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R.01-10-024 ALJ/JF2/eg3
TABLE OF CONTENTS
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TABLE OF CONTENTS
Con’t
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Summary
This decision denies the Protect Our Communities Foundation (POC)
petition for modification (PFM) of Decision (D.) 06-09-021 which approved a
revised power purchase agreement (PPA) of San Diego Gas & Electric Company
(SDG&E) for the Otay Mesa Energy Center (OMEC) Generating Plant, as well as
D.06-02-031, which approved the earlier version of the PPA.
This decision finds that the Commission could summarily dismiss the PFM
on the grounds of non-compliance with Rule 16.4 of the Commission’s Rules of
Practice and Procedure, since POC did not support its claim of changed
circumstances, nor was the filing of the PFM timely. However, we choose to
discuss the merits of the PFM as well, in order to affirm our support for the
importance of stability in contractual relationships that lead to electric
infrastructure to support California’s energy market. The OMEC PPA was
approved by the Commission in 2006 and the contract has led to the construction
and operation of a power plant. The Commission will not revisit the PPA more
than 12 years after its initial approval, based on broad and vague assertions of
changed circumstances by a party that was not involved in the original
proceeding. While the Commission may have the authority to modify its
decisions from time to time, it does so judiciously and with a high threshold even
under normal circumstances. For a party that is not a party to the contract, nor to
the original proceeding, the bar is even higher. POC has presented no evidence
that State law or Commission decisions require the abrogation of a portion of the
OMEC PPA, and its PFM is therefore denied.
This proceeding is closed.
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1. Background
In Decision 06-09-021, the Commission approved a ten-year power
purchase tolling agreement between San Diego Gas & Electric Company
(SDG&E) and the Otay Mesa Energy Center (OMEC).1 The approved contract
was revised from an earlier approved version (approved in D.06-02-031), and
included a Put Option and a Call Option, under which SDG&E would have the
opportunity to own and operate at set prices following the expiration of the
approved 10-year PPA.
1Calpine developed and operates OMEC through a wholly-owned subsidiary called OMEC,
LLC. We will refer to the two interchangeably in this decision.
2At the time of issuance of D.06-09-021, the prices of the options were confidential under the
Commission’s confidentiality rules, but have since been made public.
3 In D.06-09-021, at 5, footnote 2, the Commission explained that “Palomar is in SDG&E’s
service territory, is similar in size and type to Otay Mesa, and is a SDG&E owned asset.
Therefore, Palomar is a comparable asset against which to evaluate Otay Mesa.”
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Call Option is slightly higher than the Net Book Value for
Palomar in 2019, but SDG&E believes the price will be
significantly less than market alternatives available at that
time.
SDG&E has chosen not to exercise the Call Option, which has since
expired. If OMEC wishes to exercise its Put Option, it must provide notice to
SDG&E by no later than April 1, 2019.
On November 13, 2018, Protect Our Communities Foundation (POC) filed
a petition for modification (PFM) of D.06-09-021. POC seeks to modify the 2006
decision to remove Commission authorization for the exercise of the Put Option
by OMEC and to remove any future option for SDG&E to purchase OMEC.
POC argues that there have been far-reaching statutory changes regarding
energy procurement since 2006, and that OMEC exercising its Put Option would
violate the mandates of Senate Bill (SB) 350 (DeLeon, 2015), SB 100
(DeLeon, 2018), and other laws that express Legislative direction toward
reduction of greenhouse gases (GHG), decreasing reliance on fossil fuel
generation, decreasing power plant pollution, and increasing investment in
renewable resources in disadvantaged Communities.
POC also attached to its PFM a protest to SDG&E’s Advice Letter 3294-E,
filed on October 26, 2018. In the advice letter, SDG&E requests Commission
approval of a resource adequacy contract between SDG&E and OMEC that
would result in OMEC agreeing not to exercise its Put Option under the OMEC
PPA.
