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LSP Transmission Holdings, LLC (“LS Power”) Comments to CAISO

July 26, 2012

1. PRIOR FERC ORDERS PROVIDED NO GRANDFATHERING OF CAISO

COMPETITIVE BID PROCESS IN ORDER 1000 COMPLIANCE

a. Prior FERC Orders did not address CAISO competitive bidding process

related to reliability projects

b. Prior FERC Orders provide no explicit or implicit grandfathering of its

competing bidding process in CAISO Order 1000 Filing

i. It could be a foundation to build on it, but LS Power believes the

current CAISO competitive bidding framework is not compliant

with Order 1000. More detail on the competitive bidding

selection process and additional requirements are required under

Order 1000.

2. NO NEXUS HAS BEEN DEMONSTRATED BETWEEN THE CAISO’S

COMPETITIVE BID SELECTION FACTORS AND BETWEEN FERC’S

ORDER FOR CAISO TO SELECT THE MOST EFFICIENT OR COST-

EFFECTIVE PROJECTS

a. Regional cost allocation is dependent on the cost-effective and efficient

projects being selected

i. Paragraph 5, Order 1000: “Certain requirements of this Final

Rule distinguish between “a transmission facility in a regional

transmission plan,” and “a transmission facility selected in a

regional transmission plan for purposes of cost allocation.” A

“transmission facility selected in a regional transmission plan for

purposes of cost allocation” is one that has been selected,

pursuant to a Commission-approved regional transmission

planning process, as a more efficient or cost-effective solution

to regional transmission needs. As discussed in more detail

below, this distinction is an essential component of this Final

Rule.”

b. A tiered process where reliability projects are planned first, is not enough

to ensure that the most cost-effective and efficient solutions are selected.

All types of “Regional” transmission projects whether Reliability,

Economic, Policy, of LGIP-driven should considered at the same time to

ensure the most cost effective and efficient solution is selected. CAISO

will need to revise the various phases of its Transmission Planning process

to meet this objective.

c. Cost differences exist not only between project concepts, but also project

sponsors.

d. CA ISO proposal fails to outline what COST EFFECTIVE SELECTION

really means in the selection process. This is a key legal deficiency of the

CAISO proposal.

i. Footnote 307, Order 1000:

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1. “As noted above, for one solution to be

chosen over another in the regional

transmission planning process, there should

be an evaluation of the relative efficiency

and cost-effectiveness of each solution. If a

non-incumbent transmission developer is

unable to demonstrate that its proposal is the

most efficient or cost-effective, given all

aspects of its proposal, then it is unlikely to

be selected as the preferred transmission

solution within the regional transmission

planning process for purposes of cost

allocation.1”

e. CA ISO proposal establishes no nexus between the

competitive factors in selection and how those factors

will translate into picking the most efficient or cost-

effective solution.

3. ORDER 1000 REQUIRES CLARITY AND TRANSPARENCY IN HOW

WINNERS WILL BE SELECTED. A LIST OF FACTORS IS NOT A

CONCLUSIVE FILING.

a. Paragraph 315, FERC Order 1000: “…To ensure comparable treatment of

all resources, the Commission has required public utility transmission

providers to include in their OATT, language that identifies how they will

evaluate among competing solutions and resources. This includes

identification of the criteria by which the public utility provider will

evaluate the relative economics and effectiveness of performance for each

alternative offered for consideration… The Commission concludes that

(additional) requirements are necessary.”

b. CA ISO MUST OUTLINE IN THEIR OATT:

i. HOW THEY WILL EVALUATE AMONG COMPETING

SOLUTIONS AND RESOURCES. It is not enough to just list

factors. There must be clarity in the CA ISO filing HOW CA

ISO will compare the individual factors and THEN,

importantly, HOW CA ISO will “pull the various

comparative factor analysis all together” and make a

selection. 1. Order 1000 is clear in paragraph 315 that the details of

HOW selection shall occur should be in the OATT, not

BPM

ii. While a list of factors is a start, it is not the conclusion. A list of

factors gives NO guidance how the decision will be made

holistically once all the individual factors are compared. A

list of factors provides no guidance on HOW the CA ISO will

1 FERC Order 1000, Footnote 307.

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“pull it all together” and evaluate between competing

solutions.

iii. A report at the end of the process is clearly required, but that

alone is not enough.

