O R D E R
IT IS ORDERED that:
1. We adopt the Principles and Minimum Requirements for the Economic Evaluation of Proposed Transmission Projects (Principles and Minimum Requirements) appended as Attachment A, with the further guidance provided in this decision, for use in certificate of public convenience and necessity (CPCN) proceedings in which the applicant proposes a transmission project wholly or partly on the basis of expected economic benefits.
2. Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company shall each submit an economic evaluation consistent with the Principles and Minimum Requirements and the further guidance provided in this decision, as part of its showing in any proceeding in which it requests a CPCN for a transmission project proposed wholly or partly on the basis of expected economic benefits.
3. Non-applicant parties in CPCN proceedings considering a transmission project proposed wholly or partly on the basis of expected economic benefits may submit economic evaluations that are consistent with the Principles and Minimum Requirements and the further guidance provided in this decision.
4. The Assigned Commissioner or assigned Administrative Law Judge in a CPCN proceeding considering a transmission project proposed wholly or partly on the basis of expected economic benefits may modify application of the minimum requirements for economic evaluations adopted in this order with good cause shown, taking case-specific conditions into account.
5. If the California Independent System Operator (CAISO) Board makes the explicit findings regarding an economic evaluation of a proposed transmission project as set forth in this decision, the evaluation shall be granted a rebuttable presumption provided that the CAISO is a party to the CPCN proceeding.
6. If material facts relied upon in a CAISO Board-approved economic evaluation are inaccurate or become outdated, the applicant shall submit additional information and shall provide an explanation of the additional information's impact on the assumptions and conclusions contained in the economic evaluation.
7. Investigation 05-06-041 is closed.
This order is effective today.
Dated November 9, 2006, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
I dissent.
/s/ GEOFFREY F. BROWN
Commissioner
PRINCIPLES:
1. Benefits Framework
The CAISO's standardized benefit-cost methodology, as described in this decision, shall be used to measure the economic benefits of proposed transmission projects. The perspective of CAISO ratepayers is of primary importance in a CPCN proceeding because it reflects the effects on customers of the utilities within the Commission's jurisdiction.
The discount rate to be used in evaluating the benefits of a proposed transmission project shall be the applicant's weighted cost of capital adopted most recently by the Commission.
Economic assessments of proposed transmission projects shall consider three categories of costs and benefits: (a) the change in total production costs, or energy benefits; (b) changes in other quantifiable economic costs and benefits not included in the production cost analysis; and (c) factors whose effects cannot be monetized.
2. Energy Benefits
The CAISO's framework, as described in this decision, for the computation of potential energy benefits of a proposed transmission project shall be used. The change in production costs, or the energy benefits, has three components: the change in consumer costs, the change in producers' profits, and the change in congestion revenues flowing to transmission owners or holders of transmission rights.
Parties shall assess energy benefits using an established, credible, and commercially-available production cost modeling tool. Computer modeling access requirements of Public Utilities Code Sections 1821 and 1822 shall be met consistent with Rules 10.3, 10.4, and 1.2 of the Commission Rules of Practice and Procedure.
The applicant may decide whether to include market power mitigation benefits as part of its demonstration of need for a proposed transmission project.
Parties shall model system operations for at least two years, with the years chosen several years apart. The Commission prefers that parties also model system operations during the intervening years, particularly if there are significant system changes, e.g., large transmission or generation additions or retirements, during those years.
3. Other Economic Benefits and Costs
In addition to energy benefits, other economic effects of a proposed transmission project may be considered, including economic effects that may not be quantifiable. The applicant shall identify in its economic evaluation any attributes of the proposed transmission project that may increase societal costs in some manner. Additionally, to the extent an applicant learns its evaluation relies upon estimated costs that have become outdated by more than 5%, the applicant shall update its economic evaluation to reflect that change in estimated costs of the project and shall explain the impacts of that change on the evaluation.
4. Uncertainty Analysis
Economic evaluations shall consider how uncertainty about future system and market conditions affects the likelihood that a proposed transmission project's forecasted benefits will be realized.
5. Resource Plans and Other Input Assumptions
Economic evaluations of proposed transmission projects shall use baseline resource plans and assumptions about the system outside the applicant's service territory that are consistent with resource plans and system assumptions used in procurement or other recent Commission proceedings, updated as appropriate. Potential changes to the system that may result from or accompany construction of the proposed project shall be taken into account.
6. Alternative Resource Options
Economic evaluations shall consider feasible resource alternatives to the proposed transmission project. Depending on the transmission project, these alternatives may include, but are not limited to, other transmission projects or configurations, central station or distributed generation, demand-side options, operating procedures, and/or additional remedial action schemes.
REQUIREMENTS:
1. Benefits Framework
Each party that submits an economic evaluation in a transmission CPCN proceeding shall report benefits from, at a minimum, the CAISO Ratepayer perspective and the Societal perspective.
