VI. Transmission Planning for the Tehachapi Area

A. Positions of the Parties

The ISO, SCE, and PG&E take the position that a Tehachapi transmission project should proceed using established procedures, with project design finalized only after wind projects have submitted interconnection requests and have committed to fund the transmission upgrades. These parties contemplate the following sequence: an RPS auction is held, least-cost, best-fit resources are determined, winning bidders are selected, and developers submit interconnection applications. Each generation project submitting an interconnection application would then be assigned a place in the ISO interconnection queue, and the generator or the transmission owner would perform system impact and facilities studies to identify needed transmission upgrades based on the generator's place in the ISO queue. If Tehachapi upgrades are found to be needed for winning bids that have submitted interconnection agreements, SCE would then prepare and file a CPCN application.

These parties maintain that new utility-funded transmission into the Tehachapi area would be a waste of ratepayer money if Tehachapi wind generators do not win RPS bids and build their projects. PG&E asserts that the proposed sequencing would not impede wind development, arguing that a developer likely will be able to finance its generation project once it has won an RPS bid and has a power contract, and that construction of a generator's project may proceed while transmission is being built.

Oak Creek argues that current transmission planning processes stymie wind development and that SB 1078 and SB 1038 intended to change the process for interconnecting renewable resources. Oak Creek submits that a wind project-by-wind project approach to transmission planning does not recognize the large amount of wind potential in a concentrated area which could be accessed by both PG&E and SCE. Oak Creek maintains further that the current transmission planning approach would delay completion of needed transmission facilities and would not allow wind developers to develop projects on the timeline demanded by the Legislature in SB 1078.

Oak Creek asserts that the Tehachapi resource potential provides a sufficient basis for planning comprehensive transmission upgrades, with phases built as needed. Oak Creek maintains that there is no practical or legal need to wait for RPS bid results to proceed with Tehachapi upgrades, since most of the upgrades would not be wind project-specific, with only gen-tie lines specific to individual wind projects. Oak Creek states that the view that a Tehachapi upgrade should not go forward until there are winning RPS bids makes sense only if one believes that none of the winning bids will come from the Tehachapi region. Oak Creek maintains that the CEC's heavy reliance on Tehachapi wind in its Plausible Resource Scenarios disproves this belief. Pointing to the routine use of cost projections in rate cases based on future test years, Oak Creek argues that regulation does not insist on certainty and that it is inappropriate to delay Tehachapi upgrades until there is certainty regarding which wind projects will use the added transmission capacity.

Oak Creek recommends that the Commission create a study group consisting of SCE, PG&E, the ISO, and wind developers, and chaired by the ISO. The study group would address transmission needs of the entire Tehachapi region rather than individual wind projects, and would produce either a consensus plan for the needed upgrades or a list of alternative plans. Each plan would provide a phased approach, which could correct existing transmission deficiencies and provide transmission for specified increments of new wind generation. Oak Creek recommends that the study group complete its work within four months and that SCE be required to submit a CPCN application within four months after completion of the study group process. If the study group does not produce a consensus plan, SCE's CPCN application would be required to include each of the study group's alternative plans. The Commission's CPCN order would make the findings required by § 399.25. SCE's obligation to construct the upgrades would be contingent upon the identification of winning RPS bids in a minimum amount consistent with each plan increment. Oak Creek concludes that its approach would create the equivalent of a "batched" result without requiring the generators or SCE to engage in difficult group formation activities. It would also allow the RPS bidding process and the CPCN process to proceed in parallel rather than serially.

SCE and PG&E oppose Oak Creek's suggestion that transmission planning procedures be modified for Tehachapi wind generation, asserting that, in enacting SB 1078, the Legislature made no distinction among types of renewable generation and did not grant special consideration to any specific geographic area. These parties submit that preferential treatment for Tehachapi developers would be unfair and detrimental to developers in other areas.

SCE contends that planning a Tehachapi transmission project in the absence of interconnection applications and developers willing to fund the project would be difficult, if not impossible, under current interconnection tariffs. SCE points out that its interconnection process does not preclude generators from coordinating together, filing one interconnection application, and agreeing among themselves how to share transmission upgrade costs. SCE maintains, however, that it cannot unilaterally postpone and batch the processing of interconnection applications, cannot share one applicant's information with other generators without prior consent, and cannot mandate cost sharing arrangements counter to its tariffs. SCE argues further that the Commission has no jurisdiction to require batch processing since FERC has jurisdiction over interconnection applications.

