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Transmission Expansion: Risk and Reward in an RTO World

Some thoughts on who should take the lead and how to set up financial incentives.
Fortnightly Magazine - August 2002

percent; PG&E-18 percent; and Trans-Elect-72 percent.

And therein lies a key bone of contention.

In briefs filed earlier, the PUC had argued that WAPA's 10 percent share of project entitlements was unreasonable in comparison to its funding contribution. The PUC calculated that Trans-Elect (and PG&E) would each contribute about $30 million in construction and operation funding for each 10 percent share of project rights, but that WAPA would get a 10 percent share for only $1.3 million in contributed funding.

PRIVATE MONEY. In briefs filed earlier, PG&E and WAPA had argued that the introduction of private capital from Trans-Elect should cause no legal problems.

In a separate brief, WAPA attorney Koji Kawamura had noted that federal Reclamation Law and the 1985 Energy and Water Development Appropriations Act allowed for funding contributions from private sources for transmission grid upgrades. He explained that the laws treat such private capital as if appropriated for the purpose by Congress, with full discretion to federal agencies on how to use those private funds. (The 1985 act authorized WAPA to construct the California-Oregon Transmission Project, or COTP.)

"Under the COTP legislation and Reclamation Laws, Trans-Elect may contribute money for the construction of a federal project … [and] Western may use the money advanced by Trans-Elect as if Congress had appropriated such funds."

Kawamura argued that the CPUC cannot question WAPA's discretion in ironing out a project agreement.

"Western's minimum share [to project entitlements] is a decision that is reserved for Western as a matter of law."

STATE OVERSIGHT. In a brief filed June 5, PG&E Attorney Mike Patrizio argued that the project should fall entirely under CAISO and FERC control. He pointed out that California A.B. 1890 granted full responsibility to CAISO for grid expansion policy, and that CAISO tariffs dictate that economic need for a project need can be shown without a finding from the PUC.

As Patrizio wrote, the legislature "specifically transferred responsibility for short- and long-term reliability away from … regulatory bodies to the [CAISO]."

He added that under CAISO tariff §3.2.1.1.2, it is "sufficient to demonstrate need," if a project sponsor commits to pay the full cost of construction and operation of a transmission addition or upgrade, and demonstrates the financial capacity to do so.

"By its clear terms," he concludes, "the ISO tariff outlines the procedures and standards by which transmission projects are determined to be needed.

"Nowhere does the tariff provide for PUC determination of need for a transmission upgrade."

Source: FERC Docket No. ER02-1672, pleadings filed June 5, 2002.

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