6. A Process for Review of Project Co-Funding When an IOU Seeks Contingent Approval by the Commission in Advance of Securing DOE Approval
The ACR proposed that in instances where an IOU desires the Commission's contingent approval of expenditures before federal action, the utility would be authorized to book its share of costs into a memorandum account and apply to the Commission for approval of the project. For those projects that would not require a CEQA review, a CPCN, or a permit to construct, the utility would be allowed to apply for Commission approval via an advice letter. For all other projects, the utility would be required to file an application seeking Commission approval.
6.1 Positions of Parties
Concerning the proposed review process, SDG&E states that the ACR "appropriately establishes a workable process to evaluate the issues and questions that should be addressed in the Commission's efforts to further facilitate Smart Grid access to Recovery Act federal resources."65
PG&E similarly supports this proposed process and states that it "is a workable and fair process that balances the need for expedited Commission approval with the need for an opportunity for the Commission and interested parties to review and comment in advance on the reasonableness of the rates required to support the non-federal share of project costs."66
TURN opposes this proposed review process, arguing that it:
... is not appropriate or reasonable, particularly for large scale projects or costs that could have a significant impact on rates. The proposal is not appropriate as well because of the lack of prior Commission evidentiary proceedings in which the type of projects, their costs and benefits, or the Smart Grid functionalities have been explored or evaluated by the public. The Public Utilities Code requires the Commission to determine the reasonableness of costs before such costs are included in rates or authorized to be included in rates.67
TURN argues further that:
It would not be appropriate or fair for this Commission to evade its statutory responsibility to consider proposals for recovery of costs incurred by utilities with a full evaluation and consideration of the evidence associated with the costs and benefits of these projects. The burden should not be on ratepayers to demonstrate imprudence or produce "clear and convincing" evidence of unreasonableness ...68
TURN does not see the need for an expedited process that approves ratepayer funds contingent upon a projects's receipt of DOE funds. Instead, TURN proposes an expedited process that would lead to an "endorsement of the IOU's proposal to DOE ..."69 If as a result of such a policy, "... an IOU would not otherwise submit the federal grant proposal without ... an order that would allow the IOU to include expenses or investments in rates," then TURN states that "proposals for Demonstration Grants that are relatively small scale might justify an expedited Commission review."70
For larger projects, TURN sees no need for departing from business as usual, stating:
With regard to any large scale expenditures, particularly those associated with Implementation Grants under Section 1306, these proposals should undergo a formal review process that requires the IOU to document the benefits and costs associated with its proposal, the potential impact on ratepayers if the costs were included in rates, and demonstrate why any expedited rate recovery would be necessary.71
Similarly, DRA opposes the major features of the proposed review process conducted in advance of DOE action. Instead, DRA proposes to:
· Limit the use of a Tier 3 Advice Letter process in Proposed Process 3 to situations where the IOU seeks no more than $15 million in California ratepayer funding and DOE provides at least 25% of a Smart Grid project's funding;
· Require an application if an IOU seeks more than $15 million in California ratepayer funding, or DOE provides less than 25% of project funding; and
· Require that the IOUs provide the Commission clear and itemized data in support of any Smart Grid project.72
DRA further recommends "an extended review period of 60 days" for the Tier 3 Advice Letter process.73
CLECA, similarly, notes that:
... no comment period is required under the Commission's rules of practice and procedure for an advice letter or resolution in a rulemaking. CLECA believes that it would be inappropriate for parties to be denied the opportunity to "protest" utility advice letters regarding Smart Grid projects ... 74
In addition, CLECA complains regarding the DOE Smart Grid funding proposals that:
It is already June 2009. ... there will be very limited time for a full review of the utility proposals.75
Still, CLECA recommends that where utilities seek pre-approval of matching funds:
... the Commission should hold a series of workshops on the proposals and solicit input from parties during the workshops and in post-workshop comments. This input should be explicitly sought from interested parties, even within what may be difficult time constraints.76
The CFC's comments advise against the pursuit of Recovery Act funds for the Smart Grid. CFC argues that "Smart grid upgrades are not `shovel ready.'"77 CFC does not support any review of utility projects in advance of DOE funding, arguing that:
Utilities which are not promised recovery of costs of a smart grid investment will be more selective about the project proposed to DOE, so that they will be able to subsequently make a showing to the Commission that the investment will be cost-effective, will improve system reliability and performance, and will provide real benefits to California.78
6.2 Discussion
As noted above, it is reasonable for the Commission to authorize each utility applying for DOE Smart Grid funding to establish a memorandum account to track the costs associated with projects for which Smart Grid funding by DOE is sought. For this reason, as discussed above, each IOU is authorized to track these costs from the effective date of this decision. Each IOU seeking a memorandum account to track these costs shall file an advice letter with the Commission within 30 days of the effective date of this decision.