1. FERC Order 1000 calls for OATT changes to be made to

outline “HOW” CAISO WILL evaluate proposals (future

tense) in a nondiscriminatory manner

2. FERC Order 1000, paragraph 315 does not say how CA

ISO DID evaluate (past tense), rather FERC Order 1000

says CA ISO must outline how CA-ISO WILL evaluate

(future tense) among competing solutions and resources 3. Order 1000 calls on transparency to be added into the

process to minimize disputes. A lack of transparency on

HOW the evaluation will occur and HOW the ultimate

selection will be made will lead to litigation and disputes.

4. It is simply NOT enough to list individual factors and

then not outline HOW the ultimate decision will be

made to pull it all together.

c. LS POWER strongly concurs with CA PUC positions that the least-

cost projects should be selected (once qualified bidders are in the

competitive bidding pool), unless the rationale for not selecting the

least cost project is adequately justified in a non-discriminatory

manner

i. The purpose of strong qualification criteria is to ensure that non-

cost factors and criteria can also be a consideration in the process

ii. The selection process should be focused on WHAT PRODUCES

JUST AND REASONABLE RATES

iii. CA ISO MUST OUTLINE THEIR VIEWS ON COST IN THE

SELECTION PROCESS

d. FERC HAS RULED THAT COST CAN BE THE DECIDING

FACTOR IN A RTO DECISION-MAKING FRAMEWORK

i. RECENT PRIMARY POWER ORDER FROM FERC SENDS

A POWERFUL NATIONAL MESSAGE ON THE

IMPORTANCE OF COST IN THE SELECTION PROCESS

1. FERC RULED THAT INCUMBENT UTILITIES WON

ON THE BASIS THAT PRIMARY POWER WAS NOT

THE LOW-COST ALTERNATIVE

ii. LOW-COST WAS THE KEY DECIDING FACTOR IN FERC

DECISION

iii. FERC set a powerful precedent in Primary Power on the

determining importance of low-cost in the final selection process

e. CAISO Tariff revisions must also adopt languages and provisions to

reflect to FERC that the selection process will not be unduly

discriminatory or preferential

4. LOCAL VS. REGIONAL TRANSMISSION FACILITIES

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a. On page 11-12 of the CA ISO Draft Final Proposal, the CA ISO writes

“The ISO proposes… to simply revise the tariff to…(2) add the

requirement from Orders Nos. 1000 and 1000A that a local facility must

be located within the retail distribution service territory or footprint of a

transmission facility.”

b. LS Power suggests that the word SOLELY be added to the CA ISO tariff

revision in order to be consistent with Order 1000. Per Order 1000,

paragraph 63. In addition to no regional cost allocation for local

facilities, FERC defined a local transmission facility as a transmission

facility located SOLELY within a public utility transmission

provider’s retail service territory or footprint that is not selected in a

regional transmission plan for purposes of cost allocation.”

c. CAISO should add the word SOLELY to its definition of local

transmission facility to clarify that the local facility must be SOLELY (for

example, 100%, exclusively, and only) within the retail service territory or

footprint, and 100% paid by the retail service territory or footprint.

d. CAISO should also specifically state in its tariff revision language that if

any portion of the project (meaning, anything greater than 0%) is

regionally allocated, than it is also a regional project under Order 1000A.

e. CAISO should also specifically state in its tariff revision language that if a

project is NOT solely in a single retail distribution territory or footprint,

then it is a “regional” project regardless of voltage level

5. PROPOSED EXISTING FACILITIES DEFINITION

a. On page 12 of the CA ISO Draft Final Proposal, the CA ISO writes the

definition of existing facility should follow the clarifications in Order

1000A of “an improvement to, addition to, or replacement of a part of, an

existing transmission facility”. This definition is taken directly from

Order No. 1000-A paragraph 426.

