9. Assignment of Proceeding
Loretta M. Lynch is the Assigned Commissioner and Meg Gottstein is the assigned ALJ in this proceeding.
1. The models used by SDG&E in this proceedings simulate hourly operation and dispatch of individual generation facilities, consider transmission line interconnections, ratings, losses and wheeling rates for the regional system, and are widely used in the industry. The modeling methods present a logical approach for evaluating annual energy costs with and without the upgrades, and are reasonable for the purpose of evaluating the economic need of the Miguel-Mission and Imperial Valley Projects.
2. The additional model runs produced at the request of Energy Division indicate that the energy cost saving benefits projected by SDG&E's analysis for a single year are likely to continue at a relatively constant rate into the future.
3. The economic analysis presented in this proceeding is not dependent upon the scarcity premium algorithm used in Henwood's model, because there are very few hours in which the scarcity premium comes into play under the normal weather conditions assumed in the analysis.
4. The record indicates that the development of new generation in the border region the range of 1360 to 2360 MWs is plausible.
5. Construction of the Miguel-Mission and Imperial Valley Projects reduces hours of congestion caused by limited transmission capacity and improves access to economic power. This reduces energy costs to SDG&E ratepayers as well as ratepayers throughout the CAISO control area (i.e., SDG&E, SCE, and PG&E).
6. SDG&E's economic analysis assumes that Miguel-Mission is constructed at an annual cost of $3 million under the scenario where 1360 MWs of new generation develop, and that both Miguel-Mission and Imperial Valley Projects are constructed at an annual cost of $7.24 million under the scenario where 2360 MWs develop. Under these cost assumptions, the projects are estimated to produce $3 to $7.24 million in net benefits to SDG&E ratepayers and $9.97 to $43.24 million in net benefits costs to CAISO ratepayers (including SDG&E).
7. To the extent that new generation comes on line in the constrained area, i.e., San Diego North, the benefits from the transmission upgrades will diminish. However, given the uncertain status of project development in that area and the robustness of SDG&E's scenario analysis if even 600 MWs of those projects come on line by 2004, it appears unlikely that the cost saving benefits associated with the projects will be negated by increased development of generation within the constrained area.
8. There is no basis in this record for considering RMR cost reductions or reductions in market power in determining whether or not the upgrades are in the public interest.
9. The record provides very little detail describing the basis for SDG&E's project cost estimates, particularly for the Miguel-Mission project. SDG&E has the burden of proving the reasonableness of its cost estimates, but has not done so in this proceeding.
10. The net benefits to ratepayers justify the construction of the Miguel-Mission and Imperial Valley Projects provided that: (1) a threshold amount of new generation develops in the California-Mexico border area and in Mexico, and (2) project costs are contained at or below the preliminary estimates presented in this proceeding. Based on SDG&E's economic analysis, the threshold amount of new generation for the Miguel-Mission Project should be 1360 MWs. The Imperial Valley project should not move ahead until 1660 MWs of new generation develops, because this is the level at which the project is needed to eliminate potential congestion and provides net benefits to SDG&E and all CAISO ratepayers.
11. The economic analysis presented in this proceeding supports a finding of economic need based on the estimates of project benefits and costs presented in this proceeding. However, a finding of economic need is not supported by the record if the projects are allowed to go forward with considerable uncertainty regarding project costs and generation development and if the full risk of this uncertainty is allocated to SDG&E's ratepayers.
12. The Mission-Miguel and Imperial Valley transmission upgrades are subject to the cost cap provisions of § 1005.5 as a single project since they are both designed to increase transmission capacity into SDG&E's load center during the same timeframe, are functionally interdependent (i.e., Imperial Valley Project cannot increase that transmission capacity unless Miguel-Mission Project is also built), are jointly linked to the milestone conditions for proceeding with project construction, and together exceed $50 million in estimated costs.
13. SDG&E's economic analysis also supports a ratemaking policy that allocates project costs to ratepayers throughout the CAISO control area, which is a policy that was under consideration by FERC during evidentiary hearings in this proceeding. The record in this proceeding should be utilized in the Commission's future interactions with FERC regarding transmission cost allocation issues.
14. The record in this proceeding indicates that proceeding with the Miguel-Mission Project has cost allocation implications for the Valley-Rainbow Project that SDG&E has proposed in A.01-03-036.
