When the California Public Utilities Commission approved construction of new transmission facilities for a 49-MW data center in Sunnyvale, it relied on a process typically used for distribution projects.
Under the process, data center owner Menlo Equities will pay the upfront costs for connecting to the grid and then be refunded for those costs once sufficient revenue is generated. The approach is intended to shield ratepayers from bearing the costs while allowing the company to eventually recover its expenses for upgrading the grid.
The data center requires energization upgrades on a much larger scale than the standard distribution-level customer, the CPUC said in its approved resolution, issued during the agency’s March 19 voting meeting.
Project work includes extending a 115-kV underground transmission circuit and adding a 115-kV circuit breaker, bus support structures, transformers and other equipment.
The CPUC applied the approach because the project’s transmission upgrades are “costly and should not fall on ratepayers if sufficient load does not materialize to offset costs,” the agency said in the resolution. “As a transmission customer, Menlo Equities would pay lower rates than distribution customers while at the same time potentially contributing to the need for broader transmission network upgrades in the region.”
Without the approach, ratepayer risk would increase if Pacific Gas and Electric receives insufficient revenue from the project. The data center’s forecast revenues are based on limited historical data and are uncertain.
“These factors indicate that energization of the Menlo Equities project presents a higher risk of stranded costs should revenue not materialize,” the CPUC said in the resolution.
The project’s transmission work is not fully addressed by PG&E’s Electric Rules 2, 15 and 16, which normally apply to distribution projects. Electric Rule 15 outlines the customer refund process, known as the Base Annual Revenue Calculation (BARC), for upfront payments of materials and labor.
BARC normally applies to distribution customers who have much lower energization costs, but applying BARC to this project would result in Menlo Equities receiving a full refund for its significant energization costs well before PG&E would recover sufficient net revenues, the resolution says.
The project’s new underground transmission line extension typically would not be eligible for refunds for another reason: BARC typically applies to PG&E’s 115-kV transmission line design for overhead lines.
But due to “extenuating circumstances,” such as easement issues and the possible negative impacts of an overhead line to safety, reliability and cost, BARC can be applied to this project, the resolution says.
To pay for the project, Menlo Equities will give PG&E a deposit for engineering work and long-lead time materials. PG&E’s cost would be considered a refundable amount.
The CPUC required PG&E to limit annual refunds to 75% of the utility’s annual net revenues received from Menlo Equities, along with a tax adjustment based on a modification to the standard BARC refund process, the resolution says.
The CPUC also extended the refund period for the project to 15 years to increase ratepayer protection, while allowing the Menlo Equities project to receive its full refund over time, the resolution says.
The commission is currently considering a standard rule for PG&E to address this kind of large load energization at the transmission level, the resolution says.
This is the third resolution in which the CPUC authorized use of a modified version of the BARC process for a data center project energizing at the transmission level, CPUC spokesperson Terrie Prosper told RTO Insider.
Also at the meeting, the CPUC approved a 115-kV switching station project for a 90-MW data center in San Jose. The data center owner, STACK, will design, procure and construct the station and then transfer ownership to PG&E.
Cal Advocates filed a protest against the project, saying the cost framework does not adequately prevent cost overruns from affecting ratepayers, according to the resolution.
