The Commission recognizes its statutory obligation to assess whether a project is needed. PU Code Section 1001 states:

"no . . . gas . . . [or] electric corporation . . . shall begin the construction of a street railroad, or of a line, plant, or system, or of any extension thereof, without having first obtained from the commission a certificate that the present or future public convenience and necessity require or will require such construction."

The Commission believes that by adopting an economic methodology that the CAISO and IOUs will apply to transmission projects, the Commission would be fulfilling its statutory mandate under Section 1001, which places on the Commission the responsibility to determine that a utility project is needed. The advantage of this approach is that it permits the Commission to rely on the CAISO's determination of need in a manner that eliminates a redundant review and streamlines the transmission evaluation process. The Commission, after validating the CAISO's application of the methodology would make a finding of need in the CPCN consistent with the CAISO need assessment.

The Commission acknowledged in its decision regarding additional transmission to the Southwest⁷, D.01-10-070, that traditional methods for evaluating economic transmission projects are inadequate, especially in capturing market dynamics that impact the analysis of project benefits. For this reason, the Commission asked the CAISO and IOUs to develop a more robust methodology to capture and evaluate the dynamics of the market. The methodology is intended to consider market power, strategic bidding, and other complicated factors that bear on the price of power and therefore the benefits that can accrue to consumers from new transmission projects. On December 15, 2003, the Administrative Law Judge in that proceeding issued a ruling proposing a schedule whereby the Commission will assess and validate the economic methodology that the CAISO has developed pursuant to D.01-10-070⁸. A decision is anticipated in the fall of 2004.

This Rulemaking is intended to facilitate the application of the Commission's determination on the economic methodology in the Commission overarching transmission planning process. In incorporating the CAISO's determination of need into the Commission's CPCN process, the Commission intends to comply fully with its statutory obligation under PU Code Section 1822, which provides parties with access to computer models that are used in Commission proceedings. PU Code Section 1822 (a) states:

Any computer model that is the basis for any testimony or exhibit in a hearing or proceeding before the commission shall be available to, and subject to verification by, the commission and parties to the hearing or proceedings to the extent necessary for cross-examination or rebuttal, subject to applicable rules of evidence...

Therefore, with the intention of improving the transmission assessment process, the Commission proposes to add the following language to General Order 131-D, Section III. A.:

The Commission will utilize the CAISO's determination of whether a transmission facility is required for economic reasons to the extent that the CAISO has analyzed the need for the proposed transmission facility using a Commission-adopted economic methodology. Once the transmission facility is before the Commission for a CPCN, the Commission will assess the application of the adopted economic methodology to the project without revisiting the question of need. The Commission will implement this provision consistent with PU Code 1822 and CPUC Rules of Practice and Procedure Article 17.1.

The Commission is willing to consider using the CAISO's need determination for reliability projects to the extent there is an agreed upon standard. Therefore, the Commission requests that the CAISO propose the standard that it intends to use in determining whether a transmission project is required to maintain or enhance system reliability.

The Commission requests comments from all interested parties regarding this proposed change to the General Order. In particular, we encourage the CAISO to participate actively in this proceeding to further existing cooperative efforts to streamline and improve the transmission planning process. We are aware that the California Energy Commission has undertaken efforts to incorporate transmission planning into its Integrated Energy Policy Report. We invite the CEC and any other involved or interested State agency to collaborate fully in this proceeding.