b. LS Power believes that the original definition of “existing facility” is still

relevant. LS Power believes that it would be appropriate to merge the

exact concepts from both Order 1000 and 1000A on this topic.

i. In light of Order 1000 (paragraph 319), where tower change outs

and reconductoring are specifically mentioned as prime

examples, LS Power would suggest that tower change outs and

reconductoring be added to the proposed existing facility

definition.

ii. The new proposed LS Power definition of existing facility would

read: “an improvement to, addition to, or replacement of a part

of an existing transmission facility, such as reconductoring or

tower change-outs”. LS Power believes that this definition is

more consistent with Order 1000A and Order 1000.

c. If the CA-ISO is not willing to exclude substations from existing facilities

definition, then LS Power would recommend that SVCs, Statcom, and

Shunt Capacitor installations be specifically carved out as a not “an

existing facility”. FERC declined to rule in Primary Power that there was

a ROFR for a SVC project at an existing substation. Rather, the basis of

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FERC’s decision was the ultimate cost structure, and FERC did not grant a

ROFR to incumbents for SVC projects at existing substations as argued by

PJM in Primary Power.

d. The revised Section 24.5.2 of the CAISO tariff would then read: “If the

selected project, involves an upgrade or improvement to, addition to, or

replacement of a part of an existing Participating TO transmission facility

(such as reconductoring or tower change-outs), including an existing

substation but not a SVC, Statcom, and Shunt Capacitor project, the

Participating TO will construct and own such upgrade or addition facilities

unless the Project Sponsor and Participating TO agree to a different

arrangement.”

6. COMMENTS ON LGIP PROJECTS

a. In Draft Final proposal, under 4.3.2, CAISO states that "...changes to the

ISO’s LGIP and LCRIF tariff provisions are beyond the scope of any

compliance filing in response to Order No. 1000....". Yet, under 4.3.1

CAISO states that it will clarify in its tariff that "...there is no exclusive

right for PTOs with a PTO service territory to build and own additional

components or expansions of LGIP network upgrades that constitute

regional facilities which are not otherwise assigned to such PTO as a

generator interconnection facility under tariff section 24.4.6.5...". LS

Power recommends CAISO to clarify its position (in next round of this

proposal or tariff documents) on which LGIP-driven transmission

upgrades will be considered "Regional" for the purpose of FERC Order

1000 compliance. At the July 17th stakeholder call, CAISO clarified that

once CAISO's GIP-TPP Integration filling gets approved by FERC, "Area

Delivery Network upgrades" will be considered Regional & all

"Reliability Network Upgrades" and "Local Delivery Network Upgrades"

will not be considered Regional. In light of the recent approval of GIP-

TPP Integration by FERC (July 24th FERC Order), it is important for

CAISO to clarify and update its tariff to mention EXACTLY which

LGIP-driven transmission upgrades will be considered Regional for FERC

Order 1000 compliance purposes.

b. LS Power recommends that all LGIP-driven transmission projects that will

get finalized through the Transmission Planning process should be

considered “Regional” to be in compliance with Order 1000.

7. REASSIGNMENT OF PROJECTS

a. FERC requires “each public utility transmission provider to amend its

OATT to describe the circumstances and procedures under which public

utility transmission providers in the regional transmission planning

process will reevaluate the regional transmission plan to determine if

delays in the development of a transmission facility selected in a regional

transmission plan for purposes of cost allocation require evaluation of

alternative solutions, including those proposed by the incumbent

transmission provider, to ensure the incumbent transmission provider can

meet its reliability needs or service obligations”. (Paragraph 329, FERC

Order 1000)

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b. LS Power believes that reassignment of reliability projects applies to both

incumbents and non-incumbent projects under Order 1000. Any project

reassignment language should make it clear that the milestone

requirements and reassignment provisions apply to both incumbents and

non-incumbents under Order 1000. Reassignment provisions apply to

regional projects, as Paragraph 329 refers to “delays in the development of

a transmission facility selected in a regional plan for purposes of cost

allocation…including those proposed by the incumbent transmission

provider”

c. LS Power agrees with the CA ISO that the reassignment language is

related to reliability or service obligations (Paragraph 329) ONLY.

