7. Economic Analysis

Joint Parties presented preliminary project cost estimates and described the economic factors to be considered in evaluating the need for new transmission from an economic, cost-benefit perspective. They conclude that a transmission project to upgrade access from Southern California to Arizona would likely involve 240 miles of new 500 kV transmission line and could cost between half to two billion dollars, depending on the ultimate cost of transmission line per mile. A transmission project to upgrade access from Southern California to Mexico would likely involve 100-190 miles of new 500 kV transmission line and could cost between one quarter to one and three quarters billion dollars depending on the route and the ultimate cost of transmission line per mile. These estimates do not include the cost of any upgrades to the in-state transmission system to ensure that the power imported could reach dense load centers.⁸

Joint Parties do not address whether this added transmission capability should be built from an economic perspective, e.g., to benefit from long-term electricity market prices, for the following reasons:

"Deregulation of electricity supply has made it more difficult to accurately assess the economic need for a specific transmission line....When utilities exercised cost-based central dispatch of generation, transmission planning, including economic assessments, was relatively straightforward and the simulation of various generation costs was relatively simple. Now, however, without control over generation supplies or access to future generation or future regional market price data, neither the CA ISO nor utility transmission planners have a clear basis for determining whether and when to construct economic transmission additions.

"Modeling and simulation tools designed under the old paradigm can no longer be relied on to provide accurate estimates. New, more complex, simulation models that appropriately incorporate the complex dynamics of this deregulated environment are required. These tools are necessary to assess the likelihood and range of regional electricity price differentials and/or the effect of access to a larger market for electricity on Southern California electricity prices. Differences in electricity prices to Southern California consumers must then be compared against the cost of building, financing, operating and maintaining a new transmission line."⁹

Joint Parties recommend that the ISO develop and issue an RFP to obtain a methodology and analytical tools for evaluating the economic justification of multi-million dollar transmission investments. The RFP process is currently underway. Under the schedule presented in their Joint Testimony, the final report on an economic methodology will be available at the end of March 2002.

The ISO expects that the economic analysis of transmission projects, once a methodology is developed, would be used to supplement its annual Grid Coordinated Planning Process, which looks at system reliability needs. The ISO intends to apply the methodology to major complex projects with regional significance, including the significant (primarily 500 kV) lines needed to access and utilize Southwest generation.¹⁰