UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION California Independent System Operator ) Docket No. ER Corporation ) ) MOTION TO INTERVENE, LIMITED PROTEST AND COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY Under Rules 211 and 214 of the Rules and Regulations of the Federal Energy Regulatory Commission ( Commission or FERC ) 1 and the Commission s September 11, 2014 Combined Notice of Filings in the foregoing docket, Southern California Edison Company ( SCE ) submits this motion to intervene, comments and limited protest regarding the proposed pro forma Approved Project Sponsor Agreement ( APSA ) filed by the California Independent System Operator Corporation (the CAISO ) on September 10, I. INTRODUCTION In its Competitive Transmission Improvements stakeholder process, CAISO agreed to develop the APSA to (1) acknowledge acceptance of the selection of the approved Project Sponsor, (2) establish the obligations, roles and responsibilities of the Project Sponsor, including project specific milestones; and (3) memorialize any binding cost 1 18 C.F.R and 18 C.F.R Filing Letter re California Independent System Operator Corporation Pro Forma Approved Project Sponsor Agreement Docket No. ER ( CAISO APSA Filing Letter ). 1

2 control measures, including binding cost caps that the approved Project Sponsor agreed to in its application. SCE has an interest in the APSA, not only as a potential bidder in the competitive transmission process, but also as an interconnecting participating transmission owner ( PTO ) and a steward of its ratepayers. Additionally, under the CAISO Tariff, SCE may be required to serve as the backstop for projects terminating in its service territory, meaning that if the project is abandoned, CAISO may be able to require SCE to complete the project. SCE actively participated in the formation of the APSA and seeks to intervene in this docket for the reasons discussed below. II. SCE S SPECIFIC ISSUES WITH CAISO S APSA A. CAISO Should Clarify its Intent Regarding the Definition of Force Majeure in the APSA The definition of Force Majeure used in the latest draft of the APSA differs from the defined term used in the CAISO Tariff as follows (bold underline represents additions to the CAISO Tariff): any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, earthquake, or explosion, any order, regulation, or restriction imposed by governmental, military, or lawfully established civilian authorities, or any other cause beyond the reasonable control of the Parties that could not have been avoided through the exercise of Good Utility Practice. A Force Majeure event does not include (1) acts of negligence or intentional wrongdoing by the Party claiming Force Majeure; (2) economic conditions that render a Party s performance of this Agreement unprofitable or otherwise uneconomic; (3) economic hardship of either Party; 3 or (4) failure or delay in 3 The pro forma Large Generator Interconnection Agreement ( LGIA ) uses the CAISO Tariff definition of Force Majeure, but separately excludes economic hardship in Section

3 granting of necessary permits for reasons not caused by Force Majeure. SCE seeks to confirm that CAISO s intent in expressly excluding from Force Majeure economic conditions that render a Party s performance of this Agreement unprofitable or otherwise uneconomic is to exclude only those economic conditions that are not otherwise a Force Majeure. If economic conditions that render a Party s performance of this Agreement unprofitable or otherwise uneconomic result from an act of God or governmental regulation or restriction, such economic conditions would still qualify as Force Majeure. To the extent CAISO means to exclude from the definition of Force Majeure all economic consequences, regardless of how they arise, the APSA is not just and reasonable and should be revised by removing subsections (2) and (3) above. Relatedly, CAISO s ability to terminate under Section 5.8 requires unreasonable delay. This should not be required; if completion of the project proves infeasible, CAISO should not also need to show unreasonable delay in order to terminate the project. B. CAISO Should Initiate a Stakeholder Process to Determine Whether the Project Sponsor Should Be Required to Post Financial Security In its Designated Entity Agreement ( DEA ) filed in compliance with Order 1000, 4 PJM Interconnection, L.L.C. ( PJM ) requires the Designated Entity (the equivalent in PJM of CAISO s Project Sponsor) to post financial security of three percent of project costs to 4 On July 14, 2014, PJM submitted, in Docket ER , a pro forma Interconnection Coordination Agreement as Attachment LL of PJM s Open Access Transmission Tariff (OATT) and, in Docket No. ER , a pro forma Designated Entity Agreement as Attachment KK of PJM s OATT to comply with the Commission s directive in its May 15, 2014 order on PJM s compliance with Order No FERC approved PJM s agreements on the condition that PJM make minor modifications. See Order Conditionally Accepting Proposed Agreements Subject To A Further Compliance Filing, in Docket Nos. ER and ER (September 12, 2013). 3