Responses to the POC PFM were filed on December 13, 2018 by SDG&E,
the Independent Energy Producers Association (IEP), and Calpine Corporation
and OMEC (jointly). All responses opposed the PFM filed by POC.
On January 4, 2019, POC filed a reply to the responses.
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4 All subsequent references to Rules in this decision refer to the Commission’s Rules of Practice
and Procedure, unless otherwise specified.
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Further, POC argues that the OMEC PPA is in conflict with current state
mandates to increase use of renewables and phase out fossil-fueled generation.
In particular, POC points to the portions of SB 350 that relate to the 50 percent
renewables portfolio standard (RPS) requirement, and the portions of SB 100 that
require compliance with GHG reduction requirements.
Finally, POC argues that the OMEC contract violates D.18-02-018 which
requires compliance with a GHG emissions target in 2030, among other things.
SDG&E, in its response, strongly disagrees with POC’s assertion that there
are changed facts and circumstances that justify abrogating the Put Option the
Commission approved in the OMEC contract. First, as a threshold matter,
SDG&E notes that POC failed to support any of its allegations of changed facts
with supporting declarations.
Second, SDG&E argues that the Commission is prohibited from
conducting an after-the-fact reasonableness review by Public Utilities (Pub. Util.)
Code Section 454.5(d)(2), which is how they characterize POC’s proposal. Third,
SDG&E argues that the agreement with OMEC does not violate any RPS
requirements, since SDG&E is on track to meet its obligations under the RPS
program. Fourth, SDG&E points out that SB 100 requirements are for the
year 2045, which is after the expiration of OMEC’s projected useful life.
Finally, SDG&E argues that the OMEC contract does not violate any
provisions of D.18-02-018, because it is not a new facility. Thus, in sum, SDG&E
concludes that POC has failed to support its allegations of changed
circumstances.
IEP argues that nothing about the OMEC contract violates any state law or
regulatory decision of the Commission. IEP says that no statute pointed to by
POC prohibits contracting with any fossil-fueled resources. IEP argues that, in
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fact, SB 100 acknowledges the continued need for some fossil-fueled resources by
setting an RPS target at less than 100 percent. In addition, IEP argues, SB 100
implicitly recognized that natural gas generation would be needed to reliably
serve load during the transition to higher renewable energy penetration goals.
Calpine and OMEC argue that the POC PFM makes broad and vague
statements about the changes in California’s energy landscape and policy goals
that cannot serve as the basis for modifying a 12-year-old decision or eviscerating
an existing contract. They argue that given the declines in renewable and
conventional energy prices in recent years, such a precedent would put at risk
almost every prior decision in which the Commission has approved a long-term
contract.
2.1.2. Discussion
While POC is correct that California energy policy is continually evolving
toward cleaner resources, we agree with SDG&E, IEP, Calpine, and OMEC, that
this policy evolution does not specifically prohibit any aspect of the OMEC
contract approved by the Commission in D.06-09-021. POC points to nothing in
state law or Commission regulation that would be violated by the OMEC
contract.
Even if a statute does result in a change of circumstances, it is typical for
the statute to apply going forward, and not to affect a decision made in the past,
especially as far in the past as the OMEC PPA approval. But in this case, no
statute or Commission decision mandates that the OMEC PPA, or its Put Option
in particular, be abrogated.
It is also the case that in 2006, the Commission was already considering the
transition to renewable and clean energy sources, and was implementing an RPS
requirement at that time as well, though the percentage requirement was lower.
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So the clean energy policy evolution is not new, and was contemplated at the
time the OMEC PPA was approved by the Commission.
However, POC’s PFM is not deficient in providing affidavits as to the
changed facts that POC alleges, because had the contract been in violation of
state law, it would be sufficient to point to laws or decisions that have changed to
create the rationale for the PFM.
Still, we find that POC’s PFM does not sufficiently justify any changed
circumstances that would lead us to conclude that its PFM must be granted or
even considered.
