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Does Arizona Really “Need” Merchant Transmission Lines?

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by Michael Patten and Jason Gellman

The Arizona Corporation Commission recently reviewed a Certificate of Environmental Compatibility (CEC) issued by the Arizona Power Plant and Transmission Line Siting Committee for the SunZia transmission line project (SunZia).  ACC Docket No. L-00000YY-15031800171.  SunZia includes the construction of two new 500 kilovolt interstate transmission lines (and related facilities) originating in New Mexico and terminating at the Pinal Central Substation in Pinal County, Arizona.  The proposed transmission line runs through 200 miles of southern Arizona and crosses the San Pedro River.  The SunZia project faced significant opposition from environmentalists.

One of the key issues raised during the proceeding is whether SunZia met the “need” requirement of A.R.S. § 40-360.07.B.  Under this provision, the Commission is expressly required to “balance in the broad public interest, the need for adequate, economical and reliable supply of power with the desire to minimize the effect thereof on the environment in this state.”  Although the developers of the SunZia project indicated that it was intended to meet the need of increased transmission capacity for renewable energy sources, and allow Arizona to access lower-cost wind resources from New Mexico, the project faced several hurdles in proving sufficient “need.”  First, the project was merchant transmission line and was not being proposed by or developed expressly for an Arizona utility to meet the needs of its end-use customers.  Second, although SunZia’s primary purpose was to provide a transmission connection to renewable wind generation in New Mexico, several parties raised concerns about the certainty of such delivery of renewable energy and whether it would benefit Arizona.  Third, the developer of SunZia also had a large gas-fired generation project located along the line.  And, fourth, the proposed route included over 70 miles of “new” corridors, including the sensitive riparian areas of the San Pedro River.

During the Commission’s open meeting on the CEC, the Commission Chairman’s representative on the Line Siting Committee strongly questioned the need for the line.  However, after a two-day open meeting, the Commission ultimately approved the CEC by a 3-2 vote.  The concerns of the dissenting Commissioners focused on the lack of certainty about the need for the line.  These dissenting Commissioners were skeptical that the project would be of any benefit to Arizona and consistently questioned the Applicant about whether the project would really meet the need for an adequate, reliable and economical power.

As additional merchant transmission lines begin to be developed in the southwest United States to connect new generation resources to load, particularly renewable or non-coal resources, merchant developers need to take care to address “need” for lines crossing Arizona.  Although the SunZia line passed muster, the Commission has, in the not too distant past, rejected a transmission line due to lack of “need.”  In 2007, the Commission denied a CEC for a transmission line (the original Palo Verde to Devers II project) that would have allowed power from merchant plants built during Arizona’s short-lived dance with electric competition to be delivered to California.  In its decision, the Commission stated that “it is obvious that the line is not needed for Arizona’s resource adequacy” and that the primary beneficiaries of the line would be California ratepayers.  Decision No. 69638 (Docket No. L-00000A-06-0295-00130).  Depending on the specifics of a project and the composition of the Commission, “need” could short-circuit future transmission lines in Arizona.  Future applicants for such transmission would be wise to submit ample evidence demonstrating how Arizona and Arizonans will directly benefit from these projects.