Environmentally Superior Alternative

The EIR identified an ESA that consists of the Proposed Project in combination with three design option alternatives, the Pacific Highway Bridge Attachment (Pacific Hwy), Harbor Drive (Harbor Dr.) Bridge Attachment and Sicard Street (Sicard St.) Cable Pole, along with Transmission System Alternative 7 PV1, variation from Miguel to the South Bay Power Plant.

As discussed in more detail in the section that identifies all the options studied, the design options result in the following: under the Pacific Hwy option, the 230 kV line cable would be attached to the Pacific Highway Bridge, rather than directionally drilled under the San Diego River as proposed by the OMPPA Transmission Project; under the Harbor Dr. option, the proposed 230 kV cable would be attached on the Harbor Drive Bridge, rather than boring underneath the Bridge; and under the Sicard St. option, the design of the transition structures would be less industrial in scale and mass and would take up less space in the parking lot than the structure proposed in the Project.

Transmission System Alternative 7 PV1 would change the structures used in Segment #3, from Miguel Substation to South Bay Power Plant. In summary, 63 new double line transmission steel poles would be developed as proposed in the project, but the transmission system would be reconfigured to allow the removal of the existing lattice towers between Proctor Valley and the South Bay Power Plant. Along with the removal of the lattice towers, one of the existing 138 kV transmission lines currently on the existing lattice towers would be removed, and the other 138 kV line currently on the lattice towers would be installed on the second position of the new steel poles. Additional modifications to the Proctor Valley, Miguel and Los Coches Substations, as well as addition of a second 138 kV transmission line from Miguel to Proctor Valley would be required.

The EIR analysis indicates that there would be long-term significant and unavoidable (Class I) visual impacts from the Proposed Project because the new 230 kV line would be installed in single steel poles that would be viewed in conjunction with the existing 138 kV lattice towers. The lattice towers and steel poles together would create a visually dominant industrial corridor and the differences in form and design between the old and new structures would contribute to the visual disharmony and industrial character of the SDG&E ROW.

Under Alternative 7 PV1, the significant visual impacts of the Proposed Project would be reduced to a level less than significant from the Proctor Valley Substation to west of I-5 and long-term visual changes would be slightly adverse to beneficial along almost the entire length of SDG&E's ROW in Chula Vista, east of I-5. The EIR analysis indicates that the visual changes from the Alternative 7 PV1 would be evident from residential neighborhoods, local community parks and recreation areas, and public schools and institutions. This would result in the SDG&E ROW appearing substantially less industrial in character and form, and more similar in design to other community facilities, such as distribution poles and lighting facilities. When the lattice towers are removed, the visual impact of the new 230 kV double line steel poles would be less than significant when compared to the existing setting, however, significant impacts to biological resources, soil erosion, noise, solid waste disposal, traffic disruption and short-term disruption to recreational facilities would result due to more intense construction. These impacts can be mitigated to less than significant, therefore, this alternative ranks as the ESA transmission system between the Miguel Substation and South Bay Power Plant as it would reduce long-term visual impacts from significant and unavoidable (Class I) to less than significant, while only increasing temporary short-term impacts associated with construction that are easily mitigable to less than significant.

The EIR compares the "No-roject" Alternative to the Environmentally Superior Alternative and determines that overall the ESA is preferred over the "No-Project" Alternative.

Only SDG&E and the Border Generation Group8 (BGG) oppose Alternative 7 PV1. SDG&E argues that Alternative 7 PV1 would create the following negative results: (1) restrict dispatch by at least 300 MW the output from the South Bay Power Plant (South Bay) because of the removal of one of the existing 138 kV lines; (2) increase RMR costs due to this limited dispatch from South Bay since South Bay output is used to relieve congestion at Miguel Substation; (3) jeopardize reliability because use of a common pole structure from Proctor Valley to South Bay would introduce the potential for a common structure failure; (4) restrict expansion capability for future load growth; (5) lengthen the project schedule by 4-6 months; (6) create an additional round of environmental impacts associated with the installation of new structures and removal of the lattice towers; (7) potentially increase the cost of OMPPA by $50 million; (8) provide only marginal, short-term visual benefits since it removes an existing utility structure and replaces it with a new utility structure─that might need to be partnered with another new utility structure in the short-term to accommodate anticipated future growth.

SDG&E also disputed the value of visual improvements along its ROW that was established in 1960 to support transmission structure alignments, both then, and in the future as SDG&E supports future system growth. SDG&E disagrees with the environmental analysis to the extent it considers the new towers for Segment #3 to be in a "visually sensitive area." SDG&E's position is that the existing lattice towers should not be considered as a visual impact, but instead as the existing condition and baseline from which incremental impacts should be assessed.