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5 D.15-05-004, at 22.
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Finally, SDG&E points out that some of the changed circumstances that
POC points to, particularly SB 350, have been in place since 2015. Thus, there is
no particular justification for the timing of POC’s PFM in November 2018.
For all these reasons, SDG&E argues that the Commission should
summarily deny POC’s PFM.
POC, in its reply to the responses, argues that it should not have filed its
PFM sooner, because the issues would not have been ripe, since it was unknown
which of the Put or Call Options in the OMEC PPA might be exercised. POC
also claims that it had no prior knowledge of the terms of the OMEC PPA
because the contract terms were only discussed in general terms in D.06-09-021
and SDG&E refused to provide the documentation to POC until shortly before
the PFM was filed. POC claims it became aware of the Put Option only when
preparing testimony in the exit fee power charge indifference amount
proceeding, Application 17-06-026. In addition, POC states that although the
GRC application has been pending since 2017, POC only became a party more
recently, gaining access to the crucial information about the OMEC PPA.
2.2.2. Discussion
We agree with SDG&E here that the timing of POC’s PFM is, at best,
curious, and appears to be most connected to the filing of SDG&E’s
Advice Letter 3294-E on October 26, 2018, after which this POC PFM was
quickly filed. It is clear that POC could have filed such a PFM at any time since
the contract was approved. POC has been actively engaged in
procurement-related matters for at least the past five years, as pointed out by
SDG&E. POC does not offer adequate justification for why it did not file the
PFM, for example, after the passage of SB 350, or after the issuance of
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D.18-02-018, or once SDG&E’s GRC was filed in 2017, if it felt that those actions
showed the changed circumstances that POC argues here.
Thus, we conclude that the Commission could summarily deny this PFM
according to the principle of laches. For reasons discussed further below,
however, the Commission wishes to respond to the substantive aspects of POC’s
petition at this time. Thus, we will not dismiss POC’s PFM solely on the basis of
timing, though we could.
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proceeding by protesting the July 2006 Joint Petition that led to D.06-09-021.
Thus, SDG&E concludes that the Commission should summarily deny the
instant PFM, and cites to several prior decisions where this was done, such as
D.15-05-004 and D.07-11-026.
IEP opposes POC’s standing to file this PFM, and argues that if the
Commission allows POC standing in this case, it encourages any person or entity
unhappy with the Commission’s decisions to form a new organization to evade
Rule 16.4 and its requirements. IEP also argues that an application for rehearing
on the 2006 decisions would have been more appropriate than this PFM.
Calpine and OMEC argue similarly about the inappropriateness of POC
filing this PFM, particularly at this late date.
2.3.2. Discussion
Since Rule 16.4 allows for non-parties to file petitions for modification, we
will not summarily dismiss POC’s PFM on this basis alone. POC represents the
interests of a group of ratepayers in the San Diego area, and does so in numerous
proceedings before the Commission. Given this proceeding is very old and
opened before POC existed in any form, it is understandable why POC was not a
party originally.
However, given the nexus between POC’s organizational purpose and the
contract approved in 2006, as discussed above, it is unclear why POC did not
intervene at any subsequent period during the pendency of this proceeding. We
also agree with IEP that this is not an open invitation for new entities to be
formed in order to file petitions for modification many years after decisions are
rendered.
In sum, we will consider the merits of the PFM filed by POC and not
summarily dismiss it, but the Commission would have that option legally should
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it choose to exercise it. Instead, we discuss the merits of the PFM, in order to
render a decision on that basis.
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decision in the case of the Oakley power plant, since that decision was
unpublished, making citing to it prohibited. Regardless, SDG&E states that that
decision bears no resemblance to the circumstances of this OMEC PPA.
IEP also points out that if POC had issues with the legality of the
Commission’s 2006 decision approving the contract, the proper procedure would
require a filing of an application for rehearing, or a petition for modification
within one year.
