16. Operation of Ratemaking Accounts
SCE has provided testimony to the review of the following accounts:
· ERRA;
· Base Rate Revenue Requirement Balancing Account (BRRBA);
· Nuclear Decommissioning Adjustment Mechanism (NDAM);
· Public Purpose Programs Adjustment Mechanism (PPPAM);
· CARE Balancing Account (CBA);
· Energy Settlements Memorandum Account (ESMA) and Litigation Cost Tracking Account (LCTA);
· Automated Meter Infrastructure Memorandum Account and Automated Meter Infrastructure Balancing Account (AMIBA)/SmartConnect Balancing Account;
· Demand Response Balancing Account;
· Department of Energy Litigation Memorandum Account (DOELMA);
· Market Redesign and Technology Upgrade Memorandum Account (MRTUMA);
· New Systems Generation Memorandum Account (NSGMA);
· Project Development Division Memorandum Account (PDDMA);
· Results Sharing Memorandum Account (RSMA); and
· Demand Response Programs Balancing Account.
In this proceeding, SCE requests cost recovery of $265,000 for the DOELMA, $5,160,000 for the MRTUMA, $26,051,000 for the NSGMA, $3,910,000 for the PDDMA, and $410,000 for associated franchise fees and uncollectibles, all of which total $35,796,000.
In its prepared testimony, DRA indicates that it reviewed all of the accounts and noted no exceptions, except for the four accounts where SCE requested cost recovery. However, in its opening brief, DRA indicates that, based on additional workpapers that SCE provided in rebuttal testimony, it now recommends that SCE be allowed to recover the full NSGMA amount. In addition, DRA recommends that in the future, non-ERRA balancing and memorandum accounts for SCE, Pacific Gas and Electric Company (PG&E) and San Diego Gas & Electric Company (SDG&E) be combined together and submitted in a separate reasonableness review proceeding.
Based on the testimonies of SCE and DRA regarding the amounts and dispositions of the ratemaking accounts, we have determined the following for the Record Period:
1. The operation of and entries in the ERRA, BRRBA, NDAM, PPPAM, and CBA as presented by SCE in Exhibit 2 are appropriate, correctly stated, and in compliance with Commission decisions.
2. The amounts recorded in the ESMA and the LCTA are appropriate, correctly stated, consistent with Commission orders, and reasonably incurred.
3. The entries recorded in the RSMA are appropriate, correctly stated, and in compliance with prior Commission decisions.
4. The amounts recorded in the NSGMA totaling $26,051,000 (representing $25,854,000 of expense and $197,000 of interest) are reasonable, correctly stated, in compliance with Commission decisions, and recoverable.
5. The recorded demand response program costs for the 2006 - 2008 program cycle, as shown in Exhibit 2, Table XII-34, are consistent with prior Commission decisions and reasonable.
6. The Phase II and Phase III costs recorded in the AMIBA and SmartConnect Balancing Account were properly recorded, consistent with the categories adopted in D.07-07-042 and D.08-09-039, and recoverable. Also, SCE should be granted authority to eliminate the AMIBA ratemaking mechanism from its tariffs.
Issues relating to the MRTUMA, PDDMA, DOELMA and DRA's proposal for a separate review process for non-ERRA accounts are discussed below.
16.1. MRTUMA
Through a series of orders issued by the Federal Energy Regulatory Commission (FERC), the CAISO began an overhaul of its approach to managing transmission congestion and began to engage in a more comprehensive redesign of its market structure, including the creation of a day-ahead energy market to replace the defunct California Power Exchange markets. The FERC orders provided direction to the CAISO on further development of a new MRTU market design to address structural flaws in the current CAISO's electricity markets.
The MRTU design involves a comprehensive overhaul of the electricity markets administered by the CAISO, and adoption of a new network model that will accurately reflect operations of the CAISO-controlled grid. SCE must undertake major internal computer system changes to ensure integration with the new MRTU systems.13
On February 9, 2006, the CAISO filed its MRTU tariff with the FERC. The MRTU tariff was filed as a result of years of study, stakeholder input, coordination with state authorities, and FERC guidance to address the structural flaws in the CAISO's current electricity markets. Market participants, including SCE, are bound to comply with the ultimate FERC-approved MRTU tariff. Furthermore, SCE must also comply with the MRTU tariff to conform with FERC regulations and existing legal agreements of the CAISO.
