IT IS ORDERED that:
1. We adopt the Methodology for Development and Consideration of Transmission Costs in Initial Renewable Portfolio Standard Procurement (Interim Methodology) appended as Attachment A and with the further guidance provided in this order.
2. Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company shall each prepare and file a Transmission Ranking Cost Report consistent with the Interim Methodology within 14 days of the effective date of this order.
3. Parties may file initial comments on the Transmission Ranking Cost Reports within 7 days of the due date for the Transmission Ranking Cost Reports and may file reply comments within 7 days thereafter.
4. Parties shall file the Transmission Ranking Cost Reports, initial comments, and reply comments in paper form. Parties shall serve the Transmission Ranking Cost Reports and initial comments and may serve reply comments on the service list in electronic form, pursuant to Rule 2.3(b) in the Commission Rules of Practice and Procedure. Parties shall serve paper format copies, in addition to electronic copies, on the Assigned Commissioner, the assigned Administrative Law Judge, anyone on the Appearances and State Service portions of the service list who does not have a valid e-mail address, and any other party requesting paper format copy. For all filings served electronically, the party shall e-mail courtesy copies to the entire service list, including those appearing on the list as "Information Only."
5. The Assigned Commissioner in Investigation 00-11-001 shall assess the adequacy of the Transmission Ranking Cost Reports on the basis of the filed comments and determine whether the reports should be modified or other steps taken before the utilities' results are used in ranking bids for the initial RPS procurement.
6. PG&E, SCE, and SDG&E shall each undertake its initial Renewable Portfolio Standard solicitation and shall consider transmission costs in assessment of the resulting bids in conformance with the Interim Methodology.
7. The Executive Director shall serve a copy of this decision on parties to Rulemaking (R.) 01-10-024, R.04-04-003, and R.04-04-026.
This order is effective today.
Dated June 9, 2004, at San Francisco, California.
MICHAEL R. PEEVEY
CARL W. WOOD
LORETTA M. LYNCH
GEOFFREY F. BROWN
SUSAN P. KENNEDY
Purpose and Applicability
Pursuant to Public Utilities Code Section 399.14(a)(2)(B), the rank ordering and selection of least-cost and best-fit renewable resources for the Renewable Portfolio Standard (RPS) program shall consider estimates of indirect costs associated with needed transmission investments.
Each electrical corporation subject to the Commission's jurisdiction and owning electrical transmission facilities in the State of California (subject utility) shall use this methodology, with further guidance as provided in the Interim Order adopting this methodology, for the development and consideration of transmission costs in ranking bids in response to its initial RPS procurement solicitation.
Direct Assignment Facilities
1. As provided by D.03-06-071, any eligible renewable resource developer bidding in response to an RPS procurement solicitation shall include its expected Direct Assignment Facilities in its bid. The bidder shall internalize in its bid price the estimated cost of all facilities needed to physically and electrically interconnect the renewable energy generation facility to and at the first point of interconnection with the transmission grid. These facilities are referred to as Direct Assignment Facilities or gen-ties.
2. Direct Assignment Facilities include the transformer bank used to step-up the generation output to transmission voltage, the outlet line between this step-up transformer bank and the transmission system, and any protection and communication facilities needed for interconnection and safe operation of the generator. Direct Assignment Facilities costs need not be separately identified in a renewable resource developer's bid, but may be, at the bidder's discretion.
3. If a bidder elects to list its Direct Assignment costs separately in the bid, the utility shall make iterative adjustments to its bid ranking to account for sharing of these costs among those bidders who are selected.
4. Each subject utility shall estimate the cost of its transmission network upgrades needed to accommodate the interconnection or expansion of renewable energy generation facilities and transmission of the projects' output in accordance with these procedures.
5. Network upgrades include all facilities necessary to reinforce the transmission system after the point where a renewable project's electricity first interconnects with and enters the subject utility's transmission grid, and to transmit or deliver the full amount of power from the project. Network upgrades include transmission lines, transformer banks, special protection systems, substation breakers, capacitors, and other equipment needed to transfer power to the consumer.
6. Each subject utility shall include in its Transmission Ranking Cost Report the cost of all identified network upgrades consistent with this Interim Methodology. Such costs shall not be included in a developer's bid.
Transmission Ranking Cost Report
7. Each subject utility shall prepare a Transmission Ranking Cost Report in which it provides estimates of the capital costs of upgrades to its transmission facilities that would be needed to accommodate interconnection and delivery of power from potential renewable energy bidders in the initial RPS procurement solicitation.
