Southern California Edison Company s Testimony on Tehachapi Renewable Transmission Project (TRTP)

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1 Application Nos.: Exhibit No.: Witnesses James A. Cuillier Gary L. Allen (U -E) Southern California Edison Company s Testimony on Tehachapi Renewable Transmission Project (TRTP) Cost Recovery And Renewable Energy Contracts Before the Public Utilities Commission of the State of California Rosemead, California June, 00

2 I. COST RECOVERY AND RATEMAKING Consistent with SCE s requests in A and A and the resulting Commission orders (D and D.0-0-0), as well as D.0-0-0, this filing is contingent upon a Commission order in this proceeding explicitly establishing that, pursuant to Pub. Util. Code., Southern California Edison Company ( SCE ) can recover through CPUC-jurisdictional rates, all prudently-incurred costs associated with TRTP incurred by SCE that the FERC does not allow SCE to recover in general transmission rates, i.e., its Transmission Revenue Requirement ( TRR ) and the California ISO s ( CAISO s ) Transmission Access Charge ( TAC ). Issuance of such an order by the Commission will provide necessary assurances to enable SCE to proceed with further licensing, engineering, and construction activities for TRTP. SCE would not ordinarily submit a CPCN application to construct facilities needed to interconnect and integrate the energy from independent energy producers until the developers of generation projects have signed interconnection agreements. Filing a CPCN application based on assumptions about future need, raises the possibility that transmission or generation-tie facilities may be built that are not fully utilized or which FERC refuses to allow in general transmission rates. The former may happen, for example, if the assumed magnitude of generation never commences commercial operation. The latter may occur, for example, if FERC concludes that the facilities are not integrated with the network, or are not eligible Trunkline 1 facilities and should have been paid for fully by the developers of the generation. FERC s normal policy is to permit utilities to recover from ratepayers only 0% of their prudently-incurred investment in abandoned or cancelled FERC-jurisdictional plant amortized as an expense over the expected life of the plant as if it had been completed. The unamortized portion of this 0% is included in rate base. In 00, SCE sought a declaratory order from FERC requesting assurance that SCE could recover all of its prudent costs of Segments 1,, and of the Antelope 1 See discussion of Trunkline facilities, infra. New England Power Co., Opinion No., FERC 1,01, 1,0, order on reh g, FERC 1, (1). DM1-1 -

3 Transmission Project in the case of abandonment or cancellation. In its decision on the petition, FERC denied any assurance of abandoned plant recovery for Segment on the grounds that Segment consisted of generation-tie facilities that were not part of the integrated transmission network but it allow[ed] SCE to recover all of its prudent costs, in the case of abandonment or cancellation for Segments 1 and. SCE does not control the development of the generation facilities upon which TRTP is predicated. It is possible that for reasons outside of SCE s control, generation in the Tehachapi area may not be developed even if transmission and generation-tie facilities are partially or fully constructed to serve the forecast generation. Thus, SCE may risk non-recovery of 0% or more of the costs of the facilities that are the subject of this CPCN application. As was the case with FERC s order regarding Segment, SCE may be unable to recover in general transmission rates at FERC the costs of interconnection and other facilities which FERC determines are not integrated with the rest of the network. FERC presently uses five factors to make its determination (radial or looped; direction of energy flows; who can use the facilities; benefits to the grid in terms of capability, reliability, or coordinated grid operation; and whether an outage of the facilities would affect the transmission system). In fact, FERC rejected SCE s recovery of Segment costs in general transmission rates because the facilities were deemed to be generation-ties, not integrated with SCE s transmission system. Given that a portion of Segment will constitute a generation-tie facility, there is the clear risk to SCE that elements of TRTP may not be recoverable in general transmission rates at FERC. However, as discussed below, FERC s recent adoption of the CAISO s conceptual proposal regarding Trunklines has increased the probability for recovery of the costs of TRTP generation-tie facilities at FERC. On January, 00, in Docket No. EL0-, the CAISO filed a Petition for Declaratory Order with FERC, requesting conceptual approval of its Trunkline proposal. On April 1, 00, FERC issued FERC 1,01 at PP., 1 (00). Mansfield Municipal Electric Dept. v. New England Power Co., FERC 1,1 at 1,1,-1,1 (001). FERC 1,01 (00). DM1 - -