On May 24, 2007, the Commission issued Resolution E-4087 authorizing SCE to establish the MRTU Memorandum Account to record its incremental costs associated with the CAISO MRTU initiative. Incremental costs represent the amounts SCE has recorded in the MRTUMA that are in addition to the portion of SCE's current authorized General Rate Case (GRC) revenue requirements for the funding of the CAISO's MRTU initiative. In SCE's 2006 GRC decision, D.06-05-016, the Commission adopted SCE's $4.4 million request for software and hardware expenditures associated with the CAISO's MRTU initiative. To ensure that it does not double recover its MRTU expenditures, SCE states that it will reduce its actual recorded MRTU capital expenditures by the Commission-authorized expenditures reflected in SCE's GRC rate levels.
SCE states that no incremental capital-related revenue requirement was recorded in the MRTUMA during 2007 and 2008. During this time, SCE recorded O&M expenses in the MRTUMA associated with the MRTU-related costs associated with the incremental activities.14 Specifically, after May 24, 2007, SCE incurred $3.4 million for consultants and related information technology efforts. In addition, $0.8 million of internal labor was incurred in MRTU design and development efforts. Of these amounts, $2.5 million was incremental to GRC-authorized amounts. In 2007, SCE indicates that it incurred non-incremental O&M expenses of $35.1 million prior to recording the $2.5 million incremental MRTU-related O&M expenses in the MRTUMA.
During the 2008 Record Period, SCE states that a total of $4.2 million was incurred in MRTU design and development efforts, of which $2.6 million was incremental to GRC-authorized amounts. In 2008, SCE incurred non-incremental O&M expenses of $36.3 million prior to recording the $2.6 million incremental MRTU O&M expenses in the MRTUMA.
SCE requests the Commission to find that the $5,160,000 in costs recorded in the MRTUMA are reasonable, indicating that upon a Commission finding that these costs are recoverable, SCE will transfer the ending balance, with accrued interest through the date of transfer, to the generation sub-account of the BRRBA.
DRA believes the reasonableness of the $5.1 million being requested by SCE is inextricably linked to the total cost of implementing MRTU. SCE stated in Data Request Response 2.6.4 and 4.6.1, "SCE did not request recovery of any capitalized software or capitalized hardware costs in support of MRTU for 2007 or 2008 in its April 1, 2009 ERRA application, A.09-04-002. Instead, SCE will request recovery of these costs in its April 1, 2010 ERRA application-after the work orders for these costs are closed. In light of the foregoing, SCE is not providing the requested information at this time because it is outside the scope of this proceeding." DRA disagrees with that assertion and believes a full assessment of the reasonableness of MRTUMA costs cannot be made without all incremental MRTU costs should being accumulated in MRTUMA for reasonableness. DRA states that it has not been provided the details of all incremental expenditures to determine, for example, the extent of capitalization of any other O&M expense or possible capital impacts of these costs, which it believes is critical information needed in the determination of prudency and reasonableness of SCE's MRTUMA request. Therefore, DRA recommends that:
· The Commission deny SCE's $5.1 million request for O&M cost recovery in this proceeding;
· The $5.1 million request for O&M cost recovery be combined with SCE's Application in a separate proceeding after all current work orders for 2007 and 2008 have been closed;
· All expense amounts related to MRTU activates be recorded in FERC accounts by labor, non-labor and other expenses and outside services contracts be recorded in FERC Account 923; and
· All expenditures associated with MRTU be submitted as required in by the Commission in D.09-03-025.
In response to DRA's recommendations, SCE makes the following points:
· SCE does not record its direct capital expenditures in the MRTUMA because SCE does not recover capital expenditures in the same manner as it recovers an expense. Rather, SCE recovers the capital costs over the life of the project (i.e. each month SCE records the depreciation, return on rate base, and associated taxes). During the construction phase, the capital expenditures are recorded in a capital work order and an Allowance For Use During Construction (AFUDC) is added, among other items. These capital expenditures accumulate in the work order and are recorded on SCE's balance sheet as Construction Work In Progress (CWIP). Once the capital project goes into service, SCE starts to depreciate the asset and AFUDC ceases to be added. At that time, SCE begins to record the depreciation, return on the rate base, and associated taxes in the MRTUMA. Therefore, during the 2008 Record Period, the MRTU-related revenue requirement recorded in the account only included the incremental O&M and not any capital since there was not a capital-related revenue requirement until the project went into service in April 2009.
