X. Maximum Cost Pursuant to Pub. Util. Code § 1005.5(a)

While the Federal Energy Regulatory Commission ultimately will decide how much of the costs for this project SCE may recoup in transmission rates, we have jurisdiction pursuant to § 1005.5(a) and the responsibility to specify in the CPCN a "maximum cost determined to be reasonable and prudent" for the Tehachapi-Vincent Transmission Line Project.

In its Amended Application, SCE estimated a cost for constructing Segment 2 of $63 million, and a cost for constructing Segment 3 of $102.1 million. No party disputed these estimates. SCE did note, however, that these were preliminary estimates, as full detailed engineering and cost estimates have not yet been completed.

In setting the maximum reasonable cost, the Commission is to take several factors into consideration, including the design of the project, the expected duration of construction, an estimate of the effects of economic inflation, and any known engineering difficulties associated with the project.

The Commission has previously recognized the need for adjustments to cost caps in other decisions granting CPCNs. For example, the 1988 decision adopting an estimate of the maximum reasonable and prudent cost for the Devers-Palo Verde 2 project³⁷ and more recently the decision on PG&E's Jefferson-Martin 230 kV transmission project³⁸ both allowed for adjustments to the estimate of maximum reasonable cost. SCE requests that the Commission use SCE's cost estimates as the basis for a cost cap, but allow SCE to seek adjustments based on changes in the cost estimate once final, detailed design-based construction estimates are completed.

DRA also recommends that the Commission use SCE's estimates of $63 million for Segment 2 and $102.1 million for Segment 3 as cost caps, and concedes SCE's ability to come back to the Commission to request an increase in the adopted cost cap. Citing our Jefferson-Martin decision, DRA argues that SCE should be required to seek a downward adjustment if it s costs will be materially lower (i.e. 1% or more) that the adopted cost caps.

We adopt cost caps of $63 million for Segment 2 and $102.1 million for Segment 3. These costs are in 2005 dollars. SCE may apply for a higher maximum cost if it can provide adequate justification, and must apply for a lower maximum if it appears that actual cost will be lower than the adopted estimated by at least 1%.

³⁷ D.88-12-030, 1988 Cal. PUC LEXIS 774 (30 CPUC 2d 4).

³⁸ D.04-08-046, 2004 Cal. PUC LEXIS 391.