Calpine and OMEC also argue that the Commission rendered its decisions
in 2006 on the basis of a long history and well-developed evidentiary record.
Calpine and OMEC point out that there was a competitive solicitation process
that led to the approval of the PPA. The Commission held evidentiary hearings
and determined that the PPA benefits ratepayers, is reasonable, and is in the
public interest. Calpine and OMEC also emphasize that the Commission made
clear in D.06-09-021 that “pursuant to the terms of the Put Option, there would
be no additional Commission review or approval required before OMEC’s
potential exercise of the option.”8
3.1.2. Discussion
SDG&E, IEP, Calpine and OMEC are correct that the appropriate avenue
for challenging the legality of a Commission decision is through an application
for rehearing filed up to 30 days after the Commission renders its decision. We
will not, more than 12 years later, entertain arguments that the Commission’s
decision from 2006 was rendered unlawfully. Regardless, there appears to be no
basis for the allegations, since the decision was based on the record, evidentiary
8 D.06-09-021, at 5.
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hearings had been held previously, and no party challenged the legality of the
decision at the time.
Further, it is not lost on us that POC asks us to change the terms of a
contract through a petition for modification, at the same time complaining that it
was inappropriate for the Commission to entertain modifications to the contract
through a petition for modification in 2006.
Finally, how the Commission rendered its decision in 2006 is completely
irrelevant anyway. D.06-09-021 became final and unappealable many years ago,
and we will not revisit it here.
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OMEC argue that if the Commission wishes to avoid SDG&E ownership, then
the Advice Letter should be approved, and not POC’s PFM.
3.2.2. Discussion
It is important to note that the resource adequacy contract confirmation
between SDG&E and OMEC beginning in October 2019 is a separate contract
that is not the subject of this decision in this proceeding. While the two actions
are clearly connected, since if the Commission approves the resource adequacy
contract then Calpine has agreed not to exercise its Put Option on April 1, 2019,
there are actually two separate contracts. The merits of the resource adequacy
contract are being addressed in resolutions in response to the Advice Letter.
However, it is important to note that Commission rules do not require
filings for preapproval for certain contracts of less than five years in duration, as
specified in approved bundled procurement plans. SDG&E filed the advice letter
voluntarily as part of its agreement with Calpine, in order to ensure Commission
approval.
Thus, it was not inappropriate for SDG&E to file the advice letter, though
we do note that it is a bit unusual, especially given the circumstances that this
issue is also contained within its 2017 GRC filing. Nonetheless, the
appropriateness of the resource adequacy contract itself is not our subject here.
We simply conclude that because it is a separate contract, it does not constitute a
modification of the OMEC PPA approved in D.06-09-021.
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any time, contracting parties would all have difficulty relying on contractual
agreements at all.
IEP argues that the POC claim that Calpine/OMEC and SDG&E will not
be prejudiced if the Commission alters the terms of the PPA is implausible. IEP
points out that is based on an assumption that the Put Option has no value. In
fact, according to IEP’s analysis, the Put and Call Options were negotiated as
components that make up the entire value of the PPA. IEP argues that
eliminating even one option will upset the balance of risks and rewards mutually
agreed upon by the parties. IEP argues that whether the option is exercised or
not, such an option has considerable potential value in the future, and altering
any element of that balance results in a reallocation of risks and rewards that the
parties to the PPA did not intend or agree to.
IEP also acknowledges that the Commission has the authority to modify
earlier decisions based on § 1708, but argues that the key question is not whether
the Commission can modify prior contracts, but whether it should. IEP argues
that the Commission’s and California’s energy and environmental goals require
attracting private capital to build the facilities needed. If the Commission were
to amend this contract, IEP suggests, the sanctity of contracts would be
compromised and the Commission would send a chill to the private investment
and development community about the stability of the California electricity
market at a critical time. IEP emphasizes that if the Commission were to back
away from its historic respect for the terms of approved contracts, it would create
a huge hurdle to attracting investment capital necessary to meet future energy
and GHG emissions reduction goals.
