ORDER 1000WHY CALIFORNIA PUBLIC UTILITIES COMMISSION SUPPORTS

ORDER 1000’s ELIMINATION OF RIGHT OF FIRST REFUSAL

OPINIONS EXPRESSED IN THIS PRESENATION DO NOT REPRESENT THE OPINIONS OF THE CALIFORNIA PUBLIC

UTILITIES COMMISSION

CAISO’s FOOTPRINT

LIST OF PARTICIPATING TRANSMISSION OWNERS

1. CITIZENS SUNRISE TRANSMISSION LLC2. CITY OF ANAHEIM3. CITY OF AZUSA4. CITY OF BANNING 5. CITY OF PASADENA6. CITY OF RIVERSIDE 7. CITY OF VERNON8. PACIFIC GAS & ELECTRIC COMPANY9. SOUTHERN CALIFORNIA EDISON

COMPANY10. SAN DIEGO GAS & ELECTRIC COMPANY11. STARTRANS IO LLC12. TRANS BAY CABLE LLC13. TRANS-ELECT NTD PATH 15, LLC14. VAELLEY ELECTRIC ASSOCIATION, INC• WESTERN AREA POWER

ADMINISTRATION, SIERRA NEVADA REGION

OTHER ISOsAESO: ALBERTA ELECTRIC SYSTEM OPERATOR

OIESO: ONTARIO INDEPENDENT ELECTRIC SYSTEM OPERATOR

NBSO: NEW BRUNSWICK SYSTEM OPERATOR

ISO-NE:INDEPENDENT SYSTEM OPERATOR - NEW ENGLAND

NYISO: NEW YORK INDEPENDENT SYSTEM OPERATOR

PJM: PENNSYLVANIA, JERSEY, MARYLAND INTERCONNECTION

MISO: MID-CONTINENT INDEPENENT SYSTEM OPERATOR

SPP: SOUTHWEST POWER POOL

ERCOT: ELECTRIC RELIABILITY COUNCIL OF TEXAS

CAISO: CALIFORNIA INDEPENDENT SYSTEM OPERATOR

ORDER 1000’S OBJECTIVES

ensure that rates for Commission Jurisdictional services are just and reasonable necessary to provide for more efficient and cost-effective regional transmission planning require planning for State and Federal public policy and eliminates incumbent transmission owners’ ROFR

ELIMINATION OF RIGHT OF FIRST REFUSAL

• “We direct public utility transmission providers to remove from their OATT’s or other Commission Jurisdictional tariffs and agreements any provisions that grant a federal right of first refusal to transmission facilities that are selected in a regional transmission plan for purposes of cost allocation. We conclude that leaving federal rights of first refusal in place for these facilities would allow practices that have the potential to undermine the identification and evaluation of a more efficient or cost-effective solution to regional transmission needs which in turn can result in Commission Jurisdictional Services that are unjust and unreasonable or otherwise result in undue discrimination by public utility transmission providers.”

TWO KEY TERMS IN ORDER 1000’S ELIMINATION OF

ROFR• “We direct public utility transmission providers to

remove … any provisions that grant a federal right of first refusal to transmission facilities that are selected in a regional transmission plan for purposes of cost allocation….”

• APPLIES ONLY TO NEW FACILITIES

• “… leaving federal rights of first refusal in place for these facilities would allow practices that have the potential to undermine the identification and evaluation of a more efficient or cost-effective solution to regional transmission needs which in turn can result in Commission Jurisdictional Services that are unjust and unreasonable ...”

• APPLIES TO FACILITIES SUBJECT TO FERC JURISDICTIONAL SERVICES FOR PURPOSES OF COST

ALLOCATION

OTHER PROTECTIONS FOR THE INCUMBENT TRANSMISSION

OWNERS• UPGRADES TO OWNED

FACILITIES

• EXISTING RIGHT OF WAY

• An incumbent transmission owner would be permitted to maintain a federal right of first refusal for upgrades to its own transmission facilities … p.319

• In addition, … our reforms are not intended to alter an incumbent transmission provider’s use and control of existing right-of-way… the retention, modification or transfer of rights-of-way remain subject to relevant law or regulation granting right-of-way

SUMMARY OF ROFR POSITIONS

EntitySupported Removal of

ROFR

Opposed Removal of ROFR

Commented but Neither

Supported nor Opposed

Silent on ROFR

State or Local Commissions

 15 7 4 11

 NGOs

  

13 0 1 11

 Muni/Coops

  

8 6 2 5

Totals 36 13 7 27

TABULATION OF POSITIONS ON RM10 -23-000 REPLY COMMENTS , SOURCE WITG PRESENTATION

COMPLIANCE FILINGSSHOWING NO ROFR IN

EXISTING TARIFFS• New York Independent System

Operator• South Carolina Electric & Gas• Main Public Service Commission • Public Service Company of

Colorado• Mid-Continent Power Pool (MAPP –

North Western Corporation (South Dakota))

• Northern Tier Transmission Group– Desert Generation Transmission

Corporation, Inc.– Idaho Power Company– Northwestern Corporation– PacifiCorp– Portland General Electric Company

