ¶ 61,234 (June 16, 2011).


section 201(m) of the Public Utility Regulatory Policies Act of 1978 (“PURPA”).5 The Settlement became effective on November 23, 2011 (“Settlement Effective Date”).6 Under the Settlement Agreement, SCE had a MW target to enter into PPAs with qualifying CHP projects of 1,402 MW before the end of the Initial Program Period, which concluded on November 23, 2015.7 According to SCE, the Company has met its MW target, subject to Commission approval of a 46 MW PPA with Coalinga Cogeneration Company that was entered into in connection with SCE’s third (2014) CHP RFO. The other target for SCE under the Settlement Agreement is to achieve a specified amount of greenhouse gas (“GHG”) reductions by December 31, 2020. The original target was 2.17 million metric tons (“MMT”) of GHG reductions, but the GHG target was adjusted (pursuant to a provision in the Settlement Agreement)8 to 1.22 MMT in a June 2015 Commission decision in the Long-Term Procurement Planning docket.9 As of the time of the decision, SCE had achieved 0.74 MMT in GHG reductions; hence, SCE’s remaining GHG target was 0.48 MMT.10 Also, in the same decision, the Commission made changes to the GHG reduction accounting rules for the Second Program Period:

1. Efficient existing facilities (creating lower GHG emissions relative to the “double benchmark” of an 80% efficient boiler and a heat rate of 8,300 Btu/kWh) will be treated as creating a GHG credit;

2. Renewable-fueled and bottoming-cycle CHP facilities will be treated as “new” facilities for GHG accounting purposes, with expected GHG emissions below the double benchmark treated as creating a GHG credit.

The Wilmington Facility is an existing bottoming-cycle CHP facility. The heat source for the Wilmington Facility is hot flue gas from Tesoro’s industrial process that refines petroleum byproducts into petroleum coke. The waste heat from the rotating kiln is recovered in a waste heat boiler that generates steam for use in a turbine generator, which generates electricity. The major components of the Wilmington Facility include the waste heat boiler, a General Electric steam turbine, and a General Electric generator with a nameplate rating of 35,800 kVA.

5 16 U.S.C. § 824a-3(m) (2006). 6 The CPUC’s orders of approval became final and non-appealable 30 days after the issuance on October 24, 2011 of the CPUC’s Order Denying Rehearing of Decision 10-12-035 On Certain Issues Raised by the City and County of San Francisco. 7 Settlement Agreement § 2.2. 8 See Settlement Agreement §§ 2.3.2.3, 6.2. 9 Decision on Combined Heat and Power Procurement Matters, D. 15-06-028 (June 15, 2015) at 21. 10 According to SCE, SCE’s remaining GHG Target as of the February 15, 2016, is 0.57 MMT due to the fall-out and addition of several PPAs that were either not captured by D.15-06-028 or approved after the issuance of D.15-06-028.


Under the rules set by the Commission for the Second Program Period, the Wilmington Facility, as an existing bottoming-cycle facility, can provide substantial GHG reduction savings. SCE’s estimated GHG reductions attributable to the Tesoro PPA are 104,875 MT, 22 percent of SCE’s target listed in D.15-06-028 of 480,000 MT.11

Under the Settlement Agreement, either the utility or the CHP seller may elect to use an Independent Evaluator (“IE”) to oversee a bilateral PPA negotiation.12 SCE retained Merrimack Energy Group, Inc. (“Merrimack Energy”) to serve as IE, which entails the submission of a report to the Commission if the negotiations result in a PPA.13 The purpose of this report is (a) to communicate the results of the IE’s oversight of the SCE-Tesoro bilateral negotiations and (b) to assess the fairness and reasonableness of the negotiations, the terms and conditions of the resulting Tesoro PPA, the eligibility of the claimed GHG emissions reductions under the Settlement Agreement and Commission precedents, and SCE’s decision to move forward to execute the PPA with Tesoro, rather than to defer action and allow Tesoro to participate in SCE’s upcoming fourth CHP RFO. It is the IE’s assessment that under the circumstances it was reasonable for SCE to move forward with Tesoro and that the bilaterally negotiated PPA helps to meet SCE’s remaining GHG reduction target at a reasonable price by providing approximately 105,000 MT of GHG emissions reductions—assuming that the Commission finds the transaction acceptable under its interpretation of the Settlement Agreement. The Tesoro PPA and the

11 This is 18% of SCE’s remaining target as of February 15, 2016, of 0.57 MMT. See note 10. 12 Settlement Agreement § 4.3.2. 13 New Energy Opportunities, Inc. has served as a subcontractor to Merrimack Energy in this engagement and for each of SCE’s CHP RFOs and for several other bilateral negotiated agreements under the Settlement Agreement.


associated GHG emissions reductions appear to fall within the rules set forth under the Settlement Agreement and the Commission’s decision in D. 015-06-028. B. Matters Addressed in This Report This report addresses the following matters:

A description of the Wilmington Facility, the Tesoro negotiations and key provisions of the Tesoro PPA;

The role of the IE in general, and the IE’s oversight activities with respect to the Tesoro bilateral negotiations;

The reasonableness of SCE’s decision to conduct a bilateral negotiation with Tesoro and to execute a PPA in advance of the fourth CHP RFO;

The countability of the GHG emissions reductions under the Settlement Agreement;

Whether the Tesoro PPA merits Commission approval.