d. Specific LS Power Proposal on Reassignment:

i. Immediately prior to CA ISO Board assignment of a project, the

Qualified Project Developer and CA ISO should meet to revisit

the proposed Development Schedule and to establish Critical

Path Milestones. An independent cost estimate and feasibility

study commissioned by CA ISO can also recommend Critical

Path Milestones for consideration. The Project Developer should

update any proposed Development Schedule at time of

assignment. CA ISO Board materials should reflect realistic and

current development projections.

ii. After project assignment, the assigned Project Developer should

regularly provide quarterly status updates to CAISO on

permitting and development progress.

iii. For reliability projects with a delay of more than six months of a

Critical Path Milestone, notice should be given of the delay to

CA ISO and the incumbent utility.

iv. For reliability projects with a delay of more than six months

of a Critical Path Milestone and there is material evidence of

abandonment or lack of commercially reasonable

competence by the Project Developer to advance the project,

then the project could be taken to the CAISO Board for possible

reassignment.

8. MINIMIZING DISPUTES

a. FERC “encourages public utility transmission providers to consider ways

to minimize disputes, such as through additional transparency

mechanisms, as they identify enhancements to regional transmission

planning processes necessary to comply with the Final Rule”. (Paragraph

330, FERC Order 1000).

b. LS Power Proposal to Help Minimize Disputes in CA ISO

i. CAISO should clarify and update its tariff to mention

EXACTLY which LGIP-driven transmission upgrades will be

considered Regional for FERC Order 1000 compliance purposes.

ii. CA ISO evaluation criteria PRIOR to the evaluation process

should be transparent for all parties. A black-box selection

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process, with lack of clarity at the beginning related to

selection process, will only lead to many disputes.

i. CA ISO should implement additional transparency

measures in this regard.

iii. CA ISO should well document in writing and with public

comment period for all competitive bid decisions.

i. CA ISO should implement additional transparency

measures in this regard.

iv. CA ISO should outline provisions in their OATT to ensure

that their selection process is not unduly discriminatory or

preferential

v. CA ISO should use independent cost estimates in reviewing both

incumbent and non-incumbent projects. Order 1000A was clear

that when cost estimates are used, there should be a consistent

approach for both non-incumbents and incumbents.

vi. CA ISO shall establish arbitration procedures to address any

dispute regarding application of the qualification criteria,

evaluation or selection process. Any proposed project sponsor

who was denied qualified sponsor status or who was not selected

may initiate arbitration within 30 days of the decision before

[commercial arbitration forum] or FERC. The matter will be

decided by a single arbitrator whose sole review will be to

determine whether the qualification criteria or evaluation criteria

was applied in an appropriate and non-discriminatory manner.

The arbitrator shall render its opinion with 30 days of submission

and not more than 120 days from initiation of the arbitration.

9. CAISO PROCESS CHANGES NEEDED TO ALLOW NEW ENTRANTS

TO PROPOSE RELIABILITY PROJECTS

a. In conjunction with the removal of the ROFR for reliability regional

projects, CA ISO should make the appropriate changes to its planning

cycle process. For example, the current CA ISO only allows PTOs to

submit reliability projects when the request window opens. This is an

example of a process change that is also needed.

b. In conjunction with the removal of ROFR for reliability regional projects,

CA ISO should make appropriate changes to its planning cycle process to

allow competitive process for reliability projects in the planning cycle.

