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UNITED STATES OF AMERICA BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Electric Transmission Incentives Policy ) Docket No. RM20-10-000 Under Section 219 of the Federal Power Act )

JOINT COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY,

SAN DIEGO GAS & ELECTRIC COMPANY, AND SOUTHERN CALIFORNIA EDISON COMPANY ON NOTICE OF PROPOSED RULEMAKING

REGARDING TRANSMISSION INCENTIVES

Pacific Gas and Electric Company (“PG&E”), San Diego Gas & Electric Company

(“SDG&E”), and Southern California Edison Company (“SCE”) (collectively the “California

Utilities”) respectfully submit these joint comments in response to the Federal Energy

Regulatory Commission’s (“FERC” or “Commission”) Notice of Proposed Rulemaking

regarding the Commission’s Electric Transmission Incentives Policy Under Section 219 of the

Federal Power Act issued on March 20, 2020 (“NOPR”).1

As an initial matter, the California Utilities largely support the proposals contained in the

Commission’s NOPR as they are consistent with both the language of Section 219 of the Federal

Power Act (“FPA”)2 and the Congressional intent behind Energy Policy Act of 2005.3 The

NOPR generally balances consumer interests with the need to provide adequate incentives to

“promote reliable and economically efficient transmission.”4 The NOPR’s proposed Return on

Equity (“ROE”) and other incentives, such as recovery of 100% of abandoned plant costs and

continued allowance of hypothetical capital structures, will help transmission developers

1 Electric Transmission Incentives Policy Under Section 219 of the Federal Power Act, 170 FERC ¶ 61,204 (2020) (“NOPR”). 2 16 U.S.C. § 824s. 3 Public Law 109-58, sec. 1241, 119 Stat. 594 (2005). 4 16 U.S.C. § 824s(b)(1).

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“attract[] new investment in transmission facilities”5 and access the necessary capital and

financing to support the continued development of a reliable and efficient electric transmission

system.

In these comments, the California Utilities provide support for the Commission’s

proposals outlined in the NOPR while proposing certain modifications. In particular, the

California Utilities urge the Commission to do the following:

Recommendation Location in Comments

Adopt the proposal to decouple incentives from base ROE Section I

Adopt the proposal for abandoned plant incentive recovery to start when a project is approved in a regional transmission planning process

Section II.A

Clarify that the abandoned plant incentive proposal provides blanket pre-approval for all projects approved in a regional transmission planning process (subject to a Section 205 filing after abandonment)

Section II.B

Provide blanket pre-approval of the construction work in progress (“CWIP”) incentive for projects approved in a regional transmission planning process upon request in a Section 205 filing

Section II.C

Clarify that blanket pre-approval of the abandoned plant incentive and CWIP applies to all current projects that have been approved through a regional transmission planning process

Section II.D

Reiterate that a hypothetical capital structure is available for integrated utilities in appropriate circumstances

Section II.E

Continue to include unique risks and challenges as a basis upon which developers can request an incentive for transmission projects

Section III

Adopt the regional transmission organization (“RTO”) and independent system operator (“ISO”) participation incentive as proposed, to be implemented through a compliance filing

Section IV

Remove the requirement that projects seeking the transmission technology incentives must meet the economic incentive benefit-cost threshold

Section V.A

5 16 U.S.C. § 824s(b)(2).

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Recommendation Location in Comments

Clarify that traditional system assets will be eligible for the transmission technology incentives if they are not widely deployed or are used in a novel manner

Section V.B

Modify the economic benefits incentive proposal to include all benefits considered by an RTO/ISO and determine benefit-cost thresholds on a region-specific basis

Section VI.A

Allow transmission developers to request an economic benefits incentive for projects that provide economic benefits outside regional transmission planning processes or that are evaluated for other benefits such as reliability

Section VI.B

Adopt the proposed reliability benefit ROE incentive Section VII

Remove proposed data reporting changes to Form 730 that provide limited potential benefits

Section VIII

I. ROE INCENTIVES SHOULD NOT BE LIMITED BY THE ZONE OF REASONABLENESS

In the NOPR, the Commission proposes to modify its current policy of limiting

incentives at the top of the zone of reasonableness and instead implement a 250-basis point cap

on total ROE incentives.6 The NOPR rightly recognizes that incentives are provided by the

Commission, consistent with the FPA, in order to attract new transmission investment.7 These

investments provide significant benefits to customers such as increasing reliability, reducing

congestion, encouraging transmission technology, and creating an incentive for RTO/ISO

membership.

Base ROE serves a different function. It compensates public utilities for their costs to

raise common equity to fund approved transmission investments. Given this difference, as the

NOPR correctly finds, “incentives may be just and reasonable under different circumstances than

6 NOPR at P 76. 7 Id. at P 41.

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base ROEs.”8 The California Utilities therefore support the Commission’s proposal to decouple

the determination of whether incentives are just and reasonable from the evaluation of base ROE.

II. THE COMMISSION APPROPRIATELY MAINTAINS NON-ROE INCENTIVES AND SHOULD MAKE INCREMENTAL MODIFICATIONS TO ENSURE EFFICIENCY AND CLARITY

In the NOPR, the Commission proposes to retain existing non-ROE incentives, including

the abandoned plant incentive, CWIP incentive, and hypothetical capital structures, among

others.9 The California Utilities support continuing to provide these incentives, along with the

adoption of certain modifications, described below.