4 an order granting the CAISO s request, subject to further stakeholder discussions to finalize a CAISO Tariff modification it is to submit to FERC to implement the Trunkline process. The CAISO s Trunkline proposal creates a new mechanism meant to facilitate the financing and development of high-voltage transmission facilities required to interconnect and transmit power from new, renewable generation sources from remote areas in California to the load centers. If certain criteria are met, the CAISO s proposal would allow the Participating Transmission Owner ( PTO ) financing and constructing a transmission addition to interconnect multiple renewable generators to reflect all the costs in its TRR and the CAISO s TAC, even if the facility is configured as a radial generation-tie and therefore, does not meet FERC s network criteria. This type of transmission facility has been labeled a Trunkline. Each generator utilizing the Trunkline would be required to pay its pro rata share of the revenue requirement of the facility based on its use. Until the line is fully subscribed, the revenue requirement associated with the unsubscribed portion of the Trunkline would be paid for by transmission customers through the PTO s TRR and the CAISO s TAC. If a Trunkline at some point in the future is reconfigured to become a network facility, from that point forward, payments from generators for the costs of the Trunkline would cease, and the cost of the facilities would be recovered entirely from CAISO transmission users. FERC s Trunkline order increases the probability that SCE will be able to recover in general transmission rates at FERC the costs of all high-voltage TRTP facilities that operate either temporarily or permanently as generation-ties, rather than as network facilities, as it provides that any Trunkline facilities would be under the CAISO s Operational Control and recoverable in a PTO s TRR and the CAISO s TAC. Pursuant to the CAISO s Trunkline proposal, for any TRTP facilities that qualify as Trunkline facilities, SCE would file for a FERC-approved charge to be assessed to each generator for the share of the capacity it utilizes on the new generation-tie line. Consistent with SCE s FERC-approved rates for other direct-assignment facilities, this charge would be calculated by multiplying a levelized carrying FERC 1,01 (00). Id. at P. DM1 - -

5 charge percentage by the gross plant costs of the applicable Trunkline facilities, and dividing that amount by the kw capability of the Trunkline. Each generator would be billed this charge each month based on its contract demand level in kw. In this way, each generator using a Trunkline facility will pay only a pro-rata share of the monthly revenue requirement associated with the Trunkline. SCE will reflect generator payments as a revenue credit in its transmission general rate case proceedings at FERC, which will serve to reduce SCE s proposed TRR, and the CAISO s TAC. This approach is consistent with FERC policy in that it assesses generation-tie costs to the interconnecting generators. However, to the extent that the capacity of a Trunkline is not fully subscribed, CAISO transmission ratepayers would be responsible for any residual revenue requirement. As noted by FERC, this ensures that generators and their customers are held responsible for the portion of the capacity of Trunklines that they require, yet it does not result in generators being assessed for the costs of any unsubscribed capacity. It is important to realize that the CAISO s conceptual Trunkline proposal has not been implemented, and will not be until FERC approves a subsequent CAISO Section 0 filing to modify the CAISO Tariff to set forth the specific tariff terms for Trunkline implementation. Additionally, one party, the Imperial Irrigation District ( IID ), filed a Request for Rehearing of the Trunkline order on May 1, 00. Thus, the order is not final at FERC and there is still the possibility of a court appeal by IID if its rehearing request is denied at FERC. Therefore, while SCE believes that certain TRTP segments ultimately may qualify as a Trunklines, and thus will be recoverable in general transmission rates at FERC, this outcome is not fully resolved at this time. Additionally, SCE has recently filed a Petition for Declaratory Order at FERC requesting certain transmission incentives for SCE s three large transmission projects, including the Tehachapi Renewable Transmission Project, encompassing Segments 1- of the Antelope Transmission Project and Segments - of the TRTP. One aspect of the filing is a request that FERC grant, under certain Request for Clarification, Rehearing, and Expedited Consideration of the April 1, 00, Order by the Imperial Irrigation District in Docket No. EL0-, May 1, 00. See SCE s Petition for Declaratory Order for Incentive Treatment, Docket No. EL0-, May 1, 00. DM1 - -

6 conditions, 0% abandoned plant recovery of all TRTP costs for facilities that, if built, would be recoverable at FERC in SCE s TRR and the CAISO s TAC. SCE also requests that FERC allow SCE to reflect in transmission rate base, and recover in its TRR and the CAISO s TAC, construction work in progress ( CWIP ) associated with expenditures SCE makes on TRTP. Assuming FERC grants SCE s request to implement 0% CWIP ratemaking treatment for the three projects, SCE would file shortly thereafter a Section 0 filing to implement the CWIP mechanism, requesting an increase in SCE s TRR and rates associated with the test year projected project expenditures. While most of TRTP consists of network transmission facilities recoverable in SCE s TRR and the CAISO s TAC, SCE has acknowledged in the Petition that certain portions of TRTP may not meet FERC s network test because they operate either temporarily or permanently as radial generation-ties. Thus, in order to be reflected in general transmission rates at FERC these facilities would need to be designated as Trunkline facilities. SCE certainly believes that all portions of the high-voltage portions of TRTP qualify either as network facilities, or as Trunklines, but this outcome will be dependent upon favorable FERC rulings on SCE s Petition for Declaratory Order as well as subsequent Section 0 rate filings. The alternative funding mechanism under Pub. Util. Code.(b)() was addressed by the Commission in D.0-0-0, and was adopted in D and D for application to Antelope Segment 1 and Antelope Segments and, respectively. SCE requests here that this same mechanism be made applicable to TRTP costs. Because of the risk of non-recovery of costs, SCE conditions this CPCN application for TRTP on the CPUC establishing clear cost recovery mechanisms and assurances in advance of construction. Under.(b)(), the Commission shall allow prudently-incurred costs not approved for recovery in general transmission rates by FERC to be recovered in CPUC-jurisdictional rates, if the new transmission facilities facilitate RPS goals. In D.0-0-1, for the Antelope-Vincent and Antelope-Tehachapi transmission line projects, the Commission found that: DM1 - -