BGG supports SDG&E's Proposed Project, including the undergrounding segment and the design options adopted in the DEIR, but agrees with SDG&E that Alternative 7 PV1 should be rejected for many of the reasons articulated by the utility. In particular, BGG is concerned about the potential for increased congestion at the Miguel Substation and increased costs to SDG&E's ratepayers, especially in light of the reduction in RMR savings. From BGG's perspective, the adoption of Alternative 7 PV1 would "undermine the key objectives of the Miguel-Mission transmission project," especially in view of the fact that it would only provide a "marginal, short-term visual benefit."9

Numerous agencies/organizations and individuals who submitted comments on the DEIR, however, supported Alternative 7 PV1. Most of those commenting favored both the undergrounding that is proposed for Segment #4, as well as the removal of the lattice towers that is a component of Alternative 7 PV1. In fact, a lot of commenters advocated undergrounding even more of the project than is currently planned to improve the "visual" outlook.

In summary, while many urged the Commission to adopt Alternative 7 PV1, the only justification for the increased cost of this alternative was to improve the "visual" impact. On the other hand, SDG&E and BGG had numerous arguments in support of overriding the DEIR's recommendation that the ESA should incorporate Alternative 7 PV1, including the risks of increased congestion, delays in the construction timetable and increased costs--for a "marginal, short-term visual benefit."

The FEIR must contain specific information according to the CEQA Guidelines Sections 15120 through 15132.10 The various elements of the FEIR satisfy these CEQA requirements. The FEIR consists of the DEIR, with revisions in response to comments and other information received. Section 3 of the FEIR contains the comments received on the draft EIR and individual responses to those comments.11

The Commission must conclude that the FEIR is in compliance with CEQA before granting SDG&E a CPCN for the Proposed Project to ensure that the environmental document is a comprehensive, accurate and unbiased tool to be used by the lead agency and other decisionmakers in addressing the merits of the Project. The document should embody "an interdisciplinary approach that will ensure the integrated use of the natural and social sciences and the consideration of qualitative as well as quantitative factors."12 It must be prepared in a clear format and in plain language.13 It must be analytical rather than encyclopedic, and emphasize alternatives over unnecessary description of the project.14 Most importantly, it must be "organized and written in such a manner that [it] will be meaningful and useful to decisionmakers and the public."15

We believe the FEIR meets these tests. It is a comprehensive, detailed, and complete document that clearly discusses the advantages and disadvantages of the Proposal by SDG&E and the various alternatives. We find that the FEIR is the competent and comprehensive informational tool that CEQA requires it to be. The quality of the information therein is such that we are confident of its accuracy. We have considered that information in approving the SDG&E Proposed Project as described in this decision.

We hereby certify the EIR for the Otay Mesa Power Purchase Agreement Transmission Project.

CEQA requires that agency approval of SDG&E's Proposed Project or an alternative may require modifications or mitigations to avoid or reduce to less than significant levels, significant environmental effects on the environment. The EIR identified potential environmental impacts for the Proposed Project and various alternatives in the areas of air quality; biological resources; cultural resources; geology, soil and paleontology; hydrology and water quality; land use and recreation; noise and vibration; public health and safety; public services and utilities; socioeconomics; transportation and traffic; and visual resources. The mitigation measures recommended in the EIR to address the potentially significant impacts for the Proposed Project are adopted as part of our approval. The adoption and implementation of these mitigation measures, was assumed in the determination of impact levels in the EIR. With mitigation, it was concluded that all potential environmental effects, except for the visual impacts along Segment #3, could be mitigated to less than significant levels. Therefore, implementation of these mitigation measures is a condition of the approval of this Project.

As previously mentioned, as part of the project application SDG&E proposed its own mitigation measures. These APMs, along with the additional mitigation measures recommended in the EIR are adopted to ensure that potential impacts are reduced to less than significant levels. The Commission will assure implementation and compliance with all the mitigation measures as part of the associated Mitigation Monitoring, Compliance and Reporting Program.

CEQA requires that specific findings be made if a lead agency decides to approve a project which will have significant impacts. Section 21081 of the California Public Resources Code states:


[N]o public agency shall approve or carry out a project for which an Environmental Impact Report has been certified which identifies one or more significant effects on the environment that would occur if the project is approved or carried out unless both of the following occur:


The public agency makes one or more of the following findings with respect to each significant effect:


Changes or alterations have been required in, or incorporated into, the project which mitigate or avoid the significant environmental effects as identified on the environment.

