FILED :59 PM

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1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA FILED :59 PM Order Instituting Rulemaking to Integrate and Refine Procurement Policies and Consider Long- Term Procurement Plans. ) ) ) Rulemaking (Filed March 22, 2012) OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK 4 ISSUES JENNIFER TSAO SHIGEKAWA CAROL A. SCHMID-FRAZEE AMANDA KLOPF Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: (626) Facsimile: (626) Carol.SchmidFrazee@sce.com Dated: November 25, 2013

2 OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK 4 ISSUES TABLE OF CONTENTS Section Page I. EXECUTIVE SUMMARY...1 II. THE COMMISSION SHOULD AUTHORIZE SCE TO PROCURE AN ADDITIONAL 500 MW OF NEW RESOURCES TO MEET LCR NEED IN THIS TRACK A. SCE s Request To Procure 500 MW, Consistent With The Preferred Loading Order, In This Track 4 Is Reasonable Based On Studies Presented By ISO, There Is Sufficient Future LCR Need In The LA Basin To Move Forward With A 500 MW Procurement Authorization Now New Resources From This 500 MW Procurement Authorization Will Improve Local Area Reliability When Aging And Inefficient Once Through Cooling Facilities Retire...7 B. In this Track 4, SCE Recommends A Balanced Approach To Replacement of Once Through Cooling Generation, Including SONGS SCE Is Pursuing Development of the Mesa Loop-In Through Its Submission Into The ISO Transmission Planning Process SCE Is Aggressively Pursuing A Preferred Resources Strategy To Meet Need In The Vicinity of Johanna and Santiago Substations SCE Will Also Pursue Large Amounts of Preferred Resources To Meet Forecast Levels Through Other Dockets...9 C. SCE Proposes An All Source Procurement For The 500 MW Track 4 Procurement Authorization It Requests To Be Combined With Track 1 All Source Procurement The Competitiveness And Range of Procurement Options Of All Source Bidding In Track 1 Could Be Improved By The Addition Of The Requested 500 MW Procurement Authorization There Are Cost Savings Associated With Not Having A Separate Track 4 Procurement Effort i-

3 OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK 4 ISSUES TABLE OF CONTENTS (CONTINUED) Section Page D. The Commission Should Apply The Cost Allocation Mechanism To Any Track 4 Procurement That It Authorizes...15 III. THE COMMISSION S TRACK 4 DECISION SHOULD BE CONSISTENT WITH CAISO RELIABILITY STANDARDS...16 A. SCE Performed Its Studies Based On NERC Reliability Standards As A Point Of Reference, Not To Attack ISO Reliability Standards...16 B. SCE Supports The More Reliable System Established Through ISO Reliability Standards...19 C. The Studies Of The City Of Redondo Beach Are Incomplete And Unreliable...20 IV. THE ASSUMPTIONS THAT THE ISO, SCE AND SDG&E HAVE USED ARE APPROPRIATE...21 A. The ISO s and SCE s Studies Appropriately Relied On Commission- Adopted Assumptions In The Revised Scoping Memo...21 B. SCE s Analysis Of Its Scenarios Shows That There Are Trade-offs Associated With The Different Methods Of Meeting LCR Need And Supports SCE s Balanced Approach...22 V. SCE IS IN PROCESS OF DEVELOPING THE PREFERRED RESOURCES PILOT PROGRAM...24 A. SCE Is Engaging With Stakeholders To Develop The Pilot...24 B. The Pilot Will Provide Valuable Information About The Ability Of Preferred Resources To Meet LCR Need, And Can Drive Changes In The Development Of Preferred Resources To Make Them More Useful In Meeting LCR Need Going Forward...25 C. The Information Developed Through The Pilot Will Inform Whether There Will Be A Need For Future Contingent Site Development...26 VI. TRANSMISSION PROJECTS, LIKE MESA LOOP-IN, ARE A VALUABLE TOOL, BUT NOT A COMPLETE SOLUTION TO MEETING LCR NEED IN THE LA BASIN ii-

4 OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK 4 ISSUES TABLE OF CONTENTS (CONTINUED) Section Page A. The Mesa Loop-In Can Provide Significant Support To The Electric Grid In The LA Basin...26 B. Sufficient Information About The ISO s Transmission Planning Process Will Be Available For The Commission To Make A Decision About SCE s Procurement Request in January C. Transmission Projects Alone Will Not Be Able To Resolve All LCR Need New Bulk Transmission Projects Typically Require Longer Periods To Build Than Are Available To Meet Anticipated LCR Need Of The Two Transmission Projects Studied By SCE, Only The Mesa Loop-In Could Cost-Effectively Resolve Contingencies Identified In SCE s Studies The Mesa Loop-In Reduces The Amount Of New Generation Required In The LA Basin, But Does Not Eliminate The Need For New Generation...29 VII. SCE IS NOT REQUESTING APPROVAL OF ITS CONTINGENCY PLANS IN THIS PHASE OF TRACK A. SCE Informed The Commission Of Its Contingent Site Development Plan To Support Its Reliance On Its Preferred Resource Strategy To Meet LCR Need...29 B. SCE Informed The Commission Of The Potential For Contingent GFG Contracts To Support All Elements of SCE s Recommended Balanced Approach To Meet LCR Need...30 VIII. CONCLUSION...32 ATTACHMENT A -iii-

5 TABLE OF AUTHORITIES CALIFORNIA STATUTES AB 1890 Stats , Ch. 854 (Cal. 1996) Public Utilities Code Sec Sec Sec Sec (c)(2)(B)... 14,15 DECISIONS OF THE CALIFORNIA PUBLIC UTILITIES COMMISSION D ,10,12,13,15 D D RULES OF PRACTICE AND PROCEDURE OF THE CALIFORNIA PUBLIC UTILITIES COMMISSION Rule iv-