II. The Wilmington Facility, the PPA Negotiations and the Terms of the Tesoro PPA

A. Description of the Wilmington Facility The Wilmington Facility is a 34 MW (net) bottoming cycle cogeneration facility located at Tesoro’s Wilmington Refinery in Los Angeles County, California. The major equipment includes a waste heat boiler, condensor and a steam turbine generator. The thermal input into the Wilmington Facility is waste heat from the Tesoro Wilmington Calciner which uses petroleum coke (a byproduct of the oil refining process) and natural gas to produce anode grade calcined coke. Tesoro sells the calcined coke for use in the manufacture of aluminum and other industrial products. The Wilmington Facility is interconnected to SCE’s Carbogen Substation at distribution voltage of 12.47kV. Carbogen substation is in the SCE Hinson 66 kV system and connects to the CAISO at Hinson 220 kV. The Wilmington Facility and surrounding refinery facilities have undergone an ownership transformation in recent years. In June 2013, Tesoro acquired ownership in the Wilmington Facility from BP.14 Tesoro also acquired the adjoining Carson Refinery from

14 http://www.bp.com/en/global/corporate/press/press-releases/bp-completes-sale-of-carson-refinery-and-southwest-u-s--retail-a.html. The owner of the Wilmington Facility is Tesoro Refining & Marketing Company LLC, which is a wholly-owned subsidiary of Tesoro Corporation.


BP as part of the same transaction. In 2014, Tesoro proposed to integrate the Wilmington refinery (acquired before 2013) and Carson refinery operations (and associated facilities) in the Los Angeles Refinery Integration and Compliance (“LARIC”) project, which is subject to regulatory approval. The project is scheduled to be completed in mid-2017.15 B. Summary of the Tesoro-SCE Bilateral Negotiations

In SCE’s third CHP RFO, a seller whose offer had been accepted by SCE did not post the required development security, resulting in SCE’s termination of the PPA. This left SCE some MWs short of meeting its MW target under the Settlement Agreement. SCE contacted several bidders in the CHP RFO, including Tesoro, to see if there was interest in pursuing a bilateral negotiation. SCE was able to negotiate a contract with another project to meet its 1402 MW target.16

The executed PPA was effective as of December 30, 2015. C. Regulatory Approval Process

15 http://www.reuters.com/article/us-tesoro-projects-idUSKBN0TS1QR20151209. 16 According to SCE, the contract was entered into pursuant to AB 1613 with a CHP facility of less than 20 MW.


Section 4.10.1 of the Settlement Agreement provides that “IOUs will utilize a Tier 2 Advice Letter for Existing CHP Facilities that execute the CHP RFO Pro Forma PPA without material modification.” Tier 3 Advice Letters are to be used for all other agreements with a term of five years or more. SCE plans to file a Tier 3 Advice Letter for approval of the Tesoro PPA. D. Tesoro PPA Under the PPA, Tesoro has agreed to provide SCE with 31 MW of as-available contract capacity from the Wilmington Facility and approximately 238 annual GWh of baseload, non-dispatchable energy for the term of the agreement. The 2017 as-available contract price is

Key terms of the Tesoro PPA are summarized below: Contract Term (Section 1.01) Start Date Later of January 1, 2017 or first day of

calendar month following 90 days after CPUC approval

End Date 48 months after Term Start Date;

Type of Facility (Section 1.02(a),(c)) Existing CHP Facility—Bottoming Cycle Products Purchased (Section 1.02(d),(e))

(a) As-Available Capacity and (b) all electric energy produced by the Wilmington Facility net of station use

Delivery Point (Section 1.03) Hinson Substation As-Available Contract Capacity (Section 1.02(d))

31,000 kW (each month)


As-Available Contract Price ($ per kW-year) (Section 1.06(b))

Expected Term Year Energy Production (Section 1.02(e))

238,090,000 kWh

Responsibility for GHG Compliance (Section 1.06(d)) Energy Price (Exhibit D, Section 2)

Efficiency Rating (Section 1.02(f)) The Wilmington Facility is a bottoming-

cycle cogeneration facility without supplementary firing, and, as such, does not have an Efficiency Rating. If supplementary firing is used, the Efficiency Rating will comport with efficiency standards under federal law and otherwise applicable law.

Power Rating (Section 1.10) 34 MW Safety-Related Provisions (Section 3.07(h))

Prior to any construction activities at the Facility, Seller shall provide a report from an independent engineer certifying that Seller has a plan for safe construction.

