Independent transmission development in California holds possibility of hope – panelists

The climate for independent developers of transmission in California has been less than friendly in the past, but is showing signs of improving, according to a panel of independent transmission developers who addressed TransmissionHub’s TransForum West in San Diego on July 16.

During the early years of its existence, the California ISO’s (Cal-ISO) board of directors approved two independent transmission projects: Path 15, a 200-mile stretch of 500-kV transmission from Bakersfield, Calif., to the Los Banos substation; and the TransBay Cable, which carries 500 MW of electricity from Pittsburgh, Calif., to San Francisco, according to Ziad Alawan, CEO of ZGlobal. Both projects are currently in service.

Other than those projects, independent transmission developers in California have made little headway.

“The ISO has approved almost $10bn of transmission for the last five years,” Alawan said. “Why, out of all the … independent transmission projects that have some merit, none has been selected? It’s pretty shocking.”

During the three-year period from 2008 to 2010, independent transmission developers proposed and submitted more than 40 transmission projects to the Cal-ISO for evaluation in its transmission planning cycle, but no independent project was approved, causing project proponents to question the Cal-ISO process.

“The issue I have with the ISO is that most of the decisions seem to be made in a black box,” David Kates, project manager for Nevada Hydro, said. His company is proposing the Lake Elsinore Pumped Storage (LEAPS) facility and the 29-mile, 500-kV Talega-Escondido transmission line that would run from a point northeast of Lake Elsinore on Southern California Edison’s (SCE) Valley-Serrano 500-kV line and terminate at a point south of Lake Elsinore on San Diego Gas & Electric’s (SDG&E) system.

Other panel members agreed with Kates.

“None of the [independent projects] was even evaluated as far as we know,” Gary Ackerman, executive director of the Western Power Trading Forum, said, referring to Kates’ comment about the Cal-ISO’s “black box” process.

Ackerman said the process for independent transmission developers in California parallels a famous Victor Hugh novel.

Les Misérables is a fair title for transmission development,” Ackerman said. “I don’t know who Jean Valjean would be, but Javert is definitely the incumbent [utilities].”

The power of those incumbents, Ackerman said, may have contributed to the lack of consideration given to independent transmission projects. However, a recent change in leadership at the Cal-ISO has given him hope that things will improve for independent developers.

“The previous CEO of the ISO … didn’t like independent transmission; didn’t believe in it,” he said, referring to the previous CEO Yakout Mansour, who retired in June 2011. “When the new CEO, Steve Berberich, got in two years ago, he said ‘I believe in competitive transmission. However, I don’t have much to offer you because the queue is all filled up’,” – but promised that the situation would improve for independent developers of transmission.

“In my judgment, he’s held up to that promise,” Ackerman said. “We’ve gone from hope to despair to the possibility of hope.”

Regardless of whatever attitude changes may have taken place at the Cal-ISO, Kates said the damage to independent developers has been done.

“What’s happened over the last few years is that the utilities have been granted some $10bn in projects that have reduced the value of the remaining projects,” Kates said. “They’ve taken away reliability needs, they’ve taken away economic [projects], so to a certain extent, what’s left … are crumbs after the markets got rigged in the favor of utilities.”

Rather than contend with the Cal-ISO process, Kates’ company took a different approach. It sought approval for its projects from the California Public Utilities Commission (CPUC).

“We went to the PUC is because the PUC basically has to make the same decisions as the ISO does, but the CPUC’s process is more open,” Kates said. “The demonstration [of value] is made in an open forum in front of a judge. We’re more comfortable with that process because it’s open, because we can see the strength of the arguments that everybody’s making. We don’t see that at the ISO.”

In addition, the CPUC approves siting, while the Cal-ISO does not, he said.

Not every independent transmission developer can adopt Kates’ approach, however. The CPUC has jurisdiction over the service territories of the state’s investor-owned public utilities (IOU), not the entire state. Nevada Hydro, Kates said, is planning to become a public utility if it can get through the CPUC process.

In addition to new leadership at the Cal-ISO, Ackerman said three factors will contribute to a more robust opportunity for independent transmission: the potential for an increase in the state’s RPS mandate beyond the current mandate of 33% by 2020; the potential closure of seaside generating plants over the next 10 years to comply with tighter rules governing the use of ocean water for once-through cooling; and the permanent closure of the San Onofre Nuclear Generating Station.

“It all depends on how the California ISO does,” he said, “but everything I’ve seen them do so far gives me reason for hope.”

SCE is a unit of Edison International (NYSE:EIX) and SDG&E is a subsidiary Sempra Energy (NYSE:SRE).