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PPA now would fundamentally alter the balance in the contract, harm the
expectations of the contractual counterparties, and “inflict millions of dollars in
damage.”10
Next, Calpine and OMEC argue that modifying the PPA as POC suggests
would violate the Contracts Clause of the U.S. and California Constitutions.
Both Constitutions provide that states shall pass no laws impairing the
obligations of private contracts. Calpine and OMEC argue that modifying the
PPA to remove the Put Option would constitute a substantial impairment of the
contractual relationship between OMEC and SDG&E.
In addition, Calpine and OMEC argue that removing the Put Option from
the contract would also violate the Takings clause of the U.S. and California
Constitutions. Takings occur when an owner is deprived of “all economically
beneficial use” of its property due to government action. Calpine and OMEC
argue that removal of the Put Option would deprive OMEC of economic use of
Otay Mesa, as well as the original buyer for whom the plant was built, while
giving OMEC little ability to find a new buyer.
POC, in its reply to the responses to its PFM, points out that the only
changes to the OMEC PPA between D.06-02-031 and D.06-09-021 were the
addition of the Put and Call Options and pricing. POC states that there is no
support for claims that removal of these options would alter the economic
balance of the contract. Thus, POC concludes that the Put Option is severable
from the rest of the contract provisions.
POC also argues that there is no legal justification to support Calpine’s
claims that removal of the Put Option would constitute a Constitutional taking
10 Calpine and OMEC December 13, 2018 response to POC PFM, at 10.
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since Calpine has already been paid for the plant’s construction and output over
the life of the contract thus far, and Calpine has further options for selling the
plant and/or its output other than just to SDG&E.
3.3.2. Discussion
The issues discussed in this section are the primary reason we have chosen
not to dismiss the POC PFM summarily, and instead to render a decision on the
substance of the petition. We wish to reaffirm the Commission’s commitment to
the primacy of contractual obligations once the Commission has approved the
contract.
We agree with SDG&E, IEP, Calpine, and OMEC, that the sanctity of
contracts is paramount and that market actors need to have faith and confidence
in this Commission’s commitment to uphold its commitment to an approved
contract, just as we expect the contractual counterparties to do the same.
The OMEC PPA has been approved by the Commission and in operation
for over 12 years. A power plant was constructed and has been operated under
it, and there is nothing in the laws or regulatory decisions passed since the
contract was approved that suggest that the PPA is contrary to Commission or
state policy or requirements.
There may be cases where extraordinary circumstances warrant a
modification to an approved contract, but we do not find that any extraordinary
circumstances are in play in this situation. Even if they were, we agree with IEP
and Calpine/OMEC that it is important to preserve, to the extent possible, the
balance that was achieved by the contractual counterparties in the original PPA.
Thus, it is relatively frequent that the Commission entertains modifications
to contracts that are brought by the counterparties, since circumstances may
change during the operation of the contract. However, consideration of such
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the contract may be changed, POC argues that they are likely to prevail on the
merits of their PFM. Thus, time is of the essence and POC requests an immediate
stay.
SDG&E argues that POC’s request for a stay does not satisfy any of the
factors the Commission uses to evaluate such a request. SDG&E states that
POC’s waiting 12 years to file this PFM undercuts any argument of any
immediate and irreparable harm. In addition, they argue that POC is unlikely to
prevail on the merits. Further, they point out that even if the stay is granted,
OMEC will not be eliminated as a generating source, and thus the ultimate
benefits POC is seeking will not come to pass.
Calpine and OMEC argue that POC did not make any showing of why
POC would suffer any irreparable harm. Instead, they argue that Calpine and
OMEC will suffer irreparable harm. Further, they argue that POC is unlikely to
prevail on the merits and thus a stay is not warranted.
