III. Project Need Pursuant to § 399.25

A. Background

SCE seeks a CPCN pursuant to § 1001 and related sections. In order to award a certificate under § 1001, the Commission must find that the present or future public necessity require or will require construction of the project. SCE argues that it needs the project to deliver power generated by wind turbines that will or may be built in the Tehachapi area.

SCE asks the Commission to find that the proposed facilities are necessary to facilitate the goals of § 399.11 et seq., which establishes the California RPS program. Part of that statutory scheme is § 399.25 which, in part, states that the Commission must find that a project is needed when it finds that the project is "necessary to facilitate achievement of" the RPS goals. The question before us is whether the proposed project meets this test.

B. Project Need Based on the Record and SCE's Arguments

As SCE points out, no party to the proceeding disputes the need for the facilities. At the direction of the assigned ALJ and the assigned Commissioner, SCE provided testimony to describe its prospects for purchasing windpower in the Tehachapi area.

The Tehachapi-Vincent Transmission Project will assist the achievement of RPS goals by facilitating the connection of several potential alternative energy projects to SCE's electrical system. As stated above, SCE cites §§ 210 and 212 of the Federal Power Act (16 U.S.C. §§ 824(i) and (k)) and §§ 3.2 and 5.7 of the California ISO Tariff for the obligation to interconnect and integrate generation projects. Because the project will facilitate the development of renewable energy resources in northern Los Angeles County and Kern County, it will assist in meeting the legislatively-mandated RPS goals required by § 399.11 et seq.

SCE identified potential projects that have applied to the ISO for interconnection, have participated in a collaborative study process, or have identified themselves to the CEC. The 500 kV portions of the Tehachapi-Vincent Transmission Project would be energized initially at 220 kV, which would be adequate to support moderate growth in wind generation in the Tehachapi area, such as ISO Queue Project 2 (300 MW), located northwest of Antelope. However, the use of ISO-approved interconnection using 500 kV design and construction standards would allow for upgrades that will eventually accommodate up to 4,400 MWs of potential wind generation located north of Antelope.

Making the line 500 kV-capable would avoid the need to construct, tear down, and replace multiple 220 kV facilities with 500 kV facilities in the future. The ISO determined that constructing the facility to 500 kV standards and energizing at 220 kV was necessary, considering the potential magnitude of additional renewable resources that may develop in the Tehachapi area, separate and above the 300 MW project mentioned above.

The Segment 2 upgrades would prevent overloading of existing facilities and, as a network facility, the upgrades would increase the transfer capability south of Antelope Substation to accommodate not only the 300 MW generation resource near Antelope Substation, but also additional generation north of the substation, along with increased customer demand in the Antelope Valley (Palmdale/Lancaster areas). The ultimate configuration of the proposed line addresses not only the current need for interconnection of specific resources, but also the future need to interconnect multiple facilities in the Tehachapi area. Thus, the line is consistent with our description in D.06-06-034 of "high-voltage, bulk-transfer, multi-user transmission facilities ... proposed to access known, concentrated renewable resource areas..." (D.06-06-034, mimeo. at p. 27.)

On January 10, 2007, SCE offered an affidavit from its Renewable and Alternative Power Department Manager, Gary L. Allen, providing the following updated information regarding the need for Segments 1, 2, and 3 of the Tehachapi Renewable Transmission Project:

· On November 15, 2006, SCE signed four energy procurement contracts, two contracts each with Caithness 251 Wind and Ridgetop Energy, totaling a minimum of 31.1 MWs to a maximum of 68.8 MWs of wind power that SCE will provide to its customers from the Tehachapi area.

· On December 21, 2006, SCE entered into a wind energy contract with Alta Windpower Development L.L.C, a subsidiary of Allco Financial Group Inc. This contract doubles SCE's wind portfolio, and will provide a minimum of 1,500 MWs to a maximum of 1,550 MWs of power for SCE customers.10

· The Alta Windpower contract and the expansion of the four contracts signed on November 15, 2006, totaling between 1,537 and 1,587 MWs, would utilize the Antelope-Pardee [Transmission Project], and/or Segments 2 or 3.

· Without Segments 1, 2, and 3, SCE can use none of this renewable generation to serve California load.

· These projects are part of the ISO transmission queue. Furthermore, 11 other items in that queue would require transmission in the Antelope area. The new contracts and the other items in the queue relying on Antelope transmission capacity exceed 4,000 MWs.

C. The Standard

Normally, the Commission does not approve a new transmission project unless the present or future need is clear and certain. Section 399.25 recognizes that in order to achieve RPS goals, it may be necessary for the Commission to approve new transmission projects in anticipation of future renewable energy projects, and to provide unusual assurances of recovery of reasonable construction costs. These are extraordinary steps to take, and the Commission must use these tools with great care.

In order to demonstrate that a particular transmission line meets the standard in § 399.25, the Commission must find that it is "necessary to facilitate achievement" of the RPS goals. Merriam-Webster describes "necessary" as "inevitable," "inescapable," and "logically unavoidable."11 It is hard to imagine any project that could pass such a test. Yet, the statute requires that the line be necessary to "facilitate" RPS compliance. To Merriam-Webster, that would mean "to make easier" or "to help bring about."12 As long as a proposed line would connect the grid with an area capable of producing renewable power, it is hard to imagine that it would fail to clear such a low threshold.