A. Abandoned Plant Costs Are Appropriately Recovered from the Date the Project Is Selected in a Regional Transmission Planning Process

The NOPR proposes to revise the abandoned plant incentive to provide that “[a] public

utility with a transmission project that is selected in a regional transmission planning process for

the purposes of cost allocation can recover 100 percent of abandoned plant costs from the date

such project is selected in a regional transmission planning process.”10 While the current

abandoned plant incentive has been the subject of numerous proceedings at the Commission and

in the United States Court of Appeals for the District of Columbia Circuit, the Commission has

more recently interpreted the abandoned plant incentive for regionally-approved transmission

projects as applying only to costs incurred after a Commission decision granting the incentive.

But as the NOPR correctly explains, this approach “leads to the exclusion of costs

incurred between approval of the transmission project by the regional transmission planning

process and Commission approval of the incentive, and this delay is not warranted for purposes

of cost control, because the transmission planner has made the decision to undertake the

transmission project.”11 In fact, once selected in the regional planning process, the transmission

8 Id. at P 78. 9 Id. at P 82. 10 Proposed 18 C.F.R. § 35.35(j)(2). 11 NOPR at P 84.

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developer is generally obligated to proceed with the project unless and until it is cancelled

by the RTO/ISO.

There is no reason to exclude costs incurred before a Commission order from the

abandoned plant incentive, particularly when the date of a Commission order approving the

incentive is outside the control of the project developer. Nor should such costs be treated

differently than those incurred after Commission approval. Providing an abandoned plant

incentive from the date of RTO/ISO approval is consistent with the requirements in the

California Independent System Operator Corporation (“CAISO”) that project developers start

development immediately upon selection. As the CAISO explained in its comments on the

Inquiry Regarding the Commission’s Electric Transmission Incentives Policy (“Incentives

NOI”):

The CAISO tariff obligates approved project sponsors to make a good faith effort to obtain all approvals and property rights for and to construct needed transmission projects reflected in the annual transmission plan for which they are responsible. Within 120 days after the CAISO selects an approved project sponsor, the approved project sponsor must submit a construction plan to the CAISO. Approved project sponsors especially should proceed with reliability projects in a diligent and expeditious manner so such projects can be completed in a timely manner, and the CAISO does not face potential reliability criteria violations.12

Substantial costs may be incurred by a transmission project developer after a project is

approved in the regional transmission planning process but before Commission approval. As

PG&E and SDG&E explained in their comments on the Incentives NOI in Docket No.

PL19-3-000, the California Utilities have received abandoned plant incentive orders collectively

ruling that over $150 million of pre-approval costs were not eligible for the abandoned plant

incentive.13 As a further example, in Pacific Gas and Electric Company, Docket No.

12 Comments of the California Independent System Operator Corporation, Docket No. PL19-3-000 at 17, filed June 26, 2019 (“CAISO NOI Comments”) (emphasis added and citations omitted). 13 Initial Comments of Pacific Gas and Electric Company and San Diego Gas & Electric Company, Docket No. PL19-3-000 at 2, filed June 26, 2019 (describing costs incurred for PG&E, SCE, and SDG&E). See, e.g., San Diego Gas & Electric Co, 154 FERC ¶ 61,158, reh’g denied, 157 FERC ¶ 61,056 (2016); aff’d, San Diego Gas & Electric Co. v. FERC, D.C. Circuit Case No. 16-1433 (2019).

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EL16-47-000, PG&E sought an abandoned plant incentive for eight projects and incurred

approximately $70 million in costs for these projects during the period between transmission

planning process approval and the issuance of a Commission order.

Moreover, even if RTOs/ISOs do not have rules requiring that a developer immediately

begin development of a project after it is selected in a regional planning process, the current

approach may create an adverse outcome by encouraging utilities to delay performing work until

after Commission approval of the abandoned plant incentive, potentially resulting in a project

being unnecessarily delayed while Commission approval is pending.

Finally, the NOPR’s proposed abandoned plant incentive approach is consistent with

FPA Section 219(b)(1) and its purpose to “promote” reliable and economically efficient

transmission. The NOPR’s treatment of the abandoned plant incentive will promote the

development of projects from the day they are approved in the regional transmission planning

process rather than delaying substantial work on such projects while Commission approval of

the incentive is pending.

B. Projects Selected in a Regional Transmission Plan Should Receive Blanket Pre-Approval of the Abandoned Plant Incentive Subject to a Section 205 Filing After Abandonment

In the Incentives NOI, the Commission asked if the abandoned plant incentive “should be

granted automatically for transmission projects selected in a regional transmission plan . . . .”14

The California Utilities support the NOPR’s proposal to modify the effective date of the

abandoned plant incentive to the date a project is approved in a transmission planning process.

But the Commission should additionally clarify that all such projects will receive blanket pre-

approval of the abandoned plant incentive — modifying it from a rebuttable presumption to an

automatic pre-approval — subject to a Section 205 filing after the project is abandoned to

demonstrate that the costs incurred were reasonable. This pre-approval would obviate the need

for developers of projects approved in a regional transmission planning process to seek

14 Inquiry Regarding the Commission’s Electric Transmission Incentives Policy, 166 FERC ¶ 61,208 (2019) (“Incentives NOI”) at P 33.

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Commission approval to receive the abandoned plant incentive in a Petition for Declaratory

Order prior to abandonment.15 As the CAISO stated:

The availability of abandoned plant recovery . . . is an important incentive that enhances the options available to the CAISO in meeting reliability and other needs identified in its annual transmission planning process. Because approved project sponsors must immediately commence project development after being selected, the CAISO believes they should be pre-approved for abandoned plant cost recovery to mitigate against any risk of cost non-recovery.16

Automatic pre-approval will not eliminate the opportunity for stakeholders and the Commission

to review abandoned plant costs for prudence. As noted, a project developer would still be

required to make a Section 205 filing to demonstrate that costs incurred after the project is

approved in a regional transmission planning process were prudent.

