Friday, November 9, 2007

Thoughtless and Careless

SUMMARY OF UCAN's BRIEF IN OPPOSITION TO THE SUNRISE POWER LINK

See also: UCAN Opening Brief Opposing the Sunrise Transmission Project;
and Table 2, 57 Contentions, but Nothing There.

After nearly two years of investigation and four months of evidentiary hearings, many new and important facts about SDG&E's Sunrise Powerlink have finally been revealed. This exhaustive regulatory review has led UCAN, the Utility Consumers' Action Network to urge California Public Utilities Commission (CPUC), to reject SDG&E's billion-dollar Sunrise project. The utility has misled regulators and the public about the costs of the project, misstated the need and timeline for the project, and ignored smarter, more flexible and more economic alternatives.

UCAN's recommendation is likely to be echoed by just about every other party in the regulatory proceeding, including the Public Utilities Commission staff. Perhaps more importantly, it appears to be affirmed by a much greater interested party. The message that was sent loud and clear by the San Diego County backcountry was "Be thoughtful and careful about how you treat me you'll get burned. " The regulatory process revealed that SDG&E's plan to scatter transmission lines and equipment throughout San Diego's eastern backcountry is remarkably thoughtless and careless. Its plan can burn both ratepayers' pockets and their land for no compelling reason.

SDG&E's application offers three compelling but apparently false reasons building the so-called Sunrise Transmission Project (hereinafter referred to as "STP").

REASON 1: "SDG&E can not comply with state-mandated reliability
standards unless STP is approved."

REASON 2: "SDG&E must build STP in order to provide the region with
Federally-mandated "Green" renewable energy standards"

REASON 3: "STP is good for ratepayers."

Beginning in early 2006 through October of 2007, UCAN conducted a thorough analysis of SDG&E's proposal and was unable to verify any of the three legs upon which SDG&E's application is precariously perched. In fact, UCAN found that most of SDG&E's assumptions for the STP were either unsupported or, in many cases, blatantly wrong. Many of the linchpin facts upon which SDG&E relies upon in support of its application to spend $1.265+ billion on STP are, in fact, not facts at all.

And the costs are prohibitive. SDG&E is asking for well over $1.2 billion dollars; UCAN's analysis suggests the true price tag will be closer to $2 billion. Over its 40 year depreciable life, the state's customers will be obligated to pay over $7 billion.

UCAN has conducted a comprehensive analysis of the proposal and fashioned at least two alternative proposals that provide comparable reliability and ability to import renewable power from the Imperial Valley. The first, a combination of wire upgrades and use of existing resources, comes at a capital cost for SDG&E of a little over $100 million, and saves the state's ratepayers $3.5 billion over its 40-year life (annual savings of $92 million per year) compared to SDG&E's proposal.

The second proposal is a southern route paralleling the Southwest Powerlink. It provides the same transmission benefits as STP without requiring 23 miles of new power lines to be constructed inside California's largest state park.

But CPUC is not limited to those two alternatives. As explained in this brief, UCAN has offered the Commission a veritable Chinese menu of options that, used in other combinations, can deliver the benefits of STP at a fraction of the alleged cost. And, in light of the late October firestorms that ravaged most of the San Diego County backcountry, UCAN's in-basin options provide a safer, more reliable alternative to SDG&E's overpriced proposal.

“SDG&E can not comply with state-mandated
reliability standards unless STP is approved.”

SDG&E's argument that STP is required to keep the region's lights on is just SO wrong. It ignores the fact that most every alternative studied by SDG&E, the California Independent System Operator (ISO), or UCAN, is capable of meeting state-mandated reliability obligations.

Based on the full record in this proceeding, SDG&E does not need a 500 kV transmission line at this time. UCAN found that SDG&E can import up to 2100 Mw of renewable energy over existing transmission infrastructure - double the amount that is required of SDG&E to comply with the state's mandated renewable energy requirements. Moreover, to meet its reliability needs for the next ten years (through 2017), SDG&E's own numbers show it will need only 354 Mw of new resources by 2018. UCAN's analysis shows that SDG&E's current resource plan will fulfill all but 6 Mw of that projected need - without any transmission additions.

"SDG&E must build STP in order to provide the region
with Federally-mandated "Green" renewable energy
standards"

SDG&E's claim that it needs STP to import renewable power is contradicted by SDG&E's own admission that it can use the existing Southwest Powerlink (SWPL) to deliver renewable power. Notwithstanding its public representations, SDG&E knows that it does not require a new power line in order to tap into Imperial Valley renewable power. The California Independent System Operator study affirms this fact.

"STP is good for ratepayers."

This is the last, and perhaps shakiest, argument advanced by SDG&E.