· Language in Resolution E-4087 (at 5-7) makes clear that the Commission intends that: (1) SCE should be allowed to request recovery of any amounts recorded in the MRTUMA on an annual basis in its ERRA Review proceedings; (2) costs associated with the implementation of MRTU will be incurred over several years; (3) there is no need to defer recovery of O&M or other costs recorded in any given year until the capital project orders related to that year have closed; and (4) SCE has made specific arrangements to protect against double recovery of MRTU-related costs from year to year. The fact that future costs remain uncertain is what prompted the Commission to authorize the recovery of recorded costs through a memorandum account once SCE has demonstrated that the recorded costs are reasonable. With this approval process in place, no purpose would be served by adopting DRA's proposal that SCE should be prevented from requesting recovery of any costs related to a given year until all capital-related project work orders for that year have closed.
· In D.09-03-025, the Commission did not rule that SCE must await recovery of any MRTU costs until all costs over the multi-year development period of the program have been recorded. Rather, it ruled that SCE must record all categories of MRTU costs (i.e., capital-related, O&M, and others) in the account to be reviewed for reasonableness before they can be recovered. This applies both to 2007-2008 costs, and to 2009-2011 costs. But the fact that the costs are to be reviewed in the annual April ERRA proceedings (that is, each year), clearly indicates that the costs will be reviewed as they are recorded - recovery in one year need not wait for costs in subsequent years to be incurred and recorded.
In summary, SCE states that in accordance with Resolution E-4087, it has recorded MRTU-related incremental O&M for 2007 and 2008 in the MRTUMA and is seeking recovery of those costs in this ERRA proceeding. SCE has not requested recovery of capital-related revenue requirements for 2007 and 2008 in this proceeding, since no capital projects were closed during those years and no capital-related revenue requirement amounts were recorded. The capital-related revenue requirements for 2007 and 2008 were recorded once the project work orders closed in April 2009 and will be included in the April 2010 ERRA (covering the 2009 Record Period). The MRTUMA as presented in this proceeding includes all MRTU related costs that were incurred during 2007 and 2008, in compliance with the Commission's directives. SCE also states that it has submitted all relevant information to demonstrate that these costs are incremental and reasonable.
In general, there is logic to DRA's recommendation that capital project costs and associated expenses be reviewed together. It cannot be known if such costs were prudently incurred until it is at least known that the project itself has been completed and is accomplishing what it was intended to do. Also, until the project is completed, it is not known whether additional similar expenses will be necessary. That is, it would be difficult to determine whether certain costs to accomplish certain tasks are reasonable, until it is known with certainty what the final amount of the cost are. However, it is not be necessary to wait several years until MRTU is completed in order to determine whether such costs were reasonably incurred. This can be accomplished as certain phases are completed or even on a work order basis, if the expenses are related to the capital costs in that manner. While there may be expenses that are not linked or related to specific capital projects, the record is insufficient to make that determination. Without information on the capital projects or work orders it is not possible to determine whether any of the expenses are associated with specific capital work and would be better reviewed as such.
Moreover, in this proceeding, there is insufficient record evidence for the Commission to determine whether or not the requested costs were reasonably incurred. While SCE has generally explained what the expenses were for (primarily labor associated with certain activities), it does not provide an accounting of the incremental costs associated with each activity or a description of what was specifically accomplished with the incremental funds for each of the activities.15 SCE's showing is insufficient to determine whether the expenses at issue were reasonably incurred to implement the CAISO's MRTU initiative.
Therefore, as recommended by DRA, we will defer addressing the reasonableness of the $5.1 million in expense requested by SCE and allow SCE to include that request and make an appropriate showing in its already filed ERRA Review application for the 2009 Record Period, where SCE has indicated its capital revenue requirement associated with capital costs that were incurred in 2007 and 2008 will be addressed. In that way, if necessary, capital costs and related expenses can be analyzed together.
With respect to DRA's recommendation that MRTU expenses be recorded in FERC accounts, that is generally the case for all utility related expenses. We assume the process to record expenses by FERC account is already in place; but, if not, SCE should do so.