Those changes or alterations are within the responsibility and jurisdiction of another public agency and have been, or can and should be, adopted by that other agency.

Specific economic, legal, social, technological, or other considerations, including considerations for the provision of employment opportunities for highly trained workers, make infeasible the mitigation measures or alternatives identified in the environmental impact report.

With respect to significant effects which were subject to a finding under paragraph (3) of subdivision (a), the public agency finds that specific overriding economic, legal, social, technological, or other benefits of the project outweigh the significant effects on the environment.

The project we approve today is the Proposed Project, with design alternatives to include: the Pacific Highway Bridge Attachment; the Harbor Drive Bridge Attachment and Sicard Street Cable Pole design option, recommended as part of the environmentally superior alternative , but without the Transmission System 7 PV1 Alternative from Miguel to South Bay Power Plant. Further, for the project we approve today, we adopt and require as a condition of our approval all applicable recommended mitigation measures to avoid or reduce potentially significant environmental impacts to less than significant levels.

In addition, we recognize that approval of this project will result in significant and unavoidable visual impacts that cannot be mitigated to a level considered less than significant. Notwithstanding the existence of this significant and unavoidable visual impact, we find that for the reasons discussed below, primarily related to reduced RMR costs and reduced congestion at the Miguel Substation, the benefits of the Proposed Project outweigh the unavoidable adverse environmental effects, and therefore find the adverse environmental effects to be acceptable.

Succinctly put, Alternative 7 PV 1 proposes to improve the visual impact of the power lines from the Miguel Substation to the South Bay Power Plant area by reconfiguring the poles that support the power lines by removing the existing 138 kV lattice towers, and removing one, of two, existing 138 kV lines that is currently attached to the lattice tower, and replacing the lattice towers with 63 new double line transmission steel poles. The remaining 138 kV line would then be attached to the new steel pole along with a new 230 kV line. This alternative potentially would remove the "visual disharmony" that might occur if the 63 new steel poles coexisted with the lattice towers. However, adoption of this alternative could increase the cost of the Proposed Project by an estimated $50 million and potentially delay the project by four to six months. We are also persuaded that this alternative is inconsistent with two of SDG&E's key objectives for the Proposed Project which we find compelling: reducing congestion at Miguel and reducing RMR costs.

SDG&E's comments to the DEIR state that South Bay generation is used to relieve congestion at the Miguel substation. If one of the existing 138 kV lines is removed, as Alternative 7 PV1 suggests, the dispatchability of South Bay generation is reduced and this has the potential for contributing to congestion at Miguel-and that leads to increased RMR costs for SDG&E ratepayers. SDG&E is concerned that if there is no South Bay generation at 138 kV, and there is flow on the 230 kV transmission line from Imperial Valley to Miguel, the 138 kV line from Proctor Valley to Los Coches would overload under the N-2 contingency condition. If Alternative 7 PV1 is adopted, SDG&E fears that the import limitations at Miguel that would be necessary to mitigate overloads based on the 230 kV N-2 outage would have to be stricter than they would otherwise be under the Miguel-Mission #2 230 kV transmission project. From SDG&E's perspective, the result from Alternative 7 PV1 would be that the transfer capability at Miguel would be reduced, intra-zonal congestion at Miguel would be increased, and there would be a corresponding increase in costs to SDG&E ratepayers.

In addition, in its comments to the DEIR, SDG&E also argues that any "visual benefits" from Alternative 7 would be "short-lived" due to the "high probability that new structures will be constructed in this designated transmission corridor,"16 in view of the need for transmission expansion based upon projected load growth in San Diego. As discussed earlier in this decision, SDG&E disagrees with the EIR conclusions regarding visual impacts. Nevertheless, under any analysis, SDG&E urges the Commission to reject the estimated $50 million price-tag for marginally improving the visual impact of one 10-mile segment for what it anticipates will be for a relatively limited short-term period.

BGG's April 18, 2005, comments on the DEIR mirror the concern that if Alternative 7 is adopted, the key objectives of the Miguel-Mission transmission project would be undermined because of the increased congestion at the Miguel substation. The members of BGG have an interest in OMPPA because their Mexicali generation facilities have suffered from congestion at the Miguel substation. BGG argues that the proposed removal of one of the existing 138 kV lines under Alternative 7 would reduce the dispatchability of South Bay generation and thereby contribute to congestion at Miguel. BGG also argues that in light of SDG&E's projected future needs for transmission facilities in the same corridor, that Alternative 7 should be rejected because it would only bring short-term visual benefits and would not meet the key objectives of the Proposed Project.

