D0611018 RE Methodology for Economic Assessment of Transmission Projects

The Commission opened Investigation (I.) 05-06-041 in order to consider methodologies for the economic assessment of proposed transmission projects. In today's decision, we adopt general principles and minimum requirements and provide other guidance for economic evaluations of proposed transmission projects that may be submitted in Commission certificate of public convenience and necessity (CPCN) proceedings.

The Commission is taking steps to simplify transmission planning and permitting procedures and make them more efficient, both here and in I.05-09-005 and other venues. Our adoption today of principles and minimum requirements that will apply to all economic evaluations of proposed transmission projects, and the creation of a rebuttable presumption in favor of an economic evaluation approved by the California Independent System Operator (CAISO) Board, will complement the Commission's other transmission project streamlining efforts and further the goal of greater coordination and consistency between the Commission and the CAISO.

A threshold issue in this proceeding has been what deference should be given to determinations by the CAISO regarding the cost-effectiveness and need for a transmission project that is proposed for its economic benefits. The CAISO is a critical player in California's efforts to ensure reliability and economic efficiency of the transmission system. The CAISO's work in developing its Transmission Economic Assessment Methodology (TEAM) has advanced the state of the art in economic evaluations of transmission projects. We agree with and adopt many aspects of the CAISO's TEAM approach. Consequently, as discussed in Section IV of this order, we will establish a rebuttable presumption with regard to economic evaluations in a CPCN proceeding in favor of a CAISO Board-approved economic evaluation provided: (1) the CAISO Board has made certain explicit findings regarding the economic value of the proposed project; (2) the CAISO Board-approved evaluation is consistent with the principles and minimum requirements set forth herein; and (3) the CAISO Board-approved evaluation is submitted to the Commission within sufficient time to be included within the scope of the proceeding. This rebuttable presumption in favor of a CAISO Board-approved economic evaluation shall be such that parties opposing the proposed project in a CPCN proceeding will bear the burden of demonstrating either (1) that the CAISO Board-approved economic evaluation does not comply with the principles and minimum requirements of this decision or (2) that the project is not cost-effective.

Notwithstanding the foregoing, a CAISO determination of economic value is not a prerequisite to obtaining a CPCN and an applicant retains the right to propose its own economic evaluation. However, we do not grant a rebuttable presumption to an evaluation not approved by the CAISO Board, and any evaluation submitted in a CPCN proceeding shall comply with the requirements of this decision. Further, an applicant shall submit any CAISO economic evaluation of the proposed project into the record of the proceeding.

Another significant issue in this proceeding has been how prescriptive the Commission should be regarding the imposition of standards for economic evaluations submitted in CPCN proceedings. We agree with the consensus among the parties that Commission requirements regarding economic evaluations of transmission projects should not be overly prescriptive, but we also believe such requirements should be sufficient to ensure consistency among and transparency in economic evaluations submitted in CPCN proceedings. Thus, today we adopt general principles and provide guidance to establish a framework for all economic evaluations submitted in CPCN proceedings. The adopted principles, along with minimum requirements for economic evaluations, are appended as Attachment A to this order, and can be summarized as follows:

1. The CAISO's standardized benefit-cost methodology 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, although there is value in reviewing benefit-cost results from other perspectives as well.

2. The CAISO's framework for the computation of potential energy benefits shall be used. Parties shall assess energy benefits using established, credible, and commercially available production cost modeling tools. The applicant may decide whether to include market power mitigation benefits as part of its demonstration of need for a proposed transmission project.

3. In addition to energy benefits, other economic effects of a transmission project may be considered, including economic effects that may not be quantifiable.

4. Economic evaluations shall consider how uncertainty about future system and market conditions affects the likelihood that a transmission project's forecasted benefits will be realized.

5. Economic evaluations 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.

6. Economic evaluations shall consider feasible resource alternatives to the proposed transmission project.