Commissioner Christie’s Concurrence in DCR Transmission regarding Transmission Cost Caps, Competitive Bidding, Transmission Incentives, ER23-2309

Docket No. ER23-2309-000

I concur to today’s order because it reflects our existing precedents and processes and this individual case is not the vehicle to challenge or change them.  This case offers a graphic object lesson, however.  At a time when transmission costs in consumers’ bills are already rising relentlessly,[1] and special interest groups are lobbying to increase transmission spending even more, by astronomical amounts estimated as high as $2.7 trillion,[2] DCR Transmission’s Project serves up a big dose of reality and a harbinger of things to come, if certain profit-seeking interests and the lobbying organizations they fund get their way.  No doubt more transmission needs to be built – perhaps much more – but given the already huge impact of transmission costs on consumers, it is absolutely essential that this Commission, and the entities it regulates, put the protection of consumers from exorbitant or unnecessary transmission costs uppermost in all applicable proceedings.  

This project illustrates several points.

First, this Project was not planned as a needed, baseline reliability project, but as an “economic” project.[3]  The primary purpose of economic projects is to save consumers’ money in reduced congestion and other transmission costs.  A cost-benefit analysis is typically offered up to justify the project that predicts that consumers will come out ahead “in the long run,” even after paying hundreds of millions of dollars to the project’s developer to build the project.  CAISO provides similar reasoning in its comments, explaining that the Project was selected based on the Project’s projected costs and the agreed-upon cost cap executed in the Approved Project Sponsor Agreement (APSA).[4]  What this example shows is that a cost cap agreed upon at the time of project approval may subsequently be honored more in the breach than in the observance; in other words, the cost cap applies until it doesn’t.  This, of course, undermines the entire justification for approving a developer’s economic project.  At least with reliability projects, the reliability benefits will be delivered to consumers even if the costs exceed projections.

Second, the APSA, to which DCR Transmission agreed, originally “cost-capped” the Project at $242 million.  The APSA was later amended to increase the Project’s cost cap to $259 million.  Now DCR Transmission is seeking approximately $553 million in cost recovery, more than double the original cost cap and almost double even the amended increased cost cap.[5]  So much for the life expectancy of promised “cost caps.”  And if “cost caps” are not expected to be binding, one must also question their purpose, given that the Project’s agreed-upon cost containment mechanisms were the reason why CAISO selected the Project in the first place.  I also note that the California Public Utilities Commission (CPUC) identified approximately $389 million as the maximum reasonable and prudent cost for the Project in its CPCN decision, but that the Project costs now exceed this maximum by $164 million.[6]    

Third, this project was competitively bid.[7]  There are those who think that competitive bidding is a “magic bullet” that will substantially cut the costs associated with tripling the size of the transmission grid, as referenced above in P 1 and in footnote 2.  Think again.  Clearly, based on the above points, while competitive solicitation for large, costly regional projects may be preferable to no such requirement, in and of itself it does not cure or in any way prevent consumers from being hit with exorbitant and ever rising costs from transmission being built not to serve their need for reliable power, but to serve other interests.

Fourth, DCR Transmission has received the whole array of the generous transmission incentives, including an RTO adder,[8] which this Commission has served up to transmission developers over the past 20 years, particularly since the Commission’s issuance of Order No. 679.[9]  These incentives, which may well go beyond what is required to ensure needed transmission is built, can create a perverse incentive for those developers to seek to maximize their costs as much as possible.  While I concur because today’s order is consistent with the Commission’s existing precedents, it illustrates yet again that we need to revisit the Commission’s overly generous incentives policies.[10]    

For these reasons, I respectfully concur.