2. Introduction and Summary¹

We initiated this investigation in November 2000 to "identify and undertake those actions necessary to reduce or remove constraints on the state's existing electrical transmission and distribution system." (Public Utilities Code Section 399.15(a)(1) added by Assembly Bill (AB) 970 signed September 6, 2000.) In Phase 1 of this proceeding, we directed Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE) to undertake 31 transmission projects to relieve system congestion by the summer of 2001 in specified areas of the state. (See Decision (D.) 01-03-077.)

We are addressing longer-term transmission planning issues during Phase 2 of this proceeding. Today's decision evaluates the need for a new Southern California link to Arizona, Nevada or Mexico ("the Southwest").

Based on the analysis presented on the record, we conclude that new transmission to the Southwest is not likely to be needed for reliability purposes before 2008. We reach this conclusion after evaluating the results and likelihood of numerous modeling scenarios and input assumptions presented in this proceeding. Our conclusions take account of recent updates to transmission transfer capability identified on the record. They also take account of potential bias in the reliability model utilized by the California Independent System Operator (ISO), SCE, SDG&E, and the California Energy Commission (CEC) in this proceeding. We will continue to monitor the reliability modeling efforts conducted through the ISO's Grid Coordinated Planning Process in order to update and confirm these results with the detailed power flow studies conducted during that process. To this end, we direct Energy Division to report to us on an ongoing basis if future power flow studies indicate a need for reliability purposes earlier than 2008.

Although the record is voluminous with modeling runs addressing the need for new transmission for reliability purposes, the parties to this proceeding did not assess the costs and benefits associated with building new transmission to the Southwest for "economic" reasons, i.e., to make less expensive power available to ratepayers. Instead, they propose to develop a methodology for this purpose via a joint Request for Proposals (RFP) process initiated by the ISO.

As discussed in this decision, we believe that the public interest is best served by evaluating the economic need of new transmission projects, and the appropriate allocation of costs among ratepayers and other beneficiaries, in this proceeding--where we can ensure that a public record is fully developed. To that end, we direct SCE, SDG&E, and PG&E to jointly file the results of the ISO/stakeholder RFP process within 15 days from the date that the consultant's final report is completed. The assigned ALJ will hold a PHC as soon as practicable thereafter to schedule evidentiary hearings on the economic need for new transmission to the Southwest.

With regard to testimony in this proceeding concerning needed in-state transmission upgrades, we have recently scheduled a separate set of evidentiary hearings on the net economic benefits to ratepayers of relieving two potential in-state transmission constraints in Southern California, including alternatives to address potential congestion west of Miguel.² Since the modeling efforts presented in this proceeding do not address in-state transmission constraints, no conclusions can be made from the record in this proceeding regarding the adequacy of the in-state transmission grid in the Southern California region.

Finally, we direct SDG&E to report on the status of discussions with the Comision Federale de Electricidad (CFE) or other entities regarding further upgrades to Path 45 that may involve ratepayer funding.