SCE states that it supports regional transmission planning but that the Commission should not require a separate Tehachapi study group process. SCE points out that it is required to study alternatives in conjunction with a CPCN application and argues that the proper forum for Commission consideration of alternatives is the CPCN application and related hearings.¹³ SCE also explains that the ISO considers alternative transmission arrangements as part of its review of proposed transmission projects. SCE commits that it will study alternative Tehachapi configurations described by other parties in this phase, but cautions that such alternatives may not appear in the CPCN application if they are found to be inferior to other alternatives.

SCE maintains that a CPCN application cannot be completed in four months as Oak Creek requests. SCE reports that it has begun environmental studies based on the 2002 conceptual study, to expedite preparation of a CPCN application. However, environmental assessments could take a minimum of a year to complete if other routes are chosen. In addition, SCE states that, before a CPCN application could be filed, it would need to know, among other things, project sponsors, the specific amount and location of the proposed generation, electrical characteristics of the new generating facilities, and the results of system impact and facilities studies. Detailed rights-of-way reviews, identification of technical and routing alternatives, and mitigation measures would also be required. SCE states that potential line routes and substation locations could change depending upon which wind projects actually go forward.

SCE argues that inclusion of multiple transmission plans in a CPCN application, as Oak Creek suggests, would waste "vast amounts" of ratepayer dollars, because such an approach would require separate environmental and engineering studies for each plan and the required alternatives for each plan, to the extent they do not overlap.

The ISO agrees with Oak Creek that Tehachapi upgrades should be phased to match the development of additional wind in the Tehachapi area. It also supports Oak Creek's recommendation that a study group of relevant parties be created to assess Tehachapi transmission alternatives, stating that this recommendation is largely consistent with the ISO witness' recommendation that SCE, PG&E, and the ISO undertake a joint analysis of alternatives including linkage with the PG&E transmission system. Because of concerns that SCE might not adequately consider regional alternatives, the ISO maintains that studies of alternatives should be undertaken cooperatively with an adequate opportunity for input by all affected entities. The ISO believes that a review of alternatives should take place before environmental studies are undertaken, in order to avoid spending resources to evaluate the environmental impacts of alternatives that may ultimately be found to be infeasible for other reasons. Because the ISO's tariff provides that interconnecting generators pay for system impact and facility studies, the ISO states that, if an analysis of alternatives takes place before an interconnection request, there would have to be agreement on the allocation of study costs.

During the hearings, Oak Creek raised what it called a "Catch 22" or "chicken-egg" concern regarding the RPS process if developers must include estimates of transmission costs in their RPS bids but the transmission provider does not estimate transmission costs until after an RPS bid is selected and an interconnection application submitted. However, Oak Creek recognized in its opening brief that the requirement established in D.03-06-071 that proxy transmission costs be developed for bidders without completed cost estimates is responsive to this concern.

B. Discussion

The current transmission planning process evaluates transmission needs on a project-by-project basis for new generation projects that have progressed to the point of submitting interconnection requests. This approach may be well-suited for large generation projects or for projects that are not sited near other new projects. However, it is seriously flawed for the Tehachapi area and potentially for any other areas where generation from multiple relatively small projects would be transported most economically over shared transmission upgrades. The current transmission planning approach impedes identification and timely construction of the most cost-effective Tehachapi upgrades.

SCE asserts that wind generators could coordinate to file a single interconnection application for multiple generation projects, pointing out that a group of wind developers joined together to sponsor and fund SCE's 2002 conceptual study. However, a joint undertaking for construction of major transmission upgrades would be much more complicated and could entail significantly more risk than co-sponsoring conceptual studies. As an example, if one member of a developer consortium dropped out, this could raise questions about whether the transmission project design would have to be redone for the remaining developers. With developer funding, as SCE advocates, the remaining members could be required to pay more than anticipated for their respective shares of the upgrades. While utility funding of § 399.25 projects alleviates this latter concern, a requirement that Tehachapi developers enter into consortia to sponsor transmission upgrades could still impede timely development of cost-effective transmission upgrades.

SCE maintains that it could not unilaterally choose to batch process interconnection applications. We note, however, that FERC's new standard interconnection agreement appears to allow batch processing, in that it would allow a transmission provider to establish what it calls a "queue cluster window" for conducting interconnection system impact studies.¹⁴ Thus, any impediment to batch processing appears to lie in existing interconnection tariffs rather than in FERC policies.