Moreover, blanket pre-approval of the abandoned plant incentive for transmission

projects approved in a regional planning process should continue to apply to projects in their

entirety (i.e., both competitive and incumbent utility projects). For example, the Commission

granted PG&E the abandoned plant incentive for its portion of the Estrella Substation Project.17

The Commission ruled that “we agree that PG&E’s and NEET West’s portions of the project are

interdependent parts of a single integrated project for the purposes of evaluating a request for an

abandonment incentive.”18 Indeed for these “split” projects, developers and incumbent utilities

are perhaps even more at risk of abandonment for reasons beyond their control because they

cannot control the actions of the developer completing the other portion of the project. Such

project expenditures will, again, still be subject to a later Section 205 review.

15 Although utilities have the option to seek approval in a Section 205 filing after a project is abandoned (and would be entitled to a rebuttal presumption of eligibility), in the absence of blanket pre-approval utilities would likely continue to file Petitions for Declaratory Order to reduce uncertainty at the beginning of a project. 16 CAISO NOI Comments at 17. 17 163 FERC ¶ 61,187 at P 4 (2018). 18 Id.

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In short, the Commission should clarify in the NOPR that projects approved in a regional

planning process, including competitive and incumbent utility projects, will be given blanket pre-

approval of the abandoned plant incentive.

C. The Commission Should Also Provide Blanket Pre-Approval of the CWIP Incentive for Projects Selected in a Regional Transmission Planning Process Upon Request in a Section 205 Filing

The California Utilities likewise believe — as raised by the Incentives NOI19 — that

blanket pre-approval of CWIP is appropriate and thus support replacing the rebuttable

presumption for CWIP with blanket pre-approval as well. Pre-approval is justified because of

the benefits CWIP provides to customers — offering rate stability and certainty by putting costs

into rate base over time rather than all at once — thereby avoiding rate shock following a

project’s completion.

In addition, CWIP treatment, especially for larger and multi-year projects, reduces short-

term financing needs for the developer. This gets passed on to customers through lower

financing costs. Without CWIP treatment, the developer’s balance sheets can become

increasingly strained as the developer increases borrowing, risking negative credit rating actions

due to increased leverage and reduced cash flow from not being able to pass debt servicing

payments to customers.

D. The Commission Should Clarify That Blanket Pre-Approval of the Abandoned Plant Incentive and CWIP Applies to All Current Projects That Have Been Approved Through a Regional Transmission Planning Process

The Commission should also specify in a final rulemaking that blanket pre-approval of

the abandoned plant incentive and CWIP applies to all currently eligible projects (i.e., projects

that have already been approved through a regional transmission planning process) even if the

utility has not: (1) filed a petition for the incentive; or (2) made the required Section 205 filing to

recover any prudently-incurred abandoned costs. If a project satisfies the eligibility criteria

determined by the Commission in this NOPR, the developer should automatically receive the

19 Incentives NOI at P 33.

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abandoned plant incentive from the date the project was selected in a regional transmission

planning process and CWIP from the date requested. Such clarification ensures equitable

treatment of all such approved transmission projects rather than imposing an arbitrary cutoff

based on timing outside of the developer’s control.

E. The Hypothetical Capital Structure Incentive Should Be Retained and Available for Integrated Utilities in Appropriate Circumstances

In the NOPR, the Commission proposes continuing to allow applicants to request a

hypothetical capital structure and that such requests will be evaluated on a case-by-case basis.20

The California Utilities support this proposal. In Order No. 679, the Commission found that

“hypothetical capital structures can be an effective tool available to public utilities to foster

transmission investment in appropriate circumstances.”21 The Commission stated “that, in

certain contexts this incentive is appropriate for consideration under section 219” and “that an

overly rigid approach to evaluating proposed capital structures may discourage the development

of new transmission projects.”22 The Commission therefore determined it was appropriate to

“evaluate each proposal on a case-by-case basis.”23 and that “there may be circumstances in

which a hypothetical capital structure may be appropriate for transmission investment by a

vertically-integrated utility.”24

The California Utilities request that the Commission clarify in its final rule that vertically

integrated utilities may continue to request the hypothetical capital structure incentive and that

20 NOPR at P 83. 21 Promoting Transmission Investment through Pricing Reform, Order No. 679, 116 FERC ¶ 61,057, order on reh’g, Order No. 679–A, 117 FERC ¶ 61,345 (2006), order on reh’g 119 FERC ¶ 61,062 (2007) (“Order No. 679”) at P 131. 22 Id. at P 132. 23 Id. 24 Id. at P 133; see also Ameren Servs. Co., 135 FERC ¶ 61,142 at P 70 (2011) (“The Commission refused to categorically deny the [hypothetical capital structure] incentive to vertically-integrated utilities in Order No. 679.”).

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such requests should not be limited to a single project. As has been the case, hypothetical capital

structures would remain limited to “unique circumstances.”25

III. THE COMMISSION SHOULD CONTINUE TO INCLUDE RISKS AND CHALLENGES AS A BASIS FOR AWARDING TRANSMISSION INCENTIVES

In the NOPR, the Commission proposes shifting from its current test for evaluating

transmission incentive applications under Order No. 679, which is based on a project developer’s

demonstration of the “risks and challenges” it faces, to a test based on the costs and benefits of a

project. Because, as noted in the NOPR, such a test will be closely aligned with the language

adopted by Congress in FPA Section 219(a), the California Utilities generally support the

addition of an incentive for transmission projects that provide significant economic benefits.

Further, the California Utilities agree with the NOPR’s determination that parties seeking an

incentive should not be required to demonstrate that their existing ROE is insufficient.

