Trans Bay Cable LLC Comments CompTrans@caiso.com Submitted by Company Date Submitted Sean O Reilly: (415) 291-2300 Chetty Mamandur: (415) 291-2300 Les Guliasi: (415) 291-2300 Trans Bay Cable LLC June 30, 2015 Introduction Trans Bay Cable LLC (Trans Bay) appreciates the opportunity to provide comments again in this Competitive Solicitation Stakeholder Process. Since March 2014, Trans Bay has attended several meetings, including an in-person meeting with CAISO management, and submitted two sets of detailed comments relating its concerns about the Competitive Transmission Solicitation process. Trans Bay s primary concerns, as stated in its comments submitted on October 28, 2014, are that the Competitive Solicitation Selection Process evaluation and selection criteria, as applied, (1) are not objective, (2) will not ensure that the best-fit, least-cost project is chosen, and (3) are not fairly and evenly applied across applicants and projects. Trans Bay will not repeat its extensive comments here; however, Trans Bay continues to have concerns, and it does not believe that the CAISO s Straw Proposal issued on June 9, 2015 adequately addresses the flaws in the Competitive Solicitation Process, as applied. After engaging in an extensive stakeholder process lasting well over a year, the CAISO has proposed to make only slight and clarifying changes to the process, rather than any of the substantive changes recommended. While Trans Bay understands that the CAISO must balance competing views of the process, ultimately the CAISO s responsibility is to provide its own analysis that ensures the process is fair and transparent and will result in a least-cost, best-fit transmission solution for ratepayers. However, the vast majority (over 40 pages) of the 52-page Straw Proposal is review of prior process and summary of stakeholder comments, and there is very little analysis by the CAISO of the options or about lessons learned from prior solicitations. Trans Bay does not believe that the superficial changes proposed will result in any meaningful change to further the goals of a fair, open and transparent solicitation process that focuses on ratepayer benefits. Trans Bay Cable Comments 1
Trans Bay is also concerned that the CAISO did not respond to its specific and detailed examples of flaws in the process that were discernible on the face of exemplar selection reports. Rather than addressing these issues directly, the CAISO stated that, [T]he purpose of this initiative is not to debate specific findings in prior competitive solicitation reports. 1 Trans Bay disagrees. The purpose of the ongoing review of the Competitive Solicitation is to examine the process, as applied, to determine whether it is sound or needs to be improved. The only way for stakeholders to review the process in any meaningful way is by reviewing and analyzing the selection reports, as the process is otherwise opaque and there is no independent evaluator or other way to lend legitimacy to the ultimate selection. Thus, Trans Bay requests that the CAISO, in any final proposal, specifically address the substantive concerns that Trans Bay raised about the process, as it was applied in specific situations. Application of Selection Criteria The CAISO has concluded that, other than minor clarifying modifications, its criteria are sufficient to ensure the lowest cost for ratepayers among the entities that are financially qualified to develop the project. 2 In its previous comments, Trans Bay raised several concerns about the criteria, particularly as they have been applied by the CAISO in the selection process. Trans Bay, LS Power, and others provided numerous examples that demonstrate that the Competitive Solicitation reports do not evenly or clearly apply the various selection criteria to result in the lowest lifetime project cost for ratepayers, but the CAISO has not addressed those concerns in its Straw Proposal. Specifically, Trans Bay provided objective and clear evidence from the MidAmerican filing at the Federal Energy Regulatory Commission (FERC) that the Gates-Gregg selection report made certain assumptions that were unsound, but the CAISO has failed to address any of these specific concerns, even in a general way. Trans Bay continues to believe that it is highly relevant that the Gates-Gregg Selection Report rated the chosen project sponsor favorably because the parent companies had larger balance sheets, considerable experience in utility financing, and a higher net worth than other applicants, while the same project sponsor s incentives filing at FERC underscored that the project is going to be project financed and thus is risky because the project entity is not backed by its parent companies and had no financial history. 3 It is clear that the Project Sponsor was given the benefit of its large utility company sponsors in the selection process by the CAISO, and yet charged ratepayers for its status as a start-up transmission company with no business history, no established credit rating, no debt repayment history, no earning history, and no 1 Straw Proposal, p. 42. 2 Straw Proposal, pp. 41-42. 3 See MidAmerican Transco Cent. California Transco, LLC, 147 FERC 61,179 (June 3, 2014) ( Order ). Trans Bay Cable Comments 2