With respect to DRA's recommendation that all expenditures associated with MRTU be submitted as required by the Commission in D.09-03-025, there is no need to make any changes to what SCE is currently doing and plans to do. DRA is apparently troubled because capital costs are not being reflected in the MTRUMA. SCE explains that as capital projects are completed, the capital related revenue requirements associated with those projects will be booked into the MRTUMA. This is appropriate because it is the capital related revenue requirements that directly translate to rates. Moreover, recovery of the capital related costs does not begin until the project is completed and in service.
16.2. DRA Proposal for a Consolidated Proceeding
for MRTU Costs
DRA states that it is troubled by the inconsistent applications for recovery of MRTU and ISO New Market costs by the IOU's (SCE, PG&E and SDG&E). According to DRA, because of the newness of the `ISO New Market Model' and the common factors driving all three IOU's reasonableness requests, their applications should be reviewed at the same time in a consolidated proceeding that is separate from the instant application. DRA states that (1) the MRTU and `ISO New Market' projects are unique, and although the implementation costs for each IOU are different, they are driven by common factors namely CAISO directives and common FERC Tariff and comparable technical requirements; (2) neither the costs nor the cost/benefit effectiveness were considerations in project design; (3) not only are complete implementation cost showings for SCE not available for capital and O&M for 2007 and 2008, the ability to forecast Long-Run Marginal Price from these investment are years away; and (4) the MRTU project is complex and its future performance is currently are unknown. Therefore, DRA asserts that it is imperative for the Commission to track MRTU project costs and its impacts in order facilitate a comprehensive reasonableness review of MRTU implementation.
DRA argues that the best approach for a comprehensive review would be to treat the MRTU Release 1 costs incurred by all of the IOU's in a consistent manner, best achieved by having an MRTU specific application from each IOU and considering those applications in a single consolidated proceeding.16 DRA asserts that this approach is not new, in that it has been used in Resource Adequacy, Demand Response, Energy Efficiency, and Low Income cases, and such a consolidated approach better ensures that the Commission treats similar issues in a similar fashion, and best protects ratepayer interests. DRA believes SCE's request is premature and recommends a consolidated proceeding for the major IOUs be scheduled for June or July of 2010. This would allow time for DRA to develop a consistent format and set of Master Data Request questions for all three IOUs to address. Both SCE and PG&E filed their requests before they had completely closed their books on MRTU Release 1, while PG&E combined their request in a forecast proceeding format, it was still incomplete.
SCE opposes DRA's proposal for a consolidated proceeding for MRTU costs, arguing that the Commission has already ruled that it is appropriate for the MRTUMA to be included in the ERRA Review proceeding. Specifically, in Resolution E-4087, the Commission required SCE to seek recovery of costs recorded in the MRTUMA in this proceeding, and SCE states this issue should be considered settled.
With respect to DRA's argument that a comparative review of the IOUs' costs is appropriate because "the IOUs are driven by common directives, tariff structure[s], and technical requirement[s]," SCE states this is not entirely accurate. According to SCE, it is true that all market participants are driven by common factors and the CAISO tariff; however, the manner in which each IOU approaches the requirements can be wholly different. As an example, CAISO provides a portal to submit MRTU market bids and information, known as "Scheduling Infrastructure Business Rules" (SIBR). According to SCE, market participants can manually enter their bid and schedule data in SIBR; alternatively, they can streamline the process through an application programming interface that can be used to interface with the participants' internal systems. In this case, SCE states it implemented the latter solution for a number of reasons, not the least of which is the sheer volume of resources and transactions for which SCE is responsible. However, SCE adds that other participants made their own decisions on internal solutions based on their unique requirements, and it is incorrect to assume that all participants' implementation costs should be comparable, simply because the same CAISO rules apply to everyone.
SCE also argues that DRA's argument should be rejected, because it overstates the "commonality" of the IOUs' implementation efforts. According to SCE, a direct comparison of the IOUs' MRTU implementation efforts is inappropriate because the three IOUs had different resource portfolios, customer demands, reliability issues, and information systems in place prior to MRTU that had to be modified or replaced.
