II. Background
A. Procedural History
SCE first submitted an application to construct a second transmission line between the Devers substation and the Palo Verde nuclear plant in 1985, and in Decision (D.) 88-12-030 the Commission granted a CPCN approving the DPV2 project as then proposed, conditioned upon submission of transmission service contracts associated with the project and other requirements. In 1997, the Commission granted SCE's request to abandon plans to construct the DPV2 project.
Beginning in 2003, the regional Southwest Transmission Expansion Planning (STEP) group evaluated a number of potential transmission upgrades. Through a consensus process, the group developed a general expansion plan that includes the DPV2 project. The Board of the California Independent System Operator (CAISO) approved the DPV2 project on February 24, 2005. On September 7, 2006, the CAISO Board approved the Harquahala Junction and Devers-Valley No. 2 modifications to the proposed project.
On April 11, 2005, SCE filed Application (A.) 05-04-015, its current application for a CPCN for the DPV2 project, accompanied by its Proponent's Environmental Assessment (PEA). The Commission opened Investigation (I.) 05-06-041 on June 30, 2005, to consider appropriate principles and methodologies for assessment of the economic benefits of proposed transmission projects, including DPV2, that are submitted for Commission approval. A joint prehearing conference was held in A.05-04-015 and I.05-06-041 on July 20, 2005. The assigned Commissioner issued a joint scoping memo for A.05-04-015 and I.05-06-041 on August 26, 2005. The scoping memo categorized this proceeding as ratesetting and stated that hearings were necessary. The scoping memo also provided that evidence regarding DPV2 would be received in two phases. Phase 1 in A.05-04-015 and I.05-06-041 received evidence regarding the economic methodology used to assess cost-effectiveness and DPV2-specific need issues. Phase 2, in A.05-04-015 only, addressed environmental, routing, updated cost estimates, and other issues related to DPV2.
As provided in a September 27, 2005 ruling by the Administrative Law Judge (ALJ), parties filed comments and reply comments on Phase 1 issues. An ALJ ruling dated October 28, 2005 provided further guidance regarding the scope of Phase 1 testimony and evidentiary hearings.
Three days of evidentiary hearings were held in Phase 1 on January 10-12, 2006. The following parties filed opening briefs in Phase 1: the CAISO, SCE, Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Division of Ratepayer Advocates (DRA), The Utility Reform Network (TURN), Bay Area Municipal Transmission Group (BAMx),5 and Global Energy Decisions, Inc. (Global Energy). All of these parties except BAMx also filed reply briefs. Following the receipt of late-filed exhibits and opening and reply briefs, Phase 1 was submitted on March 24, 2006.
Evidentiary hearings were held in Phase 2 on July 10, 2006. SCE and DRA filed opening briefs in Phase 2. SCE filed a reply brief. Following the receipt of late-filed exhibits6 and opening and reply briefs, Phase 2 was submitted on November 13, 2006. In opening briefs, no party requested final oral argument before the Commission, as allowed by the scoping memo.
A joint State-federal environmental analysis of the proposed DPV2 project has been undertaken pursuant to CEQA and NEPA. The Commission, as the State lead agency under CEQA, and BLM, as the federal lead agency under NEPA, retained outside consultants to conduct the environmental review. The Commission's Energy Division oversaw the consultants' work on behalf of the Commission.
In November 2005 and January 2006, the Commission's Energy Division and BLM staff held eight scoping meetings in California and Arizona to collect public input for the scope and content of the joint EIR/EIS and for alternatives and mitigation measures to consider. In addition, six consultation meetings were held with agencies and local jurisdictions to discuss the proposed project. A Scoping Report for the CEQA process was issued in December 2005 and an addendum to the Scoping Report was issued in February and March 2006. The draft EIR/EIS was issued on May 4, 2006. The Commission's Energy Division and BLM staff held six public workshops on the draft EIR/EIS and the ALJ held three public participation hearings in June and July, 2006. The Final EIR/EIS was published on October 25, 2006.7
On November 9, 2006, the Commission issued D.06-11-018 in I.05-06-041. In that decision, we adopted general principles and minimum requirements for economic evaluations of proposed transmission projects that may be submitted in CPCN proceedings. While we considered the methodologies parties used in their economic evaluations of DPV2 in D.06-11-018, we did not address the economic value of DPV2. In today's decision, we consider all of the relevant factors that affect the cost-effectiveness of DPV2. We assess the parties' economic evaluations of DPV2 on their merits, recognizing that our guidance adopted in D.06-11-018 was not available when the evaluations were prepared.
The DPV2 project would traverse State and federal land in California and Arizona. The Arizona Corporation Commission must issue a Certificate of Environmental Compatibility before SCE can construct the project. In addition, BLM must determine whether to grant a Right of Way Grant on BLM-administered land in California and Arizona. SCE will also be required to obtain permits from several other State, federal, and local jurisdictions, including a Compatibility Determination from the United States Fish and Wildlife Service (USFWS) regarding proposed construction through the Kofa National Wildlife Refuge (Kofa).
B. Scope of Proceeding
In its application, SCE asserts four justifications for the DPV2 project, which can be summarized as follows:
1. That DPV2 would be cost-effective for California electricity customers because it would allow for greater access to low-cost, surplus generation in Arizona.
2. That DPV2 would enhance competition among the generating companies that supply energy to California and would facilitate SCE's resource procurement approach approved in D.04-12-048.
3. That the additional transmission infrastructure provided by DPV2 would support and induce the development of future energy suppliers selling energy into the California energy market and that DPV2 would increase liquidity in the market and, thus, help mitigate market power.
4. That DPV2 would provide resource reliability benefits, flexibility in operating California's transmission grid, and additional import capacity that may be needed during unanticipated conditions.
In the scoping memo, the assigned Commissioner found that the scope of A.05-04-015 includes the following as to the proposed project using SCE's preferred route and configuration, alternative routes and configurations, the No Project alternative considered pursuant to CEQA requirements, and non-wires alternatives:
· Need for the project (Pub. Util. Code § 10018) including, but not limited to, the four justifications submitted in SCE's application.
· Consideration of the following factors contained in § 1002:
1) Community values;
2) Recreational and park areas;
3) Historical and aesthetic values; and
4) Influence on the environment.
· Consideration, pursuant to General Order (GO) 131-D, of whether the project promotes the safety, health, comfort, and convenience of the public.
· Consideration, pursuant to GO 131-D, of measures to reduce the potential exposure to electric and magnetic fields (EMF) generated by the proposed facilities.
· Consideration, pursuant to CEQA, of significant effects of the project on the environment; alternatives to the project; the manner in which significant environmental effects can be mitigated or avoided; and whether economic, social, or other conditions make it infeasible to mitigate significant effects on the environment.
· How SCE would comply with § 625.
· Impacts on the transmission grid and other transmission users.
· Cost-effectiveness and cost allocation.
· Project costs.
· Specification of a "maximum cost determined to be reasonable and prudent" pursuant to § 1005.5(a).
5 BAMx is an unincorporated association of publicly owned utilities located in the Greater Bay Area. Members include the City of Santa Clara, Alameda Power and Telecom, and City of Palo Alto Utilities.
6 Consistent with an October 31, 2006 e-mail ruling by the ALJ, SCE's motion to submit late-filed Exhibit 43 is granted.
7 As provided in an October 31, 2006 ALJ ruling, the three volumes of the draft EIR/EIS have been entered into the record in A.05-04-015 as Exhibits 35, 36, and 37. The three volumes of the Final EIR/EIS are Exhibits 40, 41, and 42.
8 All cites to code sections refer to the Public Utilities Code unless specified otherwise.