The design of transmission upgrades based on batch processing of generation projects, whether initiated voluntarily by developers or undertaken pursuant to tariffed provisions as provided in FERC's new standard interconnection agreement, would appear to be an improvement over the current project-by-project approach. However, even on a batched basis, transmission planning for resource-rich areas such as the Tehachapi region that focuses only on the transmission needs of projects that have submitted interconnection requests would still be sub-optimal because it would not take advantage of economies that would be realized if transmission upgrades are sized to meet multi-year transmission needs as additional generation is constructed.

Construction of a new transmission upgrade in the Tehachapi region following each RPS auction to meet just the needs of that year's winning bidders could result in piecemeal transmission additions, thus inflating total transmission costs and potentially increasing environmental impacts. To the extent this approach needlessly increases Tehachapi transmission costs, Tehachapi projects would be at an unfair disadvantage and potentially could be priced out of the RPS process. In addition, the total cost of renewables procurement could increase to the detriment of consumers.

We conclude that transmission planning for the Tehachapi area, and potentially for other areas with similar characteristics, should be modified to avoid these deleterious outcomes. In order for upgrades in the Tehachapi area to be most cost-effective and least environmentally disruptive, a comprehensive Tehachapi transmission development plan should be prepared. This plan should provide for an orderly and logical expansion of the transmission system based on the magnitude of the wind resource identified by the CEC, engineering and cost considerations, and recognition of other relevant factors including regional transmission needs. Consistent with § 399.25, the relevant utilities would fund all Tehachapi-related network transmission facilities that the Commission finds necessary to facilitate achievement of renewable power goals. Rather than giving an unfair benefit to Tehachapi generators, as SCE claims, a comprehensive transmission development plan will correct existing flaws that may impede the cost-effective development of renewable projects in the Tehachapi area.

We agree with the ISO and Oak Creek that the comprehensive transmission development plan should provide for a phased expansion. Rather than being tailored to a pre-specified group of generation projects, each phase would reflect the next logical expansion step, and may be sufficient to meet transmission needs of several years' RPS bid winners. Without prejudging the outcome of the study group process, we note that it may be prudent to begin with relatively small transmission projects with relatively short lead times, proceeding to larger, more expensive phases with longer lead times if warranted by procurement results. The record was not developed sufficiently to make such a determination, but the interconnection of PG&E and SCE transmission systems, as suggested by the ISO, may be a logical, cost-effective first step that would allow wind development to proceed while larger, longer-lead time transmission upgrades are pursued.

We require that a collaborative study group be convened to produce the comprehensive development plan for phased expansion of transmission capability in the Tehachapi area. The ISO and Commission staff should coordinate the study group, with participation by SCE, PG&E, wind developers, and any other interested parties. We encourage the CEC to participate in the collaborative study process. We envision the study group to function in a manner similar to the Southwest Transmission Expansion Planning (STEP) process.

The study group should commence its work immediately, without waiting for RPS solicitations, the submission of interconnection agreements, or the filing of a CPCN application. Study group work may be informed by the RPS process, to the extent RPS results become available during the group's efforts.

The study group should assess a full range of alternative configurations for Tehachapi upgrades, including SCE's 2002 conceptual study results, alternatives identified in this phase, SCE's transmission plan submitted in the phase of this proceeding related to the SB 1038 renewables transmission plan, and any other alternatives that the study group may develop. It should take a regional approach, looking, e.g., at alternatives that could connect the SCE and PG&E systems as the ISO has suggested. The study group should assess the extent to which each alternative configuration would assist in the transport of power to companies other than SCE in order to meet their RPS goals. This is a particularly important consideration since SCE may meet its RPS goals before other companies do, and may not itself need to procure all of the cost-effective Tehachapi power that may become available.

The study group should develop a phased plan which, ultimately, could accommodate the full Tehachapi wind resource potential identified by the CEC. Initial project design should be responsive to any unresolved reliability concerns of the existing transmission system. Transmission line routes and substation locations should be informed by currently proposed wind projects but should also be designed to accommodate other wind development in the area, based on knowledge regarding desirable wind locations. In its recommendations, the study group should identify the demarcation between gen-ties and network transmission facilities to the extent feasible.

We urge the study group to develop a single proposed transmission development plan, at least for initial portions of the phased upgrades. If a consensus does not emerge, the study group should explain clearly the factors that would influence a choice among any alternative proposals it makes.

The study group should assess how much wind capacity each phase of the proposed upgrades could transport. The study group should develop recommendations regarding the procedures whereby each phase of the upgrades would be triggered, e.g., the receipt of winning RPS bids of specified magnitudes. We expect that this issue would be addressed further in assessing the need for Tehachapi upgrades in the context of the subsequent CPCN application(s). We contemplate that CPCN applications would be filed in an orderly fashion in anticipation of the receipt of winning RPS bids that would need the capacity of each phase of the proposed upgrades.