8. Each subject utility's Transmission Ranking Cost Report shall reflect data regarding potential renewable energy bidders obtained through the supplemental solicitations required by the March 19, 2004 Administrative Law Judge's (ALJ) ruling in Investigation (I.) 00-11-040 in addition to previously obtained information regarding potential renewable energy bidders.
9. Each subject utility shall include in its Transmission Ranking Cost Report its transmission cost estimates for the following types of potential renewable energy bidders:
a. Renewable energy resources for which the first point of interconnection with the transmission grid is or will be at a facility owned by the subject utility and whose output is expected to be sold to the subject utility,
b. Renewable energy resources for which the first point of interconnection with the transmission grid is or will be at a facility owned by the subject utility and whose output is expected to be sold to a different entity, and
c. Renewable energy resources located elsewhere for which the project developer has indicated that it anticipates submitting an RPS bid to the subject utility.
4. Each subject utility shall prepare its Transmission Ranking Cost Report in accordance with the following guidelines:
a. Based upon review of a geographical map, the subject utility shall divide the identified potential renewable energy bidders into clusters based on the substation(s) and bus(es) to which the identified renewable resources most likely would interconnect. If the renewable resource's first point of interconnection is at a substation or bus not owned by the subject utility, the subject utility shall treat that renewable resource as part or all of a cluster beginning at the first point where such added generation would first enter the subject utility-owned transmission system.
b. To identify the network upgrades that may be needed for each cluster, the subject utility shall use the conceptual transmission studies that were submitted for compliance with Senate Bill 1038, conceptual studies prepared pursuant to the March 19, 2004 ALJ ruling in I.00-11-001, and other comparable studies. The utility shall also use any System Impact Studies and Facilities Studies it has for projects in the California Independent System Operator (ISO) interconnection queue. Costs may be adjusted if needed to reflect that construction may occur in a different year than assumed in an existing study.
c. Each subject utility may modify its conceptual studies' cost estimates to be consistent with cost estimates in System Impact Studies and Facilities Studies, to the extent that the conceptual studies omit but System Impact Studies and Facilities Studies include Allowance for Funds Used During Construction and/or Operation and Maintenance cost components. If a subject utility makes such modifications, it shall document the changes fully in its Transmission Ranking Cost Report, including a demonstration that these cost components were included in System Impact Studies and Facilities Studies and that consistent changes were made to the conceptual study cost results.
d. Each subject utility shall develop transmission cost estimates to provide for delivery of the full output of the renewable projects, except for projects in the ISO interconnection queue with signed contracts providing for curtailment in lieu of full deliverability of their output.
e. Based on the conceptual transmission studies and any available System Impact Studies and Facilities Studies, each subject utility shall identify the transmission network upgrades and their capital costs that are expected to be needed to accommodate each cluster of renewable resources. For each cluster, the subject utility shall identify levels of transmission capacity and related costs according to the following order:
(i) Level 1-the transmission capacity expected to be available, which may include upgrades identified for projects in the ISO interconnection queue with completed System Impact Studies and Facility Studies which were included in the base case in the utility's conceptual transmission studies.
(ii) Level 2-the transmission capacity expected to become available with the lowest cost (or most cost-effective) network upgrade in addition to upgrades included in Level 1. An additional level shall be created for each next most cost-effective network upgrade, with the number of levels depending on the number of network upgrades needed to accommodate the total amount of generation in the identified cluster.
f. Each subject utility shall develop and include in its Transmission Ranking Cost Report non-binding cost estimates for each level of transmission network upgrades, other than Level 1, and for common facilities needed if renewable generation were added at several clusters simultaneously. For each project in the ISO interconnection queue for which transmission upgrades are included in Level 1, the subject utility shall describe the upgrade and its associated costs.
g. If a developer of a renewable energy resource whose first point of interconnection would be with the subject utility's transmission grid has informed the subject utility that it plans to submit a bid to sell the resource's output to another entity, the subject utility shall identify and include the costs of transmission upgrades needed to transmit the resource's power from the subject utility's system to the identified point of interconnection with another entity's transmission system.
5. Each subject utility shall specify in its Transmission Ranking Cost Report the expected location of each new substation. To the extent consistent with existing conceptual studies, the utilities shall identify substation locations based on knowledge regarding both currently proposed and potential future renewable projects.
6. For any transmission facilities identified in the conceptual studies relied upon for its Transmission Ranking Cost Report that may be shared by renewable projects but which the subject utility considers to be Direct Assignment Facilities rather than Network Upgrade Facilities, the utility shall specify the location and cost of such facilities and shall explain why it considers the facilities to be Direct Assignment Facilities.