4.2. Discussion
Since we have discussed the merits of the PFM in this decision, there is no
reason for the Commission to grant a stay of the Put Option in the OMEC PPA.
POC does not prevail on the merits of their PFM. Thus, the POC request for a
stay is denied.
5. Comments on Proposed Decision
The proposed decision of Administrative Law Judge Lau in this matter
was mailed to the parties in accordance with Section 311 of the Public Utilities
Code and comments were allowed under Rule 14.3 of the Commission’s Rules of
Practice and Procedure. Comments were filed on March 7, 2019 by IEP and POC.
Reply comments were filed on March 12, 2019 by Calpine and OMEC, jointly,
SDG&E, and POC.
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achieve the exact policy objectives that POC’s petition purportedly represents.
We tend to agree.
In sum, the only modifications we make to this proposed decision are to
improve its clarity.
6. Assignment of Proceeding
Liane M. Randolph is the assigned Commissioner and Julie A. Fitch is the
assigned Administrative Law Judge in this proceeding.
Findings of Fact
1. D.06-09-021 approved a ten-year power purchase agreement between
SDG&E and OMEC, which included both a Put and a Call Option in the contract
that would result in SDG&E becoming the owner of the OMEC power plant.
Both Options were discussed at length in D.06-09-021.
2. The OMEC PPA Call Option has expired.
3. The OMEC PPA Put Option expires on April 1, 2019 if Calpine does not
exercise the option before then.
4. SDG&E has submitted via Advice Letter 3294-E a request for Commission
preapproval of a resource adequacy contract that would begin after the
expiration of the OMEC PPA approved in D.06-09-021. Calpine and SDG&E
have agreed that if the Commission approves the resource adequacy contract in
response to the Advice Letter, Calpine will not exercise the Put Option in the
current OMEC PPA.
5. Rule 16.4 of the Commission’s Rules of Practice and Procedure governs the
filing of petitions for modification, and requires that parties identify changed
facts or circumstances; explain why a petition was not filed within one year of
the effective date of the decision, with justification; and explain why, if the
petitioner was not a party to the decision proposed to be modified, how the
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petitioner is affected by the decision and why the petitioner did not participate in
the proceeding earlier.
6. POC was not a party to the original proceeding that led to the adoption of
D.06-09-021.
7. SDG&E filed its GRC in 2017 and included in it the cost in the event of
Calpine exercising its Put Option.
8. POC requested a stay of the Put Option included in the OMEC PPA
approved in D.06-09-021, as part of its PFM.
9. The Commission has the authority, under Public Utilities Code 1708, to
modify prior decisions, should it choose to do so.
Conclusions of Law
1. The OMEC PPA approved in D.09-06-021 does not violate any state law or
Commission decision, including, but not limited to, SB 350 (DeLeón, 2015),
SB 100 (DeLeón, 2018), and D.18-02-018.
2. The Commission has been considering the transition to renewable energy
sources since before 2006.
3. POC’s PFM does not sufficiently justify any changed circumstances that
require it to be granted.
4. POC’s PFM is not timely and it fails to justify why the Commission should
consider such a late filing.
5. The Commission could summarily dismiss the POC PFM as untimely
under the principle of laches.
6. The Commission could summarily dismiss the POC PFM for not justifying
sufficient changed circumstances.
7. Rule 16.4 allows for PFMs to be filed by parties who were not parties in the
original underlying proceeding that led to the decision requested to be modified.
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O R D E R
IT IS ORDERED that:
1. The petition for modification of Decision 06-09-021 filed on
November 13, 2018 by Protect Our Communities Foundation is denied.
2. The request for a stay of the Put Option in the contract approved in
Decision 06-09-021 is denied.
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MICHAEL PICKER
President
LIANE M. RANDOLPH
MARTHA GUZMAN ACEVES
CLIFFORD RECHTSCHAFFEN
GENEVIEVE SHIROMA
Commissioners
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