IV. Project Need

PG&E asserts that the Jefferson-Martin project is necessary for four reasons: (1) to reliably meet projected electric demand in the Project Area; (2) to satisfy applicable planning criteria; (3) to diversify the transmission system serving the Project Area; and (4) to implement the ISO Board of Governors' April 2002 Resolution approving the proposed Jefferson-Martin project for addition to the ISO-controlled grid. In this section, we describe the reliability planning criteria that are applicable and then use them, along with other considerations, to assess need for the Jefferson-Martin project.

PG&E and the ISO use different geographical areas in assessing need for the Jefferson-Martin project. The area PG&E refers to as the Project Area consists of the City and County of San Francisco, Burlingame, Millbrae, San Bruno, South San Francisco, Brisbane, Colma, Daly City, Pacifica, and Hillsborough. The ISO evaluates need for a broader San Francisco Peninsula Area, which the ISO characterizes as the area north of Palo Alto or north of the Ravenswood substation.

A. Reliability Evaluation

1. Reliability Standards

The ISO's reliability criteria incorporate national North American Electric Reliability Council (NERC) and regional Western Electricity Coordinating Council (WECC) planning standards as well as local reliability criteria, in particular, certain modifications for the San Francisco Peninsula Area. The ISO Grid Planning Standards include reliability criteria for the forecasted operation of the transmission system for several scenarios or categories of system conditions, as follow:

· Category A (base case). Normal ratings of equipment must not be exceeded with all generators, lines, and transformers in service and with no loss of load.

· Category B. Emergency ratings of equipment must not be exceeded with the loss of (a) a single circuit, generator, or transformer or (b) a single circuit and a single generator. Loss of load is not permitted unless the ISO Board of Governors decides that a capital project alternative is clearly not cost effective.

· Category C. Emergency ratings of equipment must not be exceeded with the loss of (a) a single circuit, generator, or transformer, or (b) a single circuit and a single generator; with that loss followed by manual adjustments and then the loss of another single circuit, generator, or transformer. Loss of load is allowed unless the ISO Board of Governors decides that the capital project is clearly cost effective.

The ISO's San Francisco Greater Bay Area Generation Outage Standard8 modifies the Category A base case to require that normal ratings of equipment must not be exceeded with three units out of service: the largest single unit on the San Francisco Peninsula, one 50 MW combustion turbine on the San Francisco Peninsula, and one 50 MW combustion turbine in the Greater Bay Area but not on the San Francisco Peninsula.9

In addition, PG&E and the ISO apply grid planning criteria called the Supplementary Guide for Application of the Criteria for San Francisco. This Supplementary Guide, which pre-dates the ISO, requires that emergency ratings of equipment not be exceeded, with no loss of load, under four specific sets of conditions. PG&E and the ISO consider the Supplementary Guide to be a modification of Category C requirements.

280 Citizens takes issue with the Supplementary Guide, stating that it was developed by PG&E, not the ISO, and is significantly more stringent than the ISO's planning standards in that the Supplementary Guide does not allow loss of load in certain contingencies under which the ISO's Category C would allow outages. PG&E rebuts 280 Citizens in this regard, pointing out that under Category C, involuntary load interruptions are not acceptable if the ISO Board has decided that the capital project being considered is clearly cost effective. PG&E asserts that, in approving the Jefferson-Martin project, the ISO found it to be cost effective.10 In its view, loss of load is thus not allowed under either the ISO Category C criteria or the Supplementary Guide criteria.

280 Citizens contends that the contingency event modeled by PG&E to determine compliance with the Supplementary Guide reliability criteria has a miniscule probability of occurrence, which it estimates to be less 0.0000000257. PG&E responds that it is required to meet the standard, regardless of whether the contingency is a low probability event. PG&E explains that the established criteria are not based on probabilities of contingency events occurring, but on the reality that if a cable failure were to occur, it could be out up to several weeks.

280 Citizens point to the ISO's February 7, 2002 Planning Standards, which include a new transmission standard that considers the likelihood of certain contingencies occurring for planning purposes. PG&E responds that quoted standard deals with the preparation of annual transmission expansion plans and is inapplicable in this case. The ISO maintains that it and PG&E are compelled by § 345 to plan the grid in accordance with national and regional reliability criteria which are deterministic, that generally accepted probabilistic standards do not yet exist, and that 280 Citizens does not propose any in this proceeding.

2. Generation Capacity

There are currently three major generation facilities in the Project Area: PG&E's Hunters Point power plant, Mirant Corporation's (Mirant) Potrero power plant, and United Airlines' cogeneration facility. Hunters Point and Potrero both have steam turbines (Hunters Point Unit 4 and Potrero Unit 3) and combustion turbine units. Current generation capacity in the Project Area includes the following:11

In evaluating need for the Jefferson-Martin project, all parties include the existing Potrero units in the resource mix; they exclude the previously-planned Potrero Unit 7 since Mirant has withdrawn its Application for Certification at the CEC. Parties disagree regarding the continued operation of Hunters Point units and inclusion of planned CCSF combustion turbines.

8 The ISO explains that it uses the standard because of the unusually large concentration of generation units in the greater Bay area and the fact that historical forced outage rates for units in the Bay area are significantly higher than the industry averages for similar units.

9 Contingency analyses, e.g., Categories B and C, would be conducted with reference to this base condition, except that when screening for the most critical single generation outage, only units that are not on the San Francisco Peninsula would be considered.

10 Regarding the determination of cost-effectiveness, PG&E states that it submitted "decision quality cost estimates" to the ISO on April 4, 2002 before the ISO Board approved the Jefferson-Martin project. At that time, PG&E estimated the cost to be $173 million for the Proposed Project and $213 million for the AUA.

11 280 Citizens reported ISO data showing a combined capacity of 635.5 MW for these plants. However, that total represents maximum capacity under ideal temperature conditions, which are unlikely to occur during peak load conditions. We agree with PG&E and the ISO that the maximum capacity levels should not be used for transmission planning purposes.

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