[BETA] Fortnightly

PUC could oust PG&E from the project, finding no need for an upgrade.

Nearly a year after the Federal Energy Regulatory Commission (FERC) gave its blessing for upgrading California's notorious "Path 15" transmission bottleneck, an administrative law judge (ALJ) at the California Public Utilities Commission (PUC) has thrown a monkeywrench into the plan.

In a tentative decision issued on March 7 (which will require further review by the full state commission), the ALJ found no economic need for the project and would deny permission to Pacific Gas & Electric Co. (PG&E) to continue to play a part in the multi-party project. .

But Trans-Elect President and COO Bernie Schroeder remains defiant, insisting that the California PUC will not stop his company from going forward on the project, worth more than $300 million. Trans-Elect would be supplying most of the funding, with PG&E upgrading existing substations and low-voltage facilities, and the Western Area Power Administration (WAPA) adding new construction, as well as taking title to the transmission line and land.

"It will have no impact on us, and if they don't build it, presumably we will find somebody who will," Schroeder explained.

"Financing is pretty much in place," he added. "It is being syndicated right now, and I don't have any doubts about it, I can tell you that."

Yet the ALJ decision could hardly have been more discouraging for those pushing grid upgrades-whether in California or across the nation. In strongly worded language, Judge Meg Gottlieb questioned the very idea of looking to transmission expansion as a logical first step in improving wholesale power markets, instead of simply building new generation closer to load, or improving regulatory oversight of power producers who exert market dominance.

"What this signals to us," Gottlieb wrote, "is a failure to regulate wholesale market players effectively, rather than a failure to build transmission infrastructure."

The Deal

The California PUC had warned from the very beginning that it would want to weigh in on the project. It had intervened at FERC and had protested certain aspects of the deal before FERC approved the $323 million project last June. At that time, FERC awarded Trans-Elect a 13.5 percent return on equity (ROE) plus an incentive worth 200 basis points. It also granted a 10-year accelerated depreciation schedule for PG&E and a 50/50 "hypothetical" capital structure.

The deal called for upgrades to the already existing 84-mile stretch of transmission, including a new 500-kV transmission line that would increase north-south transmission from 3,900 MW to 5,400 MW. Path 15 remains a key interface for power flows moving from southern to northern California and on to the Pacific Northwest.

The California Power Authority and the California Energy Commission have called for Path 15 expansion as one of three vital transmission corridors that need immediate expansion. Yet the question of need remains open to interpretation.

Last June FERC Chairman Pat Wood said he was "encouraged" by the "creative approach by the three very different partners." He acknowledged state jurisdiction over permitting but thought that the parties had proven the need for the project-more