6 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Rulemaking to Integrate and Refine Procurement Policies and Consider Long- Term Procurement Plans. ) ) ) Rulemaking (Filed March 22, 2012) OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON TRACK 4 ISSUES I. EXECUTIVE SUMMARY Pursuant to Rule of the California Public Utilities Commission s (Commission or CPUC) Rules of Practice and Procedure and the November 1, 2013 direction of the Administrative Law Judge during evidentiary hearings, 1 Southern California Edison Company (SCE) hereby submits its Opening Brief on Track 4 Local Reliability issues identified in the Revised Scoping Memo and Ruling of the Assigned Commissioner and Administrative Law Judge s Ruling, dated May 21, 2013 (Revised Scoping Memo). 2 The purpose of Track 4 of the 2012 Long Term Procurement Plan (LTPP) Proceeding is for the Commission to start moving toward identifying and filling any identified Local Capacity Requirements (LCR) need associated with retirement of San Onofre Nuclear Generating Station (SONGS) as soon as possible. 3 The California Independent System Operator (ISO) and SCE agree that the Commission should take prompt action to authorize SCE to procure 500 Megawatts (MW) of new LCR resources through an all- 1 ALJ Gamson, Tr. 14/2304, line 9. 2 Assigned Commissioner and Administrative Law Judge s Ruling Regarding Track 2 and Track 4 Schedules, dated September 16, 2013, pp

7 source solicitation to be available in The Commission should allow SCE to combine this 500 MW all-source authorization with SCE s current Track 1 procurement authorization in this docket to improve the effectiveness of SCE s solicitation efforts. In addition, the Commission should assure that all benefitting customers pay for any new LCR resources providing energy and capacity to the system through the Cost Allocation Mechanism (CAM), consistent with Public Utilities Code Section SCE bases its recommendations on transmission power flow studies prepared by ISO and SCE. These transmission power flow studies considered the impact of closure of all Once Through Cooling (OTC) generating facilities, including SONGS, on local reliability in the Western Los Angeles Basin (LA Basin) in SCE s service area and San Diego Gas & Electric Company s (SDG&E) service area. 5 The studies then identified the need for new LCR resources. The closure of the OTC facilities, including SONGS, creates serious reliability issues for the electric grid in the LA Basin and in SDG&E s service area. SCE urges the Commission to start taking action now to address these reliability concerns through procurement of new LCR resources. ISO s identified need for new LCR generation in the LA Basin is about 3,700 MW. SCE s transmission power flow studies utilized North American Electric Reliability Corporation (NERC) reliability standards, while ISO utilized more stringent ISO reliability standards. As a result, SCE s identified need for new LCR generation in the LA Basin is 2,800 MW which is approximately 900 MW lower than ISO s identified need of about 3,700 MW. However, Exhibit SCE-1 states, [m]eeting SCE s identified reliability need will not assure the level of reliability that the ISO deems necessary in California. 6 SCE supports procurement of new resources to meet the ISO s identified level of LCR need. As discussed in Section II.A below in more detail, SCE recommends procurement of 500 MW of additional new resources to meet the ISO s identified level of LCR need. 4 Exhibit ISO-7, p. 6, lines 19-29, Exhibit SCE-1, p. 3, lines SDG&E studied the impact of the closure of all OTC generating facilities, including SONGS, on its service area, in coordination with ISO and SCE 6 Exhibit SCE-1, p. 2, lines

8 SCE s recommended procurement of 500 MW additional new LCR resources is part of a balanced approach to meeting LCR need. This balanced approach includes development of Preferred Resources, 7 transmission facilities, and additional conventional [Gas-Fired Generation (GFG)]. 8 SCE s testimony, primarily in Exhibits SCE-1 and SCE-2, describes this balanced approach in detail. Without adoption of this balanced approach, LCR need in the LA Basin will likely be much greater than the additional 500 MW of procurement authority that SCE seeks in this Track 4. This balanced approach accounts for the aggressive pursuit of Preferred Resources through the Preferred Resource Living Pilot Program (Pilot) in the vicinity of the Johanna and Santiago substations. The purpose of the Pilot is to aggressively pursue Energy Efficiency (EE), Demand Response (DR), and Distributed Generation (DG) in this high impact area. The Pilot will also assist in developing better understanding of how different types of Preferred Resources can contribute to meeting LCR need. SCE is diligently working to develop the Pilot. SCE anticipates that development of the Pilot will be a collaborative process undertaken with substantial input from the ISO and other stakeholders. 9 If the Pilot is unable to develop Preferred Resources in the necessary amount, or if Preferred Resources do not have the necessary characteristics to meet LCR need, then GFG will need to be developed expeditiously. SCE s testimony describes contingent site development in the vicinity of 7 Preferred Resources are defined in the State s Energy Action Plan II, at page 2, as follows: The loading order identifies energy efficiency and demand response as the State's preferred means of meeting growing energy needs. After cost-effective efficiency and demand response, we rely on renewable sources of power and distributed generation, such as combined heat and power applications. To the extent efficiency, demand response, renewable resources, and distributed generation are unable to satisfy increasing energy and capacity needs, we support clean and efficient fossil-fired generation. Concurrently, the bulk electricity transmission grid and distribution facility infrastructure must be improved to support growing demand centers and the interconnection of new generation, both on the utility and customer side of the meter. Energy Storage is a potential enabling technology, but is not a Preferred Resource because it stores power regardless of how that power is produced. That said, in this document, when SCE refers to Preferred Resources, SCE is also including Energy Storage in that definition for ease of use. 8 Exhibit SCE-1, p.1, lines Exhibit SCE-1, p. 51, lines

