Balkanized Transmission Planning

Transmission planning in California is balkanized. Many states either have generation and transmission siting under the purview of one state agency (e.g. Arizona, Nevada) or do not have any state generation siting at all (e.g. Idaho, Pennsylvania, Alaska). In contrast, California has split generation and transmission siting authority between two state entities and among local governments. The California Energy Commission (CEC) oversees generation siting for thermal and nuclear units 50 MW or greater. For non-thermal units, such as renewable fuel sources, and units under 50 MW, local government jurisdictions conduct siting. Transmission projects sponsored by municipal utilities are reviewed and sited by the municipal board. Pursuant to PU Code section 1001 et seq., the Commission is responsible for assessing the need for new utility transmission infrastructure, both from a reliability and economic standpoint, and granting or denying a Certificate of Public Convenience and Necessity (CPCN).

In addition, AB 1890 gave the CAISO responsibility for determining the need for new transmission. While the CAISO transmission planning process determines the need of particular projects to maintain reliability and meet demand, it does not result in a CPCN. That is, once the utilities have undergone the CAISO transmission planning process and selected a particular project, the utilities then bring that project to the Commission for an additional need assessment, economic evaluation, and environmental assessment in order to obtain a CPCN.

Figure 1 describes the current transmission planning process:

Figure 1

The recent adoption of SB 1389 potentially complicates the transmission assessment responsibilities in California. SB 1389 directs the CEC, in coordination with the CPUC and CAISO, to produce a bi-annual integrated energy policy report. The report should include "assessments and forecasts of all aspects of energy industry supply, production, transportation, delivery and distribution, demand, and prices (Public Resources Code section 25301 (a)). Section 25301(c) states that the integrated policy report should include an assessment of system reliability and the need for resource additions. Furthermore, SB 1389 explicitly states that the CEC's report should evaluate the availability, reliability and efficiency of the electricity infrastructure and system including western regions and California electricity and transmission system capacity and use (section 25303 (3)).

While transmission assessment and siting is a state function, FERC's jurisdiction over transmission ratemaking and interconnection standards has a strong impact on the financial incentives generators have when they propose a project in a particular location. For example, the current interconnection rules and transmission cost allocation do not provide financial disincentives to generators that site in remote locations away from load centers or want to interconnect in a location that necessitates extensive transmission upgrades. Under these circumstances a generator will site in the location most economically advantageous to it, usually near a water or fuel source. Often these locations are not near load centers and may not be the most economically advantageous locations for ratepayers. This situation is exemplified in the large amount of new generation located in Arizona, Colorado, and Nevada much of which is intended to serve California customers. The result is that generators are sheltered from the transmission costs that their particular projects impose and consumers are potentially disadvantaged by transmission costs in excess of those that would have been the case if generators were forced to internalize the real cost of siting decisions. In other words, consumers are potentially subsidizing generation siting decisions through excessive transmission costs.

This phenomenon has increased the pressure on the transmission systems, both due to the overall demand for transmission to accommodate new generation, and also because transmission systems were not designed for the market dynamics that have come with deregulation. Transmission systems were designed to transmit power over relatively short distances to load centers. With the onset of deregulation and regional wholesale markets, the use of the transmission system has drastically changed to accommodate a much larger overall volume of energy transactions that are occurring over greater distances³.

Generation siting and transmission planning are not coupled as they were in the past. The lack of coordinated planning has been compounded by the lack of alignment between good planning and the financial incentives generators have when choosing where to locate. This situation has resulted in the problem of transmission chasing generation with the potential implication that consumers will be forced to pay for more transmission infrastructure or infrastructure at higher cost than otherwise would be the case if overall planning were better coordinated.

To most fully understand the interplay between the various processes that impact transmission planning, it is important to understand the CPUC and CAISO transmission assessment processes. To capture the sequencing more realistically, the CAISO process is described first since that is where the planning and project proposals begin. Once a determination on a particular IOU project has been made at the CAISO, the utility then proposes the project to the Commission.