If a party quantifies and attributes benefits based on mitigation of market power, the party shall report benefit-cost results using both the Societal and Modified Societal perspectives.
2. Energy Benefits
Parties shall report separately the three components of their energy benefit calculations, that is, the changes in consumer surplus, producer surplus, and transmission surplus (congestion revenues). This level of detail shall be provided for each benefit perspective reported, i.e., the Societal, Modified Societal, CAISO Ratepayer, and any other benefit perspectives reported.
If a party attributes benefits based on mitigation of market power, the party shall include a complete description of its bidding strategy methodology and steps taken to validate its predictive ability in anticipated market conditions. The party shall also submit a comparable economic analysis that does not include strategic bidding or market power mitigation benefits.
Each party shall identify and justify significant assumptions and simplifications in its economic analysis, and shall provide information about the likely effects of the assumptions and simplifications. In particular, each party shall address its treatment of the following modeling issues:
· Modeling of power flows, constraints and congestion charges within both the CAISO control area and all other areas included in system simulations.
· Modeling of generation unit commitment and dispatch.
· Modeling of bilateral contracts and assumptions about future contracts.
· Assumptions about ownership of new generation facilities.
· Number and choice of years studied, the method for estimating benefits for years not studied, and the number of hours per year for which system operations are simulated. The party shall provide a sensitivity analysis addressing the effect on benefit-cost results of different assumptions about energy benefits in years that are not simulated.
3. Other Benefits and Costs
The applicant shall identify any attributes of its proposed transmission project that may increase societal costs or have other detrimental effects and, if possible, quantify the potential effects. In addition to energy benefits, parties are encouraged to identify other beneficial economic aspects of the transmission project. Parties may include these factors in their uncertainty analyses, to the extent appropriate.
If a party quantifies changes in non-energy economic benefits or costs, the party shall identify separately the economic value of each of those benefits or costs.
Each party shall specify the level of project costs (including capital and operation and maintenance costs) it assumed in its economic evaluation, and shall specify, through a formula if appropriate, how a change in project costs would change any benefit-cost ratios or other numerical benefit-cost results in its economic evaluation.
4. Uncertainty Analysis
The applicant shall submit an uncertainty analysis that considers a reasonable range of possible variations in key study parameters and contingency events. For any proposed transmission project expected to cost more than $100 million, the applicant's uncertainty analysis shall include a probabilistic and/or scenario evaluation.
Each party that submits an economic evaluation shall provide the inputs and corresponding results for each deterministic case, individual probability case (whether stochastically or manually derived), and each contingency event whose possible economic consequences are quantified.
Each party that submits an economic evaluation shall provide a cost-based (that is, without strategic bidding) deterministic reference case. The applicant shall use its baseline resource plan and assumptions about the system outside its service territory from procurement or other recent Commission proceedings, modified as appropriate. Other parties shall mirror resource and other key assumptions in the applicant's reference case to the extent feasible. Any party that models strategic bidding shall submit a market-based reference case that varies from its cost-based reference case only in its forecast of strategic bidding.
Each party shall identify the parameters in its economic analysis whose realized values are most likely to affect the cost-effectiveness of the transmission project under consideration.
5. Resource Plans and Other Input Assumptions
The applicant shall use a baseline resource plan and assumptions about the system outside its service territory that are consistent with its resource plan and system assumptions used in procurement or other recent Commission proceedings, with identification and explanation of any differences. The applicant shall consider any potential changes to the system that may result from or accompany construction of the proposed project.
The applicant shall specify the criteria it used to determine the inclusion, exclusion, and retirements of generation, transmission, and other resources in its baseline resource plan, and also the source and justification for its assumptions about the system outside its service area.
Other parties shall identify and justify any differences between the resource plans and other input assumptions they utilize and those submitted by the applicant, and shall address how the differences may affect the results of their analysis.
6. Alternative Resource Options
Each party shall identify the resource alternatives to a proposed transmission plan that it considered, the bases for its choices, and the results of its alternatives analysis.
7. General
If the CAISO has determined that a proposed transmission project is needed, the applicant shall present the CAISO's economic evaluation and may use the CAISO assessment to help meet its burden of proof.
Each party shall address the extent to which resource or time constraints affected its study design choices, including but not limited to the type of model used, the number of years and the number of hours per year studied, and the number of scenarios or stochastic iterations performed. Each party shall address the basis for any resulting trade-offs it made among such study attributes.
(END OF ATTACHMENT A)
************ APPEARANCES ************ |
George Forman |
John W. Leslie |
E. Gregory Barnes |
Billie C. Blanchard |
Scott Cauchois |
Kenneth Lewis |
Henry Zainiger |
Karen Mills |
Donald C. Liddell |
Brian T. Cragg Michael S. Porter |
C. Susie Berlin |
Perry Zabala |
Case Administration |
(END OF ATTACHMENT B)
