XIII. Phase 5, Generic Economic Methodology for the Evaluation of Transmission Projects

It is generally accepted that transmission projects are undertaken for two reasons: reliability and economics. Reliability standards are issued by the North American Electric Reliability Council (NERC), the Western Electricity Coordinating Council (WECC) and the California Independent System Operator (CAISO). These standards are implemented by the utilities with little or no controversy (keep the lights on).

On the other hand, the evaluation of the need for transmission projects not required for reliability, but which could yield economic benefits, and to whom the benefits would apply (a set of ratepayers, consumers as a whole, electricity producers, or a combination of the foregoing) is extremely complex and methods are still being developed. The essential problem is that the benefits depend on future conditions which cannot be accurately predicted: the cost of fuel, interest rates, construction costs, the quantity of hydropower available and the behavior of merchant producers in optimizing their return. The CAISO has been working on a generic methodology for more than three years; the latest effort is called Transmission Economic Assessment Methodology (TEAM), which calculates the benefits of transmission and generation on an integrated basis. However, the Commission staff and others have found deficiencies in the methodology.

The development of a generic methodology for evaluating the economic feasibility of transmission infrastructure is still a work in progress. When it is successfully concluded, the Commission may defer the determination of need for transmission upgrades to the CAISO, see Section A.2.7, above. The application of this methodology is a key element in the LTPP because it is a means of integrated resource planning.