The EIR is used to guide decision-making and inform the public by providing an assessment of the potential environmental impacts that may result from a Proposed Project, but it is up to the Commission to determine the best option, taking into consideration the totality of the issues, including the costs of delay and implications for reliable grid operations. As discussed above, we are persuaded that the Alternative 7 PV1 could delay the Project completion date, would cost substantially more than the Proposed Project--costs that will be imposed on SDG&E ratepayers, and could create the risk of reducing necessary dispatch from South Bay as well as possibly restricting expansion capability.

Consistent with Public Resources Code Section 21081, the CEQA Guidelines (Section 15126(a)) state: "An EIR describes a reasonable range of alternatives to the project, or to the location of the project, which would feasibly (italics added) attain most of the basic objectives of the project but would avoid or substantially lessen any of the significant effects of the project." Feasibility is defined by the CEQA Guidelines as "capable of being accomplished in a successful manner within a reasonable period of time, taking into account, economic, environmental, legal, social, and technological factors."17

Therefore, applying these standards and balancing the Proposed Project against Alternative 7 PV1, in considering cost-effectiveness concerns, congestion costs, possible delays in construction time against what might only be a "marginal, short-term visual benefit," we conclude that SDG&E's Proposed Project, with the design option alternatives recommended in the EIR, but without Alternative 7 PV1, should be adopted.

In summary, for the reasons discussed above, we choose to approve the design for Segment #3 as set forth in the Proposed Project, instead of Alternative 7 PV1, because the proposed design provides cost/economic, timing, reliability, growth potential and other benefits that we feel outweigh the significant and unavoidable visual impacts of the combination of the lattice towers and the steel poles.

As previously discussed in this decision, on March 8, 2005, Rohr filed a Motion to Intervene, and this decision grants that motion. On April 14, 2005, Rohr commented on the DEIR for the Proposed Project. Rohr operates an aircraft parts manufacturing facility in Chula Vista and owns property on which a portion of SDG&E's proposed 230 kV line is to be installed. Rohr's comments address alleged material adverse potential impacts from OMPPA that Rohr claims were not identified, analyzed or mitigated in the DEIR, and Rohr presented several Project alternatives that would mitigate these potential impacts. In particular, Rohr raised concerns about the potential impact to hydrology and water quality--including potentially significant impacts on the flow and direction of groundwater and associated effects on the movement and concentration of existing contaminants and on land subsidence.

The FEIR included Rohr's comments, as well as others from experts/consultants retained by Rohr to review and analyze the DEIR. In summary, the response to the Rohr collective comments addressed each salient point raised. The response informed Rohr that the DEIR addressed each and every concern Rohr had with the Proposed Project and that the Commission prepared and will adopt a Mitigation Monitoring and Reporting Plan (MMRP) to mitigate or avoid identified significant project-related environmental effects. The response also informed Rohr that no new information was provided in the comments that had not been considered, so the DEIR was not going to be recirculated.

On April 29, 2005, Rohr filed a reply brief addressing arguments made in SDG&E's opening brief in support of the OMPPA Project as currently proposed and the adequacy of the DEIR for the Project. In particular, Rohr takes issue with the undergrounding of Segment No. 3 which will require open-cut trenching and backfilling of the conduits for the underground wires, and again asks that the DEIR be recirculated. As referenced above, Rohr asked in its comments to the DEIR that the DEIR be recirculated, and the ED and CEQA consultants responded to the comments indicating that Rohr had not raised any new information that necessitated recirculating the DEIR pursuant to CEQA Guidelines Section 15088.5, and the MMRP as proposed would mitigate or avoid the environmental effects Rohr feared might result due to the undergrounding activities.

CEQA Guidelines Section 15088.5 requires recirculation of an EIR prior to certification when significant new information, as defined, is added to the EIR after public notice is given to the availability of the draft EIR for public review but before certification. Examples of significant new information include in pertinent part: a new significant environmental impact; a substantial increase in the severity of an environmental impact; a feasible project alternative or mitigation measure considerably different from others analyzed that would clearly lessen the environmental impacts of the project; or if the draft EIR was so fundamentally and basically inadequate and conclusory in nature so as to preclude meaningful public review and comment.

Having reviewed Rohr's comments and the EIR, we find that the Final EIR adequately and appropriately addressed Rohr's comments and concerns and agree that no recirculation of the EIR is warranted by the CEQA Guidelines. Accordingly, no further action is required by the Commission on Rohr's comments.