4 cover the incremental costs of construction resulting from having to reassign the project if the Designated Entity defaults or abandons the project. 5 No one protested this requirement and the Commission approved the DEA without requiring modification to this provision. 6 CAISO s APSA requires no financial security. Without some reasonable financial security requirement, utility ratepayers may bear costs associated with transferring the project from an abandoning Project Sponsor to an alternative Project Sponsor or a backstop PTO, costs for which ratepayers receive no benefit. SCE has asked that CAISO consider whether to include a financial security requirement in its pro forma APSA and on April 18, 2014, SCE requested that CAISO initiate a stakeholder process on this issue. As of the time of this filing, CAISO has not initiated such a process. SCE requests that FERC direct CAISO to initiate this separate stakeholder process within a reasonable timeframe. The APSA may need to be revised depending on the outcome of this process. C. The Project Sponsor Should Not be Allowed to Assign Project Assets Absent CAISO Consent The APSA does not require the Project Sponsor to obtain CAISO consent before transferring its rights in the project to a third party such as a lender. That contradicts other CAISO agreements, the CAISO Tariff, and standard financial practices. The Transmission Control Agreement ( TCA ), which governs the assets once they are put under CAISO 5 Filing Letter re PJM Interconnection, L.L.C., Docket No. ER (3 rd Compliance Filing) ( PJM Filing Letter ) at See also, Order on Rehearing and Compliance, Docket No. ER , et al. at P 417 (June 19, 2014) ( [i]t may be appropriate to require additional collateral once a project has been selected in a regional transmission plan for purposes of cost allocation to ensure that the transmission developer has adequate resources to construct the transmission project. ). 4

5 operational control, restricts a PTO s ability to transfer the transmission assets. 7 Likewise, the CAISO Tariff restricts such transfer without CAISO consent, providing: The Approved Project Sponsor shall not sell, assign or otherwise transfer its rights to finance, construct and own the needed transmission solution, or any element thereof, before the facilities have been energized and, if applicable, turned over to the CAISO s Operational Control unless the CAISO has approved such proposed transfer, which approval shall not be unreasonably withheld. A Project Sponsor must meet certain qualification criteria to be considered in the competitive solicitation process. To allow assignment without CAISO consent, even to a lender, would allow a Project Sponsor to transfer the project to a non-qualified third-party, circumventing the qualification criteria essential to ensuring that a competent party will build the project. CAISO must ensure that the Project Sponsor has not inappropriately assigned its rights in a manner that could jeopardize ratepayers or be inconsistent with the CAISO Tariff or other provisions of the APSA. As PJM explained in a recent FERC filing:... [T]the requirement that assignments are valid only upon written consent of the other party, provides the protections necessary to ensure that an assignee can perform as well as the Designated Entity and that a reliability project will not be compromised by the assignment. PJM must have some control over entities that are constructing upgrades on the PJM system to ensure safety and reliability and, therefore, must have the ability to consent to all assignments. 8 The APSA provides that the Approved Project Sponsor shall have the right to assign this Agreement, without the consent of the CAISO, for collateral security purposes. 9 The APSA should be modified to require CAISO consent for all assignments, including collateral assignment, which consent will not be unreasonably withheld. CAISO should of the Transmission Control Agreement. 8 PJM Filing Letter at 30 (emphasis added). 9 CAISO ASPA Section

6 establish, in the APSA or in an attached form of consent to collateral assignment, the conditions upon which such consent would be granted. Such conditions should, at a minimum, include that 1) CAISO receives notice from the lender of any Project Sponsor default under the loan agreements, 2) the lender or its designee, upon stepping into the shoes of the Project Sponsor, must establish that it meets the qualification criteria and has the comparable ability to complete the project, and 3) upon stepping into the shoes of the Project Sponsor, the lender agrees to be bound by all the terms and conditions of the APSA. D. The APSA Should Provide Stronger Language Regarding a Project Sponsor s Obligation to Transfer Project Assets Upon Abandonment As a PTO with possible backstop obligations and on behalf of ratepayers, SCE has an interest in ensuring that asset transfer from a failed Project Sponsor to the backstop PTO or alternative Project Sponsor occurs quickly and without imposing unreasonable costs. The APSA language merely provides that the Project Sponsor agrees to work with CAISO, the alternate Project Sponsor, and, if applicable, the Interconnecting PTO to transfer responsibility for the Project to the alternative Project Sponsor. 10 This language is not sufficient; it only contemplates that the Project Sponsor will transfer responsibility to the alternate Project Sponsor and says nothing about rights. The APSA should require a Project Sponsor that abandons a needed project to transfer (a) all right, title, and interest in real and personal property, (b) all rights under agreements associated with the Project, including any interconnection agreements, and (c) any rights, title or interest that may have been pledged or assigned to any third parties 10 CAISO APSA Section