SCE is also concerned that DRA is interested in having the Commission perform a much broader assessment than the one prescribed in Resolution E-4087. SCE cites DRA's testimony where DRA initially proposed a set of 16 factors that it claimed should be considered as part of the Commission's reasonableness review of SCE's and the other IOUs' cost to implement MRTU. SCE notes that although DRA does not reference these factors in its opening brief, it nonetheless continues to assert that a "comprehensive" review of MRTU is required and that the IOUs' respective MRTU software must be verified, validated, and reviewed by the Commission. It is SCE's position that this kind of review is totally inappropriate as it is beyond the scope of the review prescribed in Resolution E-4087. SCE notes that the Commission recently reaffirmed the limited scope of review of the IOUs' MRTU-related recorded costs in its final decision in PG&E's June 2009 ERRA Forecast proceeding (A.09-06-001), D.09-12-021:
Although this decision denies PG&E's Motion to include MRTU-related costs on procedural grounds and defers the issue to PG&E's ERRA Compliance filing (or separate application), the Commission notes that the scope of its review of PG&E's MRTU costs is not necessarily a traditional reasonableness review. The MRTU project is a project mandated by regulatory and reliability requirements of the California Independent System Operator and Federal Energy Regulatory Commission. Therefore, the Commission expects the review of these costs to primarily focus on whether the costs can be verified and are incremental. (At 3, footnote 2).
According to SCE, the Commission has not required that IOUs make a broader showing to recover their costs associated with the implementation of MRTU, and the "comprehensive" review that DRA is advocating would seek to second-guess the policies and decisions adopted by the CAISO and FERC in a federally-mandated program under which SCE is required to operate. SCE states that such review is inappropriate, and risks introducing confusion and uncertainty into a complex, federally-mandated program, and the Commission should therefore continue to restrict its role to determining whether the costs recorded in the IOUs' MRTU memorandum accounts are incremental and verifiable.
While there is commonality in most costs incurred by the three IOUs for their electric operations, the review of such costs are generally performed on utility specific bases, mainly due to the need to establish separate rates for each of the IOUs. In establishing such rates, the particular circumstances of each utility are considered and, in general, such consideration overrides direct comparisons with other utilities. However, there may be value in developing common programs and requirements for a number of utilities in a single proceeding. DRA cites the examples of resource adequacy, demand response, energy efficiency and low income cases where the Commission has done so.
In determining whether or not we should consolidate the evaluation of MRTU Release 1 costs for the three IOUs in a single consolidated proceeding, we considered three points. First, MRTU is the result of numerous CAISO stakeholder processes and FERC orders. We do not intend to assess the reasonableness of MRTU or the associated requirements imposed on the IOUs. Consequently, there is no need for a single comprehensive proceeding to do so.
Additionally, while the IOUs' MRTU efforts are driven by common directives, tariff structures, and technical requirements, SCE's assertion that the manner in which each IOU approaches the requirements can be wholly different is not disputed by DRA. Based on the available evidence, we see little benefit, at this time, in consolidating the IOUs' MRTU related proceedings and then having to determine the reasonableness of each particular utility's actions when considering each utility's particular circumstances, such as resource portfolios, customer demands, reliability issues, and information systems in place prior to MRTU.
For these reasons, we will deny DRA's request for the review of all three IOUs MRTU Release 1 costs in a single proceeding. At this point, we are satisfied that reviewing SCE's MRTU Release 1 costs in its ERRA compliance filing for the 2009 record period is reasonable. However, we recognize this determination is based on the record of this proceeding, which does not include any showings related to any of the IOUs MRTU Release 1 capital costs. Without such showings it is not possible to say for certain that a consolidated proceeding would not be beneficial. For this reason, while we address DRA's request now based on the available evidence, today's decision does not preclude a different outcome with respect to consolidation, if requested in subsequent ERRA Review filings.
16.3. PDDMA
In A.04-12-014, SCE requested $4,950,000 in expenses to fund its Project Development Division (PDD). PDD's primary identified function was to analyze, develop, and propose for Commission approval, cost-effective, utility-owned generation opportunities consistent with SCE's long-term procurement plan. These opportunities could include new plant construction, repowering, joint-ventures, purchasing shares in new or existing facilities, or other commercial arrangements. Secondarily, PDD would provide the Resource Planning and Strategy organization with data regarding construction costs, project economics and the commercial feasibility of future resource supply levels, as requested, to assist in long-term procurement forecasting.