7. Each subject utility shall file its Transmission Ranking Cost Report in I.00-11-001, with service on all parties, within 14 days of the effective date of the order adopting this methodology. Parties may file initial comments, with service on all parties, within 7 days of the due date of the Transmission Ranking Cost Reports, and reply comments within 7 days thereafter.
8. Utility cost estimates in the Transmission Ranking Cost Reports shall be for the sole purpose of ranking resource bids in the RPS selection process. The Transmission Ranking Cost Reports do not constitute either System Impact Studies or Facilities Studies under the ISO electric tariff on file with the Federal Energy Regulatory Commission.
Information to be Included in Bid Submittals for
Transmission Cost Ranking Purposes
10. A renewable developer responding to a procurement solicitation shall include at least the following information in its bid:
a. The expected electric generation output of the facility, or additional output of an expanded facility,
b. Number and size of individual generators,
c. The expected first point of interconnection with the purchasing utility's transmission grid, as identified in the utility's Transmission Ranking Cost Report,
d. The date of expected operation,
e. Type of technology,
f. Whether the facility is currently interconnected to the transmission grid, and
g. The status of any interconnection application submitted to the ISO.
11. A renewable bidder that has applied for interconnection pursuant to the ISO tariff and has obtained a completed System Impact Study and/or a completed Facilities Study shall submit those studies as part of its bid.
12. If the first point of interconnection to the transmission grid is or will be at a transmission facility owned by an entity other than the purchasing utility issuing the procurement solicitation, the bidder shall do the following:
a. For transmission of power on the network of another utility filing a Transmission Ranking Cost Report, the developer shall obtain the relevant transmission cost estimates from that company's Transmission Ranking Cost Report and shall separately state that cost estimate in its bid documentation.
b. If power will be transmitted across the network of an entity not in the ISO control area, the bidder shall separately state its expected costs of obtaining such transmission service in its bid documentation and shall incorporate these costs in its bid price.
Consideration of Network Transmission Costs in Ranking Bids
1. The second ranking of RPS bids to determine the combination of RPS projects that best meets least-cost, best-fit criteria shall entail an iterative process. Each subject utility shall undertake the least-cost ranking of bids, subject to best-fit considerations, to minimize total costs of power from RPS projects, including the cost of needed transmission upgrades.
2. Before undertaking the second ranking of RPS bids, each subject utility shall adjust its transmission cost estimates for each level of transmission specified in its Transmission Ranking Cost Report, if needed, to take into account any generation projects that have been added to or deleted from the ISO interconnection queue, any System Impact or Facilities Studies submitted with bids, or any other change to the transmission system not anticipated at the time the Transmission Ranking Cost Report was prepared. The subject utility shall document these changes in its advice letter submitting proposed RPS contracts to the Commission.
3. If a renewable bidder has established a position in the ISO interconnection queue and has submitted a System Impact Study and/or a Facilities Study as part of its bid, the subject utility shall use the cost estimates for network upgrades contained therein in ranking the bids, subject to the following:
a. Unless the project has proposed and the subject utility agrees to accept curtailment in lieu of full deliverability of project output, the subject utility shall adjust System Impact Study and Facilities Study results if needed to reflect deliverability costs. These adjustments shall be transparent and justifiable to the Commission when it reviews proposed RPS contracts.
b. If the System Impact Study and Facilities Study show no network upgrade costs for such renewable bidder and if no adjustments are made pursuant to subsection (a), the soliciting utility shall assume in ranking the bids that interconnection of such renewable bidder shall not result in any network upgrade costs.
c. To reduce the risk of renewable bidders applying to the ISO for interconnection for the sole purpose of reducing the potential network upgrade costs attributable to them in the ranking process and then withdrawing their application if they do not prevail in the bidding process, a renewable bidder that submitted an interconnection application after release of the Transmission Ranking Cost Report shall not be entitled to the assumption in the preceding subsection.
13. The purchasing utility shall assign its network upgrade costs to specific renewable bidders based on assigning the lowest cost transmission available in each cluster according to the following priority:
a. Renewable bidders that have completed an interconnection application and have obtained System Impact and Facilities Studies before the due date for bids in the RPS solicitation. Such bidders shall be given the network upgrade costs attributable to their position in the ISO interconnection queue subject to limitations and adjustments pursuant to Section E.3 above. In the ranking process, pro rata costs of excess capacity created by network upgrades attributable to such bidders shall be assigned to other projects if it is the lowest cost capacity available to such projects.
b. Other renewable bidders based on their first ranking without consideration of the purchasing utility's network upgrade transmission costs. For an out-of-area bidder, wheeling costs or other transmission costs to the point of interconnection to the ISO-controlled grid are a direct cost and shall be included in the first ranking for comparison to the Market Price Referent. Estimated transmission upgrade costs on another utility's network within the ISO-controlled grid shall be added to the first ranking cost to determine the priority of that bidder for assignment of the purchasing utility's network upgrade costs.
