IV. Consideration of Economic Benefits in Transmission Project CPCN Proceedings
A. The Need for General Principles and Guidance
In Decision (D.) 01-10-070 issued in I.00-11-001, the Commission recognized that, in a restructured electricity market, traditional methods are inadequate for assessing the economic benefits of transmission projects. At the Commission's request, the CAISO began to develop a generic methodology and analytical tools for economic evaluations of transmission projects in dynamic market conditions. In developing its TEAM approach, the CAISO has made substantial contributions to advancing the art of transmission economic analysis.
Nevertheless, as discussed below in Section V, substantial concerns remain regarding the ability to model aspects of the increasingly complex inter-regional transmission and generation system that serves far-flung geographic areas with different market structures. We are confident that continued developments in system modeling capabilities will allow more accurate estimates of production costs, and that computer advances will reduce processing times and thus allow more refined uncertainty analyses. Any detailed principles and criteria that we could adopt at this time would need to be revisited and updated as the state of the art in economic assessment progresses. We thus focus on general principles rather than overly prescriptive directives to reduce the need for continuing reassessment of the guidance we adopt today.
Transmission projects may be proposed in various configurations and sizes and for various economic purposes, such as inter-regional bulk power transfers, congestion relief, or to meet other intra-regional needs. The wide range of transmission projects that may be proposed for economic reasons would further complicate any efforts to adopt detailed study requirements applicable to them all.
As long as the adopted principles and minimum requirements for economic evaluations are met, there may be value in having economic analyses in CPCN proceedings undertaken using multiple approaches. As an example, both network models and transportation models have strengths and weaknesses, as we discuss in Section V.B.1. Analyses using both approaches may be complementary in some respects and thus provide stronger underpinnings for our need determinations.
B. The Role of CAISO Economic Evaluations in Commission CPCN Proceedings
The CAISO, PG&E, and SDG&E assert that the CAISO has primary jurisdiction over need determinations. The Commission has considered similar arguments previously, and has repeatedly affirmed our jurisdiction and statutory responsibility to assess need in a certificate proceeding. (See D.03-05-038; see also D.02-10-065, D.02-10-066, D.01-05-059, and D.01-10-029. See also D.99-09-028 regarding the general issue of transmission jurisdiction.) We see no need to revisit this issue at this time. As we summarized previously:
[D]eference that consists of adopting the [CA]ISO's need assessment without conducting an independent review cannot substitute for our mandate to consider need for the project under Section 1001. (D.03-05-038, mimeo. at 12.)
The CAISO's proposal that its economic evaluations be granted a rebuttable presumption of reasonableness arguably does not reach the level of deference rejected in D.03-05-038. Under the procedures recommended by the CAISO, parties would have the opportunity to challenge the CAISO's findings in the Commission's CPCN proceeding and to introduce evidence to attempt to persuade the Commission that it should not adopt a CAISO need determination.
The Commission has long held that the applicant carries the burden of proof in a certification proceeding. Consequently, we believe that it would be counter to the public interest to shift the burden of proof from the applicant in transmission CPCN proceedings by establishing a rebuttable presumption in favor of a CAISO determination of need, for several reasons.
First, as discussed in more detail in Section V.E, the baseline resources and the identification and analysis of feasible alternatives to a proposed transmission project are critical components of the economic evaluation of the project. The Commission should retain the ability to assess the adequacy of the applicant's showing in this regard and to maintain consistency among Commission proceedings as we assess alternative means of meeting California's energy needs. However, because of the proprietary nature of the system model and database that the CAISO employs in its economic evaluations, it is not clear that the requirements of §§ 1821 and 1822 and Rule 74 requiring, among other things, that the Commission and parties be able to verify any model and data presented as evidence, can be met.
Second, the economic benefits of a transmission project depend inextricably on the project's construction and operating costs. It appears that the CAISO's economic evaluations typically use construction and operating costs provided by the project proponent, with minimal independent review. In a CPCN proceeding, we require that the applicant provide evidence regarding the reasonableness of its cost estimates. In addition, environmental concerns identified during our CEQA review may lead to route alternatives or environmental mitigation measures that may affect project costs. For these reasons, the burden of proof regarding project costs and their impact on project economics should not be shifted from the applicant and a rebuttable presumption regarding the CAISO's analysis of project costs would be inappropriate.