The utility initially alleged that the power line would be economic - to the tune of some $447 million every year. Four separate UCAN analyses have shown that STP will cost ratepayers money. UCAN's testimony establishes that the STP proposal could cost ratepayers $81 million per year over forty years as compared to natural-gas fired generation.

Moreover, compared to a Path 44 upgrade, STP would cost even more --- $92 million per year more for the forty-year life of the line. And just starting from SDG&E's own numbers and quantifying just some of the known SDG&E errors proves that SDG&E's proposal costs ratepayers at least $18 million per year over 40 years relative to natural-gas fired generation.

Finally, correcting a variety of unrealistic SDG&E input assumptions and post-processing errors leads SDG&E's own modeling to show a STP benefit of under $4 million per year, which quickly becomes an annual loss for ratepayers of tens of millions of dollars when other factors are accounted for. So almost no matter which way UCAN approached SDG&E's assertions - whether comparing STP to natural gas generation, a transmission upgrade; or by simply using SDG&E's own model, UCAN found that STP is wildly uneconomic.

The only economic windfall to be enjoyed by
this project will be reaped by SDG&E and its
holding company, Sempra.

SDG&E's models are in error by $300 million annually

UCAN found that SDG&E's application is riddled with dozens of small, but meaningful errors. Cumulatively, they supported a marginally cost-effective proposition. But once corrected, the Project is no longer economically viable. These errors included:

· SDG&E counted impacts of STP on non-participants as
benefits (the ISO didn't)

· SDG&E assumed existing congestion at Miguel would never
be addressed, despite acknowledging an all-but-free way to
greatly reduce it (the ISO didn't)

· SDG&E ignored ISO-identified issues with how losses are
priced in its model (the ISO didn't)

· SDG&E never talked seriously to Southern California Edison
(SCE) about upgrading its northern interconnection and thus
missed a cheaper alternative found by UCAN (the
ISO didn't either)

· SDG&E never talked seriously to CFE about using its already-
built southern interconnection and thus missed an alternative
found by UCAN (the ISO didn't either)

· SDG&E rejected the option of a line parallel to SWPL past
Anza-Borrego - only to discover in May 2007 that its own
numbers showed such an option to be cost-effective, and in
July 2007 that such an option would be even more cost-
effective than estimated in May. (The ISO confirmed this
alternative would meet reliability needs, but did not analyze
its cost)

· SDG&E ignored system resource adequacy (RA) costs due to
STP (the ISO didn't)

· SDG&E assumed a huge amount of future overbuilding of coal
and natural gas plants in Arizona and elsewhere into which STP
would be able to tap

· SDG&E assumed new combined cycle plants would be built in
Arizona that no one is proposing (the ISO didn't)

· SDG&E's modeling double-counted line losses (the ISO didn't)

· SDG&E underestimated operating costs for the STP line.

· SDG&E ignored its own actions to develop more than 400 Mw
of demand response and near-term capacity additions inside
its service area

· SDG&E treated AMI as a sensitivity case rather than part of its
reference case (the ISO didn't)

· SDG&E's January 2007 supplemental testimony to correct prior
GridView errors contained new GridView errors, some of which
were identified early on but never fixed (double-counting
line losses) and others of which weren't identified and corrected
until May 2007; the May errata contained yet more errors, which
weren't corrected until late July 2007.

· SDG&E assumed a no-Sunrise case would require capital costs for
numerous CTs, but SDG&E has already committed to pay (and
received CPUC approval to do so) for three of those CTs
whether or not STP is built.

These and other modeling errors, once corrected, result in a dramatic $300 million per year decrease in the net benefits of STP. Compared to a simple generation scenario, STP is $81 million per year more expensive. Compared to UCAN's alternative, it is $92 million per year more expensive.

Evidence of "technical malfeasance"
by SDG&E's management

In addition to the SDG&E's errors is a list of what UCAN refers to as technical malfeasances identified by Mr. Marcus. These are concealed or manipulated facts that SDG&E knew or should have known were wrong and yet included in its application. Each of these technical deficiencies served to substantially inflate the need for STP:

- SDG&E fudged the natural gas costs;

- It never approached SCE to explore upgrading their shared
northern transmission line;

- It ignored up to 279 Mw of demand-response savings that
SDG&E had previously relied upon to convince the Commission
to authorize an ambitious meter replacement program
(AMI);

- It ignored its own actions to develop near term generation
and demand response, actions which have led to over 200 Mw
of SDG&E-signed contracts currently pending before the CPUC.

