6. Construction Costs for the Antelope Transmission Project

SCE requested in both Petitions that the maximum reasonable and prudent costs (cost caps) of the projects authorized under the Decisions be increased, and that the total maximum costs for ATP Segments 1, 2, and 3 be combined into a single maximum cost cap.

The ALJ consolidated the proceedings in order to allow a single decision to address the issue of consolidation of the total costs into a single maximum cost. We find that the proceedings and the maximum costs are properly consolidated here.

D.07-03-012 approving Segment 1 establishes a maximum cost for Segment 1 at $92.5 million. D.07-03-045 approving Segments 2 and 3 establishes a maximum cost for Segment 2 at $63 million and for Segment 3 at $102.1 million. All maximum costs were calculated in 2005 dollars and included AFUDC, pension and benefits, and administrative and general expenditures.¹¹ Together, these maximum costs total $257.6 million.

SCE requests the Commission to modify the total maximum cost to $746 million in 2008 dollars, including pension and benefits and administrative and general expenditures, but excluding AFUDC.

SCE provides two primary reasons to justify this nearly three-fold increase in the maximum cost.

First, the ATP transmission lines were planned based upon anticipated new wind generation in the TWRA, and not upon actual filed interconnection requests, which contain information necessary to accurately estimate costs and construction schedules. Therefore, the total costs considered in the Decisions could not include a complete and total budget based upon final engineering design information. Indeed, the Decisions anticipated that some adjustments might need to be made that would either increase or decrease the costs.¹² In addition, SCE did not estimate increased costs for materials such as steel and concrete at the time of this Commission's Decisions on its applications, and these increased costs have led to increased construction costs beyond the contingency allowance already included in the original cost projections.¹³

Second, the Decisions anticipated that the wind generation would come online at a future uncertain date. Therefore, the transmission lines were budgeted to be initially operated at 220 kV, but were designed, studied, and approved to be upgraded to operate at 500 kV at a future date. Assuming initial operation at the 220 kV level, with the option to go to 500 kV later, the Decisions established a maximum reasonable and prudent cost for all three segments totaling $257.6 million.

Given subsequent interconnection requests cited in the Petitions, SCE is seeking to construct and operate the transmission facilities at the full 500 kV level. Some of these upgrades, specifically those associated with substation operations, were not included in the maximum costs authorized in the Decisions because the timing and magnitude of those costs was too speculative at the time of the development of the evidentiary record in the proceedings. SCE estimates in its Petitions that construction and operation of the transmission lines and associated substations at the higher 500 kV voltage, as opposed to 220 kV voltage, is $746.0 million. This figure includes an expansion of the Antelope and Vincent substations and the construction of the Windhub substation, which are necessary to accommodate the 500 kV lines. SCE's latest cost estimates are attached to SCE's Amendment as Appendix A, and reflect that the bulk of the increased costs are related to the costs to upgrade theses three substations to 500 kV operability.

Information in the Petitions initially appeared to conflict with information in the currently pending A.07-06-031, specifically with regard to substation upgrades related to Segment 9 of the Tehachapi Renewable Transmission Project (TRTP). Segment 9 of the TRTP consists of a series of upgrades to substations, including those included in the ATP. The Amendment provided clarification and correction regarding certain entries in the cost support tables for the ATP and TRTP, and states that "the costs associated with the upgrades to 500 kV contained in SCE's Petitions for Modification are only for Segments 1-3 work and do not duplicate the costs or work proposed as part of Segment 9 in A.07-06-031."¹⁴

The ALJ and Staff have reviewed SCE's contentions, as well as the additional cost information provided along with the `012 Petition and the `045 Petition and have determined that SCE's contentions are supported by the record and the pleadings. Consequently, we conclude that the requested revised maximum cost of $746 million in 2008 dollars for ATP Segments 1, 2 and 3 is reasonable and prudent in light of the changed conditions and the upgrade of the projects to 500 kV capability and operation.

We approve this increased maximum cost pursuant to Public Utilities Code Section 1005.5. In authorizing this maximum cost we fully expect that in any SCE filings at the Federal Energy Regulatory Commission (FERC) seeking cost recovery for these projects will not be in excess of the maximum cost specified herein without prior notice to the Commission regarding the reasons for any inconsistency between the authorized maximum cost and its FERC filing. We further expect that any future filings in these proceedings, or in other proceedings with projects based on need pursuant to Public Utilities Code § 399.2.5 or any other renewable need should more fully address the value of those projects to California ratepayers and their place in economically rational renewable procurement policies..

¹¹ See Ordering Paragraph 5 in both D.07-03-012 and D.07-03-045. While those Ordering Paragraphs also reflect that the adopted maximum costs include estimates for AFUDC, such estimates for AFUDC were not included in the calculation of the maximum cost numbers, and so the inclusion of AFUDC in those Ordering Paragraphs was in error.

¹² See Ordering Paragraph 6 in both D.07-03-012 and D.07-03-045.

¹³ `012 Petition at 11; `045 Petition at 4-5.

¹⁴ Amendment at 9.