III. The Role of the Independent Evaluator

A. Requirement for an Independent Evaluator Section 4.3.2 of the CHP Settlement Agreement allows the Buyer or the Seller to select an IE for a bilateral negotiation (an IE is required where the Seller is an affiliate of the Buyer). SCE selected Merrimack Energy as IE for the Tesoro bilateral negotiation. The role of IEs in California IOU procurement processes has evolved over the years. In 2004, the CPUC initially required the use of an IE by IOUs in resource solicitations where


there is an affiliated offeror (or offerors) or where the utility proposed to build a project under a turnkey contract that would ultimately be owned by the utility.17 The CPUC generally endorsed the guidelines issued by FERC for independent evaluation where an affiliate of the purchaser is a bidder in a competitive solicitation, but stated that the role of the IE would not be to make binding decisions on behalf of the utilities or administer the entire process.18 Instead, the IE would be consulted by the IOU, along with the Procurement Review Group (“PRG”) or, subsequently, and if applicable, the Cost Allocation Mechanism (“CAM”) group on the design, administration, and evaluation aspects of the competitive solicitation and issue a report on his/her findings. The CPUC decision indicated that IEs must be independent and free of conflicts of interest, have technical expertise and experience in the evaluation of power products, and be familiar with industry contracts and practices. From a process standpoint, the IOU could contract directly with the IE in consultation with its PRG, but the IE would coordinate with the Energy Division. In 2006, the CPUC required each IOU to retain an IE regarding all RFPs issued to purchase products to help meet Renewable Portfolio Standard obligations, regardless of whether there would be any utility-owned or affiliate-owned projects under consideration.19 This was extended to any long-term contract for new generation.20 In addition, the CPUC directed the IE for each RFP to provide reports on the entire bid, solicitation, evaluation and selection process. In 2007, the process for retaining IEs was substantially modified, with IOUs developing a pool of qualified IEs, subject to feedback and any recommendations from the IOU’s PRG and the Energy Division, an interview process for IE candidates, and final approval of IEs by the Energy Division.21 Under the CHP Settlement, an IE is required for each CHP RFO conducted by an IOU.22

B. Role of the IE As indicated previously, Merrimack Energy has served as IE for SCE’s first three CHP RFOs.23 With respect to these competitive solicitations, Merrimack Energy’s role has been to provide an independent evaluation of SCE’s RFO design, bid evaluation methodology and selection process, participate in meetings of SCE’s PRG and/or CAM groups, as applicable, review the solicitation results, and report on the entire process to the CPUC, with the objective of ensuring that the solicitation process is undertaken in a fair, consistent, unbiased and objective manner and that the best resources are selected consistent with the solicitation requirements and criteria. With regard to a bilateral CHP negotiation, the IE’s role would normally include the following:

17 D.04-12-048 (December 16, 2004). 18 Decision 04-12-048 at 129-37. The FERC guidelines are set forth in Ameren Energy Generating Company, 108 FERC ¶ 61,081 (June 29, 2004) and other decisions. 19 Decision 06-05-039 (May 25, 2006). 20 Decision 06-07-029 (July 21, 2006). 21 Decision 07-12-052 (December 21, 2007) at 136-140. 22 Settlement Agreement § 4.2.5.7. 23 Merrimack Energy was retained by SCE out of a pool of Independent Evaluators previously approved by SCE and the Energy Division consistent with the process set forth by the CPUC in Decision 07-12-052 (pp. 136-142.


Monitoring the PPA negotiation process to assess the fairness and reasonableness

of the IOU’s actions;

Consulting with the IOU on the advisability of the negotiation approach, countability of GHG emissions reductions and associated information needed to assess GHG emissions reductions under the Settlement Agreement, and the pros and cons of entering into a bilateral agreement rather than waiting to allow the Seller to submit an offer in the IOU’s next CHP RFO;

Reviewing the IOU’s economic analysis of the PPA;

Participating in internal IOU meetings and meetings of its CAM group;

Reporting on the outcome of the PPA negotiations in an IE report for inclusion in any Advice Letter filings to the CPUC.

In the case of the Tesoro bilateral negotiations, Merrimack Energy was asked to serve as IE in mid-November 2015, about five weeks after negotiations with Tesoro had commenced. Hence, Merrimack Energy did not have the opportunity to monitor some of the contract negotiations, although they were not extensive and Merrimack Energy did subsequently review all of the emails sent between Tesoro and SCE. Also, Merrimack Energy was not invited to attend the presentation SCE made to its CAM group on the transaction, which was an apparent inadvertent oversight on SCE’s part. Otherwise, Merrimack Energy did review the transaction and had the opportunity to review and advise on the economic analysis, the GHG emissions reductions pursuant to the accounting rules under the Settlement Agreement, and SCE’s decision to pursue a bilateral negotiation. Merrimack Energy attended by conference call SCE’s Energy Procurement Risk Management Committee meeting to review the transaction. All in all, Merrimack Energy believes that substantively it has had the ability to review and advise on the proposed transaction with Tesoro