Generally, the CPCN requirements in the Public Utilities Code include a determination of whether the project is necessary and what is the financial impact on the ratepayers. The need and cost of the Proposed Project, as distinct from the environmental issues, were briefed by the parties. This section briefly summarizes the positions of those parties filing briefs on the CPCN issues.

Pub. Util. Code § 1002 requires the Commission to give consideration to community values, recreational and park areas, historical and aesthetic values, and influences on the environment. These considerations are among those analyzed as part of the CEQA review process and do not need to be addressed again as part of the CPCN.

In brief, SDG&E's Proposed Project, OMPPA, consists of two new 230 kV electric transmission circuits, approximately 52 miles in total length, to connect SDG&E's Miguel Substation with both the Sycamore Canyon Substation and the Old Town Substation. In D. 04-06-011, the Commission approved the OMGP and a gen-tie from the new plant to Miguel Station. The question before the Commission is whether the new 230 kV lines are necessary both to allow for full deliverability of the product from OMGP and to meet SDG&E's local reliability and resource adequacy needs.

SDG&E touts the need for the OMPPA Project because the two new 230 kV lines will do the following:


(1) Provide full dispatchability of resources from the proposed OMGP for delivery into the San Diego LRA;


(2) Provide firm transmission delivery of the OMGP to Load Centers at the Sycamore Canyon and Old Town Substations, along with surrounding substations;


(3) Prevent the OMGP from compounding Intra-Zonal Congestion at the Miguel Substation;


(4) Meet G-1/N-1 reliability requirements expected from future load growth;


(5) Provide for expansion capability for load growth and potential generation retirement;


(6) Minimize load shedding and avoid potential cascading outages during Miguel corridor outages; and


(7) Provide cost savings to SDG&E customers by reducing ISO RMR contract requirements.

SDG&E touts many reasons why OMPPA will provide benefits to its customers and the most important justification is that the new transmission system will satisfy SDG&E's local reliability and resource adequacy needs. In addition, when OMGP is constructed and fully operational, it can only qualify as an RMR source if it is fully deliverable. OMPPA will allow for the full dispatchability of OMGP and the potential savings when OMGP is an RMR source is anticipated to be $20 to $25 million dollars annually─even after the annual projected costs of $25 million for OMGP are factored in. Also, OMPPA allows the full output of OMGP to be delivered into SDG&E's LRA concurrently with the aggregate output from other local resources and imports that are required to meet the CAISO's G-1/N-1 reliability criterion, both in the near future and as part of SDG&E's long-term planning.

In addition, the two, new transmission lines, one running from the Miguel Substation towards the South Bay Power Plant and then on to the Old Town Substation, and the second running north through the Miguel corridor towards the Sycamore Canyon Substation, will provide numerous other benefits for SDG&E customers. Other anticipated advantages from OMPPA include the following: reduced exposure to cascading outages and damages to transmission equipment along the Miguel corridor; improved system voltages; and increased grid operation flexibility and future grid expansion capability.

In Decision (D.) 04-06-011, when the Commission approved OMGP, it was aware that some transmission upgrades would be necessary to make the power from the plant fully deliverable and to meet SDG&E's local reliability needs. Therefore, in D.04-06-011, the Commission directed the CAISO to inform the Commission as the "[w]hether that upgrade should be the two 230 kV lines proposed in [this application], or some alternative."18 In this application for OMPPA, CAISO submitted testimony on the Proposed Project, and other alternatives, for rendering OMGP generation deliverable and for realizing other potential benefits.

The CAISO testimony reached the following conclusions:


OMPPA provides for the full output of OMGP under nearly all system conditions;


OMPPA will provide for the firm transmission delivery of OMGP generation to SDG&E load centers;


OMPPA will prevent OMGP from increasing transmission congestion north of the Miguel Substation;


OMPPA, with generation from OMGP, can serve to reduce current RMR costs by allowing displacement of a portion of existing RMR generation in SDG&E's service area;


OMPPA will provide higher operational flexibility during scheduled outages;


OMPPA will reduce the need to trip additional generation and load for a Miguel corridor outage; and


OMPPA was superior to other alternatives in meeting these objectives.19

From the CAISO's perspective, when the Commission approved OMGP in D.04-06-011, the Commission was deciding the "need' for some Transmission Project, whether it be OMPPA or a functionally equivalent alternative, in order to provide for the deliverability of OMPA. Without transmission upgrades, OMGP can not be utilized to serve load in the San Diego LRA because of congestion-especially at Miguel. Therefore, CAISO prepared its testimony with the focus on whether OMPPA constitutes the appropriate alternative. CAISO's analysis of the Proposed Project finds that it would render OMGP fully deliverable and therefore OMGP could displace existing RMR generation in SDG&E's service territory.

