III. Statutory Background
California SB 1078 established the California RPS Program, as generally set forth in Pub. Util. Code §§ 399.11-399.16.7 The RPS Program requires each electrical corporation to procure at least 20% of its total retail electricity sales from eligible renewable energy resources by 2017. This target date was subsequently revised by the Energy Action Plan to 2010, in order to realize the benefits of renewable power more quickly.8 SB 1078 also contains the following language, codified as § 399.25:
399.25. (a) Notwithstanding any other provision in Sections 1001 to 1013, inclusive, an application of an electrical corporation for a certificate authorizing the construction of new transmission facilities shall be deemed to be necessary to the provision of electric service for purposes of any determination made under Section 1003 if the commission finds that the new facility is necessary to facilitate achievement of the renewable power goals established in Article 16 (commencing with § 399.11).
(b) With respect to a transmission facility described in subdivision (a), the commission shall take all feasible actions to ensure that the transmission rates established by the Federal Energy Regulatory Commission are fully reflected in any retail rates established by the commission. These actions shall include, but are not limited to:
(1) Making findings, where supported by an evidentiary record, that those transmission facilities provide benefit to the transmission network and are necessary to facilitate the achievement of the renewables portfolio standard established in Article 16 (commencing with Section 399.11).
(2) Directing the utility to which the generator will be interconnected, where the direction is not preempted by federal law, to seek the recovery through general transmission rates of the costs associated with the transmission facilities.
(3) Asserting the positions described in paragraphs (1) and (2) to the Federal Energy Regulatory Commission in appropriate proceedings.
(4) Allowing recovery in retail rates of any increase in transmission costs incurred by an electrical corporation resulting from the construction of the transmission facilities that are not approved for recovery in transmission rates by the Federal Energy Regulatory Commission after the commission determines that the costs were prudently incurred in accordance with subdivision (a) of Section 454.
In D.03-07-033, the Commission adopted a general framework for implementing § 399.25, including:
· The provisions of § 399.25 apply to network transmission facilities that come before the Commission in the form of a CPCN or PTC application. "Network" transmission facilities are defined as those that are needed to ensure reliable electric service with the addition of generation. The provisions of § 399.25 do not apply to transmission facilities needed to bring power from the plant to the first point of interconnection with the existing transmission grid.
· The procurement proceeding will develop the rules and procedures for the RPS planning process and RPS renewables bidding program. If the transmission facility is an integral part of a renewables project approved pursuant to the RPS process, (i.e., a winning renewables bid), that creates a prima facie finding that the network upgrade will facilitate achievement of the renewable power goals set forth in Article 16 of SB 1078.
· The Commission will make § 399.25(a) and § 399.25(b)(1) findings on whether a proposed transmission project is "necessary" to facilitate achievement of renewable power goals in the applicable CPCN or PTC proceeding, based on the results of the RPS procurement process and General Order 131-D considerations of alternatives to the proposed project. The evaluation will not, however, reconsider the selection of the winning generation project.
· In the applicable CPCN or PTC proceeding, the Commission will make § 399.25(b)(1) findings regarding whether the transmission project undertaken to ensure reliable electric service with the addition of generation will also provide benefits to the transmission network.
· The Commission will continue to perform the appropriate California Environmental Quality Act (CEQA) review of CPCN and PTC applications, which may include consideration of project alternatives.
In addition, D.03-07-033 interpreted § 399.25 as allowing the Commission to direct transmission owners to pay the upfront costs of network upgrades to connect renewable energy generators. SCE applied for rehearing, arguing that FERC had exclusive authority over interconnection agreements under the transmission provisions of Federal Power Act § 791 et seq.
After the Commission denied its application for rehearing in D.03-10-040, SCE filed a petition for writ of review. In 2004, the California Court of Appeal heard SCE's case and in Southern California Edison Co. v. PUC (121 Cal. App. 4th 1303), overturned our decision.9
FERC's authority over interstate transmission wholesale energy sales stems from § 824 in the Federal Power Act. Sections 824(i) and 824(k) give FERC the authority to order interconnection to the grid and to specify the terms of the interconnection.10 In 2003, FERC issued its Standard Interconnection Agreement Order 11which requires generators to provide upfront funding for network transmission upgrades unless the transmission facility volunteers to pay the costs.
The Court of Appeal held that the Commission could not require transmission owners to provide upfront funding because the Federal Power Act, FERC's Order of 2003, and the history significant federal presence in the area of interconnection preempted state regulation of transmission financing. The California Supreme Court denied further review.12 Consequently, the Commission does not have the authority to require transmission owners to fund the upfront costs of network upgrades.13
7 An act to add Sections 387, 390.1, and 399.25 to, and to add Article 16 (Sections 399.11 - 399.16) to Chapter 2.3 of Part 1 of Division 1 of, the Public Utilities Code, relating to renewable energy.
8 http://www.cpuc.ca.gov/static/industry/electric/energy+action+plan/index.htm.
9 "The Interim Opinion and Order Denying Rehearing interpret Public Utilities Code Section 399.25 to permit a requirement that utilities pay up-front costs of system upgrades necessary to connect new sources of renewable energy to the grid. Because this interpretation is preempted by federal law, the portions of the decision in which it appears must be annulled." SCE v. PUC, 121 Cal. App.4th, 1303, 1313 (2004), review denied by the California Supreme Court (2005).
10 Id. at 1310-11.
11 FERC Order No. 2003, (104 FERC ¶ 61, 103).
12 Southern California. Edison Co. v. Public Utilities Com., 121 Cal. App. 4th 1303 (Cal. Ct. App., 2004), modified and reh'g denied, 2004 Cal. App. LEXIS 1609 (Cal. App. 2d Dist., Sept. 27, 2004), review denied by S. Cal. Edison Co. v. PUC, 2005 Cal. LEXIS 592 (Cal., Jan. 19, 2005).
13 The court specifically rejected the PUC's argument that the states possessed supplemental regulatory powers under the Federal Power Act § 824(b)(1) by concluding that ordering upfront financing did not fall into an area of traditional state regulation such as transmission siting. See SCE v. PUC, 121 Cal. App. 4th at 1312.