15. The milestone procedures proposed by SDG&E and Border Generation do not reflect the fact that the Imperial Valley Project will not yield economic benefits to SDG&E and CAISO ratepayers until somewhat more than 1350 MWs of generation is developed. The milestone procedures do not include representation of Commission staff in the proposed Verification Procedures. They should be modified to correct for these deficiencies.
1. The Miguel-Mission and Imperial Valley Projects are economic to SDG&E's ratepayers and in the public interest, subject to the cost cap and milestone conditions discussed in this decision.
2. The Commission has jurisdiction pursuant to Pub. Util. Code § 1005.5 to cap project costs, and such a cap is applicable to the transmission upgrades we are considering in this proceeding.
3. The Commission should cap the project costs for the Miguel-Mission Project and Imperial Valley Project at $55.4 million for the combined upgrades. As discussed in this decision, the Commission should conduct a reasonableness review of SDG&E's project expenditures pursuant to Pub. Util. Code §§ 454.1, 463.5, 1005.5 and other applicable law.
4. Under Pub. Util. Code § 1005.5, SDG&E may return to the Commission to seek an increase in the cost cap if the reasonable combined costs of the projects exceed the cost cap we impose here.
5. As discussed in this decision, the Imperial Valley Project qualifies as a "substation modification project" which is exempt from GO 131-D requirements for either a CPCN or PTC.
6. SDG&E is required to file a CPCN for the Miguel-Mission Project under GO 131-D given the magnitude of the proposed project activities and the proposed replacement of existing power line facilities above 200 kV and beyond equivalent levels. As discussed in this decision, the filing requirements under subparts (c) and (d) can be eliminated in this instance because this proceeding has addressed economic need and the project costs will be capped and subject to a reasonableness review. Moreover, based on SDG&E's project description, the requirement of a schedule showing the program of right-of-way acquisition and construction under subpart (f) does not appear relevant, and can be eliminated.
7. SDG&E and Border Generation's proposed milestones, as modified by this decision, are reasonable and should be adopted.
8. In order to proceed expeditiously with these projects, this order should be effective immediately.
IT IS ORDERED that:
1. The Miguel-Mission Project and Imperial Valley Projects are economic and are in the public interest. San Diego Gas & Electric Company (SDG&E) shall proceed with the licensing of these projects subject to the following conditions:
a. Project costs for the combined upgrades shall be caped at $55.4 million, and subject to reasonableness review.
b. Construction of the projects shall be coordinated with the construction of a threshold level of new generation per the Milestone Schedule presented in Attachment 4.
2. Consistent with the milestone schedule set forth in Attachment 4, SDG&E shall file a Certificate of Public Convenience and Necessity (CPCN) for the construction of the Miguel-Mission Project. As discussed in this decision, SDG&E is permitted to file its CPCN application under Section IX of General Order 131-D absent the information required by subparts (c), (d), and (f).
3. Consistent with the milestone schedule set forth in Attachment 4, SDG&E shall file an informational advice letter that includes the following information on the Imperial Valley Project:
a. project description
b. information establishing the previously authorized substation
c. previous voltage rating of the substation
d. explanation that the work will be conducted within existing substation boundaries
e. explanation why the project qualifies as a "substation modification project" pursuant to General Order 131-D.III. B and C.
4. Within 180 days of final completion of the Miguel-Mission and Imperial Valley upgrades, SDG&E shall file an application at the Commission's Docket Office for reasonableness review of project expenditures. A notice of availability of the application shall be served on the appearances and state service list in this proceeding, or its successor. Complete copies of the application shall be served
on the assigned Administrative Law Judge, Assigned Commissioner, Energy Division, and Office of Ratepayer Advocates.
This order is effective today.
Dated February 27, 2003, at San Francisco, California.
