VII. Comments on Proposed and Alternate Proposed Decision

The proposed decision of the ALJ in this matter was mailed to the parties in accordance with § 311(d) and Rule 77.1 of the Commission Rules of Practice and Procedure. SCE, PG&E, the California Wind Energy Association and Oak Creek (CalWEA/Oak Creek), and PPM Energy, Inc. (PPM) filed comments. CalWEA/Oak Creek filed reply comments. We have made various clarifications and corrections to the order in response to these comments.

In its comments, SCE points to two Tehachapi projects that it reports are pursuing interconnection under existing FERC tariffs, as an indication that the present transmission planning process is working well and should not be changed. PPM identifies itself as one of those projects. PPM concurs with the proposed decision that a collaborative study of the transmission needs of the Tehachapi resource area would be a useful transmission planning tool. It cautions, however, that undertaking such a study should not delay or stop transmission upgrades that may be undertaken in the meantime to serve wind projects proceeding under the existing ISO and utility tariffed interconnection procedures. We agree with PPM on this point.

While the fact that two wind projects are pursuing interconnection in the Tehachapi region is good news, this does not allay our concerns regarding flaws in the current transmission planning process for the region. Many more projects are waiting in the wings. We concur with the general approach taken in the proposed decision, but make certain changes as described below.

SCE and PG&E take issue with the proposed decision's determination that Tehachapi upgrades used to carry power from multiple projects should be classified as network transmission facilities and funded by the transmission owner. CalWEA/Oak Creek supports the proposed decision in this regard but asks that the Commission adopt criteria or make specific findings regarding the identification of which upgrades are in fact network facilities. We have modified the discussion in this regard.

SCE suggests that various third parties would have interests in the work of the Tehachapi study group and that the Commission should encourage their participation. We agree that all potential interested parties should be provided an opportunity to participate in the study group.

CalWEA/Oak Creek asks that the Commission direct the study group to analyze and quantify network benefits in addition to costs of the transmission plans it considers. We agree that the Tehachapi study group should consider whether alternative transmission configurations, such as those suggested by the ISO during the hearings, may bring benefits in addition to providing for the transport of wind energy from the Tehachapi region. However, quantification of the economic value of such benefits is not a feasible task to impose on the study group. The ISO has been working for some time on developing a methodology for assessing the economic benefits of transmission upgrades. This difficult task is properly being considered in another phase of this proceeding.

PG&E recommends that the Commission either require that renewables developers fund the transmission studies needed by the study group or provide for recovery of such costs through the "backstop" mechanism in § 399.25(b)(4). PG&E requests that, if ratepayers are required to fund the studies, the costs be included in transmission cost adders for RPS bids from Tehachapi-area generators. CalWEA/Oak Creek disagrees with PG&E, maintaining that all ratepayers will benefit from Tehachapi reinforcements, especially if such upgrades connect SCE and PG&E systems as suggested by the ISO. We affirm that, consistent with the STEP process, each participant in the study group should bear its own costs. The collaborative study group approach we adopt for the Tehachapi area is an integral part of a rational transmission planning process needed to further the state's RPS goals, and may be replicated elsewhere in the state if warranted. Because the study group will examine resource area and statewide needs, it would not be appropriate to assess its costs on individual generators, either directly or through transmission cost adders. Further, contrary to PG&E's suggestion, § 399.25(b)(4) is not applicable since there is no transmission project subject to § 399.25(b) for which FERC has declined cost recovery through transmission rates.

SCE objects to the proposed decision's expectation that CPCN applications may be filed before there are winning RPS bids that would need the capacity of the proposed upgrades. SCE continues to maintain that the design of any transmission facility for which a CPCN application is submitted must be based on the needs of generators that have submitted interconnection applications. SCE submits further that it may not be able to file a complete CPCN application within six months of the study group's report even if the group selects a project consistent with SCE's existing conceptual studies, since final environmental assessments cannot occur until siting is established. CalWEA/Oak Creek supports the proposed decision's requirement that SCE prepare a CPCN filing, but requests that the Commission make clear that this requirement is not intended to favor the design SCE offered in this proceeding. We affirm, as a general principle, that the certificate process should proceed without waiting for winning RPS bids that would need the planned capacity. Information regarding the viability of individual renewable projects will be an important consideration but not necessarily a determining factor as we evaluate the need for transmission upgrades. Because of our desire that planning for Tehachapi upgrades not be further delayed, we have modified the proposed decision's timeline to require SCE to file a certificate application for the first phase of the Tehachapi upgrades six months from the date of this order.