IV. The Reasonableness of SCE’s Decision to Bilaterally Negotiate and Execute the Tesoro PPA

As a general matter, competitive solicitations are the preferred method to achieve procurement objectives for customers at the lowest reasonable cost. However, bilateral negotiations can be appropriate in a number of circumstances, such as when (a) an opportunity arises with results that are clearly superior to what could be expected in a competitive solicitation, (b) an opportunity arises that provides an acceptable result where there is a substantial risk that the project or project pricing will not be available for the next RFO, (c) the matter to be negotiated is so complex or unusual that it is difficult to manage in a competitive solicitation, or (d) there is a limited market for the next solicitation and


the bilateral offer is acceptable on its merits with respect to the current market and there is a substantial risk of higher prices in a future solicitation due to a declining qualifying supply and/or seller market power, which could result in higher prices. As indicated previously, the CHP Settlement specifically allows for bilateral negotiations as a valid procurement option.24 We address here the reasonableness of SCE’s decision to commence and conclude a bilaterally negotiated PPA with Tesoro. There are several reasons supporting the reasonableness of SCE pursuing and concluding the Tesoro transaction as a bilateral negotiation.

Hence, in the IE’s opinion, it was reasonable for SCE to pursue the Tesoro transaction as a bilateral negotiation.

V. Countability of GHG Reductions Under the CHP Settlement

In D. 15-06-028 (June 15, 2015), the Commission found that “The initial development of the GHG accounting methodology was primarily focused on natural gas-fired topping-cycle CHP facilities,” but “Renewable-fueled and bottoming-cycle CHP reduce GHG against the double benchmark in far greater magnitude than traditional topping-cycle CHP.”25 In consideration of the foregoing, the Commission decided that renewable-fueled and bottoming-cycle CHP facilities should be treated as “new” facilities for GHG accounting purposes under the CHP Settlement.26 Under the Settlement Agreement, New CHP Facilities are counted as providing a GHG credit to the extent emissions from anticipated operations are less than those based on the Double Benchmark, which is a heat rate for electricity generated at 8,300 BTU/kWh and a thermal efficiency (of a standard boiler) of 80 percent.27 SCE used the CHP reporting template developed by the Energy Division in calculating the GHG accounting for the Tesoro transaction. Since the Wilmington Facility uses waste heat as its sole input, and does not use supplementary firing using natural gas, it does not produce GHG emissions from a GHG accounting standpoint. The sole output is electricity 24 Settlement Agreement § 4.3.1. 25 Findings of Fact, 32, 33. 26 Conclusions of Law, 18. 27 Settlement Agreement §§ 7.2, 7.3.1.1.


generated—an estimated 238,090 MWh annually; there is no thermal output. To produce the same amount of electricity at an 8,300 BTU/kWh heat rate using natural gas as a fuel would result in GHG emissions of 104,875 MT of GHG emissions in a year. This is the amount of GHG reductions that SCE has calculated as being attributable to the Tesoro project. Merrimack Energy has reviewed SCE’s GHG calculations. They are, in the IE’s opinion, calculated correctly in accordance with D. 15-06-028 and the CHP Settlement, as applied in a literal manner. However, the GHG reductions will only be counted if the Commission approves the PPA.

VI. Does the Tesoro PPA Merit Commission Approval?

The metrics SCE uses to measure the economic efficiency of paying for GHG emissions reductions under the Settlement Agreement is $/MT in countable GHG reductions.

Moreover, 104,875 MT appreciably “moves the needle” in terms of SCE’s

ability to achieve its GHG reduction goal of 1,220,000 MT, of which an additional 480,000


MT were still needed as of June 2015. If the proposed transaction is approved, 22 percent of SCE’s remaining GHG target as listed in D.15-06-028 would be satisfied. 29

it appears that the proposed PPA and the claimed GHG emissions reductions are compliant with the Settlement Agreement as modified by the Commission’s June 2015 Decision on Combined Heat and Power Procurement Matters (D. 15-06-28).

Moreover, the Commission, in its June 2015 decision, recognized in reducing the GHG emissions target for the Second Program Period that other preferred technologies, such as renewable resources and efficiency, are reasonably likely to provider greater emissions reductions more cost-effectively than CHP, and that baseloaded CHP resources can contribute to the over-generation concern.31 The Commission also agreed with various parties’ expressions of “significant concerns about the cost-effectiveness of future CHP procurement.”32 These same concerns are also applicable, in the IE’s opinion, with respect to how the CHP program is administered.

Weighing the factors described above, Merrimack Energy supports Commission approval of the Tesoro PPA.

29 According to SCE, SCE’s remaining GHG Target as of the February 15, 2016, is 0.57 MMT. See Note 10. 30 31 D. 15-06-028, at 15-16. 32 Id. at 15.

CONFIDENTIAL Appendix F-2



PUBLIC Appendix G

Confidentiality Declaration

PUBLIC Appendix H

Proposed Non-Disclosure Agreement

1

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Submission of Agreement Between Southern California Edison Company and Tesoro Refining & Marketing Company LLC

) ) )

Advice 3372-E

[PROPOSED] PROTECTIVE ORDER

1. Scope. This Protective Order shall govern access to and the use of Protected

Materials, produced by, or on behalf of, any Disclosing Party (as defined in Paragraph 2 below)

in this proceeding.