MICHAEL R. PEEVEY
President
CARL W. WOOD
LORETTA M. LYNCH
GEOFFREY F. BROWN
SUSAN P. KENNEDY
Commissioners
ATTACHMENT 1
LIST OF APPEARANCES
Dennis W. De Cuir |
Evelyn Kahl |
Jennifer Tachera |
Barbara Dunmore |
Douglas K. Kerner |
Mark J. Smith |
Susan E. Brown |
Daniel W. Meek |
William V. Manheim |
Joseph R. Kloberdanz |
Michael D. Mackness |
Itzel Berrio |
ATTACHMENT 2
LIST OF ACRONYMS
LIST OF ACRONYMS
A. Application
AB 970 Assembly Bill 970
ALJ Administrative Law Judge
Border Generation Border Generation Group
CAISO California Independent System Operator
CPCN Certificate of Public Convenience and Necessity
D. Decision
Exh. Exhibit
EMSS Electric Market Simulation System
FERC Federal Energy Regulatory Commission
GO General Order
Henwood Henwood Energy Services
Imperial Valley Project Modifications to the Imperial Valley Substation
transformer bank
"Joint Parties" SDG&E, the Border Generation Group, and the
Office of Ratepayer Advocates
kcmil thousand circular mil
kV kilovolt
LRPP La Rosita Power Project
Miguel-Mission Project Upgrades to transmission west of Miguel
MVA megavolt-ampere
MW Megawatt
ORA Office of Ratepayer Advocates
PEA Proponents Environmental Assessment
PG&E Pacific Gas and Electric Company
PHC prehearing conference
PJZ Presidente Juarez
PTC Permit to Construct
Pub. Util. Code Public Utilities Code
RMR reductions in reliability-must-run
RT Reporter's Transcript
SCE Southern California Edison Company
SDG&E San Diego Gas & Electric Company
SWPL Southwest Power Link
TDM Termoelectrica De Mexicali
WSCC Western System Coordinating Council
(END OF ATTACHMENT 2)
ATTACHMENT 3
SDG&E AND BORDER GENERATION PROPOSED JOINT MILESTONE SCHEDULE COORDINATING CONSTRUCTION OF THE MIGUEL-MISSION AND IMPERIAL VALLEY UPGRADES WITH CONSTRUCTION OF NEW GENERATION PROJECTS
The general principles that govern the milestones are as follows:
1. Paragraph 8 of the Joint Recommendation states:
Based on the economic study presented in this proceeding, it appears that justification exists for construction of the transmission upgrades if a threshold level of new generation develops in the Border area. Once new generation in the Border area exceeds approximately 1350 MW, the annual energy cost savings to SDG&E ratepayers could exceed the annual cost of both the Miguel-Mission Upgrade and the IV Upgrade.
The milestone schedule is intended to ensure that, at each milestone point, new generation exceeding approximately 1350 MW develops as SDG&E proceeds with construction of the transmission upgrades.
2. The milestone schedule is not intended to be specific to individual generators. The objective, at each milestone point, is to achieve, or demonstrate progress in achieving, the milestones with any combination of generation that exceeds approximately 1350 MW.
3. SDG&E and the BGG agree that these milestones are an appropriate and reasonable approach under the facts and circumstances in this case. The milestones set forth herein are not intended to establish a precedent, however, for the parties or for the Commission. SDG&E and the BGG recognize that FERC plans to issue a rule that will in the future govern how public utilities that own, operate, or control transmission facilities under the Federal Power Act will treat interconnections. See Standardizing Generator Interconnection Agreements and Procedures - Advance Notice of Proposed Rulemaking, Docket No. RM02-1-000 (issued October 25, 2001).
4. In order to ascertain whether substantial compliance has been achieved with respect to the milestones, a "Verification Committee," comprised of selected representatives from SDG&E and members of the BGG, will meet near the end of each calendar quarter, beginning in March 2002. Because the milestones do not reflect the entire universe of possible facts and circumstances that could affect the timeline, the Verification Committee will have the discretion to adjust the milestones as necessary.
5. The Verification Committee will determine, on a case-by-case basis, whether a missed milestone is significant enough to justify a delay of other milestones. The Verification Committee will consider whether reasonable adjustments to the milestones should be made in order to accommodate specific circumstances.
6. In order to verify substantial compliance with the milestones, the Verification Committee will accept documentation and sworn affidavits by responsible representatives, and will employ site visits. Parties will inform the Verification Committee immediately upon determining that a milestone will not be met, and explain why they cannot meet the milestone.
7. SDG&E and the BGG anticipate that SDG&E will not spend more than a total of $2 million on the upgrades until it receives a final order from FERC that addresses how SDG&E should treat the costs of the upgrades.43 In the absence of a final FERC order by the time SDG&E has expended approximately $2 million, SDG&E will determine whether its milestones should be delayed, and SDG&E will advise the Verification Committee of its decision immediately.
