ALJ/MEG/tcg Mailed 3/3/2003

Decision 03-02-069 February 27, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Investigation Into Implementation of Assembly Bill 970 Regarding the Identification of Electric Transmission and Distribution Constraints, Actions to Resolve Those Constraints, and Related Matters Affecting the Reliability of Electric Supply.

Investigation 00-11-001 (Filed November 2, 2000)

INTERIM OPINION ON TRANSMISSION CONSTRAINTS:

MISSION-MIGUEL AND IMPERIAL VALLEY UPGRADES

(See Attachment 1 for List of Appearances.)

TABLE OF CONTENTS

Title Page

INTERIM OPINION ON TRANSMISSION CONSTRAINTS:
MISSION-MIGUEL AND IMPERIAL VALLEY UPGRADES 2

1. Introduction and Summary 2

2. Procedural History 4

3. Project Descriptions 6

3.1 Miguel-Mission Project 6

3.2 Imperial Valley Project 9

4. Economic Need 10

4.1 SDG&E's Economic Analysis 10

4.2 Discussion 15

5. Reasonableness and Allocation of Project Costs 22

6. Licensing Requirements 27

6.1 Imperial Valley Project 27

6.2 Miguel-Mission Project 28

7. Milestone Schedule 31

8. Comments on Proposed Decision 34

9. Assignment of Proceeding 35

Findings of Fact 35

Conclusions of Law 38

INTERIM ORDER 39

LIST OF ATTACHMENTS

Attachment 1 - List of Appearances

Attachment 2 - List of Acronyms

Attachment 3 - SDG&E and Border Generation Proposed Joint Milestone Schedule

Attachment 4 - Adopted Milestone Schedule

INTERIM OPINION ON TRANSMISSION CONSTRAINTS:
MISSION-MIGUEL AND IMPERIAL VALLEY UPGRADES

1. Introduction and Summary¹

We initiated this investigation in November 2000 to "identify and undertake those actions necessary to reduce or remove constraints on the state's existing electrical transmission and distribution system." (Pub. Util. Code § 399.15(a)(1) added by Assembly Bill (AB) 970 signed September 6, 2000.)² In Phase 1 of this proceeding, we directed Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE) to undertake thirty-one transmission projects to relieve system congestion by the summer of 2001 in specified areas of the state. (See Decision (D.) 01-03-077.)

In earlier phases of this proceeding, we identified specific transmission system improvements needed to maintain reliability based on grid planning criteria established by the Western System Coordinating Council (WSCC) and California Independent System Operator (CAISO).³ However, the two projects considered in today's decision, upgrades to transmission west of Miguel (Miguel-Mission Project) and modifications to the Imperial Valley substation transformer bank (Imperial Valley Project) are not needed to meet these criteria. Rather, they are being proposed and considered here on the basis of economic benefits to ratepayers, or "economic need." They are designed to address transmission congestion in Southern California that will occur as new generation plants in the California-Mexico border region and in Mexico are completed and sell power into the California market. These projects produce benefits in the form of reduced hours of congestion and access to lower production cost power.

Based on the record in this proceeding, we conclude that the construction of the Miguel-Mission and Imperial Valley Projects will reduce energy costs to SDG&E ratepayers by approximately $6 to $14 million per year, assuming that 1360 to 2360 megawatts (MWs) of new generation becomes operational in the California-Mexico border region and Mexico for export to California. Ratepayers in the CAISO control area⁴, as a whole (including SDG&E) can expect energy cost reductions in the range of $13 to $50 million per year. Assuming that project costs do not exceed the preliminary estimates presented in this proceeding, the net annual benefits to SDG&E ratepayers are projected at approximately $3 to $7 million per year, and to CAISO ratepayers at approximately $10 to $43 million per year. These net benefits will diminish to some degree if new generation is constructed in the San Diego North area.

Based on this level of estimated economic benefits, we find that the Miguel-Mission and Imperial Valley Projects are needed and in the public interest. In order to proceed with the licensing process with confidence that the estimated economic benefits will actually accrue to ratepayers, we condition our finding of economic need in two ways. First, we require SDG&E to coordinate construction of the transmission upgrades with the construction of a threshold level of new generation in the border area. This will be accomplished through a set of milestone conditions discussed in this decision. Second, we cap project costs based on the estimates presented in this proceeding, subject to a reasonableness review.

With regard to licensing, we find that the Imperial Valley Project does not require the issuance of a Permit to Construct or Certificate of Public Convenience and Necessity (CPCN) under the requirements of General Order (GO) 131-D. However, we direct SDG&E to file an informational advice letter with documentation to describe the qualification of this project for an exemption, including the previous voltage rating of the substation and an explanation of how the work will be conducted within the existing substation boundaries. We conclude that the CPCN process does apply to the Mission-Miguel Project because this project would increase the existing 138/69 kilovolt (kV) transmission line to 230 kV capacity. However, we expedite the licensing process by permitting SDG&E to file its CPCN application under Section IX of GO 131-D absent the information required by subparts (c), (d), and (f). The schedule for these filings is contained in the Milestone Schedule presented in Attachment 4.