In D.06-05-016, the Commission denied base rate recovery of PDD expenses that were associated with specific proposed projects. Such costs should instead be included in the capital costs of the project and recovered if and when the project is completed. This would subject SCE to the same risks as independent producers whose development costs for unsuccessful projects are not recoverable from ratepayers. However, the Commission agreed with SCE that to an extent PDD would support the future of new generation in California even if they do not develop any projects. Such support functions include: (1) identifying locations for new generation, (2) evaluating generation technologies, (3) tracking regulatory and legislative generation-related initiatives, and (4) the development of the "Best Option Outside Negotiation" for future generation needs. These support functions were determined to be desirable and the Commission concluded that SCE should be allowed rate recovery for these costs. However, since these particular costs had not been segregated and identified, they could not be included in rates on a forecast basis. Therefore, the Commission authorized the establishment of a memorandum account to accumulate the costs, indicating that the costs could be recovered in future rates to the extent they are incurred, to the extent that SCE can justify their supportive nature, and to the extent that the total recorded PDD costs do not exceed SCE's forecasted amount of $4,950,000 for the PDD.17
In this proceeding, SCE requests a finding of reasonableness for $3,910,000 in expenses associated with PDD for 2008. In its testimony, DRA stated that this is a 38% increase over 2007, asserted SCE has not provided enough supporting and detailed evidence concerning the costs and expenditures to warrant ratepayer recovery, and recommended the cost be disallowed because SCE failed to meet its burden of proof.
In rebuttal, SCE states that its request is supported by the testimony, workpapers and data request responses, and that the supporting information is the same as that provided in prior ERRA Review applications.
In its opening brief, DRA now recommends a disallowance of $587,928, asserting that this amount represents costs that are associated with three capital projects and should be recovered through the capital recovery of those three projects, if approved by the Commission. DRA is apparently no longer pursuing its argument that SCE has failed to meet its burden of proof.
In reply briefs, SCE states that these costs were incurred before the applications for the three projects were filed and consisted of support functions that the Commission authorized in D.06-05-016. SCE further states that the Commission drew a distinction between PDDMA-eligible supportive costs, which may or may not result in a proposed new project, and non-eligible costs that are in fact associated with a proposed project. SCE adds that this DRA proposal whereby SCE would wait to recover costs associated with support activities that do lead SCE to pursue a specific project until (and only) if the Commission approves the related decisions, renders the entire purpose of the PDDMA moot.
SCE also takes issue with DRA introducing its new argument after the evidentiary record for this proceeding has concluded. It is SCE's position that it is inappropriate and the Commission should disregard DRA's new argument for a disallowance.
With respect to DRA's initial recommendation related to burden of proof, DRA did not explain what aspects of SCE's showing were deficient. However, as noted above, D.06-05-016 specified three requirements for rate recovery of PDD costs. The costs must be incurred, they must be supportive in nature and not project specific costs, and in any year they must total less than $4,950,000. The recorded cost for 2008 is $3,834,930 for 2008. Also, workpapers for SCE's testimony18 include a description of the various PDD costs for 2008. The descriptions generally are for identifying locations for new generation and evaluating generation technologies and appear consistent with the allowable functions identified in D.06-05-016. SCE's showing is sufficient and meets its burden of proof obligations.
With respect to DRA's disallowance recommendation that is described in its opening brief, we will clarify the purpose and intent of the Commission's determinations in D.06-05-016.19 The purpose of the PDDMA is to allow SCE cost recovery of appropriate supportive costs that are not associated with a specific project. The Commission saw value in the support functions identified in D.06-05-016 and determined they should be funded in rates. It was recognized that SCE might not propose a project as a result of the supportive expenditures, and even if did, its proposal might never be authorized. However, the Commission's intent in D.06-05-016 was that, regardless of whether or not SCE proposed or built a project, SCE should be given the opportunity to recover those supportive costs that meet the requirements identified in the decision. Use of the PDDMA for all appropriate supportive costs meets that intent. Therefore, we will not adopt DRA's recommendation, and conclude that SCE should be allowed recovery of $3,834,930 in PDD costs for 2008.
16.4. DOELMA
SCE filed a complaint against the DOE in the Federal Court of Claims on January 29, 2004, alleging that DOE had breached its contracts with SCE under which the DOE agreed to take title to, and dispose of SONGS spent nuclear fuel beginning on January 31, 1998. SCE had entered into standard contracts for such disposal with the DOE as a condition of SONGS operating licenses with the NRC.
The Court of Claims determined that the DOE had breached its standard contracts with SCE and other nuclear utilities. As a result of the DOE breach, SCE is entitled to recover damages though litigation and retain outside legal counsel to pursue such damages.