That said, the Commission should also retain the option for developers to request an

incentive based on the risks and challenges associated with a project — ensuring that the

Commission has more tools to incentivize needed transmission development in the various

regions throughout the country. Continuing to allow developers to propose incentives to address

the unique risks and challenges associated with projects helps ensure that economically

beneficial projects that do not meet the NOPR’s benefit-cost threshold but face significant

hurdles to development — such as significant undergrounding, challenging licensing processes,

and difficult construction environments — are still invested in and developed. The California

Utilities are not proposing that such risks and challenges would create a rebuttable presumption

that an incentive is warranted. Instead, if an economic project does not meet the benefit-cost

thresholds, a developer would still have the opportunity on a case-by-case basis to seek an

incentive by demonstrating the unique risks and challenges the project faces. The developer

would bear the burden to make a sufficient showing that an incentive is warranted.

25 NOPR at P 83.

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IV. THE COMMISSION APPROPRIATELY MAINTAINS AND INCREASES THE RTO/ISO INCENTIVE FOR JOINING AND REMAINING IN AN RTO/ISO

While Congress largely left the determination of incentives to the Commission in FPA

Section 219, it specifically required an ROE incentive for utilities joining RTOs/ISOs,

highlighting the importance of the issue for Congress.26 That is, Section 219(c) provides that the

“Commission shall, to the extent within its jurisdiction, provide for incentives to each

transmitting utility or electric utility that joins a Transmission Organization.”27 As the NOPR

correctly notes, consistent with the intent of Section 219, consumers have received billions of

dollars in cost savings and efficiencies as a result of electric utilities joining RTOs/ISOs.28

Because participation imposes ongoing responsibilities and risks on utilities, incentives

are an important vehicle to encourage utilities to join and remain in an RTO/ISO.29 For

example, the California Utilities’ participation in the CAISO includes responsibilities such as

coordination with the CAISO on grid operation, extensive information sharing and coordination,

participation in numerous and frequent stakeholder processes to determine market rules and grid

operation procedures, partaking in a lengthy, annual transmission planning process, and

participation in the CAISO governance process. These responsibilities require a substantial

amount of time and resources. More importantly, membership in an RTO/ISO also creates risks

including:

1. The loss of operational control of transmission facilities to a third party, coupled with the obligation to build new transmission facilities at the direction of the RTO/ISO, potentially forcing a transmission owner to prioritize investments that it would not otherwise make;

2. Diminished decision-making control over transmission assets — while still retaining ultimate responsibility for maintaining the transmission system, meeting reliability standards, and providing reliable electric service to customers;

26 16 U.S.C. § 824s(c). 27 Id. (emphasis added). 28 NOPR at PP 93, 96. 29 Id. at P 93.

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3. Increased risk that RTO/ISO governing documents will be modified, thereby changing the terms and conditions under which the public utility initially agreed to participate in the RTO/ISO;

4. Financial and compliance risks associated with the evolution of RTO/ISO market rules; and

5. The obligation to pay exit fees should a public utility decide that it is beneficial for its customers to leave the RTO/ISO.

Given the responsibilities and risks associated with RTO/ISO membership, it is appropriate for

utilities to receive a uniform an incentive for ongoing RTO/ISO membership regardless of

voluntariness.

Below, the California Utilities address several aspects of the proposed RTO/ISO

incentive portion of the NOPR.

A. The RTO/ISO Incentive Is Appropriate Even if States Mandate Participation in an RTO at Some Future Time

The NOPR correctly explains that the concept of “voluntarily” or “involuntarily” joining

or remaining in an RTO/ISO does not appear anywhere in Section 219(c). Instead, Section

219(c) encourages incentives for “each transmitting utility or electric utility that joins a

Transmission Organization”30 — irrespective of the reason behind joining. And consumers

benefit regardless of whether a utility’s decision to join and remain in an RTO/ISO is

“voluntary” or a result of state law or regulatory directive.31

There was no legal or factual basis for Order No. 679’s statement that the incentive is

based, in part, on the fact that “continuing membership [in an RTO/ISO] is generally

voluntary.”32 Such a distinction could lead to frequent Commission adjudications over whether

a utility’s RTO/ISO membership is in fact voluntary or required. Moreover, determining the

availability of incentives based on voluntary participation could disadvantage a utility that may

be required to join, potentially resulting in a lower overall ROE for that utility than for a utility in

30 Id. at P 92. 31 Id. at P 95. 32 Id. at P 94.

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the same RTO/ISO that receives the incentive.33 That disparity will adversely impact the

utility’s ability to raise investment capital for reasons entirely out of its control.

In addition, any state law requirement to join an RTO/ISO would be preempted under

field and conflict preemption. Issues relating to RTO/ISO membership, which depend entirely

on RTO/ISO operational control over transmission facilities, are solely within this Commission’s

jurisdiction as granted by the FPA.34 Allowing state law or regulatory directive to overrule the

Commission as to whether a PTO’s facilities can be removed from RTO/ISO operational control

would also result in a situation where compliance with both state and federal law is impossible,

with state law standing as an obstacle to accomplishment and execution of the full purposes and

objectives of Congress.35 As such, any state law requirement for RTO/ISO membership cannot

serve as a basis for disadvantaging certain utilities when such state requirements lack legal

validity. The Commission has therefore appropriately proposed to provide the RTO/ISO

incentive regardless of whether a state attempts to mandate participation through either a

regulatory or legislative requirement.

B. The RTO/ISO Incentive Must Endure to Achieve the Congressional Intent and Encourage Expanded Participation in Organized Markets

The incentive should not be limited only to utilities that have newly “joined” an

RTO/ISO. This limitation would discourage continued RTO/ISO membership and punish

utilities that have supported the RTO/ISO process — undermining the incentive.