10. COST RECOVERY

a. FERC requires “that a non-incumbent transmission developer must have

the same eligibility as an incumbent transmission developer to use a

regional cost allocation method or methods for any sponsored

transmission facility selected in the regional transmission plan for

purposes of cost allocation. More specifically, each public utility

transmission developer must participate in a regional transmission

planning process that provides that the non-incumbent developer has an

opportunity comparable to that of an incumbent transmission developer to

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allocate the cost of such transmission facility through a regional cost

allocation method or methods.” (Paragraph 332, FERC Order 1000)

b. LS Power encourages CA ISO to make explicit tariff additions to

incorporate the exact language of Paragraph 332 to make sure there is

no uncertainty that a non-incumbent developer who is selected can

receive regional cost allocation through the regional tariff.

i. It is not just enough to remove the ROFR under Order 1000,

rather it should be explicit in the tariff that if selected, the

non-incumbent is eligible for regional cost allocation if

selected for any regional project.

11. BUSINESS PRACTICE MANUAL CHANGES VERSUS TARIFF (OATT)

CHANGES

a. FERC Order 1000 is clear that many of the compliance filing changes

must be in the OATT, not Business Practice Manual. LS Power lists some

of these specific directives in Order 1000 for OATT changes. CAISO

should make sure that they incorporate the needed changes in OATT, not

Business Practice Manuals.

i. Removal of the ROFR from Tariff and/or Transmission

Owners Agreement to eliminate provisions that establish a

federal right of first refusal for incumbent transmission provider

with respect to projects selected in a regional transmission plan

for purposes of cost allocation.

ii. FERC “requires each public utility transmission provider to

revise its OATT to demonstrate that the regional transmission

planning process in which is participates has established

appropriate qualification criteria for determining an entity’s

eligibility to propose a transmission project for selection in the

regional transmission plan for purposes of cost allocation,

...(Paragraph 323, FERC Order 1000)

iii. FERC “requires that each public utility transmission provider

revise its OATT to identify: (a) the information that must be

submitted by a prospective transmission developer in support of

a transmission project it proposes in the regional transmission

planning process; and (b) the date by which such information

must be submitted in a given transmission planning cycle.”

(Paragraph 325, FERC Order 1000). “These information

requirements must identify in sufficient detail the information

necessary to allow a proposed transmission project to be

evaluated in the regional transmission planning process on a

basis comparable to other transmission projects that are proposed

in the regional transmission planning process. They may

require, for example, relevant engineering studies and cost

analyses and may be request other reports or information from

the transmission developer that are needed to facilitate evaluation

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of the transmission project in the regional transmission planning

process.”

iv. FERC “requires that each public utility transmission provider to

amend its OATT to describe a transparent and not unduly

discriminatory process for evaluating whether to select a

proposed transmission facility in the regional transmission plan

for purposes of cost allocation. This process must comply with

the Order No. 890 transmission planning principles, ensuring

transparency, and the opportunity for stakeholder coordination.

The evaluation process must culminate in a determination that is

sufficiently detailed for stakeholders to understand why a

particular transmission project was selected or not selected in the

regional transmission plan for purposes of cost allocation.”

(Paragraph 328, FERC Order 1000).

v. FERC requires “each public utility transmission provider to

amend its OATT to describe the circumstances and procedures

under which public utility transmission providers in the regional

transmission planning process will reevaluate the regional

transmission plan to determine if delays in the development of a

transmission facility selected in a regional transmission plan for

purposes of cost allocation require evaluation of alternative

solutions, including those proposed by the incumbent

transmission provider, to ensure the incumbent transmission

provider can meet its reliability needs or service obligations”.

(Paragraph 329, FERC Order 1000)

12. IMPLEMENTATION DATE OF ORDER 1000 CHANGES

a. CAISO’s current proposal draws a line based on a specific date of FERC

approval (Feb 2013) to decide whether to apply new changes to 2012/13

or 2013/14 TP cycle/ LS Power recommends that rather than going by a

specific date, soon after FERC approval is received CAISO should apply

new rules to the TP Phase that is ongoing at the time for the current TP

cycle. For instance even if CAISO receives FERC approval in Mar 2013,

the new rules should still apply to the “Project Selection” item of the TP

phase & CAISO should solicit competitive solicitation bids for "all types"

of "Regional" projects, rather than only Economic & Policy projects for

the Apr 2013 solicitations.