On January 4, 2007, SCE filed Advice Letter 2085-E to request Commission authority to establish the DOELMA. In accordance with the advice letter, SCE records the difference between the incremental litigation costs incurred, and damages and other proceeds received from the federal government. These expenses include, but are not limited to, the following:
· Outside counsel incremental costs;
· Expert witnesses incremental costs;
· Other outside litigation-related costs; and
· Proceeds and damages received from the federal government.
SCE incurred costs of $0.265 million in 2007 and 2008 for DOELMA activities, including interest related to the DOELMA monthly balances.
SCE requests that the Commission find the costs recorded in the DOELMA are properly recorded, consistent with Advice Letter 2085-E, and are reasonable and recoverable.
Although DRA does not take issue with the reasonableness of the expenditures in this account, it believes that a determination regarding this account is not and should not be a part of this Application.
The Resolution (E-4066, March 15, 2007) that authorized the opening of the account, along with the underlying Advice Letter, authorizes SCE to recover the funds as follows:
At a future date, SCE shall make a proposal to dispose of the net amount recorded in the DOELMA in an application before the Commission. In its application, SCE shall also justify the reasonableness of its incremental litigation costs recorded in the DOELMA.
Thus, it is DRA's position that the Commission did not order that this account be addressed in ERRA, but by way of "an application." This is different from other accounts, like the PDDMA and the NSGMA, which were ordered to be addressed in an ERRA related application. The Commission's stated in the Scoping Memo that:
Since the Commission has previously determined that certain non-ERRA accounts should be included in SCE's ERRA compliance filing, it is appropriate for SCE to do so and appropriate for the Commission to address these accounts as part of this proceeding.
DRA asserts that DOELMA is not one of those accounts, and SCE should be ordered to submit its request for recovery of this litigation account when the litigation is concluded and in a separate application.
SCE explains that the Commission specifically required three non-ERRA accounts to be presented in this proceeding (i.e., the MRTUMA, NSGMA, and PDDMA). While the Commission has not required SCE to present its remaining non-ERRA accounts for review here, SCE decided to include these accounts in its ERRA Review application based on prior Commission decisions that have confirmed the ERRA Review proceeding as an appropriate forum for reviewing non-ERRA accounts. Based on these Commission decisions, as well as prior practice, SCE elected to include the DOELMA in its April 2009 ERRA Review Application. SCE indicates that this is not inconsistent with the statement in Advice Letter 2085-E that SCE must present its recorded costs for review in "an application," since this proceeding is an application.
SCE adds that in the Scoping Memo, the Commission left it to DRA to justify why non-ERRA accounts should be presented for review in the future, via a separate application:
DRA may include this issue as part of its direct testimony, with the understanding that any Commission determined changes as to where, or how, these non-ERRA accounts are reviewed would only relate to the timeframe of future SCE ERRA compliance filings, not to the instant proceeding. (At 5.)
According to SCE, the Commission's ruling makes clear that in the present ERRA Review proceeding it is appropriate to review SCE's non-ERRA accounts, including the DOELMA. Since DRA has now indicated that it has reviewed this account and does not take issue with SCE's costs recorded therein, SCE asserts that the Commission should therefore find that SCE's costs recorded in this account are reasonable and recoverable.
With respect to the disposition of amounts recorded in the DOELMA, SCE proposed:
At a future date, SCE will file an application with the Commission proposing disposition of the net amount recorded in the DOELMA. In its application, SCE will also justify the reasonableness of incremental litigation costs recorded in the DOELMA. Thus, the Commission and interested parties will have an opportunity in a formal proceeding to conduct a thorough review of amounts recorded in the DOELMA. (Advice Letter 2085-E at 2.)
In Resolution E-4066, dated March 15, 2007, the Commission determined that, "SCE shall file a formal application to address the disposition of the DOELMA." (At 7.)