2. Definitions

In addition to the terms defined and capitalized in other sections of this Protective Order,

the following terms are defined for the purposes of this Protective Order:

A. For purposes of this Protective Order, the term “Protected Materials”

means: (i) trade secret, market sensitive, or other confidential and/or proprietary information as

determined by the Disclosing Party in accordance with the provisions of Decision (“D.”) 06-06-

066 and subsequent decisions, including D.14-10-033 which governs the treatment of market

sensitive greenhouse gas data and information, General Order 66-C, Public Utilities Code section

454.5(g), or any other right of confidentiality provided by law; or (ii) any other materials that are

made subject to this Protective Order by the Assigned Administrative Law Judge (“Assigned

ALJ”), Law and Motion Administrative Law Judge (“Law and Motion ALJ”), Assigned

Commissioner, the California Public Utilities Commission (“Commission”), or any court or

other body having appropriate authority. Protected Materials also include memoranda,

handwritten notes, spreadsheets, computer files and reports, and any other form of information

(including information in electronic form) that copies, discloses, incorporates, includes or

2

compiles other Protected Materials or from which such materials may be derived (except that any

derivative materials must be separately shown to be confidential). Protected Materials do not

include: (i) any information or document contained in the public files of the Commission or any

other state or federal agency, or in any state or federal court; or (ii) any information that is public

knowledge, or which becomes public knowledge, other than through disclosure in violation of

this Protective Order or any other nondisclosure agreement or protective order.

B. The term “redacted” refers to situations in which Protected Material in a

document, whether the document is in paper or electronic form, have been covered, blocked out,

or removed.

C. The term “Disclosing Party” means a party who initially discloses any

specified Protected Material in this proceeding.

D. The term “Requesting Party” means any party that is requesting receipt of

Protected Material from a Disclosing Party.

E. The term “Party” refers to the Requesting Party or the Disclosing Party

and the term “Parties” refers to both the Requesting Party and the Disclosing Party.

F. The term “Market Participant” refers to a Requesting Party that is:

1) A person or entity, or an employee of an entity, that engages in the wholesale purchase, sale or marketing of energy or capacity, or the bidding on or purchasing of power plants, or bidding on utility procurement solicitations, or consulting on such matters, subject to the limitations in 3) below.

2) A trade association or similar organization, or an employee of such organization,

a) whose primary focus in proceedings at the Commission is to advocate for persons/entities that purchase, sell or market energy or capacity at wholesale; bid on, own, or purchase power plants; or bid on utility procurement solicitations; or

b) a majority of whose members purchase, sell or market energy

3

or capacity at wholesale; bid on, own, or purchase power plants; or bid on utility procurement solicitations; or

c) formed for the purpose of obtaining Protected Materials; or

d) controlled or primarily funded by a person or entity whose primary purpose is to purchase, sell or market energy or capacity at wholesale; bid on, own, or purchase power plants; or bid on utility procurement solicitations.

3) A person or entity that meets the criteria of 1) above is not a Market Participant for purpose of access to Protected Materials unless the person/entity seeking access to Protected Materials has the potential to materially affect the price paid or received for electricity if in possession of such information. An entity will be considered not to have such potential if:

a) the person or entity’s participation in the California electricity market is de minimis in nature. In the resource adequacy proceeding (R.05-12-013) it was determined in D.06-06-064 § 3.3.2 that the resource adequacy requirement should be rounded to the nearest megawatt (MW), and load serving entities (LSEs) with local resource adequacy requirements less than 1 MW are not required to make a showing. Therefore, a de minimis amount of energy would be less than 1 MW of capacity per year, and/or an equivalent of energy; and/or

b) the person or entity has no ability to dictate the price of electricity it purchases or sells because such price is set by a process over which the person or entity has no control, i.e., where the prices for power put to the grid are completely overseen by the Commission, such as subject to a standard offer contract or tariff price. A person or entity that currently has no ability to dictate the price of electricity it purchases or sells under this section, but that will have such ability within one year because its contract is expiring or other circumstances are changing, does not meet this exception; and/or

c) the person or entity is a cogenerator that consumes all the power it generates in its own industrial and commercial processes, if it can establish a legitimate need for Protected Materials.

4

G. The term “Non-Market Participant” refers to a Requesting Party that does

not meet the definition of Market Participant. The California Independent System Operator is

deemed a Non-Market Participant for purposes of this Protective Order.

H. “Reviewing Representatives” are limited to person(s) designated in

accordance with Paragraph 5 who meet the following criteria:

1) Reviewing Representatives may not currently be engaged in: (a) a transaction for the purchase, sale, or marketing at wholesale of electrical energy or capacity or natural gas (or the direct supervision of any employee(s) engagement in such a transaction); (b) the bidding on or purchasing of power plants (or the direct supervision of any employee(s) engagement in such a transaction); or (c) knowingly providing electricity or gas marketing consulting or advisory services to others in connection with a transaction for the purchase, sale, or marketing at wholesale of electrical energy or capacity or natural gas or the bidding on or purchasing of power plants (or the direct supervision of any employee(s) engagement in such a transaction or consulting).