8. SDG&E anticipates that, by the beginning of April of 2002, it will have spent around $2 million on the upgrades. This is when SDG&E will determine whether it should delay its milestones absent a final FERC order addressing how the costs of the upgrades should be treated for ratemaking purposes. After this point, SDG&E would face significant financial exposure for, among other things, cancellation fees associated with materials on order.
9. SDG&E and the BGG anticipate that SDG&E will not begin constructing the Miguel-Mission upgrade until it receives an order from the Commission that authorizes it to do so under G.O. 131-D. If SDG&E does not receive an order from the Commission in time to commence construction under the milestone schedule, SDG&E will determine whether its milestones should be delayed, and SDG&E will advise the Verification Committee of its decision.
10. Once a generation project achieves the point in construction at which all of the Major Equipment (defined below) is mounted on the foundation on the project site, progress is deemed to be sufficient not to require additional milestones for the generation project.
The specific milestones are as follows:
By The End Of January 2002
Generators (new generation exceeding approximately 1350 MW)
1. Engineering Procurement & Construction Contract (EPC) signed, or equivalent.
2. Major Equipment (combustion turbine, steam turbine, heat recovery steam generator (HRSG)) ordered.
3. Interconnection agreement signed or in advanced stage of negotiation.
4. All major US/Mexico licenses/approvals required for commencement of power plant site construction.
5. Gas pipeline transportation agreement executed.
6. Substantial plant construction and grading commenced.
7. Generation tie-line construction in progress, if applicable.
SDG&E
8. Finish joint interconnection/system upgrade study.
9. File petition for Declaratory Order for rolled-in rate recovery with FERC (target date 1/1/02 or sooner).
10. Order circuit breakers for IV Sub banks.
11. File advice letter for IV transformer upgrade, if applicable.
By The End Of March 2002
Generators (new generation exceeding approximately 1350 MW)
12. Combustion turbines delivered, or status report stating when delivery will occur.
13. Foundations for Major Equipment complete, or status report stating when the foundations will be complete.
14. Power plant switchyard construction commenced, if applicable.
15. All major U.S./Mexico licenses/approvals required for commencement of tie-line construction, if applicable.
SDG&E
16. ML-MS#2 environmental data collection complete.
17. File the relevant G.O. 131-D pleading for ML-MS #2.
By The End Of June 2002
Generators (new generation exceeding approximately 1350 MW)
18. Major Equipment delivered, or status report stating when delivery will occur.
19. Condensers, Distributed Control System (DCS) equipment ordered.
20. Substantial progress on power plant switchyard construction, if applicable.
SDG&E
21. Complete design of IV bank upgrade.
22. Long lead-time materials ordered for ML-MS#2.
23. Order transformers for IV upgrade.
By The End Of September 2002
Generators (new generation exceeding approximately 1350 MW)
24. Major Equipment on site.
SDG&E
25. Start construction for IV bank upgrades.
26. Start construction for ML-MS#2 (contingent on receipt of an order from the Commission that authorizes construction under G.O. 131-D).
By The End Of December 2002
Generators (new generation exceeding approximately 1350 MW)
27. Major Equipment mounted on foundation.
28. Condenser, DCS equipment on site.
29. Power plant switchyard complete, if applicable.
SDG&E
30. Complete engineering for ML-MS#2.
31. Receive IV transformer banks.
32. Complete design of ML-MS#2 project.
By The End of January 2003
Generators (new generation exceeding approximately 1350 MW)
33. Tie-line construction complete, if applicable.
By The End Of June 2003
Generators (new generation exceeding approximately 1350 MW)
34. Testing/start-up operations in process, or status report stating when these activities will occur.
SDG&E
35. Install and test first new transformer (May 2003).
36. Place first new transformer in service.
By The End Of September 2003
Generators
No further milestones.
SDG&E
37. Remove old transformer and install second new transformer (August 2003).
38. Relocate 69 kV and 138 kV lines.
By The End Of December 2003
Generators
No further milestones.
SDG&E
39. Place second new transformer in service.
By The End Of September 2004 (or sooner if reasonably practical)
Generators
No further milestones.