Because § 399.25 exists in a broader statutory context - one that requires ambitious renewable portfolio development, reasonable rates, and environmental protection -- we must interpret this code section in a manner that strikes a reasonable balance. We faced a similar challenge in establishing the circumstances under which a project would be eligible for cost recovery through retail rates under § 399.25(b)(4). There we identified two types of transmission projects that could be needed to facilitate RPS compliance and were therefore eligible for cost recovery. Relevant here, those projects included "high-voltage, bulk-transfer, multi-user transmission facilities ... proposed to access known, concentrated renewable resource areas..." (D.06-06-034, mimeo. at p. 27.) However, we also noted that the degree of certainty required for a showing of RPS need "will depend on the magnitude of costs at stake," and that "in certain cases it will be necessary to consider the status of the RPS compliance to date..." (Id. at p. 28.) In that case, we noted that the Commission had already approved some cost recovery for Tehachapi-related studies because of the certainty of development of RPS-eligible resources in that area, but clarified: "We are unwilling to open the ratepayers' pockets for transmission facilities in areas that do not rise to this level of certainty, since study and permitting costs for facilities in unexplored areas will be large." (Id. at p. 30.)

Section 399.25 does not offer the only means of establishing project need. Historically, under § 1001, need for a transmission project could be established based upon a project's contribution to reliability or the ratepayer savings it would produce. However, in order to rely on § 399.25 to establish the need for a project, we find that a proponent must demonstrate: (1) that a project would bring to the grid renewable generation that would otherwise remain unavailable; (2) that the area within the line's reach would play a critical role in meeting the RPS goals; and (3) that the cost of the line is appropriately balanced against the certainty of the line's contribution to economically rational RPS compliance. A showing that a proposed project fits into one of the two categories identified in D.06-06-034 is the first step. As that decision recognized, a Commission finding of necessity in a CPCN proceeding must necessarily consider additional factors.

D. Discussion

As we have recognized in our prior decisions, transmission to the wind rich Tehachapi area is almost unique in its ability to qualify under the standard set forth above because of the size of the wind resource in this area, the constraints on the existing transmission system, and the level of interest on behalf of both utilities and merchant providers aspiring to develop projects there. Wind provides one of the most economical sources of renewable power, and the Tehachapi area offers the largest wind resource in California.13 It has the undeveloped potential of generating about 1,400 gigawatt-hours per year, with about 4,500 MWs of installed capacity.14 To capture this potential, the lines must go where the wind blows - there is no other choice.

The project represents California's first effort, since adoption of the RPS, to build transmission to specifically develop a concentrated renewable resource area. As D.06-06-034 explained, we adopted Resolution E-3969, allowing SCE to record and recover certain RPS-related study costs, "because studies had already demonstrated that Tehachapi is an especially rich resource area for renewables and development of that area is almost certainly necessary to meet the 20% RPS goal." (D.06-06-034, mimeo. at p. 30.)

The record shows that without system improvements, SCE and others could not deliver growing amounts of wind power from the Tehachapi region. The Tehachapi-Vincent Transmission Project provides a portion of the infrastructure necessary to meet this need, and no one has proposed a meaningful alternative to the project. Meanwhile, industry commitment to develop the area for RPS purposes is significant; utilities have received winning bids from, and SCE has signed contracts with developers of wind projects, the output of which cannot be fully delivered without increased transmission capacity. In total, the wind projects in the current ISO queue for Tehachapi exceed 4,000 MWs in capacity.15

The Tehachapi-Vincent Transmission Project is a logical step in a series of transmission upgrades related to the potential wind projects in the Tehachapi area. It would accommodate output from an anticipated 300 MW wind facility northwest of the Antelope substation. It would increase the take-away capacity for power from Tehachapi through the Antelope substation and toward load centers in Southern California. The present and expected load on the existing transmission facilities in the Antelope area does not allow for significant expansion of generation in the Tehachapi area. Accordingly it is necessary to increase the capacity of those facilities in order to receive the full benefits of the anticipated wind power development.

As set forth below, we adopt cost caps of $63 million for Segment 2 and $102.1 million for Segment 3. We find that this cost is justified based upon the high degree of the certainty we have that the project is critically needed to ensure development of RPS resources in the Tehachapi area. However, we note that the record in the CPCN proceedings for projects based on need pursuant to § 399.25 should more fully address the value of those projects to California ratepayers.

Based on the evidence in the record, we find that the project is necessary to facilitate achievement of the renewable power goals set forth in § 399.11, et seq. Therefore, construction of the Tehachapi-Vincent Transmission Project is deemed necessary pursuant to §§ 399.25 and 1001.

10 SCE may request Commission approval of these contracts. Nothing in today's decision prejudges those applications.

11 Merriam-Webster's Collegiate Dictionary, 10th Edition (2001), p. 774.

12 Id., p. 415.

13 See, e.g., CEC Report, D.04-06-010, and D.06-06-034.

14 See, e.g., CEC Report.

15 Exhibit 31, p. 2. For additional context, the ISO reports that is has received a total of 36 interconnection study requests since mid 2002 from renewable resource developers, totaling 4,112 MWs. The Tehachapi requests represent 19 percent of the proposed projects and 32 percent of the potential installed capacity. In addition, see the Affidavit of Gary L. Allen submitted January 10, 2007.

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