BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ) ) ) ) ) )

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Rulemaking to Promote Policy and Program Coordination and Integration in Electric Utility Resource Planning. Rulemaking 04-04-003 COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E CONCERNING DRAFT RESOLUTION E-3910 I. INTRODUCTION Pursuant to Rule 77.7 of the Rules of Practice and Procedure of the California Public Utilities Commission ( Commission, Southern California Edison Company ( SCE submits these comments to the draft Resolution E-3910 of the Energy Division ( Draft Resolution, approving San Diego Gas & Electric Company s Advice Letter 1641-E ( AL 1641-E. In AL 1641-E, SDG&E attempts to respond to Decision ( D. 04-07-028, in which the Commission reacted to concerns of the California Independent System Operator ( CAISO about its increasing need to manage congestion and address reliability issues in southern California, particularly in the area South of Path 15 ( SP 15. SDG&E s plan for implementing the directives of D.04-07-028 is inadequate and would likely be counterproductive, as SCE fully described in its Protest, dated December 23, 2004 ( Protest. Most importantly, SDG&E s proposal would create strong arbitrage opportunities for non-iou market participants to reverse and capitalize on the IOU s efforts to address congestion. SCE urges the Commission to reject SDG&E s proposal. The following summarizes SCE s main concerns: To mitigate SP-15 Intra-zonal congestion, additional generation units located in SP- 15 must be dispatched. The actions proscribed in AL 1641-E do nothing to ensure this or even to encourage it. 1

AL 1641-E will likely lead to higher ratepayer cost, little or no change in intra-zonal congestion costs, and a shift in wealth to non-iou market participants. The CAISO controls the transmission grid and knows the best ways to mitigate intrazonal congestion. The CAISO needs to take the lead in developing workable procedures to provide the IOU s with clear instructions on when and where to mitigate intra-zonal congestion. AL 1641-E relies on outdated and overly aggregated information in developing the transmission adders. The Draft Resolution s recommendation that the Commission reallocate the Williams Product D units to SCE is not relevant to this proceeding, is not in the proper venue, and should be stricken. II. DISCUSSION A. The Commission Should Reject SDG&E s Procedure Because It Does Nothing To Ensure Or Even To Encourage That Additional Generation Units Located In SP-15 Are Dispatched. To mitigate SP-15 intra-zonal congestion additional generation units located in SP-15 must be dispatched. The actions proscribed in AL 1641-E do nothing to ensure this or even encourage it. Curtailing imports from Palo Verde and Mexico will not alleviate the problem. Selling the output from out-of-sp-15 resources (i.e., Yuma Cogeneration will not alleviate the problem. Finally, self-imposing intra-zonal congestion adders to transactions will not alleviate the problem. SDG&E claims that, coupled with an SP-15 purchase, these actions will encourage the dispatch of additional SP-15 resources. Unfortunately, SDG&E fails to acknowledge and address the fact that economic signals, which caused it to make such import decisions prior to the issuance of D.04-07-028, are sill in place. If the Commission approves AL 1641-E, SDG&E would likely continue or even increase such actions. Also, as others recognize the opportunities that exist, the problem would likely increase as other IOUs make similar decisions that can benefit other non-iou market participants, who could and most assuredly would take advantage of the resulting arbitrage opportunities. This 2

would occur because the standard traded product that SDG&E would buy in SP-15 (i.e., CAISO Energy is not necessarily sourced from an in-sp-15 generating source. Rather, the likely result will be that SDG&E s SP-15 purchases, in lieu of imports, will be from a non-iou market participant, who will import the same energy that SDG&E will have chosen not to import. This will happen because the economic signals will still exist to arbitrage the system. In fact, by not importing this energy, SDG&E s actions will cause downward pressure on the price of that energy at the source, e.g., Palo Verde (more supply, while the purchase of SP-15 power will cause upward pressure on the SP-15 price (more demand, which will amplify the economic signals to non-iou market participants to import such energy. B. The Commission Should Reject AL 1641-E Since It Will Have Little Or No Effect On Intra-Zonal Congestion Costs, Will Lead To Higher Ratepayer Costs, And Will Shift Wealth To Non-IOU Market Participants. The actions that SDG&E proposes IOUs to take under AL 1641-E will have little or no effect on intra-zonal congestion costs, because the economic signals that caused them to make such import decisions in the first place (and prior to the issuance of D.04-07-028 are sill in place and will be utilized by non-iou market participants. The amount of energy being imported will not change, therefore, the amount of SP-15 generation being dispatched will not change. As a result, intra-zonal congestion costs will not change. Nevertheless, ratepayer costs will increase, because the IOUs would in effect be paying non-iou market participants to import energy that the IOU previously was importing. The net effect would be to transfer ratepayer wealth to non-iou market participants. C. The CAISO Controls The Transmission Grid And Knows The Best Ways To Mitigate Intra-Zonal Congestion. Since the CAISO controls the transmission grid and knows the best ways to mitigate intrazonal congestion, the CAISO should take the lead in developing workable procedures to provide the IOU s with clear instructions on when and where to mitigate intra-zonal congestion. 3