2) Reviewing Representatives may not be an employee of a Market Participant. If the Market Participant or Non-Market Participant chooses to retain outside attorneys, consultants, or experts in the same law firm or consulting firm to provide advice in connection with marketing activities, then the attorney, consultant, or expert serving as a Reviewing Representative must be separated by an ethics wall consistent with the ethics wall requirements in D.11-07-028, as that decision may be subsequently modified or changed by the Commission, from those in the firm who are involved in wholesale commercial dealings.

3) Reviewing Representatives shall use Protected Materials only for the purpose of participating in the Commission proceeding in which they received the information.

4) Reviewing Representatives are permitted to participate in regulatory proceedings on behalf of Market Participants and Non-Market Participants.

5) All Reviewing Representatives are required to execute the Nondisclosure Certificate attached to this Protective Order and are bound by the terms of this Protective Order.

5

I. The term “Authorized Reviewers” refers to: (1) a Requesting Party that is

a Non-Market Participant; or (2) a Reviewing Representative of a Requesting Party. A

Requesting Party that is a Market Participant is not an Authorized Reviewer but it may designate

a Reviewing Representative in accordance with Paragraph 5.

J. The term “Nondisclosure Certificate” refers to the Nondisclosure

Certificate attached as Appendix A.

3. Designation, Filing, and Service of Protected Materials.

When filing or providing in discovery any documents or items containing Protected

Materials, a party shall physically mark such documents (or in the case of non-documentary

materials such as computer diskettes, on each item) as “PROTECTED MATERIALS SUBJECT

TO PROTECTIVE ORDER,” or with words of similar import as long as one or more of the

terms “Protected Materials” or “Protective Order” is included in the designation to indicate that

the materials in question are Protected Materials. All materials so designated shall be treated as

Protected Materials unless and until: (a) the designation is withdrawn pursuant to Paragraph 14

hereof; (b) an Assigned ALJ, Law and Motion ALJ, Assigned Commissioner, or the Commission

makes a determination that: (i) the document does not contain Protected Materials or does not

warrant confidential treatment or (ii) denies a motion to file the document under seal; or (c) the

document or information becomes public knowledge, other than through disclosure in violation

of this Protective Order or any other nondisclosure agreement or protective order. However, the

Disclosing Party has the burden of showing that the documents are Protected Materials, and

merely marking a document “Protected Materials” is insufficient to meet that burden.

All documents containing Protected Materials that are tendered for filing with the

Commission shall be placed in sealed envelopes or otherwise appropriately protected and shall

be tendered with a motion to file the document under seal pursuant to Rule 11.4 of the

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Commission’s Rules of Practice and Procedure. All documents containing Protected Materials

that are served on parties in a proceeding shall be placed in sealed envelopes or otherwise

appropriately protected and shall be endorsed to the effect that they are served under seal

pursuant to this Protective Order. Such documents shall only be served upon Authorized

Reviewers and persons employed by or working on behalf of the Commission. Service upon

Authorized Reviewers and persons employed by or working on behalf of the Commission may

either be: (a) by electronic mail in accordance with the procedures adopted in this proceeding;

(b) by facsimile; or (c) by overnight mail or messenger service. Whenever service of a document

containing Protected Materials is made by overnight mail or messenger service, the Assigned

ALJ shall be served with such document by the same means and at the same time.

4. Redaction of Documents. Whenever a Party files, serves or provides in discovery

a document that includes Protected Materials (including but not limited to briefs, testimony,

exhibits, and responses to data requests), such Party shall also prepare a redacted version of such

document. The redacted version shall enable persons familiar with this proceeding to determine

with reasonable certainty the nature of the data that has been redacted and where the redactions

occurred. The redacted version of a document to be filed shall be served on all persons on the

service list, and the redacted version of a discovery document shall be served on all persons

entitled thereto.

5. Designation of Reviewing Representatives. The Requesting Party shall provide

written notice identifying its proposed Reviewing Representative(s) to the Disclosing Party

before the Disclosing Party provides any Protected Materials to the Requesting Party’s

Authorized Reviewers. The written notice shall include the information identified in this

paragraph. If the Requesting Party decides to designate any additional Reviewing

Representative(s) after the Requesting Party’s Authorized Reviewers receive Protected

7

Materials, the Requesting Party shall identify the additional proposed Reviewing

Representative(s) to the Disclosing Party before the Requesting Party provides Protected

Materials to the additional Reviewing Representative(s). Within five (5) business days after

receiving written notice of the identity of any Reviewing Representative, the Disclosing Party

may provide the Requesting Party with a written objection to a specific Reviewing

Representative stating the grounds for the objection. Any dispute concerning whether an

identified person or entity is an appropriate Reviewing Representative shall be resolved through

the dispute resolution procedures in Paragraph 11 of this Protective Order. If a Disclosing Party

objects to a specific Reviewing Representative within five (5) business days after the Reviewing

Representative is identified, the Parties shall not provide any Protected Materials to the disputed

Reviewing Representative until the Parties are able to resolve the dispute consistent with the

dispute resolution procedures in Paragraph 11. Failure by the Disclosing Party to object within

five (5) business days does not waive the Disclosing Party’s right to later object to the Reviewing

Representative, even if Protected Materials has already been disclosed. However, further

disclosure of Protected Materials would be stayed until the parties are able to resolve the dispute

consistent with the dispute resolution procedures in Paragraph 11.

