VI. Request for CPCN

A. Project Need

SDG&E seeks a CPCN for the Miguel Mission Project pursuant to Pub. Util. Code § 1001, which requires that a utility receive Commission approval prior to initiating construction of new facilities and consistent with General Order 131-D, which addresses procedural requirements for siting transmission lines.

In D.03-02-069, the Commission found a need for the Miguel Mission Project. The Federal Energy Regulatory Commission (FERC) has already determined a need and the ratemaking treatment for the project in Docket EL02-54-000. Overall, the project would relieve congestion over the existing system and increase the system's ability to transfer electricity both from two new power plants in Mexicali, Mexico built by Sempra and Intergen, and from new generation located in Arizona and scheduled into the CAISO control area at Palo Verde. The California ISO estimates congestion management fees paid by customers of SDG&E, SCE and municipal utilities (collectively ratepayers within the SP15 zone to whom the costs of managing congestion within the zone are spread) between July 2003 and March 2004 equaled $34.4 million. The ISO states congestion management fees at some level are likely to continue until and unless additional transmission is constructed in the region.

B. Community Values

Pub. Util. Code § 1002 requires the Commission to give consideration to community values, recreational and park areas, historical and aesthetic values, and influence on the environment. These considerations are among those analyzed as part of the CEQA review process.

C. Economic Viability

D.03-02-069 found a need for the Miguel Mission Project on the basis that it would provide economic (rather than system reliability) benefits. Although the Commission found the project to be cost-effective, D.03-02-069 specifically found that SDG&E had not demonstrated the reasonableness of its cost estimates. It also found that the cost-effectiveness of the project would change if project costs increased or additional generating facilities were to become available in the San Diego area. Specifically, the Commission found that the project's "net benefits...could greatly diminish or disappear entirely if actual project costs are substantially higher than those projected in SDG&E's analysis, particularly if energy cost savings are adversely affected...by new generation development in San Diego North."

The cost-benefit analysis applied to the project in D.03-02-069 is no longer accurate due to changes in cost estimates and other circumstances. SDG&E has provided the Commission with information estimating the project cost to have increased from $26 million for the Miguel-Mission line alone to $89.7 million for the larger project described above. At the same, the Commission has gained a better understanding of the actual costs associated with managing congestion that results from insufficient transfer capability along the existing transmission facilities in the San Diego region. In addition, SDG&E filed A.04-03-015 on March 8, 2004, seeking authority to construct new transmission facilities that would apparently augment the Miguel Mission project and are taken into account in the economic analysis of the larger project. These plant additions would affect the economic viability of Miguel Mission project.⁹ Finally, the project alternative recommended by the final EIR proposes modifications to the project that would significantly increase project costs.

In light of these changes in circumstance, the scoping memo issued in this proceeding required SDG&E to provide updated cost-benefit analysis of the project. In its response, SDG&E explains that it used the model applied in D.03-02-069 of Henwood Energy Associates to update the economic analysis. It ran the models assuming the addition of new generation at Otay Mesa and Palomar of 480 MW and 1,200 MW, respectively, project cost modifications due to changes in project scope, and changes in area congestion provided by the ISO. With these assumptions, SDG&E estimates minimum annual net benefits of $6.8 million and $54.9 million for SDG&E and California ISO customers, respectively, by the year 2010.¹⁰ These benefits reflect energy cost savings only and not savings that would occur with lower ISO ("dec bid") payments to generators, re-dispatch costs, and RMR costs associated with ISO efforts to manage congestion on the system that would be eased by the Miguel Mission Project. SDG&E states factoring in these reduced costs would increase project benefits substantially.

The ISO's declaration dated April 5, 2004, responding to the ALJ and Assigned Commissioner's ruling dated March 31, sheds further light on the actual costs associated with managing the real-time constraints at Miguel. For the period from July 2003, when the Intergen and Sempra plants became operational, until March 2004, managing the real-time constraints at Miguel cost $34.4 million.

The underlying cost estimates presume construction of the project as proposed. Including those higher costs in the calculation reduces the annual net benefits for the project slightly to $6.7 million for SDG&E customers and $54.1 million for ISO customers.

We find the project will be economic under the cost and cost savings assumptions presented by SDG&E.

D. Updated Cost Cap

Pub. Util. Code § 1005.5 requires a cost cap under certain circumstances:

Whenever the commission issues to an electrical . . . corporation a certificate authorizing the new construction of any addition to or extension of the corporation's plant estimated to cost greater than fifty million dollars ($50,000,000), the commission shall specify in the certificate a maximum cost determined to be reasonable and prudent for the facility.

D.03-02-069 adopted a cost cap of $26 million for the Miguel Mission Project. More recent information confirms that the cost of the Miguel Mission Project will exceed $50 million. We therefore must adopt a cost cap using more current information.

SDG&E's April 16, 2004 declarations include an updated project cost estimate of $89.7 million.¹¹ The primary reason for the much higher estimate is that the original estimate of $26 million applied only to the circuits. The updated estimate reflects the costs of the entire project, including work on existing line facilities and modifications to the substations. The total project cost increases by $6.6 million for additional costs associated with the environmentally preferred route we adopt today. Detailed engineering estimates have not been completed for the routes we select, so there is some uncertainty associated with the cost cap we adopt today. However, the cost cap contains sufficient contingency factors to make it reasonable.

We have no reason to believe that SDG&E cannot complete its project within the cost cap we adopt today. If the final construction cost estimate exceeds the cost cap we have adopted, however, SDG&E may exercise its right to seek an increase in the cost cap pursuant to Pub. Util. Code § 1005.5(b). We authorize a total project cost cap of $96.3 million for the adopted Miguel Mission Project.

E. Project Milestones

D.03-02-069 found that Miguel Mission project would only be economic to customers if at least 1,660 MW of generation were to be developed in the California-Mexico border region. The order adopted a variety of project milestones to be completed by SDG&E that would facilitate the development of additional electrical capacity in the region. The scoping memo in this proceeding directed SDG&E to provide information about the status of activities covered by the adopted milestones.

In its declaration dated April 1, 2004, SDG&E confirms that all milestones have been met with the exception of milestones for which a Commission order is required in this proceeding. In addition, SDG&E states it did not install a second transformer at the Imperial Valley Substation because it determined that a second transformer was needed instead at the Miguel substation. SDG&E states it informed the Commission and parties of this change in plans in I.00-11-001. It installed the second transformer at the Miguel substation in December 2003 and intends to energize it in June 2004.

We find that SDG&E has completed the milestones required by D.03-02-069 with one modification, which was the subject of notice by SDG&E and which is reasonable.

F. CPCN

This decision finds that SDG&E's Miguel Mission Project is needed to promote more economic and reliable operation of the electrical system in the San Diego area and statewide. We adopt a modified cost cap and find that SDG&E has fulfilled all required milestones. Accordingly, this decision grants SDG&E a CPCN for the Mission Miguel Project, as described herein and modified according to the environmentally preferred alternative described in the final EIR.