14. The appropriate form of the transmission cost estimate used in assessing a bid, e.g., total cost, per-megawatt (MW) cost, or per-kilowatt-hour cost, may depend on the form of the bid. Each subject utility shall structure and apply transmission cost estimates in a manner that is consistent and transparent to the Commission when it reviews proposed RPS contracts.
15. In their bids, renewable bidders may describe expected network benefits, the extent to which the project would be able to produce Volt Amperes Reactive (VARs), and other transmission-related factors, and may propose less-than-full deliverability of product output. Each subject utility shall evaluate proposed network benefits and also curtailability proposals that have been examined through System Impact Studies or Feasibility Studies. It shall utilize consistent, logical approaches to assessing these potential benefits, and its evaluation process should be transparent to the utility's Procurement Review Group and to the Commission.
16. As a simple illustration of the iterative process for the second ranking of RPS bids, consider a cluster where the subject utility has determined that no network upgrade appears necessary for the first 50 MW of new renewable generation added to the grid at that location. Above 50 MW, the next level of network upgrade would provide 50 MW of capacity and would have capital costs of $100 million. Within this cluster are three bidders, each meeting best-fit criteria, listed by increasing cost without consideration of the subject utility's transmission network upgrade costs:
(1) 30 MW bid,
(2) 25 MW bid, and
(3) 20 MW bid in the ISO interconnection queue and with
System Impact and Facilities Studies completed before the Transmission Ranking Cost Report was filed (with no
adjustments needed pursuant to Section E.3), indicating
no network upgrade costs.
Under this scenario, bidder (3) by virtue of its ISO priority and bidder (1) because of its cost being lower than bidder (2) each would receive a transmission ranking cost of $0. Bidder (2) would receive a transmission ranking cost of $4,000,000/MW, based on the fact that it is estimated to cost $100 million in network upgrades to accommodate its 25 MW of added generation.
Based upon the least-cost principle, the utility would then iteratively look at the best combination of bids in all clusters, taking into account the transmission ranking costs, to meet the desired amount of renewable procurement. The final result would be the selection of the set of renewable resources that best meets the approved procurement needs at the least cost.
17. As another illustration, assume there are only two clusters, Clusters A and B, with three bidders meeting best-fit criteria in each cluster. The subject utility has determined that there is 50 MW of available transmission capacity for Cluster A and none for Cluster B. The most cost-effective network upgrade to accommodate added generation from Cluster A costs $90 million and will add 100 MW of capacity. The most cost-effective network upgrade to accommodate added generation from Cluster B costs $10 million and adds 25 MW in capacity; the next 80 MW in capacity costs $150 million.
Based on increasing cost (without transmission ranking costs), the bids are ranked as follows:
Bidder A1 - 50 MW bid,
Bidder A2 - 25 MW bid,
Bidder B1 - 25 MW bid,
Bidder B2 - 40 MW bid,
Bidder A3 - 50 MW bid, and
Bidder B3 - 10 MW bid.
Assuming that the price differentials without transmission costs are not significant enough to outweigh the transmission costs, the result would depend upon the amount of renewable power sought. If only 50 MW is sought, then A1 would be the winning bidder.
If 75 MW is sought, then A1 and B1 likely would be the winning bidders, as B1 has a total transmission upgrade cost of $10 million, unless there is a very significant price differential between B1 and A2.
Suppose, however, that 125 MW is sought by the solicitation. A1 continues to have a zero transmission ranking cost. A2 and A3 together have a total transmission ranking cost of $90 million, since both can be accommodated by the 100 MW upgrade. By contrast, B1, B2, and B3 have a combined transmission ranking cost of $160 million for the two upgrades. Absent other price differentials that tip the balance, the likely winners would be A1, A2, and A3. B1 would not be chosen even though its per-MW transmission costs ($400,000/MW) are lower than the per-MW transmission costs of A2 and A3 combined ($1.2 million/MW).
18. The transmission ranking costs developed according to this methodology shall be used only for the least-cost, best-fit ranking evaluation. Winning renewable bidders must file interconnection applications with the ISO to interconnect their facilities to the transmission grid. Following submission of a completed interconnection application to the ISO, System Impact and Facilities Studies would be performed to assess actual transmission upgrade needs.
(END OF ATTACHMENT A)