9 the Johanna and Santiago substations as a backstop to the Pilot. 10 SCE plans to submit a future Application to the Commission describing its plans to develop contingent sites in the high impact area. 11 SCE would only accept third party bids for these contingent sites if the Commission agrees that they are needed. So, these contingent sites may never be fully developed, if the Pilot is successfully completed. This balanced approach also includes pursuit of the Mesa Loop-In Transmission Project (Mesa Loop-In). Based on SCE s transmission power flow studies, the Mesa Loop-In would displace the need for between 700 and 1200 MW of new LCR resources in the LA Basin. SCE has submitted the Mesa Loop-In to ISO for review. If the ISO approves development of the Mesa Loop-In, SCE will proceed with necessary permitting of the project. SCE may also enter into option contracts for new GFG with third party project developers to backstop the Mesa Loop-In because of uncertainties associated with regulatory approval and permitting of the project. SCE will bring these option contracts to the Commission for approval and to obtain cost recovery from all benefitting customers. 12 Nonetheless, these resources may never be fully developed if the Mesa Loop-In is successfully completed. In this proceeding, SCE is not seeking approval of the Pilot, contingent site development to backstop the Pilot, the Mesa Loop-In, or the option contracts to backstop the Mesa Loop-In. SCE s testimony in this proceeding describes these efforts to give the Commission a full picture of SCE s recommended balanced approach to filling the need for new LCR resources. This information provides assurance of SCE s intent to seek innovative, low air emissions solutions to the reliability concerns created by retirement of OTC facilities, including SONGS. 10 SCE also describes possible option contracts for new GFG with third party developers as a backstop to the resource planning assumptions employed in the Commission s LTPP procurement authorizations. 11 SCE/Rumble, Tr. 13/2065, lines SCE/Cushnie, Tr. 13/1982, lines

10 II. THE COMMISSION SHOULD AUTHORIZE SCE TO PROCURE AN ADDITIONAL 500 MW OF NEW RESOURCES TO MEET LCR NEED IN THIS TRACK 4 A. SCE s Request To Procure 500 MW, Consistent With The Preferred Loading Order, In This Track 4 Is Reasonable Procurement of an additional 500 MW of new LCR resources is a low regrets approach that enhances grid reliability without risking meaningful over-procurement of LCR resources. 1. Based On Studies Presented By ISO, There Is Sufficient Future LCR Need In The LA Basin To Move Forward With A 500 MW Procurement Authorization Now ISO and SCE agree that the Commission should order SCE to procure 500 MW of new LCR resources now. 13 As Exhibit SCE-1 states, on p. 6, ISO s transmission power studies identified an overall need for new generation of 3,722 MW in the LA Basin. 14 SCE s power flow studies identified an overall need of 2,802 MW of new generation in the LA Basin. 15 This is a difference of about 900 MW. Figure II-1, from Exhibit SCE-1, at p. 8, copied below reconciles the differences between the ISO and the SCE transmission power flow studies. Figure II-1 shows that there is a residual need of about 500 MW in the LA Basin in 2022, after subtracting about 400 MW for the effect of either load shedding or additional GFG in SDG&E s service area. 13 Exhibit ISO-7, p. 6, lines 19-29; and Exhibit SCE-1, p. 3, lines Exhibit SCE-1, p.6, line Id. at line 22. 5

11 Figure II-1 Need In the LA Basin 16 As ISO states in Exhibit ISO-7, at p. 6, the Commission should authorize SCE to hold an all source procurement for 500 MW now as a matter of urgency: Given the importance of maintaining reliability in this heavily populated, urban area of California, and the complex array of actions necessary to meet the residual needs identified by the [ISO], it is urgent for the Commission to authorize an all-source procurement for SCE and SDG&E for the amounts requested. This is much different, of course, than authorizing a comprehensive amount of procurement meant to address all the residual needs, which we advised against in Mr. Sparks initial testimony Exhibit SCE-1, p Exhibit ISO-7, p. 6, lines

12 ISO transmission power flow studies utilized ISO reliability standards. 18 SCE s transmission power flow studies used NERC reliability standards. 19 SCE did not choose NERC reliability standards because of a difference of opinion with ISO about whether its reliability standards should apply in California. 20 Instead, SCE chose to use NERC reliability standards to provide another point of reference for the Commission showing the point at which ISO, SCE, and SDG&E could be subject to fines and penalties for failure to meet NERC reliability standards. 21 That said, SCE fully supports application of ISO reliability standards which should provide a higher level of system reliability than NERC reliability standards alone. 22 For this reason, SCE urges the Commission to authorize it to procure 500 MW of new LCR resources through an all source solicitation. 2. New Resources From This 500 MW Procurement Authorization Will Improve Local Area Reliability When Aging And Inefficient Once Through Cooling Facilities Retire Table 7, in Exhibit ISO-1, shows that ISO s power flow studies assumed the retirement of 9,288 MW of OTC and other aging generation in the SONGS study area which is the combined LA Basin and SDG&E service areas, by The retirement of this amount of generation in a highly urbanized area could have significant impacts on local area grid reliability. ISO, SCE, and SDG&E all prepared studies to consider this important issue for California. Studies of ISO, SCE, and SDG&E all found a significant degradation of transmission grid reliability associated with the loss of this aging generation. 24 Because all of these retiring facilities are beyond their reasonable life expectancies, it is uncertain whether they can continue to safely operate beyond their expected 18 Exhibit SCE-1, p. 2, lines Exhibit SCE-1, p. 20, line 20 through p. 21, line Exhibit SCE-2, p. 13, lines Id. 22 Id. at p.14, lines ISO assumed retirement of 640 MW at Etiwanda which is in the larger Los Angeles Basin, but outside of the smaller western LA Basin which SCE s studies define as the LA Basin. As such, this is not a significant difference in assumptions between SCE and ISO. 24 Exhibit ISO-1, p. 26, Table 13; Exhibit SCE-1, pp , Tables III-4 and III-5; and Exhibit SDG&E-3, p.11, Table 2. 7

