The CAISO Annual Control Area Grid Study

The CAISO's transmission planning process relies heavily on Participating Transmission owners (PTOs), which develop and submit annual transmission reports to the CAISO. The annual transmission plans have a rolling 10-year time-horizon.

Every year the three IOUs develop a transmission expansion report that looks out 10 years. The purpose is to assure that the system meets WECC/NERC reliability standards. The ISO reliability standards are more stringent than those of the WECC, which is essentially a floor for basic reliability requirements. After evaluating the three IOUs' yearly transmission reports, the ISO compiles a yearly control area grid study that has a 5-10 year outlook.

The CAISO's Focus Studies

In addition to yearly planning reports, the ISO has focus studies for major projects that are usually very difficult, expensive, and have large implications for reliability (e.g. Jefferson Martin, Valley Rainbow). A high level environmental review is conducted on project alternatives. Once a single project emerges from alternatives, a more in-depth environmental review is conducted by the utility. The time frame for project evaluation varies considerably between projects ranging from project evaluation that takes several months to more complicated projects that require years of development. The ISO Board approves projects that have an estimated cost greater than $20 million. ISO management approves projects that have estimated costs less than $20 million.

Once a project emerges from the focus study or yearly reports, the ISO asks the IOUs to seek a CPCN permit from the Commission. Before this point a lot of planning, consideration of alternatives, discussion with stakeholders, and other consideration has gone into the process. Historically, the CPUC has not been formally involved in the ISO planning and project development process⁶. By the time the project is before the CPUC for permitting, it has the ISO's support.

Interconnection Studies

When a new generator wishes to interconnect to the CAISO grid the Transmission Owner conducts the power flow analysis and makes a determination regarding the impacts to the transmission system that will occur with the proposed interconnection. Generally, system impact studies determine the required transmission upgrades that will be required to accommodate the new facility and estimates the transmission cost impacts. The CAISO then verifies the results and conducts an independent analysis of the transmission impacts and required upgrades to accommodate the new generator interconnection. As discussed in more detail in the section regarding federal issues, the FERC policies regarding the cost responsibility for transmission upgrades required to interconnect a new generator bear strongly on the incentives that generators have when determining where to locate. Pursuant to FERC's Order 2003, an interconnection cannot be denied.

Annual Reliability Must-Run Studies

Reliability Must-Run (RMR) units are generation units that the CAISO has determined have to run for local reliability reasons. They are predominantly in transmission-constrained areas such as the San Francisco peninsula where local generation near load balances the limitation on imports over constrained transmission lines. The ISO conducts an annual evaluation to determine which units are required for local reliability. Once that determination has been made a one-year contract is executed that assures that the unit will be available when required for local reliability and sets out what that generator will be paid for its power. Since load pockets are predominantly an issue in Northern California, the vast majority of RMR contracts are for units in the PG&E service territory.

Fundamentally, annual RMR contracts complicate the coordination of infrastructure planning. While RMR contracts serve the valuable purpose of assuring local reliability, they also serve to further fragment the transmission planning and procurement processes. The annual RMR evaluation detracts from full cost assessment of transmission as well as complicates an assessment of generation/transmission investment trade-offs. Ideally, local reliability would be integrated into the comprehensive analysis of infrastructure need. That is, local reliability should be integrated into the evaluation of whether local generation, new transmission, or demand response best meets projected load.

Recommendation

1. As part of its evaluation of the IOUs' long-term procurement plans in R.01-10-024, the Commission should integrate local reliability considerations into the utilities overall procurement portfolio to reduce the need for expensive annual RMR contracts. This approach would facilitate a more comprehensive approach to resource planning as opposed to the fragmented assessment that is currently the case. Such an approach would increase the effectiveness of resource procurement, whether generation or transmission. It would also reduce costs to ratepayers⁷. The total cost of RMR contracts in 2003 was $360 million. There are several reasons that RMR contracts are expensive: 1) the generator is in an advantageous bargaining position since by their very nature RMR contracts are required for reliability; and 2) most of the generating units are very old and inefficient. The IOUs in their long-term procurement plans are in a position to foster a more comprehensive approach to meeting local and system needs through long range plans that incorporate generation, transmission, and demand-side trade-off analysis from a least cost perspective.

Addressing local reliability issues in the utilities' long-term plans would also provide a forum for the Commission to act in accordance with the CEC assessment of infrastructure and the environmental performance of generation in the context of IOU procurement. Pursuant to SB 1389, the CEC is charged with assessing environmental performance of electric generation by looking to generation efficiency and air emissions control technologies and determine, statewide and regionally, the environmental consequences of generation additions displacing existing facilities (section 25303 (b)(1)).

Many RMR units are old, polluting, and inefficient plants. It was originally hoped that the merchant generators that purchased RMR units, such as Potrero and several in Pittsburg, would either upgrade or modernize the plants with cleaner burning, more efficient units. In many instances, that has not occurred. One of the predominant reasons is that financing for such investments is scarce or increasingly expensive as electric prices have fallen, and regulatory uncertainty persists. These circumstances have already resulted in some plant owners choosing to shut down units rather than invest in the environmental technologies that would allow the units to meet air quality standards. The CEC in its evaluation of environmental performance and infrastructure assessment will have to grapple with the question of local reliability and inefficient units. Incorporating this evaluation in the utilities long-term procurement plans makes sense since this approach should result in IOU actions that improve environmental performance, reduce RMR costs, and contribute to the statewide objectives identified by the CEC. It will allow for a comprehensive approach to meeting both system and local reliability needs. This forum will also foster collaboration between the CPUC, CAISO, and the CEC in addressing these complicated and overarching issues.

2. To ease the analysis and streamline the process once applications are filed at the Commission, the CPUC advisory and advocacy staff should be more active in the ISO planning process. This will provide a better understanding of what work has gone into a particular project prior to it being selected by the ISO, what alternatives were evaluated, and what criteria was used in the selection process. CPUC formal involvement and input in the earlier stages of project development and evaluation of alternatives would constitute a proactive means of decreasing the likelihood of delays and complications once the CPCN application comes before the CPUC. In addition, up front investment in the ISO project evaluation process will allow the CPUC to provide input into the assessment process and increase the chances that the selected project is the most desirable one.