Reviewing Representative(s) have a duty to disclose to the Disclosing Party any potential

conflict of interest that puts the Reviewing Representative in violation of D.06-12-030, as

modified by subsequent decisions of the Commission. A resume or curriculum vitae is

reasonable disclosure of such potential conflicts, and should be the default evidence provided in

most cases.

6. Nondisclosure Certificates. A Reviewing Representative shall not inspect,

participate in discussions regarding, or otherwise be granted access to, Protected Materials unless

and until he or she has first completed and executed a Nondisclosure Certificate, attached hereto

8

as Appendix A, and delivered the signed Nondisclosure Certificate to the Disclosing Party. The

Disclosing Party shall retain the executed Nondisclosure Certificates pertaining to the Protected

Materials it has disclosed and shall promptly provide copies of the Nondisclosure Certificates to

Commission Staff upon request.

7. Access to Protected Materials and Use of Protected Materials. Subject to the

terms of this Protective Order, Authorized Reviewers shall be entitled to access any Protected

Materials and may make copies of Protected Materials, but such copies become Protected

Materials. Authorized Reviewers may make notes of Protected Materials, which shall be treated

as Protected Materials if such notes disclose any Protected Materials. Protected Materials

obtained by a Party in this proceeding may also be requested by that Party in a subsequent

Commission proceeding, subject to the terms of any nondisclosure agreement or protective order

governing that subsequent proceeding, without constituting a violation of this Protective Order.

8. Maintaining Confidentiality of Protected Materials. Each Authorized Reviewer

shall treat Protected Materials as confidential in accordance with this Protective Order and the

Nondisclosure Certificate. Protected Materials shall not be used except as necessary for

participation in this proceeding, and shall not be disclosed in any manner to any person except:

(i) Authorized Reviewers; (ii) an Authorized Reviewer’s employees and administrative

personnel, such as clerks, secretaries, and word processors, to the extent necessary to assist the

Authorized Reviewer, provided that they shall first ensure that such personnel are familiar with

the terms of this Protective Order and have signed a Nondisclosure Certificate; and (iii) persons

employed by or working on behalf of the Commission. Authorized Reviewers shall adopt

suitable measures to maintain the confidentiality of Protected Materials they have obtained

pursuant to this Protective Order, and shall treat such Protected Materials in the same manner as

they treat their own most highly confidential information.

9

Authorized Reviewers shall be liable for any unauthorized disclosure or use by

themselves and/or employees, paralegals, or administrative staff. In the event any Authorized

Reviewer is requested or required by applicable laws or regulations, or in the course of

administrative or judicial proceedings (in response to oral questions, interrogatories, requests for

information or documents, subpoena, civil investigative demand or similar process) to disclose

any of Protected Materials, the Authorized Reviewer shall immediately inform the Disclosing

Party of the request, and the Disclosing Party may, at its sole discretion and cost, direct any

challenge or defense against the disclosure requirement, and the Authorized Reviewer shall

cooperate in good faith with such Party either to oppose the disclosure of the Protected Materials

consistent with applicable law, or to obtain confidential treatment of the Protected Materials by

the person or entity who wishes to receive them prior to any such disclosure. If there are

multiple requests for substantially similar Protected Materials in the same case or proceeding

where an Authorized Reviewer has been ordered to produce certain specific Protected Materials,

the Authorized Reviewer may, upon request for substantially similar materials by another person

or entity, respond in a manner consistent with that order to those substantially similar requests.

9. Return or Destruction of Protected Materials. Protected Materials shall remain

available to Authorized Reviewers until an order terminating this proceeding becomes no longer

subject to judicial review. If requested to do so in writing after that date, the Authorized

Reviewers shall, within fifteen days after such request, return the Protected Materials to the

Disclosing Party that produced such Protected Materials, or shall destroy the materials, except

that copies of filings, official transcripts and exhibits in this proceeding that contain Protected

Materials, and notes of Protected Materials may be retained, if such Protected Materials are

maintained in accordance with Paragraph 8. Within such time period each Authorized Reviewer,

if requested to do so, shall also submit to the Disclosing Party an affidavit stating that, to the best

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of its knowledge, all Protected Materials have been returned or have been destroyed or will be

maintained in accordance with Paragraph 8. To the extent Protected Materials are not returned

or destroyed, they shall remain subject to this Protective Order.

In the event that a Reviewing Representative to whom Protected Materials are disclosed

ceases to be engaged to provide services in this proceeding, then access to such materials by that

person shall be terminated and the Reviewing Representative shall immediately return or destroy

all Protected Materials, or provide an affidavit stating that all Protected Materials and all notes of

Protected Materials will be maintained in accordance with Paragraph 8. Even if a Reviewing

Representative is no longer engaged in this proceeding, every such person shall continue to be

bound by the provisions of this Protective Order and the Nondisclosure Certificate.