13 retirement dates in Procurement of 500 MW of new resources now to be available no later than 2022 will provide additional local area reliability in the SONGS study area when needed. As Exhibit SCE-1 notes, at pp. 3-4, ISO and SCE transmission power flow studies focused on the year However, with SONGS now retired, the compliance dates for the OTC facilities in 2020 become significant milestones. 25 The California Energy Commission (CEC) Demand Forecast identified by the Commission in the Revised Scoping Memo and used by ISO and SCE shows limited load growth between 2020 and So, it is likely that the LCR need for 2020 is very similar to the LCR need for As a result, 500 MW is likely needed to meet ISO local area reliability needs in 2020, just as it is needed in B. In this Track 4, SCE Recommends A Balanced Approach To Replacement of Once Through Cooling Generation, Including SONGS As SCE notes in Exhibit SCE-1, at p. 1, [t]here is a need for a balanced approach to the replacement of all OTC facilities, including SONGS. 27 The Commission should rely on development of Preferred Resources, transmission facilities, and additional GFG to meet LCR need in This balanced approach does not rely too heavily on any particular resource. This reduces the risks associated with relying solely on any one type of resource to meet LCR need. For example, if Preferred Resources are not fully successful in meeting LCR need, there may be GFG and transmission facilities available to meet at least part of it. 1. SCE Is Pursuing Development of the Mesa Loop-In Through Its Submission Into The ISO Transmission Planning Process SCE recommends development of the Mesa Loop-In and will pursue review and approval of this project with the ISO. 28 If ISO approves moving forward with the Mesa Loop-In, SCE will 25 Exhibit SCE-1, p. 3, lines Exhibit SCE-1, p. 3, lines Exhibit SCE-1, p. 1, lines Exhibit SCE-1, p. 4, lines 16-18, SCE/Cushnie, Tr. 13/1964, lines

14 pursue review and approval of the project by this Commission. 29 SCE may further mitigate any risks associated with failure or delay of this project through option contracts with GFG developers whose facilities can provide similar effectiveness in improving grid reliability to the Mesa Loop-In SCE Is Aggressively Pursuing A Preferred Resources Strategy To Meet Need In The Vicinity of Johanna and Santiago Substations SCE is planning to pursue Preferred Resources in compliance with Commission direction in other proceedings and the 2012 LTPP Track 1 procurement authorization. As a component of SCE s Preferred Resources strategy, SCE will be moving forward with its Pilot which will aggressively pursue Preferred Resources in the vicinity of Johanna and Santiago Substations. The Pilot, which continues to evolve, will also measure and improve the ability of Preferred Resources to meet LCR need. 3. SCE Will Also Pursue Large Amounts of Preferred Resources To Meet Forecast Levels Through Other Dockets Large amounts of Preferred Resources are already assumed to be developed as part of the assumptions in Track 1 of the LTPP. As Exhibit SCE-1 states, at p. 11: Preferred Resources that D assumed would be implemented will contribute over 1,800 MW 31 to the capacity needed in the LA Basin. This is substantially more than the maximum amount of 1200 MW of conventional GFG generation authorized by the Commission in D In fact, this amount of Preferred Resources would exceed a maximum amount of 1700 MW of conventional GFG generation that could be authorized in Tracks 1 and 4, if the Commission authorizes SCE to procure an additional 500 MW of new resources through an all source procurement in Track Exhibit SCE-1, p. 4, lines SCE/Cushnie, Tr. 13/1963, line 28 through 1964, line Exhibit SCE-1, p. 11, lines 10-11, The Commission assumed 339 MW of rooftop Distribution Generation (DG), 180 MW of customer side Combined Heat and Power (CHP), 200 MW of DR and 1,121 MW of uncommitted EE. 32 Exhibit SCE-1, p. 11, lines

15 C. SCE Proposes An All Source Procurement For The 500 MW Track 4 Procurement Authorization It Requests To Be Combined With Track 1 All Source Procurement In D , the Commission authorized SCE to procure between 1,400 and 1,800 MW of new resources to meet LCR need arising from the retirement of OTC generating facilities, not including SONGS. 33 These resources were divided into the following buckets: (1) 1,000 MW of GFG; (2) 200 MW of all source solicitation, including both Preferred Resources and GFG; (3) 150 MW of Preferred Resources; (4) 50 MW of Energy Storage; and (5) up to 400 MW of additional Preferred Resources. 34 The Commission noted that this was a first step in addressing retirement of OTC facilities: We consider today s decision a measured first step in a longer process. If as much or more of the preferred resources we expect do materialize, there will be no need for further LCR procurement based on current assumptions. If circumstances change, there may be a need for further LCR procurement in the next long-term procurement proceeding. 35 In the Revised Scoping Ruling and Memo of the Assigned Commissioner and Administrative Law Judge, dated May 21, 2013 (Revised Scoping Ruling), the Commission opened this Track 4 to consider the implications of the long-term outage or closure of SONGS. 36 In June 2013, SCE announced the permanent closure of SONGS. So, the focus of Track 4 this proceeding is now on the need for new LCR resources arising from the retirement of all OTC generating facilities, including SONGS. Both ISO and SCE urge the Commission to take prompt action to authorize procurement of some new LCR resources to replace SONGS. SCE recommends combining the requested 500 MW of new LCR all source procurement with Track 1 s 200 MW of new LCR all source procurement authorized in D This combination will 33 D , p D , Ordering Paragraph No. 1, pp D , pp Revised Scoping Memo, dated May 21, 2013, pp Exhibit SCE-1, p. 57, lines