SDG&E
40. Install new 230 kV line.
41. Place ML-MS#2 in-service.
In accordance with the Presiding Judge's direction to the parties, SDG&E and the BGG present the foregoing milestone schedule as an agreed upon approach to coordinate the construction of SDG&E's Miguel-Mission and Imperial Valley Substation upgrades with the construction of a threshold level of new generation in the border area.
CERTIFICATE OF SERVICE
I hereby certify that I have served, this day, a copy of the foregoing SAN DIEGO GAS & ELECTRIC COMPANY AND THE BORDER GENERATION GROUP'S JOINT MILESTONE SCHEDULE COORDINATING CONSTRUCTION OF THE MIGUEL-MISSION AND IMPERIAL VALLEY UPGRADES WITH CONSTRUCTION OF NEW GENERATION PROJECTS on the service list for I.00-11-001 by electronic mail, as well as mailing a properly addressed copy, by first-class mail with postage prepaid, to each party.
Executed on December 3, 2001, at San Diego, California.
Julie A. Stuart
ATTACHMENT 4
ADOPTED MILESTONE SCHEDULE COORDINATING CONSTRUCTION OF THE MIGUEL-MISSION AND IMPERIAL VALLEY UPGRADES WITH CONSTRUCTION OF NEW GENERATION PROJECTS IN THE CALIFORNIA-MEXICO BORDER REGION
The milestone schedule is intended to ensure that, at each milestone point, new generation exceeding approximately 1350 MWs and 2360 MWs develops in the California-Mexico border region as SDG&E proceeds with construction of the Miguel-Mission and Imperial Valley transmission upgrades, respectively.
1. The milestone schedule is not intended to be specific to individual generators. The objective, at each milestone point, is to achieve, or demonstrate progress in achieving, the milestones with any combination of generation that exceeds the generation thresholds.
2. These milestones are an appropriate and reasonable approach under the facts and circumstances in this case. The milestones set forth herein are not intended to establish a precedent, however, for the parties or for the Commission.
3. In order to ascertain whether substantial compliance has been achieved with respect to the milestones, a "Verification Committee," comprised of selected representatives from SDG&E, members of the Border Generation Group and the Commission's Energy Division, will meet near the end of each calendar quarter, beginning in March 2002. The Assigned Commissioner in Investigation (I.) 01-11-001 shall select the Energy Division representative or representatives. Because the milestones do not reflect the entire universe of possible facts and circumstances that could affect the timeline, the Verification Committee will have the discretion to adjust the milestones as necessary. Disagreements among Committee members concerning these and other compliance issues shall be resolved by the Assigned Commissioner in I.00-11-001, or her designee.
4. The Verification Committee will determine, on a case-by-case basis, whether a missed milestone is significant enough to justify a delay of other milestones. The Verification Committee will consider whether reasonable adjustments to the milestones should be made in order to accommodate specific circumstances.
5. In order to verify substantial compliance with the milestones, the Verification Committee will accept documentation and sworn affidavits by responsible representatives, and will employ site visits. Parties will inform the Verification Committee immediately upon determining that a milestone will not be met, and explain why they cannot meet the milestone.
6. SDG&E will not spend more than a total of $2 million on the upgrades until it receives a final order from FERC that addresses how SDG&E should treat the costs of the upgrades. In the absence of a final FERC order by the time SDG&E has expended approximately $2 million, SDG&E will determine whether its milestones should be delayed, and SDG&E will advise the Verification Committee of its decision immediately.
7. SDG&E anticipates that, by the beginning of April of 2002, it will have spent around $2 million on the upgrades. This is when SDG&E will determine whether it should delay its milestones absent a final FERC order addressing how the costs of the upgrades should be treated for ratemaking purposes. After this point, SDG&E would face significant financial exposure for, among other things, cancellation fees associated with materials on order.
8. SDG&E will not begin constructing the Miguel-Mission upgrade until it receives an order from the Commission that authorizes it to do so under G.O. 131-D. If SDG&E does not receive an order from the Commission in time to commence construction under the milestone schedule, SDG&E will determine whether its milestones should be delayed, and SDG&E will advise the Verification Committee of its decision.
9. Once a generation project achieves the point in construction at which all of the Major Equipment (defined below) is mounted on the foundation on the project site, progress is deemed to be sufficient not to require additional milestones for the generation project.
