Background

On November 2, 2000, the California Public Utilities Commission (Commission) issued an Order Instituting Investigation, in which it articulated the following scope of inquiry:

"This investigation will determine the most cost-effective ways of easing transmission constraints and associated generation shortfalls both in the short term and the longer term. For some areas of the state, we will review the economic and siting tradeoffs between transmission upgrades and local generation. Commission staff will consult with the ISO on behalf of the Commission, as [Assembly Bill] AB 970 requires." (OII, p. 4.)

"...this investigation also examines the prospects for utility acquisition of new peaking generation resources for summer 2001 and beyond." (OII, p. 1.) The Commission will "identify whether there is a need for new power plants and whether" the Commission should "order regulated utilities to construct them or contract for them at prices that approximate costs. . . .In pursuing this and related options, we will consult with the state's Electricity Oversight Board...and the office of the AG as may be necessary." (OII, pp. 5-6.)

Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company and Southern California Edison Company (SCE), collectively referred to as "the utilities," filed comments on these issues on November 22, 2000. California's Independent System Operator (ISO), Office of Ratepayer Advocates, Ridgetop, LLC and the City and County of San Francisco filed reply comments on December 20, 2000.

The Commission held a prehearing conference on December 14, 2000. At the Administrative Law Judge's direction, PG&E supplemented its filing on December 29, 2000 to address six transmission upgrades identified by Commission staff but not included in the November 22, 2000 filing. No party filed comments in response to PG&E's supplemental filing.

In their comments, the utilities and interested parties agree that the near-term focus of this proceeding should be to identify transmission constraints on the electrical system that can be addressed by summer, 2001. On the issue of needed generation resources, there appears to be consensus that continuing with the process being undertaken by the ISO is the only realistic option at this point in time for getting new peaking generation on line by next summer.

We conduct this proceeding in two phases. During Phase 1, which this decision addresses, the Commission has identified the transmission projects that can be put in place by summer 2001 to relieve system constraints. During Phase 2, the Commission intends to address longer-term transmission planning issues. The Commission may also revisit the issue of the appropriate role of the utility in the development of generation during Phase 2. Recognizing the state's need for longer-term transmission system improvements, we state our intent to conduct the next phase of this proceeding with the objective of issuing a final order late in 2001.