16 both improve the competitiveness of all source bidding, allow for a more optimal selection of resources, and reduce administrative costs to ratepayers of issuing two separate all source solicitations. SCE recommends that this solicitation not be limited to any particular resource type or project size. As Exhibit SCE-1 states: [c]reating carve outs for certain technologies or project sizes shrinks the market for all other potential resources, potentially precluding the opportunity to contract with more cost-effective, better fit resources. 38 The use of an all source solicitation for the incremental 500 MW of 2012 LTPP Track 4 procurement authorization with no buckets for certain technologies or project sizes will allow SCE to seek a cost-effective portfolio of resources to meet SCE s LCR need consistent with the Preferred Loading Order. 1. The Competitiveness And Range of Procurement Options Of All Source Bidding In Track 1 Could Be Improved By The Addition Of The Requested 500 MW Procurement Authorization Allowing as many resource types to bid as possible will increase competition and enhance the potential solutions for awards of contracts. SCE will follow least cost, best fit (LCBF) criteria and the Preferred Loading Order in its all source solicitation. 39 This will enable SCE to choose an optimal mix of resources for its customers. 40 As discussed in Exhibit SCE-2, at p. 23, LCBF criteria estimates the relative value of a particular project or resource profile: The LCBF methodology estimates the relative value of each project or resource profile compared to other proposals by evaluating various characteristics, including but not limited to: term duration, technology, environmental benefits and costs, on-line date, viability, operating characteristics (such as peaking, dispatchable, baseload, firm, and asavailable), and price Exhibit SCE-2, p. 23, lines Exhibit SCE-1, p. 23, lines Exhibit SCE-2, p. 23, lines Exhibit SCE-2, p. 23, lines

17 The Commission first endorsed the LCBF criteria in D for procurement of renewable resources. 42 In D , the Commission ordered the utilities to use LCBF for procurement of other, non-renewable resources. 43 SCE plans to use the LCBF criteria to choose the most cost-effective portfolio to meet SCE s LCR needs, consistent with the Preferred Loading Order. It should be emphasized that the Preferred Loading Order does not mean payment of any price for a higher-ordered resource technology (e.g. SCE should not pay any price to implement an EE program over a competing DR or RPS project). 44 As Exhibit SCE-1 states, [t]he combined 700 MW of proposed all source procurement authorization will allow SCE to consider expanded resource portfolio outcomes consistent with the Preferred Loading Order, which should result in a lower cost outcome for customers. 45 In particular, expansion of the 200 MW of new LCR procurement to 700 MW will allow for Combined Cycle Gas Turbines (CCGTs), which are typically a lower cost alternative, to bid into the all source solicitation. 46 This can increase competition and improve outcomes for ratepayers. Regardless, a combined 700 MW procurement authorization provides a greater opportunity to optimize the selection of resources compared to two separate, smaller solicitation requirements. 2. There Are Cost Savings Associated With Not Having A Separate Track 4 Procurement Effort In D on Track 1 of this proceeding, the Commission ordered SCE to procure from 1,400 to 1,800 MW of new LCR resources in the LA Basin service area and from 215 to 290 MW of new resources in the Moorpark sub-area of the Big Creek/Ventura service area. 47 The Commission identified the following resources types that must be procured as part of the 1,400 to 1,800 MW of 42 D , at p D , p. 244, Ordering Paragraph No.26(d). 44 Exhibit SCE-2, p. 23, lines Exhibit SCE-1, p.57, lines SCE/Cushnie, Tr. 13/1970, lines D , Ordering Paragraph No. 1, p

18 new LCR resources in the LA Basin: (1) 1,000 MW of GFG; (2) 150 MW of Preferred Resources; (3) 50 MW of Energy Storage; (4) 200 MW from all sources, including GFG; and (5) up to 400 MW of additional Preferred Resources at SCE s discretion. As SCE s witness, Colin Cushnie, stated during cross-examination, it is SCE s preference to acquire the full 1,800 MW of new LCR resources authorized in D , including the 400 MW of additional Preferred Resources. 48 That said, if SCE does not receive cost competitive and/or cost-effective bids for the full 1,800 MW in its first solicitation, it may seek the needed resources through later solicitations or expansion of existing utility Preferred Resource programs. 49 SCE s proposal in this Track 4 is to add 500 MW of all source procurement to its on-going Track 1 procurement effort. 50 This would result in up to 2,300 MW of procurement in the combined Tracks 1 and 4. Reproduced below as Table II-1 is Exhibit SCE-1, Table VI-6, 51 which shows the combined totals of Tracks 1 and 4 procurement. 48 SCE/Cushnie, Tr. 13/2000, lines , line Id. 50 Exhibit SCE-1, p. 55, lines Exhibit SCE-1, p. 56, Table VI-6. 13

19 Table II-1 Impact of SCE s Track 4 Request on Total Tracks 1 and 4 Authorization Resource Type Track 1 LCR Resources (D ) Track 4 Authorization Total Authorization Preferred Resources 150 MW N/A 150 MW (min) Energy Storage (min) 50 MW N/A 50 MW Gas-Fired Generation 1000 MW N/A 1000 MW (min) All Technologies 200 MW 500 MW 700 MW (minmax) 52 Additional Preferred Resources and Energy Storage 400 MW N/A 400 MW Total 1400 MW to 1800 MW 500 MW 1900 MW to 2300 MW As Table II-1 shows, there would be a total authorization of 700 MW of all technologies in the combined Tracks 1 and 4 solicitation. As SCE stated in Exhibit SCE-1, [c]onducting solicitations for new resources is a time intensive effort that requires a substantial commitment of utility and bidder resources. 53 By combining the Tracks 1 and 4 procurement, SCE will more effectively utilize both utility and bidder resources. The 500 MW procurement amount that SCE recommends in this proceeding is a modest quantity relative to SCE s previous reliability-based new resource procurement. 54 There is no need to conduct a costly separate solicitation for a limited amount of new LCR capacity. Finally, combining the Tracks 1 and 4 solicitations saves time. Initiating a new solicitation for Track 4 only would easily add one year or more to the procurement effort, introducing unnecessary reliability risk for customers given closure of SONGS. 55 As discussed above, while 52 The original Table IV-6 was inconsistent with D which establishes a maximum, not a minimum, of 200 MW to be procured including resources using All Technologies. So, SCE corrects the table here. 53 Id. at p.56, lines Id. at p.56, lines Exhibit SCE-1,p. 56, lines