significant financial guarantees from its corporate parent. 4 That inconsistency of this analysis and result alone which is clear from the face of publicly filed documents raises concerns about the process that need to be addressed head on rather than brushed aside as irrelevant. Trans Bay also raised a concern about the overall project price, which, along with feasibility and reliability of the project, should be the most important selection criterion. Trans Bay understands that the CAISO cannot disclose confidential pricing information, but it is concerning that the project sponsor filed estimates with FERC that, without contingencies, are well above both the price that Trans Bay proposed and the CAISO s estimated costs of $115-145 million, and yet the CAISO scored that entity most favorably on cost containment 5 and other cost factors. As noted throughout, there is little transparency regarding how much credit was given for the various criteria, and Trans Bay is unable to determine how the CAISO credited cost and cost containment criteria. While there may be an explanation for this discrepancy, none has been provided. Ratepayer Benefits Trans Bay continues to support the recommendation by several parties that tangible ratepayer benefit be included explicitly as an evaluation and selection criterion; however, the CAISO has not adopted this suggestion in its Straw Proposal. Rather, the CAISO proposes only to clarify that all project sponsors must fill out all of the questions 6 and to provide more clear explanations in future competitive solicitations about how it has applied the selection criteria. 7 Trans Bay does not believe that the CAISO s analysis is sufficient and still recommends that the CAISO amend its tariff provisions to add ratepayer benefit specifically to the evaluation and selection process. Ratepayer benefit should be primary goal of the competitive solicitation process. Specifically, the CAISO should include lifetime project cost in its evaluation and selection criteria, and should score entities favorably that can provide unique project financing solutions that lower the overall project cost over its lifetime. Without consideration of the lifetime cost of an asset, it is unclear whether or how the CAISO 4 FERC Order, at P. 26 5 Trans Bay has previously noted its concerns with the cost containment analysis and will not repeat them here. But, for example, Trans Bay does not believe there is evidence that having significant in house experience, as well as hiring independent consultants, will contain costs. Moreover, Trans Bay had concerns that the CAISO considered work already performed on the project as a cost containment measure, even though there was no indication that such work was not also charged to ratepayers. 6 Straw Proposal, p. 5 and Section 5.2 7 Straw Proposal, p. 5 and Section 5.5. Trans Bay Cable Comments 3
evaluates ratepayer benefit, as each of the qualified bidders have, by definition, been deemed qualified to construct a transmission project in California.. Although the CAISO made it clear that it will not consider issues such as weighting, scoring, and mathematical formulas for selecting project sponsors, Trans Bay continues to encourage the CAISO to reconsider its position, either in this current initiative or alternatively in a separate initiative in the near term. In the Straw Proposal, the CAISO did not address Trans Bay s (and others) argument that most commercial RFPs use a scoring methodology, especially ones of the size and scope involved in the Competitive Solicitation Process. Without a scoring process, participants and the public cannot know which criteria are given more or less weight, other that the CAISO s representations of the key selection criteria, and after-the-fact reporting in the Selection Reports. Adding more clarity to its explanations is not likely to resolve this shortcoming. Independent Evaluator Based on the deficiencies in the process, highlighted in prior comments and above, the CAISO has not explained how third parties can verify that the CAISO applied the criteria in an even manner without an independent evaluator or objective scoring criteria. Trans Bay continues to believe that the discrepancies between the Application, the CAISO s analysis, and subsequent reality demonstrates the need for an independent evaluator and a reexamination of the CAISO's evaluation and selection criteria. Trans Bay noted that a qualified independent evaluator presumably would avoid the irregularities Trans Bay has identified and, at the very least, would lend legitimacy to the process. Using an independent evaluator would improve the process for a number of reasons, as explained in Trans Bay s previous comments. The CAISO rejected the proposal, in part, based on some other stakeholders comments that an independent evaluator isn t necessary. However, the CPUC, the agency that will ultimately approve construction of these projects, has recommended that the CAISO hire an independent evaluator. The CAISO should give more weight to the CPUC s recommendation in this regard because it is an independent state regulator, has significant experience with independent evaluators in procurement, and is the entity responsible for ultimately approving transmission projects. The CAISO states that hiring an independent evaluator would add another layer of review and expense, and the CAISO offered an explanation of the role of its current consultants. The CAISO did not address Trans Bay s suggestion that an independent evaluator could perform many of the functions of the current consultants, which would avoid significant overlap. More importantly, the CAISO dismissed the need for an Trans Bay Cable Comments 4
independent evaluator without directly addressing the functions that an independent evaluator performs, which are different from those of a consultant. In its final proposal, the CAISO should address Trans Bay s comments (1) specifically setting forth the tasks that an independent evaluator performs and why those tasks are not necessary based on the concerns raised by stakeholders; and (2) explaining how the CAISO could avoid overlap and minimize cost by ensuring that the independent evaluators not be used in addition to, but instead of, other outside consultants. Conclusion Trans Bay appreciates the effort the CAISO has expended in this Stakeholder Process; however, Trans Bay is disappointed that after over a year of examination, the CAISO is choosing to make only very minor changes to a process about which several stakeholders have raised significant concerns. For the reasons set forth throughout this Stakeholder Process, Trans Bay believes the Straw Proposal is deficient and does not properly address the legitimate concerns raised. Trans Bay Cable Comments 5