Third, while we agree with and adopt much of the CAISO's TEAM approach, we are not convinced that certain aspects of it are sufficiently developed to ensure reliable economic evaluations of proposed transmission projects. We discuss these concerns in Section V, in which we decline to adopt some of the CAISO's proposed mandatory requirements of TEAM.
Fourth, it is appropriate for a transmission project proponent to be required to make a persuasive case to the Commission, regardless of any other party's participation in the CPCN proceeding. Shifting the burden of proof from the applicant to other parties, with potentially less access to resources such as time, money, information, and complex modeling tools, could result in the grant of a CPCN regardless of the quality of the applicant's case, simply because other parties failed to meaningfully challenge the project. The Commission must preserve its ability to deny a CPCN request if it finds the applicant's evidence to be unpersuasive, even in the absence of a strong showing by opponents. It would not be in the public interest to dissipate our ability to reject an unpersuasive showing by granting a rebuttable presumption of need to any party's showing.
For all these reasons, the applicant should retain the burden of proof in CPCN proceedings. The Commission will continue to give appropriate weight to CAISO and all other economic evaluations submitted in CPCN proceedings, based on our review of their reasonableness.
C. The Impact and Application of General Principles
Our adoption today of general principles and guidance regarding economic evaluations of transmission projects will further the goal of greater coordination and consistency between the Commission and the CAISO. The adopted principles and minimum principles should be useful to project proponents, the CAISO, and other parties who may participate both in the CAISO review and in CPCN proceedings before the Commission. Parties who provide economic evaluations to the CAISO that are consistent with our guidelines may also submit them in CPCN proceedings here, thus reducing duplication of efforts, the expense of participating both at the CAISO and here, and the time required for the two reviews. Additionally, parties' experience in defending their project evaluations during the CAISO process should narrow issues and streamline the process in a CPCN proceeding here.
The principles we adopt are applicable to transmission projects proposed wholly or partly on the basis of their expected economic benefits. We recognize that it may be appropriate to tailor the application of these general principles to the particular project before us. As the CAISO notes, the level of analysis required for inter-regional economic projects may be the most substantial and the analysis needed for intra-regional economic projects may be considerably less complex, particularly if the economic impact is limited primarily to a single area. The Assigned Commissioner or assigned ALJ in a CPCN proceeding may allow parties to deviate from the adopted minimum requirements for economic evaluations with good cause shown, taking case-specific conditions into account.
Some transmission projects may be proposed only in part on the basis of economic benefits, and may be expected to have significant other benefits such as enhanced reliability or the ability to deliver power from renewables in furtherance of California's Renewables Portfolio Standard Program (RPS) goals.4 The principles adopted in today's decision will be applicable in such instances, but we will also consider the other possible benefits in making an overall need determination. Even for a transmission project with significant non-economic benefits, a rigorous economic analysis may be needed, for example, if other projects with different economic benefits could also meet the project's objectives.
Finally, we agree with SCE's suggestion that the applicant in a CPCN proceeding should inform the Commission of the CAISO evaluation of its proposed project, even if it disputes some or all of the CAISO analysis. The applicant may use the CAISO assessment to help meet its burden of proof. We continue to encourage the CAISO to participate actively in our CPCN proceedings.
D. Future Commission Action
Because the state of the art in economic evaluations of transmission projects continues to evolve, it is not clear that further investigation at this time aimed at refining the principles and minimum requirements we adopt today would be warranted. Instead, we anticipate that the Commission will assess the applicability of the adopted principles and guidance in the context of individual CPCN applications, as the need arises. As a result, with the adoption of today's decision we close I.05-06-041.
Notwithstanding the case-study emphasis on the DPV2 project in today's order, we do not determine, at this time, the economic need for that project. We will resolve that question in our later decision in A.05-04-015 addressing SCE's CPCN request. At that time, we will consider all of the relevant factors that affect the cost-effectiveness of DPV2, including issues such as fuel cost and load forecasts that we do not address today. We will assess the parties' economic evaluations of DPV2 on their merits, recognizing that our guidance adopted today in I.05-06-041 was not available when the evaluations were prepared.
4 See §§ 387, 390.1, 299.25, and 399.11, et seq.