20 the ISO and SCE studies all reviewed the need for new LCR resources in 2022, the need for new LCR resources is likely to be about the same in It can take up to seven years to develop new generation resources. 56 It is the end of 2013 now. So, it is vital to start now on procurement so that new generation resources can effectively compete with other resources in the all source solicitation. Ratepayers benefit from effective competition. With such competition, ratepayer costs are likely to be significantly lower than they would be without such competition. D. The Commission Should Apply The Cost Allocation Mechanism To Any Track 4 Procurement That It Authorizes SCE s request for authority to procure an additional 500 MW of new resources to maintain system reliability in Track 4 is premised on SCE receiving Cost Allocation Mechanism (CAM) treatment. 57 Any procurement that SCE performs under the authority granted in Track 4 will be performed to maintain local area reliability. 58 Public Utilities Code Section 365.1(c)(2)(B) provides: If the commission authorizes or orders an electrical corporation to obtain generation resources pursuant to subparagraph (A), the commission shall ensure that those resources meet a system or local reliability need in a manner that benefits all customers of the electrical corporation. The commission shall allocate the costs of those generation resources to ratepayers in a manner that is fair and equitable to all customers, whether they receive electric service from the electrical corporation, a community choice aggregator, or an electric service provider. Alliance for Retail Energy Markets and Direct Access Customer Coalition (AReM/DACC) and Western Power Trading Forum (WPTF) oppose SCE s proposal that any procurement authorized in Track 4 be afforded CAM treatment. 59 In Track 1, the parties fully litigated and the Commission determined in D that SCE s procurement of new resources to meet local or system reliability is subject to CAM 56 Exhibit SCE-1, p.58, lines Exhibit SCE-1, p. 59, lines Exhibit SCE-1, p. 60, lines Exhibit DACC-1, p. 5, lines 10-17, Exhibit WPTF-1, p. 13, lines

21 treatment. 60 Nothing has changed since the Commission issued D to justify revisiting this issue. The Commission should not entertain AReM/DACC and WPTF s attempt to relitigate issues that have already been resolved in Track 1. The procurement authority being requested by SCE in Track 4 is to increase the 1,400 to 1,800 MW range of new LCR resources authorized by the Commission in Track 1 by an additional 500 MW to partially account for the retirement of SONGS. Therefore, any Track 4 procurement authorized by the Commission should be eligible for CAM treatment consistent with the Commission s findings in Track III. THE COMMISSION S TRACK 4 DECISION SHOULD BE CONSISTENT WITH CAISO RELIABILITY STANDARDS ISO, SCE, and SDG&E all performed transmission power flow studies to determine the need for new LCR resources in the LA Basin and SDG&E service area. ISO utilized its own reliability standards in its studies. 62 ISO s reliability standards are the applicable reliability standards for SCE s service area, including the LA Basin. SCE supports the use of the ISO reliability standards, and recommends procurement of an additional 500 MW of new resources in the LA Basin to meet those standards. A. SCE Performed Its Studies Based On NERC Reliability Standards As A Point Of Reference, Not To Attack ISO Reliability Standards SCE s transmission power flow studies used NERC Reliability Standards as a point of reference. If ISO, SCE, and SDG&E violate NERC Reliability Standards, all are subject to fines and penalties. As explained in Exhibit SCE-1, at p. 26, failure to meet the minimum federally mandated NERC Reliability Standards is subject to monetary sanctions. 63 So, SCE s studies identified mitigations for contingencies 60 D , COL 21, Ordering Paragraph No. 15 p. 136; and pp SCE also requested CAM or CAM-like cost allocation treatment for the cost of any contingent PPA it negotiates. (Exhibit SCE-2, p.40, line 21, to p.41, line 5.) SCE will provide a specific cost allocation proposal in any application that it submits for approval of a contingent PPA. 62 Exhibit SCE-1, p. 26, line 4, p. 28, line Exhibit SCE-1, p. 26, lines

22 that are necessary to avoid monetary sanctions. However, ISO has the authority to adopt and has actually adopted more stringent performance standards than NERC Reliability Standards. 64 These more stringent performance standards improve the reliability of the electric system. 65 SCE supports application of these more stringent performance standards by ISO. SCE s studies provide an additional point of reference to the ISO s studies because they rely on different reliability standards. But, they should not be used to attack ISO s more stringent reliability standards. Key differences between NERC and ISO reliability standards were noted in Exhibit SCE-1, at p.27, including: 1) The CAISO required the electric system to maintain positive reactive margin 66 with the load forecast increased by 5% for Category A or B and 2.5% for Category C contingencies. 67 SCE s study did not. 2) The ISO determined that using load shedding for the loss of the Imperial Valley- Suncrest 500 kv line 68 followed by the loss of ECO-Miguel 500 kv line is not prudent. 69 This contingency is classified as a Category C.3 (also known as an N- 1-1). Category C.3 contingencies are permitted to load shed pursuant to NERC TPL-003-2b Reliability Standard. So, SCE s studies allowed for load shedding for this C.3 contingency. 70 During evidentiary hearings, ISO, SCE, and SDG&E s witnesses were extensively cross-examined on the ISO s standard precluding load shedding for the loss of the Imperial Valley-Suncrest 500 kv Transmission Line (Sunrise Powerlink) followed by manual system adjustments and then the loss of the ECO-Miguel Exhibit SCE-1, p. 26, line 18 p. 27, line Exhibit SCE-1, p.27, line Generally, positive reactive margin means that the electric system can maintain acceptable voltages during contingencies. 67 Section III.A.2 of the ISO s 2014 LCT Analysis dated April 30, 2013 provides the reactive margin criteria: positive margin based on the higher of imports or load increase by 5% for N-1 contingencies, and 2.5% for N-2 contingencies. This performance requirement is also specified by the Western Electricity Coordinating Council as System Performance TPL- 001-WECC-RBP-2 Regional Business Practice requirements WR3.1 & WR The recently in-service Ocotillo Substation changes this line to Imperial Valley Ocotillo Suncrest 500 kv. 69 Application Application of San Diego Gas & Electric Company (U902E) for Authority to Enter into Purchase Power Tolling Agreements with Escondido Energy Center, Pio Pico Energy Center and Quail Brush Power. Rebuttal Testimony of Robert Sparks on Behalf of the California Independent System Operator Corporation, June 6, 2012, p. 8, line 11 p. 12, line Exhibit SCE-1, p. 27, lines