The specific milestones are as follows:
By The End Of January 2002
Generators (new generation exceeding approximately 1350 MW)
1. Engineering Procurement & Construction Contract (EPC) signed, or equivalent.
2. Major Equipment (combustion turbine, steam turbine, heat recovery steam generator (HRSG)) ordered.
3. Interconnection agreement signed or in advanced stage of negotiation.
4. All major US/Mexico licenses/approvals required for commencement of power plant site construction.
5. Gas pipeline transportation agreement executed.
6. Substantial plant construction and grading commenced.
7. Generation tie-line construction in progress, if applicable.
SDG&E
8. Finish joint interconnection/system upgrade study.
9. File petition necessary FERC applications.
10. File advice letter for IV transformer upgrade, if applicable.
By The End Of March 2002
Generators (new generation exceeding approximately 1350 MW)
11. Combustion turbines delivered, or status report stating when delivery will occur.
12. Foundations for Major Equipment complete, or status report stating when the foundations will be complete.
13. Power plant switchyard construction commenced, if applicable.
14. All major U.S./Mexico licenses/approvals required for commencement of tie-line construction, if applicable.
SDG&E
15. ML-MS#2 environmental data collection complete.
16. File the relevant G.O. 131-D pleading for ML-MS #2.
By The End Of June 2002
Generators (new generation exceeding approximately 1350 MW for Miguel-Mission Project and 1660 MW for Imperial Valley Project)
17. Major Equipment delivered, or status report stating when delivery will occur.
18. Condensers, Distributed Control System (DCS) equipment ordered.
19. Substantial progress on power plant switchyard construction, if applicable.
SDG&E
20. Complete design of IV bank upgrade.
21. Long lead-time materials ordered for ML-MS#2.
22. Order circuit breakers and transformers for IV upgrade.
By The End Of September 2002
Generators (new generation exceeding approximately 1350 MW for Miguel Mission Project and 1660 MW for Imperial Valley Project)
23. Major Equipment on site.
SDG&E
24. Start construction for IV bank upgrades.
25. Start construction for ML-MS#2 (contingent on receipt of an order from the Commission that authorizes construction under G.O. 131-D).
By The End Of December 2002
Generators (new generation exceeding approximately 1350 MW for Miguel Mission Project and 1660 MW for Imperial Valley Project)
26. Major Equipment mounted on foundation.
27. Condenser, DCS equipment on site.
28. Power plant switchyard complete, if applicable.
SDG&E
29. Complete engineering for ML-MS#2.
30. Receive IV transformer banks.
31. Complete design of ML-MS#2 project.
By The End of January 2003
Generators (new generation exceeding approximately 1350 MW for Mission Miguel Project and 1660 MW for Imperial Valley Project)
32. Tie-line construction complete, if applicable.
By The End Of June 2003
Generators (new generation exceeding approximately 1350 MW for Mission Miguel Project and 1660 MW for Imperial Valley Project)
33. Testing/start-up operations in process, or status report stating when these activities will occur.
SDG&E
34. Install and test first new transformer (May 2003).
35. Place first new transformer in service.
By The End Of September 2003
Generators
No further milestones.
SDG&E
36. Remove old transformer and install second new transformer (August 2003).
37. Relocate 69 kV and 138 kV lines.
By The End Of December 2003
Generators
No further milestones.
SDG&E
38. Place second new transformer in service.
By The End Of September 2004 (or sooner if reasonably practical)
Generators
No further milestones.
SDG&E
39. Install new 230 kV line.
40. Place ML-MS#2 in-service.
CERTIFICATE OF SERVICE
I hereby certify that I have served, this day, a copy of the foregoing SAN DIEGO GAS & ELECTRIC COMPANY AND THE BORDER GENERATION GROUP'S JOINT MILESTONE SCHEDULE COORDINATING CONSTRUCTION OF THE MIGUEL-MISSION AND IMPERIAL VALLEY UPGRADES WITH CONSTRUCTION OF NEW GENERATION PROJECTS on the service list for I.00-11-001 by electronic mail, as well as mailing a properly addressed copy, by first-class mail with postage prepaid, to each party.
Executed on December 3, 2001, at San Diego, California.
Julie A. Stuart