33 Id. at P 98. 34 See Transmission Agency of N. Cal. v. Sierra Pac. Power Co., 295 F.3d at 918 (2002) (quoting New England Power Co. v. New Hampshire, 455 U.S. 331, 340 (1982) (holding that Part II of the FPA, codified at 16 U.S.C. §§ 824-824m (2000), delegates to the Commission “exclusive authority to regulate the transmission and sale at wholesale of electric energy in interstate commerce”); California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831, 849–50 (9th Cir.) (the FPA delegates to the Commission the exclusive jurisdiction to regulate the transmission and sale at wholesale of electric energy in interstate commerce, and this “exclusive jurisdiction extends over all facilities for such transmission or sale of electric energy”), opinion amended on denial of reh’g, 387 F.3d 966 (9th Cir. 2004) (quoting Duke Energy Trading & Mktg., L.L.C. v. Davis, 267 F.3d 1042, 1056 (9th Cir.2001)). 35 See Hines v. Davidowitz, 312 U.S. 52, 67 (1941); Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963) (finding conflict preemption where “compliance with both federal and state regulations is a physical impossibility”).

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Importantly, Congress in section 219(c) did not limit the incentive to a certain time

period after joining an RTO/ISO. Distinguishing between joining and remaining in an RTO/ISO

also makes little practical sense and may lead to adverse consequences. Such a determination

would likely have a deterrent effect on utilities that may seek to join an RTO or ISO in the

future. It also would create implementation issues, as the Commission would have to determine

what constitutes the appropriate time period that a utility should receive the incentive for joining.

Additionally, if a utility only received an incentive for a limited period after joining, once

the incentive expired, that utility could leave the RTO/ISO, given the significant responsibilities

and risks involved in RTO/ISO membership. Then, the utility could re-join the RTO/ISO at

some time in the future to again receive an incentive. This perverse outcome would not benefit

consumers. Nor would it further Congress’ intent of reducing costs and increasing efficiency.

Instead, it could create significant uncertainty regarding how long utilities will maintain their

RTO/ISO membership and could be disruptive for other members.

Finally, trying to distinguish between “joining” and “remaining in” an RTO/ISO creates

a non-existent distinction. The clear implication of the word “joins” is that the utility will remain

a part of the RTO/ISO. It is only by remaining in the RTO/ISO that consumers receive the

benefits of joining, and thus it is clear that joining includes more than simply signing up and then

leaving.

C. The Proposed RTO/ISO Incentive Amount Should Be Adopted

In addition to uniform eligibility for the RTO/ISO incentive, the incentive amount should

also be uniform for all utilities. There is no reason to require a utility to propose a specific

incentive amount on a case-by-case basis, as was previously directed in Order No. 679. As a

practical matter, RTO/ISO incentives have generally become uniform under Order No. 679.36

It is therefore logical for the incentive amount to be set equal for all utilities, reducing

administrative burden.

36 NOPR at P 92.

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The NOPR also correctly proposes to set the incentive amount at 100 basis points for

RTO/ISO participation. While this is an increase from current RTO/ISO incentive amounts,

as the NOPR correctly describes, the benefits for consumers and responsibilities for utility

RTO/ISO participation have increased substantially.37 These increased responsibilities, as well

as the risks described above and the demonstrated and ever-increasing benefits to customers

from RTO/ISO participation, support the increase.38

D. The Incentive Should Be Implemented Through Compliance Filings

Finally, the California Utilities recommend that, in a final order adopting the NOPR, the

Commission direct utilities with formula rates to make a compliance filing to change the amount

of the RTO/ISO incentive in their existing rates. The NOPR specifically seeks comments on

what process the Commission should adopt to implement a 100-basis point RTO participation

incentive for existing transmitting utility rates.39 If a public utility has already received the

RTO/ISO incentive adder in its existing rates, that utility should not have to make a Section 205

filing, re-open its formula rate, or incur a five-month suspension of rates simply to implement a

policy-determined (however appropriate) increase in an incentive that has already been granted.

In other words, parties should not be able to use a change in Commission policy on the RTO/ISO

participation incentive to open up a utility’s formula rate. A compliance filing is therefore

appropriate.

V. AN INCENTIVE TO ENCOURAGE INVESTMENT IN NEW TECHNOLOGIES IS APPROPRIATE AND CONSISTENT WITH THE FPA

The California Utilities likewise support the NOPR’s encouragement for “deploy[ing]

transmission technologies that enhance reliability, efficiency, capacity, and improve the

operation of new or existing transmission facilities” by allowing utilities to “seek a 100-basis-

point ROE Transmission Technology Incentive on the cost of the specified transmission

37 NOPR at P 97. 38 Id. 39 Id. at P 99.

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technology project.”40 Incentivizing the development of new technologies “to increase the

capacity and efficiency of existing transmission facilities and improve the operation of the

facilities” was one of Congress’s express goals in enacting Section 219.41 Moreover, such an

incentive is arguably more needed today going forward. New technologies will continue to be

needed to address the evolution of the grid, threats related to climate change such as wildfires,

hurricanes, and tornadoes, along with earthquakes, cyber threats, and other adverse events.

Technology projects also have the potential to increase the amount of renewable energy that can

be carried on the grid.

The California Utilities similarly support the incentive being applied to costs related to

deployment of such technologies on new or existing transmission facilities.42 Nothing in FPA

Section 219 distinguishes between technology being used on new or existing facilities.