Upon our review of the comments and our review of the final FOA for the Smart Grid Demonstrations and the final FOA for the Smart Grid Investment Grant Program, we believe that it is likely that the material submitted to the DOE will prove adequate to permit a determination by this Commission of the reasonableness of the rates required to support the non-federal share of project cost. Specifically, for both the Smart Grid Demonstrations and the Smart Grid Investment Grant Program, the DOE requires the submission of information on the costs and benefits associated with either the demonstration project or the investment. A comparison of the project benefits with the incremental utility share of project costs will permit the Commission to make a determination of the reasonableness of the commitment of ratepayer funds to these projects. If the information provided to DOE is adequately supported, it is likely that it will prove sufficient for reviews by this Commission.
Our review of the DOE application materials, however, indicates that when there is no DOE determination yet that a project merits funding to guide and focus this Commission's review, then the complex information contained in the DOE application is best reviewed by this Commission through an application process - not through an advice letter. As a result, we do not adopt the advice letter review process proposed in the ACR for projects seeking Commission approval in advance of DOE funding.
Finally, since the Commission's evaluation of the reasonableness of a project will assume that DOE is paying a certain portion of the project costs, a Commission decision approving a project may take a conditional form. In particular, the Commission may determine that it is reasonable for ratepayers to pay up to a certain percentage or amount of a project's costs. As a result, the Commission's approval of a project may be contingent on a commitment of DOE funds at a specific level. Subsequently, if the DOE funding meets the anticipated levels, then, unless otherwise stated in the Commission decision reviewing the project, further action reviewing the project may not be needed. The final project costs will, however, upon completion of the project be subject to a standard review in a general rate case or separate application that will incorporate the costs into rates.
If, however, the DOE fails to fund a project at the level upon which Commission approval is contingent and the utility wants to increase its contribution to the project and recover the additional contribution through rates, then it will be necessary for the project's proponent to provide new facts to the Commission and seek to demonstrate that a larger commitment of ratepayer funds is reasonable.
As noted above, in order to produce a timely review consistent with the goals of the Recovery Act, we adopt rules in advance of an application to facilitate the processing of such applications when they are made. In particular, it is reasonable to limit the protest period on the application to 15 days, rather than the 30 days otherwise provided in the Commission's rules. In addition, we decide now that applicants may reply to protests, with the reply due 7 days following the protest.
In summary, we find it reasonable to authorize each IOU to track costs related to Smart Grid projects for which it seeks DOE funding from the date of the effective date of this decision. Each IOU seeking a memorandum account to track these costs shall file an advice letter with the Commission within 30 days of the effective date of this decision. If an IOU desires Commission approval in advance of a DOE decision on project funding, it may file an application requesting Commission approval and demonstrating that it is reasonable for the Commission to approve ratepayer funds for these projects.
65 SDG&E Comments at 3.
66 PG&E Comments at 3.
67 TURN Comments at 8.
68 TURN Comments at 9.
69 Id. at 11.
70 Id., emphasis added.
71 Id.
72 DRA Comments at 12-13.
73 Id. at 10.
74 CLECA Comments at 7. CLECA fails to note that independent of a comment period on a resolution resolving the issues in an advice letter, parties have full opportunities to protest the advice letter itself. CLECA's comments appear to conflate commenting on a resolution with protesting and/or commenting on an advice letter. The ACR made no proposal that would change any party's opportunity to protest an advice letter filing.
75 Id. at 8.
76 Id. at 9.
77 CFC Comments at 7.
78 Id.