In addition, CAISO performed a thorough analysis of proposed alternatives to determine the most optimal electrical solution to achieve the benefits envisioned by D. 04-06-011. In its testimony, CAISO concluded that OMPPA was the superior alternative.20 The CAISO Board of Governors approved OMPPA, by a unanimous vote, at a Board meeting on May 6, 2005.

Calpine also concluded that the Commission already determined the need for some transmission upgrades when it approved OMGP in D.04-06-011. Accordingly, Calpine focused its testimony in this proceeding on what is the most appropriate means to ensure that OMGP is fully deliverable and that SDG&E's customers realize the full range of benefits that OMGP can provide. From Calpine's perspective, OMPPA will ensure that the output from OMGP is fully deliverable to SDG&E's load centers and will provide SDG&E's customers with annual net RMR savings of $20-25 million. Since no other party has identified, much less proposed, a viable alternative to OMPPA that would provide these benefits, Calpine urges the Commission to approve OMPPA.

Chula Vista fully supports SDG&E's Proposed Project as it comports with the City's MOU with SDG&E concerning the placement of the overhead and underground lines as they transverse Chula Vista and is consistent with the City's local planning and land use. In addition, Chula Vista defers to the determination by CAISO that OMPPA is necessary to satisfy SDG&E's local reliability and resource adequacy needs.

ORA is the only party to the proceeding who has concerns as to whether there is a "need" for OMPPA-especially in light of SDG&E's escalating cost estimates. ORA is troubled by the fact that SDG&E's initial cost projections went from about $128 million21 to $209 million-and that estimate does not include the additional estimated $50 million the ESA with Transmission Alternative 7 PV1 would cost.

ORA is correct in its determination that the Commission did not predetermine the need for OMPPA when it approved OMGP. ORA argues that in point of fact, SDG&E's application for OMPPA is premature, as SDG&E did not provide any alternatives to assist the Commission in determining whether OMPPA provides economic benefits, reliability benefits and whether the cost is reasonable. From ORA's perspective, OMPPA may be necessary in the future, but SDG&E did not show that it is cost-effective now. ORA urges the Commission to defer approval of OMPPA until post 2008/2010, the time period we identified in the RFP proceeding when SDG&E needs OMGP's full resources for its grid reliability. ORA suggests that if the full amount of OMGP's power is not needed now, or even from 2008-2010, that it is premature to approve OMPPA now.

CAISO, ORA, Calpine, SDG&E and Rohr filed reply briefs. Except for Rohr's brief, all the other briefs focused on ORA's opposition to the Proposed Project.

SDG&E summarizes ORA's opposition to the Proposed Project as: (1) not needed to assure full deliverability of OMGP; (2) no adequate study of alternatives; and (3) too costly. SDG&E argues that these arguments have no merit in this application proceeding as they are more properly a request for reconsideration of the RFP decision, D.04-06-011. SDG&E refers to D.04-06-011 to support its contentions that OMPG was approved for grid reliability and RMR savings, neither of which can occur unless OMGP is fully deliverable. SDG&E quotes the decision, p. 82, that ". . . the output of Otay Mesa will not be fully deliverable and cannot fully satisfy SDG&E's local reliability needs, without some transmission system upgrade. Whether that upgrade should be the two 230 kV lines proposed in A. 04-03-008, or some alternative, will be determined during the course of the Commission's review of A. 04-03-008, which determination will be informed by the CAISO's own transmission planning process." Therefore, SDG&E urges the Commission to dismiss ORA's arguments against the Proposed Project and approve it.

In its reply brief, CAISO disputes all of ORA's arguments that OMPPA is not needed. CAISO argues that the Commission intended OMGP to supply SDG&E with capacity that could contribute to meeting reliability criteria and that cannot happen without timely construction of some transmission system upgrade. From CAISO's perspective, the only issue before the Commission in this proceeding is whether that upgrade should be the two 238 kV lines as proposed in the Project, or some alternative. CAISO also responds to ORA's criticisms that the ISO failed to conduct its own economic analysis of whether OMPPA was "needed" and failed to study other alternatives for reducing the congestion that OMPPA is designed to relieve. CAISO argues that it was appropriate for it to accept the resource adequacy need determination by the Commission when it approved OMGP in D.04-06-011, so that all CAISO looked at was economic factors in selecting the optimal transmission alternative to deliver power from OMGP.