Moreover, the consumer benefits from new technology — regardless of whether the technology

is applied to new or existing facilities — are the same. For example, synchrophasors43 or

insulator leakage sensors — which measure the leakage current across an insulator string to

enable preventative maintenance on contaminated insulators — are new technologies that can

increase the reliability of the entire transmission system, both new and existing. Additionally,

meteorology stations — used to make operational decisions during the adverse weather events

outlined above — are also novel utility technologies that increase efficiency and improve the

operation of facilities during and after adverse conditions. Nevertheless, although the California

Utilities are generally supportive of the proposed transmission technology incentives, certain

modifications are appropriate.

40 Id. at P 105. 41 16 U.S.C. § 824s(b)(3). 42 NOPR at P 105. 43 Synchrophasors can provide near-real time, wide area situation awareness and fast system restoration capabilities to operators as they restore the transmission system and can assist with the response to, and aftermath of, adverse events.

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A. The Commission Should Not Require Projects Seeking Transmission Technology Incentives to Meet the Economic Incentive Benefit-to-Cost Threshold

Unfortunately, the Commission proposal that applicants for the technology incentives

must demonstrate that the technology meets the criteria for eligible transmission technologies

and that the project “meets the economic benefits ROE incentive benefit-to-cost threshold

proposed in this NOPR,”44 is problematic. RTOs/ISOs have acknowledged that for grid-

enhancing technologies in particular, ex ante benefit-to-cost calculations may not accurately

assess potential benefits.45 For example, novel technology projects may provide a long-term

benefit as “proofs of concept” for future uses that would not be captured in a traditional benefit-

to-cost calculation.

Technology projects may also change project scope and impact such that the need for

certain permitting is either reduced or eliminated. These changes can bring greater cost certainty

and project completion certainty, the value of which may not be captured in a traditional benefit-

cost analysis. Moreover, novel technology projects may not necessarily register as the most

economically beneficial projects, as they are not yet at scale and may inherently have higher

costs until the technology is proven. Accordingly, the Commission should require that projects

simply be economic (e.g., “cost-benefit greater than 1”) to be eligible for transmission

technology incentives.

B. Traditional System Assets Should Be Eligible for the Incentives If They Are Not Widely Deployed or Are Used in a Novel Manner

The NOPR’s proscription against rewarding the incentives for certain types of

technologies should also be discarded. Currently, the NOPR states that “transmission system

assets traditionally associated with the transportation of electric power, such as power lines,

power poles, capacitors, and other substation equipment” will generally not be considered for the

44 NOPR at P 103. 45 See, e.g., Post-Technical Workshop Comments of the California Independent System Operator, Docket No. AD19-19-000, filed February 14, 2020, at 4 (“The CAISO cautions that use of ex ante modeling results from the transmission planning process may not provide an accurate assessment of actual savings that would result on a year-to-year basis from implementing a grid enhancing technology.”).

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incentives.46 Yet this statement fails to consider that certain technologies may fall into

categories of assets that are traditionally associated with the transportation of electric power,

but should nonetheless be incentivized because they are either being used in a novel way or have

not been widely deployed and provide the benefits identified by the NOPR.

For example, High Temperature Low Sag Conductor is an alternative type of conductor

for power transmission, meaning that it could be considered “traditional” despite it not being

widely deployed. And the newer forms of this technology are advanced. Replacing an existing

conductor of the same size with a High Temperature Low Sag one can achieve significantly

more transmission line capacity without altering anything else in the existing transmission

structure. These conductors also allow for longer spans and fewer supporting structures for

transmission lines, reducing project costs on new lines while offering substantial sustainability,

economical, and environmental advantages in reconductoring existing transmission lines.

High-voltage direct current (“HVDC”) transmission is another apt example. Although

HVDC is a relatively mature technology, recent technological improvements have expanded

HVDC transmission capabilities and applicability to address existing and emerging transmission

grid challenges. These capabilities include fast stability control, power flow control, the ability

to segment parts of the power system, and the ability to allow energy to flow from renewable

generation sources with less loss. Conversions of existing AC lines to HVDC have not been

widely deployed in the United States and can be used in novel applications to maximize existing

infrastructure and meet the NOPR’s identified benefits.

A final rule should thus not limit the type of technologies that will be considered for the

incentives by excluding so called “traditional” transmission system assets. Such a limitation

would be inconsistent with FPA section 219, which states that the Commission “shall encourage”

the deployment of advanced transmission technologies — without any distinctions regarding

46 NOPR at P 101.

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what types of technology should be considered.47 Instead, an applicant should have the

opportunity to demonstrate that any technology meets the test for the incentives.

VI. INCENTIVES FOR TRANSMISSION PROJECTS PROVIDING ECONOMIC BENEFITS ARE CONSISTENT WITH FPA SECTION 219 AND WILL ENSURE CUSTOMERS HAVE ACCESS TO EFFICIENT TRANSMISSION SERVICE

The California Utilities support the Commission’s proposal to establish a transmission

incentive based on an economic benefit-cost analysis and to use the results of that test to create a

rebuttable presumption that a project is entitled to an incentive. Because, as noted in the NOPR,

it closely aligns with the language adopted by Congress in FPA Section 219(a), the California

Utilities also generally support the addition of an incentive for transmission projects that provide

significant economic benefits. That said, the California Utilities recommend modifications and

clarifications to aspects of the benefits-cost test proposed in the NOPR, as described in more

detail below.

A. For the Rebuttable Presumption, the Commission Should Include All Benefits Considered by an RTO/ISO to Determine Benefit-Cost Thresholds on a Region-Specific Basis

The NOPR proposes a national net benefits-cost threshold for projects to be eligible for

an economic benefits incentive. It relies on “adjusted production cost, similar measures of

congestion reduction, and certain other quantifiable benefits that are verifiable and not

duplicative” for determining the benefits portion of the benefit-cost analysis.48 The NOPR

recognizes that RTOs/ISOs have additional economic benefit tests and that limiting the tests to

these three areas “reduce[s] the comprehensiveness of the measurement of economic benefits.”49

Yet it nevertheless adopts the limitation purportedly in the interests of transparency and the

Commission’s ability to analyze applications.