• Columbia Grid– Avista Corporation– Puget Sound Energy

• WestConnect: – Terra-Gen Dixie Valley, LLC– Tucson Electric Power Company – UNS Electric, Inc. – Public Service Company of New

Mexico– Arizona Public Service Commission– El Paso Electric Company– Black Hills Power Inc. – Black Hills Colorado Utility Company– NV Energy, Inc. – Cheyenne Light, Fuel and Power

Company

WEST CONNECT FOOTPRINT

SOME GOVERNMENT AGENCIES SUPPORTING ELIMINATION OF ROFR

California Public Utilities Commission

California Energy Commission

Federal Trade Commission

Massachusetts Department of Public Utilities and Energy Resources

Maine Public Service Commission

Arizona Public Service Commission

ARGUMENTS SUPPORTING RETENTION OF ROFRParties supporting retention of ROFR proffered several compelling arguments against FERC’s elimination of ROFR

Violation of Mobile Sierra Doctrine (United Gas Pipeline Co. vs. Mobile Gas Service Corp. 350 U.S. 332, Federal Power Commission vs. Sierra Pacific Power Co. 350 U.S. 348)

ROFR has not hindered Robust Transmission infrastructure development [Federal Power Act 215]

Unsubstantiated “Theoretical Threat” (National Fuel Gas Supply Corp. v. FERC, 468 F.3d831 (D.C. Cir. 2006))

Impermissible intrusion over State’s citing and construction of electric transmission infrastructure

Discrimination against incumbent transmission owners

Efficiencies afforded by Vertical Integration

THE CASE FOR ELIMINATION OF ROFR

Some Issues with the arguments supporting retention of ROFR

Some States Agencies [CPUC, CEC] do not see the elimination of ROFR as an infringement of their jurisdictional authority over transmission citing

Comparing costs for intra-regional transmission facilities is difficult in Single-State Independent System Operators

“Ripeness (Mobile Sierra)” vs. “Theoretical Threat”

ROFR’s preemptive nature may undermine open-access

Merchant Developer ROFRs are anti-competitive clauses and the Supreme Court has ruled that FERC must consider anti-trust implications of its decisions (Gulf States Utilities Co. v. FPC (1973) 411 U.S. 747, 758-59; Otter Tail Power Co. vs. U.S. (1973) 410 U.S. 366, 368, 372)

CPUC CITING AUTHORITY

CPUC Transmission Citing and Approval Structure May Explain Why ROFRs pose no threat to CPUC’s Jurisdictional Authority

CAISO’s Planning process is coordinated with the CPUC but reasonably separate from CPUC’s citing authority

CAISO’s Transmission Planning Process

CAISO’s Board ApprovalTransmission Developer’s Application to CPUC

Cost-cap considerations in a CPCN

Project Length Original/Proposed

Cost

UpdatedCost

Cost / Mile Cost / MW

Original Updated Original* Updated**

TehachapiSegments 4 -11

173 miles

$1.8 billion+ $2.435 billion

$10 million

$14 million

$428,667 $662,708

Devers Palos Verde II/DCR

152 miles

$542 million++

$945 million

$3.5 million

$6.2 million

$454,404 $787,333

+ Tehachapi Segements 4 -11 submitted as a $1.2 billion dollar construction project, add to that a contingency approved by the CPUC of 15% and estimated at $174,400,000, Pensions and Benefits as well as other Administrative and General Costs of $184,847,000 and Allowances for Funds Used During Construction (AFUDC) of $621,067,000, to get to roughly $1.8 billion in 2009 dollars (Decision. 09-12-044, pp. 68 – 75); escalated for inflation the $1.8 billion increases another $100 million (A.07-06-031, Southern California Edison Company’s Opening Brief – May 6, 2013.)

* This cost per MegaWatt for Tehachapi includes the original costs for Segments 1 – 3 at $258 million.

** This cost per MegaWatt for Tehachapi includes the updated costs for Segments 1- 3 at $746 million.

ROFR IMPACT IN CALIFORNIA

Between 2008 - 2010, 50 proposed independent transmission projects were rejected primarily due to ROFR*

Non-Incumbents Costs are always lower*

10% reduction in transmission costs in California can reduce costs to ratepayers by $300 million annually*

IOU transmission development is subject to CPUC Jurisdiction while Municipal Utilities’ transmission approval is not CPUC Jurisdiction

Path 15 and TransBay Cable [Prior to 2005]

Clear Water Lugo vs. AV Clearview [Stay Tuned] *SOURCE: Z-GLOBAL ENGINEERING & ENERGY SOLUTIONS

CONCLUSION

• How much the elimination ROFRs would affect competition remains to be seen – the implementation (not the order) would decide

• Incumbents still hold the advantage

• Elimination of ROFR would likely lead to more partnerships of the Trans-Bay Cable model especially where incumbents’ transmission footprints traverse much of the state

• Litigation against the elimination of ROFR might weaken application of Mobile Sierra Doctrine to FERC tariffs instead, if the Mobile Sierra applies.