Energy Legal Blog

California to Guarantee Recovery of Transmission Investments Supporting Renewable Generation

The California PUC has approved a new mechanism to ensure that utilities recover their investments in interconnecting and transmitting power from renewable generation.  These investments will be recovered in rates to retail customers. 

The PUC action is based on a broad interpretation of California statutes that the PUC asserts allow it to develop cost recovery methods for transmission that supports renewable power.  California statutes encourage renewables by imposing a Renewable Portfolio Standards (RPS) and encouraging transmission to support renewables.  [See California PUC Proposals Aim to Put Ambitious Renewables Goals in Reach.]  Earlier PUC efforts to promote transmission from renewable generators became entangled in FERC's generator interconnection policies. 

FERC says that generators must pay the costs of generator tie lines and that generators must initially finance transmission network upgrades and then recoup their investment in the form of credits against future transmission charges.  The PUC is concerned that FERC's policy will not result in sufficient transmission for renewable generation, preventing the state from achieving its RPS goals.  This issue takes on particular urgency because of pending disputes over who pays for transmission to a potentially large wind power development in the Tehachapi region.  The wind developers say they cannot proceed under FERC's developer-upfront-payment model. 

The PUC had previously tried to resolve the issue by requiring transmission providers to advance funding for these transmission lines, a position contrary to FERC policy.  That approach was rejected by the California courts as intruding into an area of exclusive FERC jurisdiction.  Then, last year, Southern California Edison raised this issue at FERC.  In response FERC offered as a partial solution guaranteeing recovery of investments in transmission network upgrades, but not in generation tie lines.  [See FERC Denies SoCal Ed Full Approval of Utility's Plan to Add Transmission, Use Wind to Reach RPS Goals]  The California PUC found FERC's partial solution insufficient to meet California RPS goals. 

Against this background, and at the request of the California utilities, the PUC has now adopted a new approach, which seeks to avoid a conflict with FERC.  Rather than requiring the California utilities to advance funds for transmission upgrades, the PUC simply guarantees that Golden State utilities will recover retail charges investments in transmission that are deemed necessary to meet California RPS goals – regardless of whether the transmission is a generator tie line or a network upgrade.  The combination of the RPS standards and guaranteed retail recovery of upfront transmission costs is certain to encourage renewable development and enable the utilities to advance funds for transmission investments.  Since California's three investor-owned utilities and the Cal ISO support this approach, it is likely that the utilities will accept the invitation.