As components of a comprehensive Tehachapi transmission development plan, separate transmission projects may emerge which would require separate CPCN applications. Particularly if SCE and PG&E transmission systems are interconnected as the ISO suggests, different entities may own different portions of the upgrades. If a new transmission line is contemplated as a separate phase of Tehachapi development, that line would require a separate CPCN application. To comply with California Environmental Quality Act (CEQA) requirements, a Proponent's Environmental Assessment accompanying a CPCN application should contemplate the maximum reasonably foreseeable buildout for the utility-owned assets, e.g., a double circuit line even if only one circuit is planned to be energized initially and even if the CPCN application requests authorization for only the first circuit. The study group should address how long it would take for the anticipated transmission owner to prepare and file each of the needed CPCN applications based on the study group recommendations.

The study group should provide cost estimates for at least the first phase of the proposed upgrades, which may assist in the development of transmission cost adders for RPS bids. We note that work has begun in this proceeding on development of transmission cost adders for the first RPS auction. It is not our intent that RPS auctions be delayed pending study group results.

The study group should address whether the transmission planning approach adopted for the Tehachapi area should also apply in other areas of the state with renewable resources. We note that the transmission plan for renewable resources prepared by Energy Division indicates a need for new high voltage transmission lines in several counties if renewables development proceeds consistent with the CEC's Plausible Resource Scenarios.

Wind developers paid the cost of SCE's 2002 conceptual study, and the ISO and SCE suggest that wind generators should also be required to pay the cost of further studies of this nature. Oak Creek recommends to the contrary that study group costs be recoverable from all customers since all customers benefit from the state renewable mandate. Consistent with our understanding regarding the STEP process, each participant in the study group should bear its own costs.

The study group should prepare a report containing its findings and recommendations. SCE should file the study group report in this proceeding within six months following the effective date of this order, with service to all parties. All parties may file comments on the study group report within 21 days after SCE files it, and may file reply comments within 14 days after initial comments are due, as specified in this order.

SCE reports that it has commenced work on environmental studies that would be required for a CPCN application based on its 2002 conceptual study. That work should continue, in anticipation of filing a CPCN application for the first phase of Tehachapi upgrades consistent with study group recommendations. Based on the study group results, SCE should pursue ISO review of Tehachapi transmission upgrades and should file a CPCN application for the first phase of Tehachapi transmission upgrades consistent with the study group recommendations no later than six months following submission of the study group report, unless further action in this proceeding relieves it of this obligation.

Oak Creek recommends that the Commission adopt an expedited CPCN process for transmission or distribution facilities that may be necessitated by a specific generator but that are not considered to be a gen-tie, with a requirement that SCE file a CPCN application for such construction within four months of receiving a written request from a generator. We will not impose a four-month time limit on the filing of such a CPCN application, since environmental studies may require a year to complete, as SCE has explained. Nor can we bypass or shortcut CEQA requirements as Oak Creek suggests. We do expect SCE to proceed expeditiously with preparation of CPCN applications, whether in response to study group recommendations or upon individual developer request.

We agree with SCE that Tehachapi wind development should not receive special treatment in the RPS process, in that the costs of needed transmission upgrades should not be masked or other steps taken to give Tehachapi developers an unfair advantage. However, the problems we have identified with current transmission planning extend to the RPS process. Improper inflation of transmission costs assigned to projects in the Tehachapi area, or other similarly situated areas, could impede such projects' ability to compete fairly in the RPS process and could skew the least-cost, best-fit ranking, to the detriment of both developers and consumers.

As transmission cost adders are considered and developed in this proceeding, transmission costs assigned to Tehachapi wind generation projects should be based on logical, cost-effective transmission expansions rather than upgrades that are limited to the needs of specific projects that may bid in a particular year's RPS auction. Once a comprehensive transmission expansion plan is developed, transmission cost adders should be based on that plan. Transmission costs should be reflected on a pro rata basis in the rank ordering of individual bids, since assessing upgrade costs to the first generator whose output may trigger a need for the upgrade could impede development of a cost-effective resource area. The pro rata costs would reflect the portion of the total increase in transmission capacity that would be used by the generation project. For a phased expansion, all wind projects that would use transmission capacity created by one phase would be assigned the pro rata cost for that phase. This approach will improve the reasonableness of Tehachapi transmission cost adders, make the RPS results more consistent across resource areas and over time, and avoid "free rider" problems.