47 16 U.S.C. § 824s(b)(3). 48 NOPR at PP 50, 57. 49 Id. at P 50.

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This limitation is unnecessary. Rather than trying to develop a single national

methodology for quantifying benefits, the Commission should consider any measurement of

benefits utilized by an RTO/ISO in its individual transmission planning processes on a region

by region basis. Specific benefits analyses will be transparent because the applicant will identify

the specific tests used by the RTO/ISO to evaluate the applicant’s project. The NOPR should

therefore be revised to state that applicants should identify all specific tests used within their

respective RTO/ISO to determine the benefits of an economic project, and that the Commission

will consider the results of those tests on a region-specific basis in determining a project’s

eligibility.

Even if the Commission declines to expand its consideration of benefits analyses,

it should set the thresholds for the incentive on a region-specific basis, rather than the current

proposal to use a national average. The proposed national average is problematic because

regional differences make an apples-to-apples comparison of benefits among regions

inappropriate. Moreover, the cost of building transmission varies among regions. A national

comparison would have the effect of penalizing transmission in regions that have higher building

costs.

While these differences are not problematic for planning processes because projects are

compared and selected within regions rather than across them, the NOPR’s proposed benefit-cost

threshold will likely result in economic incentives being awarded almost exclusively to projects

within RTOs/ISOs that award higher benefit-to-cost ratios. So, at a minimum, the Commission

should analyze benefit-costs ratios on an RTO/ISO specific basis. In other words, projects

within the CAISO would be eligible for the ex-ante incentive if they meet an economic benefit-

to-cost ratio in the top 75th percentile of CAISO transmission projects examined over a sample

period. Projects within any other RTOs/ISOs that provide data would similarly be compared

only to projects within their own RTO/ISO. For the remainder of the country that declines to

provide data, the Commission could utilize its proposed national average.

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B. The Commission Should Allow Developers to Request Incentives for Projects That Provide Economic Benefits Outside RTO/ISO Planning Processes

The NOPR never directly addresses whether a project that does not go through an

RTO/ISO planning process can be eligible for an economic benefits incentive. The NOPR

should clarify that a project does not need to go through an RTO/ISO planning process to be

eligible. FPA Section 219 is not limited to projects that go through regional transmission

planning processes. Instead, under Section 219(b)(1), incentives should be provided where they

promote “capital investment in the enlargement, improvement, maintenance, and operation of all

facilities for the transmission of electric energy in interstate commerce . . ..”50 To the extent

these projects provide customer benefits “by ensuring reliability and reducing the cost of

delivered power by reducing transmission congestion,” they should be eligible for incentives.

The Commission should thus specify that projects that have not gone through an

RTO/ISO planning process may be eligible for incentives, consistent with the FPA. That is not

to suggest that the Commission should provide these projects that have not gone through the

RTO/ISO planning process with a rebuttable presumption of eligibility for the incentive.

Instead, the party seeking an incentive would have the burden to demonstrate its proposed

project provides benefits are consistent with FPA Section 219.

Additionally, the Commission should clarify that projects selected in an RTO/ISO

planning process for reasons other than economics may seek this incentive. Projects that are

developed for reliability or policy reasons (such as projects to encourage the development of

renewable resources) may provide economic benefits for customers even if they are not

evaluated or selected by the RTO/ISO as an economically driven transmission solution. For

example, in the CAISO transmission planning process, projects are selected first for reliability

and policy reasons. Those projects are not analyzed by CAISO on a cost-benefit basis. After

reliability and policy projects are selected, the CAISO selects economic projects. Thus, there

may be projects in CAISO that are classified as reliability or policy projects that may also have

50 16 U.S.C. § 824s(b)(1).

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been selected for economic reasons had they undergone that analysis. They therefore should be

eligible for an economic benefits ROE incentive. As with projects that have not gone through an

RTO/ISO planning process, developers should be permitted to demonstrate a benefit-cost ratio

through a non-RTO/ISO-performed study — though not entitled to a rebuttal presumption — for

the Commission’s consideration for an economic incentive.

VII. INCENTIVES FOR TRANSMISSION PROJECTS THAT PRODUCE RELIABILITY BENEFITS ARE CONSISTENT WITH FPA SECTION 219 AND APPROPRIATE TO ENSURE RELIABLE AND RESILIENT TRANSMISSION

The NOPR appropriately proposes a separate incentive for projects that provide

reliability benefits51 and correctly recognizes that projects that improve resilience support

reliability.52 This proposal is consistent with Section 219 of the FPA, which, as the NOPR notes,

explicitly seeks to promote “reliable” transmission, including the “hardening of transmission

assets against adverse weather events, fire, and geomagnetic disturbances.”53 An incentive for

projects that provide resiliency benefits will promote transmission solutions that will harden

transmission systems and support reliability notwithstanding the wide range of challenging

operating conditions and unprecedented circumstances utilities may face in the future.

The NOPR also correctly notes that “reliability can take many forms”54 and provides a

“nonexclusive” list of well-supported examples.55 Although the list is nonexclusive, the

California Utilities suggest that the Commission also include that projects that decrease Local

Reliability Requirements produce significant and demonstrable reliability benefits.