In addition, CAISO opposes ORA's recommendation that OMPPA be deferred. CAISO claims that unless OMPPA is energized concurrently with the 2008 operation date of Otay Mesa, SDG&E ratepayers will fail to realize the full extent of the projected RMR cost savings-an important justification for the Commission's approval of OMGP.22 In summary, CAISO urges the Commission to approve OMPPA as needed as the electrically optimal solution to achieve the objectives for approving OMGP.

Calpine also disputed ORA's arguments against approval of OMPPA primarily on the ground that the full benefits of OMGA for local grid reliability and RMR savings can not be fully realized without transmission upgrades.

ORA's reply brief reiterated its position that given the expense of OMPPA, and the fact that the full output of OMGP will not be needed for local grid reliability until post 2008, it is premature to approve the Proposed Project now. In addition, ORA posts that the claimed benefits of OMPPA are speculative, especially given the lack of a need determination or proper cost study.

SDG&E provided testimony in its amended application, filed November 18, 2004, to support a Project cost of $161,384 that included the costs of undergrounding in Chula Vista. On March 4, 2004, SDG&E again updated its projected cost estimate to $209,818 to reflect recent cost increases in labor and materials, in particular a rise in the cost of steel poles of almost 77% and increased trench depths for the undergrounding segment of the project, and to capture new information as the Project moved to final design. In addition, SDG&E alerts the Commission to the fact that the DEIR, which issued March 3, 2005, identified an ESA, with numerous design options and Transmission Alternative 7 PV1 that is estimated to cost an additional $50 million.

While SDG&E does not support the adoption of Transmission Alternative 7 PV1 for a variety of reasons, including the fact that it is estimated to increase the cost of the Proposed Project by $50 million, SDG&E does inform the Commission that if it chooses to go with Transmission Alternative 7 PV1, the Commission will need to increase funding for the OMPPA project to $260 million. SDG&E requests a margin over any good faith estimate provided.

Of all the intervenors providing comments to the Commission, only ORA vehemently opposed OMPPA, and the primary ground on which ORA based its objection was the cost. ORA is especially concerned that the projected costs of the Proposed project keep escalating exponentially going from $128 million in the fall of 2003 when SDG&E filed its motion for approval of OMGP, to $209 in the spring of 2005 when SDG&E filed its updated testimony. ORA is also perplexed that no other party seemed concerned about the price, or that, from ORA's perspective, SDG&E has not presented an adequate cost effectiveness study of the Project.

In its testimony, ORA suggested that if the Commission is going to approve OMPPA, that it impose a cost cap of about $161 million.23 This figure was the projected cost presented in SDG&E's amended application filed in November 2004. In its brief, ORA does not again argue for a cost cap, but instead argues against the project because that cost cap is not even realistic just six-months later. From the interest of the ratepayer, ORA is concerned about the amount of the final bill for OMPPA and whether that final cost is justified by the anticipated benefits of the new transmissions lines.

CAISO performed a thorough analysis of what would be the most optimal electrical solution to achieve the benefits from OMGP and concluded that OMPPA was the superior alternative. CAISO, however, did not perform a comprehensive review of the cost of OMPPA, but instead reviewed the costs included by SDG&E for the Project and for alternatives and concluded "that such cost estimates appeared "reasonable.""24

Calpine did not comment on the reasonableness of the projected costs of OMPPA, but did argue in its comments that the anticipated net RMR savings to SDG&E customers of $20-25 million per year, in conjunction with the other system wide benefits that the Project will bring, justify approval of the Project.

It is clear that we determined that SDG&E "needed" the Otay Mesa Generating Plant when we approved the 10-year Power Purchase Agreement (PPA) in D.04-06-011. However, even though SDG&E asked us to approve OMPPA as a condition precedent to approving the PPA, we chose to defer consideration of OMPPA to this separate application. When we approved OMGP, it was part of a "mixed portfolio [that] will ensure that SDG&E has adequate, reliable, and reasonably priced energy, including reserves, and is consistent with the Energy Action Plan, AB 57, and Pub. Util. Code Section 454.5."25 Also, in D.04-06-011, we discussed new, cleaner, efficient power sources, such as Palomar and Otay Mesa, as a way to reduce SDG&E's RMR costs and to achieve and maintain adequate reserve levels. While we acknowledged that SDG&E might not need all of OMGP's output when it comes on line in 2008, we did find that the 10-year PPA provides "insurance" for SDG&E and its ratepayers that is well worth its cost.26

In addition, as already quoted earlier in the decision, we did not predetermine the outcome of this application for approval of OMPPA when we approved OMGP in D.04-06-011. However, we clearly recognized in that decision that the output of OMGP "is not fully deliverable, and cannot fully satisfy SDG&E's local reliability needs, without some transmission system upgrade."27 This is now the proceeding to determine if OMPPA is the appropriate upgrade based on need and cost.