- It neglected to inform parties of its updated AMI projections
or incorporate its own AMI projections from its 2008 GRC case
into its STP analyses that included AMI

SDG&E conducted a comprehensive
misinformation campaign

Finally, SDG&E compounded its malfeasance by directing its spokespersons and public affairs employees to repeatedly mislead the public about need for and cost of the line in an expensive misinformation campaign designed to preempt public opinion before their proposal was fully analyzed (and errors corrected) by others. As is addressed in UCAN's brief, the gray area that separates a PR campaign from a misinformation campaign seems to have been lost in the minds of SDG&E and its consultants. The sheer breadth of errors and omissions suggests that SDG&E's effort devolved quickly and dramatically into a misinformation effort.

An array of cheaper alternatives to STP were ignored

But perhaps the most egregious malfeasance was the fact that SDG&E didn't seriously explore alternatives to STP. Mr. Marcus found that SDG&E was fully aware of a large number of alternatives to its proposal to spend the $1.265 billion dollars and despoil a cherished state park. These alternatives, (as identified in U-3; except as noted) include:

· SDG&E's 2006 RFO for CTs in 2008 (214 Mw, all in sub-50 Mw
units, of which 138 Mw of CT PPAs have now been approved by
the CPUC in A.07-05-023)

· SDG&E's 2007 RFO for in-basin CTs in 2010-12
(250 Mw, replacing an out-of-basin contract)

· UCAN's Mexico Light alternative as analyzed by SDG&E in its
1/26/07 testimony (165 Mw),

· Purchases from Mexico (up to 200 Mw without compromising
the viability of the Mexico Light option, per an unpublished
SDG&E study from January 2007)

· UCAN's SONGS Light alternative (350 Mw),

· Improved combined cycle reliability at Otay Mesa and Palomar
(232 Mw),

· SDG&E's planned inlet chillers at Palomar (20-24 Mw, depending
on the ISO's G-1 criterion),

· Continued rooftop photovoltaic development at 2012-15 rates
in 2016-17 (60 Mw),

· Future renewable generation within San Diego County identified
in the ISO's RPS analysis (150-180 Mw, based on an installed
capacity of 750 Mw),

· Distributed generation development other than photovoltaics
within SDG&E's service area; perhaps as much as 50 Mw

· Additional dispatchable demand response programs (as indicated
in pending Advice Letters for up to 150 Mw from two projects which
SDG&E counts as supplying only 29 Mw)

· TE/VS transmission associated with the LEAPS project (500-795
Mw per the ISO and SDG&E; 1000 Mw per the ISO in 2006.

· South Bay combined cycle (561-620 Mw, depending on the
ISO's G-1 criterion)

· Enpex combined cycle (0-750 Mw, depending on whether
it is linked to Encina retirements and depending on the
ISO's G-1 criterion);

· Proposed new CTs at Otay Mesa (330 Mw)

· Proposed new CTs interconnected to the San Luis Rey-Mission
transmission line (315 Mw)

· Proposed new CTs interconnected to the Penasquitos-Old
Town transmission line (315 Mw)

· Proposed new combined cycle at Encina (220 net Mw, after
accounting for the associated retirements of existing Encina
units 1-3)

· 715 Mw of additional CTs (two separate projects) proposed
to interconnect at Otay Mesa

· Up to 150 Mw of energy storage,

· Over 20 Mw of distribution loss reduction

· 48 net Mw from MMC Chula Vista replacement project
(92 Mw replacing 44 Mw)

· Proposed new combined cycle project interconnected to SDG&E's
Escondido Substation in 2012 (561-620 Mw, depending on ISO
G-1 criteria)

· Expanded AMI benefits due to increasing the incentive rate
from the 65 cents per kwh underlying the AMI numbers in
SDG&E's 1/26/07 testimony to the $1 per kwh underlying
SDG&E's 1/31/07 GRC Phase 2 testimony (70-90 Mw)

The total amount of capacity available to the company through these various alternatives ranges up to 7000 Mw. UCAN has identified roughly 20 times as much power as SDG&E said it would need through 2017 with AMI. And up to 1900 Mw of renewable energy could be brought in over the SWPL line, or even more via renewable energy credits (RECs).

In its brief, UCAN makes fourteen distinct recommendations to the Commission. The economic considerations, alone, disqualify this project from consideration for a start date of 2010. For the Commission to consider STP implementation prior to 2018 is not justifiable. If revisited in the future, UCAN believes that SDG&E's justification for STP will likely be worse, but UCAN is not opposed to revisiting a 500kV transmission proposal in the future. UCAN's preferred alternative should be adopted and SDG&E should be ordered to consult with Southern California Edison as to how to expedite UCAN's proposed Path 44 upgrade. SDG&E should also be required to analyze what internal upgrades, if any, it will need beyond those required for a Path 44 upgrade to increase its N-0 import capability to 3200Mw.

But UCAN's recommendations go well beyond merely a rejection of SDG&E's STP application. UCAN recommends a number of steps that should be taken immediately to improve reliability and facilitate the development of renewable energy, not just in Imperial Valley, but in San Diego County.

## 30 ##