7 Section.(b)() ensures retail rate recovery of prudently-incurred costs for projects the Commission finds to be necessary to facilitate RPS compliance to the extent that cost recovery is not otherwise available. In D involving the Tehachapi-Vincent Transmission Project, the Commission stated that: [I]n light of our determination in D regarding the magnitude and concentration of the renewable resources located in the Tehachapi area we find that the costs associated with high-voltage, bulk-transfer, multi-user transmission facilities, whether classified as network or gen-tie, proposed to access known, concentrated renewable resource areas are eligible for cost recovery under.. And, As set forth above in Section III above, we find that the Tehachapi-Vincent Transmission Project is necessary, in part because it qualifies as such a high-voltage, bulk transfer facility that will be used imminently to serve multiple RPS-eligible generators. Consequently, it is appropriate to provide SCE assurance of recovery of prudently-incurred costs, and we do so here. 1 In the event that any costs incurred by SCE associated with TRTP are not recovered in general transmission rates at FERC, SCE would need to utilize the Pub. Util. Code. protections to ensure recovery from CPUC-jurisdictional customers. The Commission approved SCE s proposal in Advice Letter 1-E, effective December, 00, to establish a memo account (i.e., Antelope Transmission Project Memorandum Account, ATPMA ) to record costs associated with the Tehachapi Wind Resource Area. SCE intends to utilize that authorization to record TRTP costs in the ATPMA. Pursuant to D.0-0-0, and reiterated in D and D.0-0-0, SCE is to file for Pub. Util. Code. recovery in a subsequent general rate case filing any costs included in the memo account that were not allowed in general transmission rates at FERC. Also, as ordered by the CPUC, at that time SCE will propose a mechanism to apportion these costs among PG&E, SDG&E, and SCE. 1 As it did in the two Antelope project proceedings discussed above, SCE requests herein that the Commission explicitly establish that, pursuant to Pub. Util. Code., SCE can recover through CPUC-jurisdictional rates, all prudently-incurred costs associated with TRTP incurred by SCE and D , Finding of Fact No., mimeo., p.. D.0-0-0, mimeo., p.. 1 D.0-0-0, mimeo., p.. 1 D.0-0-0, mimeo., pp. -. DM1 - -

8 reflected in the ATPMA that the FERC does not allow SCE to recover in its general transmission rates (i.e., SCE s TRR and the CAISO s TAC). DM1 - -

9 1 1 1 II. RENEWABLE ENERGY CONTRACTS On November 1, 00, SCE signed four energy procurement contracts, two contracts each with Caithness 1 Wind and Ridgetop Energy. These developers have contracted to provide a minimum of 1. MW to a maximum of. MW of wind power to SCE customers from the Tehachapi area. On December 1, 00, SCE entered into a wind energy contract with Alta Windpower Development LLC, a subsidiary of Allco Financial Group Inc. This contract doubles SCE s current wind energy portfolio, and will provide a minimum of 1,00 MW to a maximum of 1,0 MW of power for SCE customers. In addition to these projects, SCE had previously signed contracts with Coram for up to 0 MW and Western Wind for up to MW. The Alta Windpower contract, the expansion of the four contracts signed on November 1, 00, and the prior two wind projects, total between approximately 1, and 1,0 MW, based on their CAISO Interconnection Queue position, will all utilize the TRTP. These projects are detailed in the table below: Table II-1 Renewable Energy Contracts Winning Bidder Location Type Length Initial MW Potential MW Coram Energy Group Tehachapi, CA Wind 0 yrs Western Wind Tehachapi, CA Wind 0 yrs Caithness 1 Wind Tehachapi, CA Wind 0 yrs Caithness 1 Wind Tehachapi, CA Wind 0 yrs.. 1. Ridgetop Energy Mojave, CA Wind 0 yrs Ridgetop Energy Mojave, CA Wind 0 yrs Alta Windpower Development Tehachapi, CA Wind 0 yrs. 1,00.0 1,0.0 TOTAL 1,. 1,. DM1 - -

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