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Commission Watch

PUC could oust PG&E from the project, finding no need for an upgrade.
Fortnightly Magazine - May 1 2003

than just about "any other transmission project in U.S. history," he said at the time.

But, as Gottlieb explained in her order, Path 15 already satisfies all relevant engineering requirements to maintain reliability. The upgrade, Gottlieb says, would serve only need-increasing the grid's capacity to deliver product to customers at a cheaper price-and the value of that benefit obviously depends on forecasts of future prices.

PUC Commissioner Loretta Lynch, in her proposed alternate decision, said the upgrade, though not strictly needed for the sake of reliability, would still act as an "insurance policy" (albeit an expensive one) against market gaming abuses such as those that occurred in 2000 and 2001. Lynch would allow the upgrade.

PG&E spokesman Jon Tremayne admitted the conflict had caused some confusion for the utility. "We're looking to the commission to give better direction," he said. (PG&E was expected to weigh in formally on the proposed ALJ order after this issue went to press.)

Back at Trans-Elect, however, Schroeder emphasized that the project involves three sponsors. "The vast majority of it-82 percent-is between WAPA and us. Eighteen percent-the substations-are about PG&E." The PUC order only speaks to PG&E's participation.

"I feel sorry for PG&E," Schroeder noted. "They are the ones getting caught in the crossfire, but I assume they will work it out."

The Outlook

The cost-benefit analysis turned on one of two studies conducted by the California Independent System Operator (CAISO). That study assumed continued dysfunction in wholesale power markets through 2005, with continued wide fluctuations in power prices, and it attempted to weigh the benefits of a Path 15 upgrade in that environment.

Yet, according to Gottlieb, CAISO's assumption of continued market dysfunction was wrong in principle, but also could not justify construction even if accepted for the sake of argument.

Gottlieb said CAISO had erred "by putting arguably the most expensive fix-construction of a $323 million project-as the first step in mitigating the market abuses experienced in 2000."

Gottlieb said the first task of the PUC, as regulator of electricity delivery in California, was to ensure just and reasonable costs and prices-not to look for infrastructure investment projects designed to counteract failed regulation. And she saw the CAISO study as demonstrating that concentration of generation capacity in the hands of a few owners had more of an impact on power markets than transmission infrastructure. Thus, she urged the PUC to address market power first.

"Even if it [the study] was valid," she added, Path 15 benefits would "never catch up with costs except under implausible scenarios."

The CAISO cost study had weighed the possible benefits of Path 15 expansion, based on the likelihood of a certain ratio of years with drought conditions (bad for hydroelectric generation). But Gottlieb found that even if one accepted the rationale of the CAISO's cost analysis, the Path 15 upgrade would be cost-effective only under the most implausible of scenarios: "For every five years of average hydro conditions, California would need eight years of drought conditions for the project to break even."

Trans-Elect's Schroeder questioned the ALJ decision. "In order