51 NOPR at P 65. 52 Id. at P 73. 53 16 U.S.C. § 824s(b)(1); NOPR at P 73. 54 NOPR at P 66. 55 Id. at P 67.

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VIII. CERTAIN OF THE PROPOSED DATA REPORTING CHANGES TO FORM 730 ARE INFEASIBLE, OVERLY BURDENSOME, OR UNCLEAR, WITH LIMITED POTENTIAL BENEFIT

The California Utilities appreciate the Commission’s efforts to improve Form 730. Yet

certain of the proposed changes are not feasible, significantly increase the burden associated with

preparing this form, or are unclear. The California Utilities therefore respectfully ask the

Commission to consider their comments on the following proposals:

Inclusion of benefits metrics: The inclusion of benefits metrics in Form 730 is not possible. Projects may include congestion or reliability benefits that are not easily quantified, and the California Utilities are not aware of any CAISO methodology for this purpose for non-economic projects. The California Utilities therefore oppose this proposed change, or at least request that it be limited to providing estimated (and not actual) benefits only for those projects seeking or receiving the economic benefits incentive.56

Proposal to require reporting for projects that do not receive project-specific incentives: The NOPR appears to require utilities to report projects that receive only the RTO participation incentive (i.e., that do not receive project-specific incentives) in Form 730 if they are projected to cost at least $3 million.57 But this language appears to contradict the proposed Section 35.35(i), which provides that “[p]ublic utilities that have been granted incentive rate treatment for specific transmission projects must file FERC-730 on an annual basis . . . .”58 For a utility receiving the RTO/ISO participation incentive, this translates to a requirement to report every project projected to cost at least $3 million, thereby imposing a significant burden that will not further the Commission’s purpose behind Form 730 reporting. As the NOPR recognizes, the purpose of the reporting requirement is to “ensure that existing and proposed incentives are successfully meeting the objectives of FPA section 219 . . . .”59 Yet it is unclear how project by project transmission data collection will help the Commission achieve its stated aim of ensuring the RTO adder is achieving its purpose. The NOPR should therefore be revised to require reporting only on projects receiving project-specific incentives.

56 The “benefits” of a proposed project are, by definition, determined relative to an assumed alternative. If the project is built, the alternative is not implemented and it is therefore impossible to measure the “actual” amount of benefit. 57 See NOPR, Appendix B (“Projects that only received the RTO-Participation Incentive need only be listed if they are projected to be at least $3 million.”). 58 Proposed 18 C.F.R. § 35.35(i) (emphasis added). 59 NOPR at P 115; see also Order No. 679 at P 367 (“To ensure that these rules are successfully meeting the objectives of section 219, the Commission needs industry data, projects and related information that detail the level of investment.”).

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Need to correct prior year’s data: The California Utilities seek clarification on the proposed instruction for Table 1 (Appendix B) that “[a] public utility can use the same form to correct a prior year’s data.” It is unclear to the California Utilities whether they are required to create a new line in Form 1 for prior years any time cost information is updated. The California Utilities seek clarification that utilities are required to provide the current year’s data only and do not need to “true up” cost data from prior years.

Use of XBRL format: The California Utilities do not oppose the use of the XBRL format for Form 730. However, the Commission should allow sufficient time for utilities to implement the change before requiring utilities to submit Form 730 in this format.60

Inclusion of Tables 1-3 as schedules to Form 1: This requirement creates informational and administrative redundancies with no corresponding benefit.

Requirement that the data in Table 2 must be known as of midnight on December 31 of the record year: The California Utilities seek clarification as to whether they should provide data as it exists as of midnight on December 31, or the underlying data from up to midnight on December 31 even if it is finalized or corrected after that date.

IX. CONCLUSION

The new incentive structure proposed by the Commission in the NOPR is consistent with

statutory law and precedent. The California Utilities urge the Commission to revise the NOPR

as described above and then expeditiously adopt these incentives, as revised, to promote the

development of reliable and economically efficient electric transmission in the United States.

60 See Comments of the Edison Electric Institute Regarding the Proposed Implementation Schedule for Filing Various Forms Using XBRL Process, Docket No. RM19-12-000, filed April 13, 2020.

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Respectfully submitted,

CHARLES R. MIDDLEKAUFF KEITH SAMPSON /s/ Charles Middlekauff CHARLES MIDDLEKAUFF PACIFIC GAS AND ELECTRIC COMPANY Law Department, B30A Post Office Box 7442 San Francisco, CA 94120 Telephone: (415) 973-6971 Facsimile: (415) 973-5520 E-Mail: charles.middlekauff@pge.com

JONATHAN J. NEWLANDER ROSS R. FULTON /s/ Ross Fulton ROSS FULTON SAN DIEGO GAS & ELECTRIC COMPANY 8330 Century Park Court San Diego, CA 92123-1530 Telephone: (858) 654-1652 (Newlander) Telephone: (858) 654-1861 (Fulton) Facsimile: (619) 699-5027 E-Mail: jnewlander@sdge.com E-Mail: rfulton@sdge.com

AINSLEY CARRENO /s/ Ainsley Carreno AINSLEY CARRENO SOUTHERN CALIFORNIA EDI SON COMPANY P.O. Box 800 Rosemead, CA 91770 Telephone: (626) 302-1358 Facsimile: (626) 302-1935 E-mail: ainsley.carreno@sce.com

Dated: July 1, 2020

CERTIFICATE OF SERVICE

I hereby certify that I have this day served the foregoing JOINT COMMENTS OF

PACIFIC GAS AND ELECTRIC COMPANY, SAN DIEGO GAS & ELECTRIC

COMPANY, AND SOUTHERN CALIFORNIA EDISON COMPANY ON NOTICE OF

PROPOSED RULEMAKING REGARDING TRANSMISSION INCENTIVES

upon each person designated on the official service list compiled by the Secretary in this

proceeding.

Dated at Rosemead, California, this 1st day of July, 2020.

/s/ Norman Goss Norman Goss, Legal Administrative Assistant SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, CA 91770