23 kv Transmission Line (Southwest Powerlink). 71 This contingency is identified as an N-1-1 contingency. An N-1-1 contingency is the loss a transmission element followed by manual system adjustments, followed by the loss of another transmission element. 72 NERC Reliability Standards identify this as a Category C.3 contingency. 73 SCE s transmission power flow studies considered both load shedding and not load shedding for the N-1-1 contingency involving loss of the Sunrise Powerlink, followed by manual system adjustments, then the loss of the Southwest Powerlink. 74 SCE s studies show that not shedding load for the N-1-1 contingency results in Mesa Loop-In decreasing need in LA Basin by only about 700 MW. 75 With load shedding for the N-1-1 contingency, the Mesa Loop-In decreases need in the LA Basin by about 1,200 MW. 76 That said, adding additional generation in SDG&E s service area would allow Mesa Loop-In to decrease need in the LA Basin similar to use of load shedding. 77 So, whether load shedding or the addition of more generation in SDG&E s service area is chosen as a mitigation strategy, the impact to the LA Basin is neutral. SCE supports only judicious use of load shedding as mitigation for contingencies, 78 as discussed in Exhibit SCE-2, at p. 15: SCE supports the position that load shedding should only be used judiciously as mitigation for contingencies. This is particularly true in heavily populated areas due to the large number of customers who would be impacted. However, to the extent that specific general and/or localized criteria are adopted to avoid load shedding for Category C contingencies, the costs and benefits of such criteria should be comprehensively evaluated, and reasonable time lines for implementation of required system changes should be adopted See, for example, ISO/Sparks, Tr. 11, p. 1551, line 7 p. 1552, line 6, et seq.; Tr, 13, p. 2017, lines 14-25, et. Seq., and Tr. 11, p. 1703, lines et seq.. 72 Sierra Club/Powers, Tr. 13/1933, line 24 through 1934, line Exhibit SCE-2, p. 17, lines Exhibit SCE-1, pp.31-32, Tables III-4 and III-5 75 Exhibit SCE-1, p. 37, lines Id at lines SCE/Chinn, Tr. 13/2017, line 27 through 2018, line Exhibit SCE-2, p. 15, lines Exhibit SCE-2, p.15, lines

24 ISO has determined that load shedding is not appropriate for the N-1-1 contingency in SDG&E s service area. 80 Elimination of load shedding as an option for mitigating the N-1-1 contingency in SDG&E s service area should not affect the efficacy of the Mesa Loop-In or the need for new LCR resources in the LA Basin, assuming that additional generation is added in SDG&E s service area. As Exhibit SCE-2 states, the best location for placing generation to resolve the N-1-1 contingency in SDG&E s service area is in SDG&E s service area. 81 The loss of the Sunrise Powerlink followed by manual system adjustments, and then the loss of the Southwest Powerlink causes all of SDG&E s imported power to re-route north through SCE s service area. Power from generation placed in SCE s service area would need to be transmitted to SDG&E s service area via SCE s 230 kv lines. 82 Placing new generation in SDG&E s service area would eliminate transmission losses and reduce the need for voltage support compared to transmitting power from SCE to SDG&E. As a result, the Commission should assume that whether or not load shedding occurs, it will not affect the amount of generation needed in the LA Basin. This is because any replacement generation needed, if load shedding is not used, will be located in SDG&E s service area, not the LA Basin. B. SCE Supports The More Reliable System Established Through ISO Reliability Standards California law and regulation support the ISO s ability to set stricter reliability standards than NERC Reliability Standards. Assembly Bill (AB) 1890 amended the Public Utilities Act to create the ISO. AB 1890 states The Independent System Operator shall ensure that additional filings... to give the Independent System Operator the ability to secure generating and transmission resources necessary to guarantee achievement of planning and operating reserve criteria no less stringent than those established by the [WECC] and the [NERC]. 83 The Public Utilities Code requires ISO to meet WECC and NERC criteria 80 This study methodology includes the ISO's position that load shedding in the highly urbanized San Diego local capacity area is not appropriate to mitigate the N-1-1 contingency of overlapping outages of the SWPL and Sunrise Powerlink transmission lines, Exhibit ISO-2, p. 2 lines Exhibit SCE-2, p. 44, line 13 p. 45, line Exhibit, SCE-2, p. 45, lines AB 1890, paragraph 346; Cal.Pub.Util. Code 346; Western Systems Coordinating Council has been renamed WECC; North American electric Reliability Council has been replaced by the NERC. 19