We are convinced by the application, the testimony presented, and the briefs filed that OMPPA is the appropriate upgrade to realize the full potential of Otay Mesa for grid reliability and RMR savings, to reduce congestion and to provide for expansion capability for load growth. No party presented any viable alternatives to OMPPA in terms of "need" for a transmission upgrade, and the EIR found no environmental impact justification to reject OMPPA. Therefore, based on the need component of the CPCN requirement, we find that SDG&E's Proposed Project meets that requirement.

As discussed earlier in this decision, in addition to the benefits the Proposed Project will provide to SDG&E from OMGP, OMPPA is also needed to ensure local reliability and resource adequacy needs; to reduce exposure to cascading outages and damages to transmission equipment along the Miguel corridor; to improve system voltages; and to increase grid operation flexibility and future grid expansion capability.

While we were not persuaded by ORA's arguments that OMPPA was not needed, perhaps at all, and certainly not now, we did take seriously ORA's arguments that the cost of OMPPA should be of concern. We also noticed that the cost projections for OMPPA went from $128 million in the RFP motion to $209 million in the recent cost updates--just span of 18-months. While we appreciate the fact that a portion of that cost increase is related to the undergrounding of Segment #4, a cost not anticipated until the MOU with Chula Vista, the remainder of the increase for inflation in the cost of materials and labor is of concern. However, no party challenged SDG&E's cost estimate as being unreasonable or out-of line. ORA's criticism was not that the costs were inflated by SDG&E, but that the costs, especially the rapidly escalating costs, were not justified by the speculative benefits of the Project.

Keeping in mind the geometric increase in the projected cost for OMPPA over the past 18-months, we determine that it is reasonable to find that a CPCN is justified for the Proposed Project at this time, rather than to defer such a decision to when the full output of OMGP is needed. Based on anticipated continuing rising costs in labor and materials, we find that it is in the best interest of the ratepayer to approve the Proposed Project now, rather than waiting. We will approve a cost cap of $209 million, with a contingency amount of 5%. This authorization does not include the anticipated costs of $50 million for Transmission Alternative 7 PV1, which the FEIR identified as a component of the ESA. We are not approving Alternative 7 PV1 as we found overriding considerations in favor of rejecting it─one of those considerations being the cost. If SDG&E can bring the Proposed Project to completion within this funding authority, it does not need to seek further authorization.

We hereby grant SDG&E a CPCN for the Otay Mesa Power Purchase Agreement Transmission Project consisting of the Proposed Project with the following design alternatives: the Pacific Highway Bridge Attachment, the Harbor Drive Bridge Attachment and Sicard Street Cable Pole design option, recommended as part of the ESA, but not to include the ESA recommended Transmission System 7 PV1 Alternative from Miguel to the South Bay Power Plant. In addition, we certify the EIR, adopt the Mitigation Monitoring Compliance and Reporting Program, and adopt the Statement of Overriding Considerations to approve the project notwithstanding significant and unavoidable visual environmental impacts.

8 Members of BGG are: Coral Power, L.L.C.; Energia Azteca X, S. de R.L. de C.V. and Energia de Baja California, S. de R.L. de C.V.; and Termoelectrica de Mexicali S. de R.L. de C.V.. 9 BGG April 18, 2005, letter, p. 4, quoting comments by SDG&E in its April 8, 2005, comments on the DEIR. 10 Cal. Admin. Code Sections 15122-131. 11 CEQA Guidelines Section 15132. 12 Id., Section 15142. 13 Id., Sections 15006(q) and (r), 15120, 15140. 14 Id., Sections 15066, 15141; Pub. Res. Code Section 21003(c). 15 Pub. Res. Code Section 21003(b). 16 SDG&E's April 8, 2005, letter commenting on the DEIR, pp. 5-6. 17 CEQA Guidelines Section 15021 et seq. 18 D.04-06-011, pp. 65-66. 19 CAISO testimony, p. 8. 20 Id. 21 The figure of $128 million was advanced by SDG&E witness Korinek in the RFP proceeding as an estimate of what OMPPA would cost. 22 D.04-06-011, p. 77. 23 ORA testimony, p. 7. 24 ISO testimony, p. 18, ISO Opening Comments, p. 7. 25 D. 04-06-011, pp. 54-55. 26 Ibid., p. 55. 27 Ibid., p. 65.

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