5. Position of the Parties

PG&E presents no independent position concerning the economic benefits or cost-effectiveness of the Path 15 upgrades in this proceeding, stating that "...the ISO has undertaken to demonstrate that a Path 15 transmission capacity upgrade is needed to promote economic efficiency. PG&E, therefore, defers to the ISO's assessment of such economic benefit."¹⁸

In the ISO's view, the record strongly supports proceeding with the Path 15 upgrade.¹⁹ By reducing the ability of suppliers to exercise market power, the ISO argues that the upgrade would "easily pay for itself within one drought hydro year and three normal years, and would in fact pay for itself within four normal years, even applying a 25% plus or minus factor."²⁰ Moreover, the ISO contends that the upgrade provides a cost-effective hedge against significant consumer harm in less likely, but still plausible worst-case scenarios.

More generally, the ISO views the Path 15 upgrades as part of a larger vision of transmission "backbone" of 500 kV transmission lines crossing the state:

"In particular, the CA ISO has begun developing a vision of an adequate 500 kV backbone transmission system for the state. Several key projects have been identified and Path 15 has been determined to be one of the highest priority projects. There are also plans to increase the transmission capability between Southern California Edison Company and PG&E transmission systems on Path 26, and to increase transmission capability between the San Diego area and the rest of the state."²¹

According to the ISO, it is the lack of this type of backbone transmission that gives rise to the exercise of market power and the need for broad market-wide mitigation measures. Correcting this deficiency through transmission upgrades would, according to the ISO, be more prudent than relying on ongoing regulatory intervention.²²

ORA, on the other hand, contends that the only way in which the Path 15 upgrade can be justified is to make extremely pessimistic forecasts for the future. In particular, ORA argues that "the Commission would have to perceive a high risk that the wholesale electric market in 2005 and subsequent years will be as unbridled as California experienced in the winter and spring of 1999/2000."²³ Moreover, ORA argues that the ISO's market power modeling is seriously flawed. As an insurance policy, ORA contends that the investment in Path 15 upgrades requires a high premium ($50 million per year) for very limited coverage.²⁴ Finally, ORA argues that the MOU arrangements may or may not provide a better deal for ratepayers depending in large part on how Trans-Elect would operate its majority share of the project. In ORA's view, any final conclusions concerning project cost-effectiveness cannot be made without this further information.

In its comments on the Proposed Decision of the Administrative Law Judge and Commissioner Lynch on March 27, 2003, PG&E renewed its argument that it should be allowed to withdraw its application for a CPCN.

The ORA stated in its reply comments that if it is the desire of the Commission to have the Path 15 project proceed, then it should adopt PG&E's approach with modifications. Specifically, the ORA argues that PG&E should not have:

· a unilateral right to withdraw A.01-04-012,

· what amounts to a pre-approval of work under General Order 131-D, and

· generic findings about the applicability of federal law regarding the Path 15 project.

On April 18, 2003, PG&E filed a request for an expedited decision by the full Commission reversing Assigned Commissioner Lynch's ruling that denied PG&E's withdrawal of A.01-04-012.

¹⁸ PG&E Opening Brief, pp. 1-2. ¹⁹ Our understanding from the record in this proceeding is that the ISO staff has taken a position, but not yet the ISO Governing Board, regarding the economic need of the project. (See RT at 533.) Therefore, our reference to the position of the ISO refers only to the staff position, as reflected in their testimony and during evidentiary hearings. ²⁰ ISO Opening Brief, p. 34. ²¹ Exh. 200, p. 9. ²² Exh. 202, p.5. ²³ ORA Opening Brief, pp. 39-40. ²⁴ Ibid., p. 43.