CalWEA/Oak Creek supports the proposed decision's provision that would require that transmission cost adders used in assessing RPS bids be based on a project's pro rata share of transmission upgrade costs. PG&E agrees that some form of pro rata allocation may be appropriate for the Tehachapi area and perhaps other areas as well. We have modified the related discussion to reflect that an interim methodology for consideration of transmission costs in assessing RPS bids is being developed in another phase of this proceeding.

An alternate proposed decision by President Peevey in this matter was mailed to the parties in accordance with Rule 77.7 of the Rules of Practice and Procedure on May 26, 2004. Comments were filed by PPM, CAISO, SCE, PG&E, and CalWEA/Oak Creek on June 1, 2004. Reply comments were filed by SCE, PPM, and CalWEA/Oak Creek on June 4, 2004.

We have made changes in the text of this decision to respond to specific comments on the alternate proposed decision as well. We also summarize them briefly below.

PPM is concerned that our ordering SCE to submit a CPCN for a first phase of Tehachapi transmission upgrades may hinder interconnection of projects already in progress. We clarify that our intent is for SCE to include those projects with interconnection requests already in progress in its first phase CPCN, taking advantage of work already complete. Thus, SCE should continue to proceed expeditiously with projects already in progress, including those that would be subsumed as part of the first phase CPCN.

The ISO points out that interconnection between Tehachapi and the PG&E system may also be a viable alternative to consider. Our intent is that that option be considered by the study group in addition to the upgrades that we can already foresee are needed on the SCE system simply by the existing projects already at various phases in the interconnection process. Thus, these efforts can proceed in parallel and it may be that both parts are needed, but we do not prejudge that outcome, pending submission of the study group report.

In addition, we find no reason that SCE cannot submit the first phase project to the ISO for review in advance of filing their CPCN with the Commission. This will also give the ISO the ability to review SCE's particular proposed configuration and technical specifications, which was another ISO concern.

SCE objects to the determination in this decision that Tehachapi upgrades are needed, citing our previous decision (D.03-07-033) that need determinations would be done in individual CPCN applications. We clarify, however, that because of the size and concentration of the renewable resource in the Tehachapi area, the Tehachapi situation is unique. We are making an initial overall determination that a first phase of transmission upgrades is needed in this area, without reaching a determination on the particular configuration proposed in an individual CPCN. This is in no way inconsistent with D.03-07-033, which simply states that need determinations should be supported by an evidentiary record, of which we have an extensive one in this docket, composed of one comprehensive CEC study and two SCE studies, both subjected to review through the Commission's evidentiary process.

Finally, SCE raises technical considerations with regard to the options for the first phase build-out. We clarify that we are leaving it to the discretion of SCE, in consultation with the study group, to decide the configuration and project details to propose in its CPCN. This decision gives commission guidance, but allows SCE to come forward with the project that, in their best judgment, meets the criteria for scalability, modularity, and flexibility outlined in this decision.

PG&E generally agrees with SCE, but also suggests that we should establish a memorandum account for tracking RPS-related costs. We are favorably inclined toward this idea, but suggest that it be raised and fully developed in the RPS proceeding (R.04-04-026).

CalWEA and Oak Creek, filing joint comments, generally support the decision. They ask that we direct SCE to open a "cluster" window for additional interconnection requests to be included in the first phase upgrade. We decline to do so since this could delay SCE's filing of its first phase project application. We also clarify some of our ratemaking language in response to the CalWEA/Oak Creek comments.