25 at a minimum. However, ISO is not restricted from increasing the level of reliability beyond WECC and NERC. AB 1890 also states that [t]he proposed restructuring of the electricity industry would transfer responsibility for ensuring short- and long-term reliability away from the utilities and regulatory bodies to the [ISO] 84 The ISO is now the system operator of the Participating Transmission Owner s transmission facilities. ISO sponsors the annual Transmission Planning Process to identify and approve transmission upgrades to address reliability issues. As such, the ISO is responsible for assuring system reliability of the transmission system both now and in SCE supports state law and regulation which has identified this role for the ISO. Likewise, SCE supports the ISO s reliability standards. C. The Studies Of The City Of Redondo Beach Are Incomplete And Unreliable As Exhibit SCE-2 states, at p. 42, Redondo Beach s Study is simplistic and incomplete. It would be wrong to conclude from this study that the Redondo Beach Generating Station and 230 kv lines connecting the plant to the transmission system are not needed to meet the LCR need in the LA Basin. 85 Redondo Beach s study was focused solely on the LA Basin. As a result, it failed to analyze the most critical N-1-1 contingency 86 in the studies conducted by ISO, SCE, and SDG&E which was located in SDG&E s service area. So, the study is incomplete. In a similar manner, even within the LA Basin, Redondo Beach studied only one contingency and failed to ensure that it would mitigate all contingencies: Redondo Beach s Testimony states that the outage of the Serrano-Lewis #1 230 kv line followed by the outage of the Serrano-Villa Park #2 230 kv line was the worst case contingency tested for the LA Basin local capacity area. The Redondo Beach study appears to only examine this contingency and no others when assessing the need for new LCR resources in the LA Basin local capacity area. A complete study examines a comprehensive set of contingencies to identify all violations. Any viable mitigation must address all contingencies with violations. Redondo Beach wrongly relied on a worse case contingency identified in another study and declared a proposed mitigation sufficient 84 AB 1890, Paragraph 334, Cal.Pub.Util. Code Exhibit SCE-2, p. 42, lines This N-1-1 contingency is the loss of the Sunrise Powerlink, followed by manual system adjustments, followed by the loss of the Southwest Powerlink. 20

26 because it addresses the one contingency. This simplistic method can lead to false conclusions. 87 The City of Redondo Beach s study is unreliable because [t]here are numerous other combinations of contingencies in the area that could overload a significant number of 230 kv lines in this sub-area/area and have slightly less LCR need. As such, anyone of them (combination of contingencies) could become binding for any given set of procured resources. 88 IV. THE ASSUMPTIONS THAT THE ISO, SCE AND SDG&E HAVE USED ARE APPROPRIATE A. The ISO s and SCE s Studies Appropriately Relied On Commission-Adopted Assumptions In The Revised Scoping Memo As part of the Revised Scoping Memo, the Commission defined assumptions to be used in the Track 4 analysis. 89 As SCE explained in Exhibit SCE-2 in regards to the EE and DR assumption, these assumptions are based on rigorous analyses grounded in established industry practices and Commissionordered protocols. Stakeholders have thoroughly vetted these assumptions. 90 While there may be uncertainties about the available load and resources in 2022 and forecasts may be revised, the assumptions adopted by the Commission are reasonable. It is appropriate for the Commission to establish and fix reasonable assumptions so that analysis can occur and usable conclusions can be reached in a timely manner. 91 As such, SCE and the ISO appropriately relied on the Commission s assumptions. SCE relied upon the 2012 CEC load forecast, net of uncommitted EE. 92 SCE used the Incremental Uncommitted Energy Efficiency (IUEE) numbers as provided for by the Commission in the Revised Scoping Memo, which provided that the IUEE for the LA Basin is 746 MW. SCE further divided the IUEE 87 Exhibit SCE-2, p. 43, lines Exhibit SCE-2, p.43, footnote Revised Scoping Ruling, dated May 21, Exhibit SCE-2, p. 7, lines Exhibit SCE-2, p. 6, line 19 through p. 7, line Exhibit SCE-1, p. 13, lines

27 for the LA Basin to correspond solely to the Western LA Basin, 508 MW, as a subset of the full LA Basin s 746 MW. 93 B. SCE s Analysis Of Its Scenarios Shows That There Are Trade-offs Associated With The Different Methods Of Meeting LCR Need And Supports SCE s Balanced Approach In order to explore the tradeoffs among different approaches to addressing the reliability challenges caused by the OTC closures and SONGS, SCE explored a number of scenarios including emphasis on highly flexible conventional GFG, expansion of the transmission network to increase import capability, and an aggressive effort to enable Preferred Resources to contribute to meeting local reliability needs. 94 For the LA Basin Generation scenario, SCE studied the results of meeting LCR need using new LA Basin GFG from a combination of existing repowered sites and/or new generation. This was the least expensive of the four scenarios studied by SCE. 95 And, this scenario has the lowest GHG emissions, because new generation is highly efficient, reducing California s reliance on less efficient resources. 96 But, this scenario also has drawbacks. First, adding new or repowered generation in the LA Basin is currently limited by the availability of PM-10 emission reduction credits, required by the federal and state Clean Air Act. Second, even if emission reduction credits can be obtained, siting, permitting, and completing new GFG plants in the LA Basin is challenging. These two reasons make the risk of unsuccessful development of LA Basin generation resources very high. As such, while the LA Basin Generation scenario is the least expensive and results in the lowest GHG emissions, SCE does not consider it to be the recommended approach. 97 In the LA Basin Transmission scenario, SCE mitigated LA Basin reliability with transmission upgrades, including the Mesa Loop-In. The Mesa Loop-In allows for greater flexibility for generation locations to meet local reliability needs because it increases the capacity of the transmission grid to import 93 SCE/Chinn, Tr. 13, p line 10 through 2085, line Exhibit SCE-1, p. 12, lines 21 through 25; p. 15, lines Exhibit SCE-1, p. 45, lines Exhibit SCE-1, p. 43, lines Exhibit SCE-1. p. 45, line 8 through p. 46, line