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 CAISO 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.¹⁰ The CAISO states congestion management fees at some level are likely to continue until and unless additional transmission is constructed in the region. The Miguel Mission project would substantially reduce, and for much of the year eliminate, congestion management costs associated with the Miguel constraints and bolster the reliability of the transmission system grid-wide. The benefits of the Miguel Mission project will accrue to all California customers because the project will improve the ability of the CAISO to manage the statewide system more economically and reliably.

While the Miguel Mission project was originally determined to be needed for economic reasons, the chronic congestion on the existing lines and the resultant real-time operational difficulty facing the CAISO also raises reliability concerns.¹¹ The Miguel Mission project has demonstrable economic benefits, as detailed below, yet we also acknowledge that the project will address real-time congestion management problems and associated operational difficulties the CAISO is currently experiencing.

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. In the present Application, SDG&E requests a CPCN for a project - defined in Section IV of this decision - that is part of an overall congestion upgrade plan. We consider the cost-effectiveness of the overall congestion upgrade plan in our review of SDG&E's application, along with the specific costs associated with the project SDG&E proposes in this application. 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."¹²

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 cost of the project to be $31.4 million. The estimated cost for the overall congestion upgrade plan is $89.7 million. At the same time, 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. Since the Commission approved D.03-02-069, 2,152 MW of plant retirements or mothballing has occurred, predominantly in the SP15 zone.¹³ These retirements have added to the costs associated with managing congestion at Miguel and increased the difficulty in maintaining system reliability.

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 pverall congestion upgrade plan. 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 CAISO. With these assumptions, SDG&E estimates minimum annual net benefits of $6.8 million and $54.9 million for SDG&E and CAISO customers, respectively, by the year 2010.¹⁴ These benefits reflect energy cost savings only and not savings that would occur with lower CAISO ("dec bid") payments to generators, re-dispatch costs, and RMR costs associated with CAISO 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 CAISO's declaration dated April 5, 2004, responding to the ALJ and Assigned Commission 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 to March 2004, the costs of managing the real-time constraints at Miguel totaled $34.4 million. While these costs are primarily attributed to the lack of deliverable power from the Intergen and Sempra facilities, the congestion at Miguel has been exacerbated by increased power flows from generation in Arizona and the retirement or mothballing of plants within SP15.

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

D. 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 be $31.4 million, significantly below the statutory $50 million minimum requiring a cost cap. We therefore need not adopt a cost cap in today's decision.

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 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.