10. Access and Use by Governmental Entities.

A. In the event the Commission receives a request from the California Energy

Commission (“CEC”) for a copy of or access to any Party’s Protected Materials, the procedure

for handling such requests shall be as follows. Not less than five (5) business days after

delivering written notice to the Disclosing Party of the request, the Commission shall release

such Protected Materials to the CEC upon receipt from the CEC of an Interagency Information

Request and Confidentiality Agreement (“Interagency Confidentiality Agreement”). Such

Interagency Confidentiality Agreement shall: (i) provide that the CEC will treat the requested

Protected Materials as confidential in accordance with this Protective Order; (ii) include an

explanation of the purpose for the CEC’s request, as well as an explanation of how the request

relates to furtherance of the CEC’s functions; (iii) be signed by a person authorized to bind the

CEC contractually; and (iv) expressly state that furnishing of the requested Protected Materials

to employees or representatives of the CEC does not, by itself, make such Protected Materials

public. In addition, the Interagency Confidentiality Agreement shall include an express

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acknowledgment of the Commission’s sole authority (subject to judicial review) to make the

determination whether the Protected Materials should remain confidential or be disclosed to the

public, notwithstanding any provision to the contrary in the statutes or regulations applicable to

the CEC.

B. In the event the Commission receives a request for a copy of or access to a

party’s Protected Materials from a state governmental agency other than the CEC that is

authorized to enter into a written agreement sufficient to satisfy the requirements for maintaining

confidentiality set forth in Government Code Section 6254.5(e), the Commission may, not less

than five (5) business days after giving written notice to the Disclosing Party of the request,

release such Protected Materials to the requesting governmental agency, upon receiving from the

requesting agency an executed Interagency Confidentiality Agreement that contains the same

provisions described in Paragraph 10.A above.

C. The CEC may use Protected Materials when needed to fulfill its statutory

responsibilities or cooperative agreements with the Commission. Commission confidentiality

designations will be maintained by the CEC in making such assessments, and the CEC will not

publish any assessment that directly reveals the data or allows the data submitted by an

individual load serving entity to be “reverse engineered.”

11. Dispute Resolution. All disputes that arise under this Protective Order, including

but not limited to alleged violations of this Protective Order and disputes concerning whether

materials were properly designated as Protected Materials, shall first be addressed by the parties

through a meet and confer process in an attempt to resolve such disputes. If the meet and confer

process is unsuccessful, either party may present the dispute for resolution to the Assigned ALJ

or the Law and Motion ALJ.

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12. Other Objections to Use or Disclosure. Nothing in this Protective Order shall be

construed as limiting the right of a Party, the Commission Staff, or a state governmental agency

covered by Paragraph 10 to object to the use or disclosure of Protected Materials on any legal

ground, including relevance or privilege.

13. Remedies. Any violation of this Protective Order shall constitute a violation of an

order of the Commission. Notwithstanding the foregoing, the parties and Commission Staff

reserve their rights to pursue any legal or equitable remedies that may be available in the event of

an actual or anticipated disclosure of Protected Materials.

14. Withdrawal of Designation. A Disclosing Party may agree at any time to remove

the “Protected Materials” designation from any materials of such Party if, in its opinion,

confidentiality protection is no longer required. In such a case, the Disclosing Party will notify

all Requesting Parties that the Disclosing Party has agreed to withdraw its designation of

Protected Materials for specific documents or material.

15. Modification. This Protective Order shall remain in effect unless and until it is

modified or terminated by the Commission or the Assigned ALJ. The identity of the parties

submitting Protected Materials may differ from time to time. In light of this situation,

modifications to this Protective Order may become necessary. The Parties shall work

cooperatively to develop such modifications and, to the extent the Parties are able to agree to

modifications, shall file a motion with the Assigned ALJ or the Commission seeking approval of

the modifications. To the extent Parties are unable to agree on modifications after a good faith

effort, each party governed by this Protective Order has the right to seek modifications in it as

appropriate from the Assigned ALJ or the Commission.

16. Interpretation. Headings are for convenience only and may not be used to restrict

the scope of this Protective Order.

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Entered: __________________________________

Administrative Law Judge

Date: __________________________________

APPENDIX A TO [PROPOSED] PROTECTIVE ORDER

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Submission of Agreement Between Southern California Edison Company and Tesoro Refining & Marketing Company LLC

) ) )

Advice 3372-E

NONDISCLOSURE CERTIFICATE

I hereby certify my understanding that access to Protected Materials is provided to me

pursuant to the terms and restrictions of the Protective Order in this proceeding, that I have been

given a copy of and have read the Protective Order, and that I agree to be bound by it. I

understand that the contents of the Protected Materials, any notes or other memoranda, or any

other form of information that copies or discloses Protected Materials shall not be disclosed to

anyone other than in accordance with that Protective Order. I acknowledge that a violation of

this certificate constitutes a violation of an order of California Public Utilities Commission. Signed: _______________________ Name ________________________ Title: _________________________ Organization: __________________ Dated: ________________________

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