Background
Section 399.2.5 was enacted to promote California's use of renewable energy resources by assisting in efforts to ensure that California has the necessary transmission infrastructure in place to meet its renewables portfolio standard (RPS) goals. Subdivision (a) of the section states:
Notwithstanding Sections 1001 to 1013, inclusive, an application of an electrical corporation for a certificate authorizing the construction of new transmission facilities is necessary to the provision of electric service if the commission finds that the new facility is necessary to facilitate achievement of the renewables portfolio standard established in Article 16 (commencing with Section 399.11).
Generally, Section 399.2.5 provides "backstop" cost recovery mechanisms to allow utilities to recover through retail rates the costs of transmission facilities that are not approved by the Federal Energy Regulatory Commission (FERC) for recovery through transmission rates. This increased certainty of recovery allows utilities to proceed with the development of transmission facilities that are necessary to help attain RPS goals and that otherwise might be too risky due to the inherent uncertainty of renewable resource development.
Assembly Bill (AB) 1954 amended Section 399.2.5, effective January 1, 2011. The amendments added new paragraphs (c)(1) and (c)(2) to the statute, and these paragraphs further this same legislative intent to provide up-front assurance of Commission "backstop" cost recovery in retail rates for the early planning and permitting work necessary to turn identified plans of service into actual transmission projects that help to achieve RPS goals.
As amended, Section 399.2.5(c)(1)2 allows the Commission to approve an advice letter from an electrical corporation granting eligibility to seek cost recovery in retail rates for a transmission project, as long as the electrical corporation certifies in the advice letter that it expects the facility will be necessary for achievement of RPS goals. According to the statute, ultimate recovery of construction costs by the electrical corporation is contingent upon the Commission finding that the facility is necessary to achieve RPS goals and that costs were prudently incurred.
Similarly, Section 399.2.5(c)(2)3 provides that the Commission may approve an advice letter from an electrical corporation seeking retail rate cost recovery for costs incurring prior to permitting or certification for potential transmission facilities. Again, the electrical corporation must certify in the advice letter that it expects the facility will be necessary to achieve RPS goals, and the statute specifies that ultimate cost recovery is contingent upon the Commission finding that the electrical corporation administered the approved costs reasonably and prudently.
On November 9, 2010, the Administrative Law Judge (ALJ) issued a ruling requesting comments on four questions related to implementation of Section 399.2.5 as amended by AB 1954. The questions pertained to the format and showing required in the advice letters allowed by Section 399.2.5(c)(1) and (2), to the types of costs eligible for cost recovery, and to whether the Commission should place any limit on these costs. On December 6, 2010, comments were filed by the Commission's Division of Ratepayer Advocates (DRA), the Large-Scale Solar Association (LSA), Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E). Reply comments were filed on December 20, 2010 by DRA, PG&E, and SDG&E.
This decision addresses these questions regarding implementation of AB 1954 in the sections that follow.
2 Section 399.2.5(c)(1), as amended, states:
The commission, prior to making a finding pursuant to subdivision (a), may approve an advice letter from an electrical corporation seeking, for a specific transmission project, a finding of eligibility for cost recovery pursuant to paragraph (4) of subdivision (b), if the electrical corporation certifies in the advice letter, in a form prescribed by the commission, that it expects that the facility will be necessary to facilitate achievement of the renewables portfolio standard established pursuant to Article 16 (commencing with Section 399.11). The electrical corporation's ultimate recovery of construction costs shall be contingent upon the commission finding, pursuant to subdivision (a), that the facility is necessary to facilitate achievement of the renewables portfolio standard and that the costs were prudently incurred.
3 Section 399.2.5(c)(2), as amended, states:
Prior to making a finding pursuant to subdivision (a), the commission may approve an advice letter from an electrical corporation requesting retail rate cost recovery for costs incurred prior to permitting or certification for potential transmission facilities if the electrical corporation certifies in the advice letter, in a form prescribed by the commission, that it expects that the facility will be necessary to facilitate achievement of the renewables portfolio standard established pursuant to Article 16 (commencing with Section 399.11). The electrical corporation's ultimate recovery of costs incurred prior to permitting or certification shall be contingent upon the commission finding that the electrical corporation administered the approved costs reasonably and prudently.