7 (including without limitation, lenders, contractors or subcontractors) to the alternative Project Sponsor, or a backstop PTO, if the alternative Project Sponsor or a backstop PTO is willing to assume such ownership interest, obligations, rights or agreements. CAISO concluded this language is unnecessary because a project sponsor has no motivation to hold rights in connection with a project when it is no longer in a position to recover the costs of the project as a participating transmission owner. Rather, it has every reason to transfer those rights to the extent it can. 11 SCE is concerned that such an assumption may not be warranted, in that retention of rights by a failed Project Sponsor gives the failed Project Sponsor leverage that could compromise timely and cost-effective transfer of the project to the backstop or alternative Project Sponsor. In any event, there is no reason to leave such important matters to mere assumption. E. The APSA Should be Modified to Preserve the Third-Party Beneficiary Rights of an Alternative Project Sponsor or Backstop PTO The APSA provides that it does not create rights for third parties to seek remedies for a party s breach of the APSA. 12 However, SCE believes that such rights may be necessary and appropriate to allow a PTO backstop or an alternative Project Sponsor selected by CAISO to fulfill its responsibilities under the CAISO Tariff and to protect ratepayers. For these limited purposes, third party rights should be provided under the APSA, to backstopping PTOs and any alternative Project Sponsor selected by CAISO. 11 CAISO APSA Filing Letter at APSA Section 25.5 ( This Agreement is not intended to and does not create rights, remedies, or benefits of any character whatsoever in favor of any persons, corporations, associations, or entities other than the Parties, and the obligations herein assumed are solely for the use and benefit of the Parties, their successors in interest, and, where permitted, their assigns. ). 7

8 F. CAISO Should Require the Project Sponsor to Procure Insurance in Accordance with Good Utility Practice The APSA does not require the Project Sponsor to procure insurance beyond what is required by state law. CAISO argues that insurance would create an additional financial requirement above what is required by the tariff. But PJM s DEA requires that the Project Sponsor procure insurance in accordance with Good Utility Practice, even though this requirement is an additional financial requirement. And in its Order on PJM s DEA, FERC did not require PJM to modify this provision. CAISO further argues that the fact that the approved Project Sponsor has met the financial qualification criteria indicates a high likelihood that it is capable of weathering any liability findings. 13 SCE has no visibility into what threshold of financial integrity a Project Sponsor must meet to be selected the tariff lists the types of financial information that a bidder may provide and leaves the determination of how much is enough to the discretion of CAISO. SCE and its ratepayers will be affected, however, if the Project Sponsor fails to properly insure itself. Any Project Sponsor could face a catastrophic loss that could overwhelm its current credit and cash position particularly if the entity is a limited liability corporation formed for the single purpose of developing a single transmission asset. The potential for such catastrophic loss is why companies buy commercial insurance. If the Project Sponsor is underinsured and cannot cover its liabilities, CAISO and ultimately utility ratepayers may have to make up the shortfall. 13 CAISO APSA Filing Letter at 13. 8

9 SCE recommends that, as the very least, the APSA require the Project Sponsor to procure insurance in accordance with Good Utility Practice. G. The APSA Should Require CAISO Approval of Material Modifications Only The APSA provides that the Approved Project Sponsor may undertake modifications to its facilities only with the approval of the CAISO and requires ninety (90) days advance notice. 14 This requirement may be impractical for every change to the facility not in accordance with the specifications. SCE recommends that the APSA include a concept of materiality and require CAISO s pre-approval of only those modifications that are material in nature. III. MOTION TO INTERVENE SCE, a wholly-owned subsidiary of Edison International, is an investor-owned utility subject to the Commission s jurisdiction. SCE s principal place of business is 2244 Walnut Grove Avenue, Rosemead, California SCE is a PTO in CAISO and a potential party to the APSA. SCE and its ratepayers will be directly affected by the outcome of this proceeding. SCE therefore has a direct and substantial interest in, and may be affected by, the instant proceeding. No other party can adequately represent SCE s interest in this proceeding. 14 CAISO APSA Section

10 IV. COMMUNICATIONS SCE designates the following persons for official service, and all communications, pleadings and orders regarding this proceeding should be directed to them: Claire Torchia 2244 Walnut Grove Avenue Rosemead, CA David Schiada 3 Innovation Way Pomona, CA David.Schiada@sce.com V. CONCLUSION SCE respectfully requests that the Commission take account of SCE s comments in ruling on CAISO s proposed APSA. Respectfully submitted, /s/ Claire E. Torchia Claire E. Torchia SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Rosemead, CA Tel. (626) Fax (626) Claire.Torchia@sce.com Dated: October 1,

11 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing MOTION TO INTERVENE, LIMITED PROTEST AND COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Rosemead, California, this 1st day of October, 2014 /s/ Rodger Torres Rodger Torres, Case Analyst SOUTHERN CALIFORNIA EDISON CO Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: (626)

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION California Independent System Operator Corporation ) ) ) Docket No. ER13-872-000 MOTION TO INTERVENE AND COMMENTS OF SOUTHERN CALIFORNIA