D. The Commission Should Reject SDG&E s Use Of Outdated And Overly Aggregated Data In Developing Transmission Adders. The transmission adders described in SDG&E s proposed procurement procedure rely largely on CAISO settlements data that is up to 90 days old. SDG&E readily admits that the data it proposes to use is outdated. The CAISO, however, has access to much more up-to-date information. SDG&E fails to present a rationale for using such outdated information, in the face of having the ability to use more current data. Energy requirements and prices vary dramatically over the course of a week, a month, and a year. Rather than use data that is from a different season of the year, one could develop a mechanism to use similar data from a previous year, which is adjusted for changes from year to year. That way, one can compare a summer season to a summer season, rather than a winter season to a summer season. In the best case, SDG&E s approach will result in unnecessary cost shifting that will unfairly burden the captive ratepayers. In the worst case, SDG&E s approach will result in higher costs. SDG&E uses data that it aggregates over an entire month or even up to three months. 1 Energy transactions and schedules typically span one hour or a few hours of a month. Hence, use of monthly aggregated, historical data as the basis of making current decisions is irrational. One cannot determine whether the intra-zonal congestion results from an on-peak, off-peak, or an hourly problem. For example, the monthly total congestion costs reported for a month could have occurred over only a few days or hours in that month. To use SDG&E s approach would improperly apply the misleading monthly average to all future days and hours a result that would be erroneous. E. The Draft Resolution s Recommendation That The Commission Reallocate The Williams Product D Units To SCE Should Be Stricken. The Draft Resolution s recommendation that the Commission reallocate the Williams Product D units to SCE is not relevant to a determination of the approval of AL 1641-E.. Moreover, this proceeding is not the proper venue in which the issue of reallocating the Williams 1 See AL 1641-E, Procurement Procedure, Public Redacted Version, p. 2. Further, under Calculation of the Cost Adder, SDG&E states, An estimate of costs on each of the paths was calculated using the average of previous three months of data. An average was used to account for the system anomalies noted in the ISO s monthly DMA Market report. Id. at p. 3. Emphasis added. 4

Product D units should be decided. Thus, the Commission should strike all references to reallocating the Williams Product D and other units from Resolution E-3910. III. CONCLUSION SDG&E s AL 1641-E is deficient in very important respects. SCE respectfully requests that the Commission reject the Draft Resolution and require modification of AL 1641-E to address SCE s concerns discussed herein. Respectfully submitted, MEGAN SCOTT-KAKURES FRANK COOLEY ANNETTE GILLIAM January 20, 2005 By: Annette Gilliam Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626 302-4880 Facsimile: (626 302-1935 E-mail:Annette.Gilliam@sce.com 5

CERTIFICATE OF SERVICE I hereby certify that, pursuant to the Commission s Rules of Practice and Procedure, I have this day served a true copy of COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E CONCERNING DRAFT RESOLUTION E-3910 on all parties identified on the attached service list(s. Service was effected by one or more means indicated below: Transmitting the copies via e-mail to all parties who have provided an e-mail address. First class mail will be used if electronic service cannot be effectuated. Placing the copies in sealed envelopes and causing such envelopes to be delivered by hand or by overnight courier to the offices of the Commission or other addressee(s. Placing copies in properly addressed sealed envelopes and depositing such copies in the United States mail with first-class postage prepaid to all parties. Directing Prographics to place the copies in properly addressed sealed envelopes and to deposit such envelopes in the United States mail with first-class postage prepaid to all parties. Executed this 20 th day of January, 2005, at Rosemead, California. Lizette Vidrio Case Analyst SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770

Annette Gilliam Senior Attorney Annette.Gilliam@sce.com January 20, 2005 Docket Clerk California Public Utilities Commission 505 Van Ness Avenue San Francisco, California 94102 RE: RULEMAKING NO. 04-04-003 Dear Docket Clerk: Enclosed for filing with the Commission are the original and five copies of the COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E CONCERNING DRAFT RESOLUTION E-3910 in the above-referenced proceeding. We request that a copy of this document be file-stamped and returned for our records. A self-addressed, stamped envelope is enclosed for your convenience. Your courtesy in this matter is appreciated. Very truly yours, Annette Gilliam AG:cr:LW050200031 Enclosures cc: All Parties of Record (U 338-E P.O. Box 800 2244 Walnut Grove Ave. Rosemead, California 91770 (626 302-4880 Fax (626 302-1935