It is clear that disposition of the DOELMA account should be done by application primarily to accommodate review of the recorded amounts. However, SCE proposed, and the Commission determined, that disposition would be through an application, indicating one application and one review, and not a number of applications and reviews that are necessitated by SCE's current request that reflects only a portion of the costs and no proceeds. Furthermore, SCE itself proposed that its application would dispose of the net amount recorded in the DOELMA. Disposition of the net amount cannot occur until after the litigation has been completed and all costs and proceeds are known. Finally, in requesting establishment of DOELMA, SCE asserted that the proceeds would far exceed the incremental litigation costs. The Commission stated a similar expectation in authorizing the DOELMA and providing cost recovery of the litigation costs. It would be premature to authorize incremental cost recovery at this time since there is no assurance that proceeds in excess of costs will be realized. SCE should request disposition of the DOELMA after all costs and proceeds are known. We will allow SCE to do so in a future ERRA Review proceeding or by separate application.20
With respect to SCE's claim that the Scoping memo precludes DRA's recommendation, we disagree. The point of the identified scoping memo discussion was to indicate that non-ERRA requests by SCE in this proceeding would be addressed in this proceeding and DRA's idea of a consolidated proceeding for non-ERRA accounts would apply prospectively only. DRA's recommendation is based on its assertion that SCE's request should never have been filed in this proceeding at all, which is different and appropriate for consideration now.
16.5. DRA Proposal for a Consolidated
Proceeding for Non-ERRA Accounts
DRA identifies several non-ERRA accounts that have been ordered through Commission Decisions to be addressed in SCE's ERRA proceedings. These accounts include BRRBA, CARE, DRPBA, NSGBA, NDAM, PPPAM, PDDMA, RSMA, and SCBA. Additionally, through Commission Resolutions the ESMA, LCTA, MRTUMA and DOELMA are to be addressed in ERRA proceedings.
DRA believes it would be appropriate to address many non-ERRA accounts collectively for all three IOUs. DRA seeks clarification from the Commission regarding the appropriateness of including non-ERRA accounts in the ERRA proceeding and urges that a consistent mechanism or approach be adopted and makes recommendations along those lines. Specifically, DRA recommends that SCE, PG&E, and SDG&E should not submit non-ERRA balancing and memorandum accounts in any ERRA proceeding. Instead, these non-ERRA accounts should be combined together and submitted in a separate reasonableness review proceeding. DRA recommends that all three IOUs be ordered to file these non-ERRA account review applications simultaneously and that they then be consolidated. According to DRA, such a system would allow similar accounts to be compared across IOUs, for these same accounts to be addressed faster than if they were added to the individual IOU's General Rate Case, and would take them out of the ERRA process.
To support its position, DRA surveyed all balancing and memorandum accounts used by SCE, PG&E, and SDG&E.21 The survey of SCE showed that of the 50 accounts it identified, it anticipates it may submit as many as 33 different accounts for review in its annual ERRA Compliance proceedings. The survey of SDG&E showed that of the 37 accounts SDG&E identified, SDG&E anticipates it may submit for review in its future annual ERRA Compliance proceedings for as many as 6 different accounts. For 2008, DRA indicates that SCE submitted 14 non-ERRA accounts for review, PG&E submitted the ERAA balancing account only, and SDG&E submitted two non-ERRA accounts for review.
DRA acknowledges that each IOU has included many non-ERRA balancing and memorandum accounts pursuant to Commission approval. Although the IOUs usually obtained Commission approval to submit these additional accounts in the ERRA Compliance proceedings, these approvals were over a period of several years. The total number of these non-ERRA accounts included in the ERRA Compliance proceedings has grown and continues to grow. Generally, PG&E and SDG&E each submit non-ERRA accounts in other proceedings such as the Annual Electric True-Up (AET) Proceeding, Low Income Energy Efficient, and Energy Efficiency Proceeding.
DRA states that all non-ERRA balancing accounts and memorandum accounts require reasonableness reviews, the scope of which is different from a compliance review, and believes reviews of the IOU's non-ERRA accounts are best suited for reasonableness review proceedings.
SCE does not agree with DRA and recommends that the Commission should continue to examine non-ERRA Accounts in the ERRA review proceeding. SCE explained why the Commission's review of these accounts in the ERRA Review proceeding was appropriate in its reply to DRA's protest to the application. In particular, SCE explained that the Commission and DRA had reviewed these accounts in at least the past four ERRA Review proceedings. SCE also cited certain Commission decisions and resolutions that require review of these accounts in the ERRA Review proceeding. Finally, SCE noted that the Commission-approved tariff language in all but one of the accounts that SCE presented for review in this proceeding specifies that they are to be reviewed in the ERRA Review proceeding.
Additionally, SCE notes that the Scoping Memo left it to DRA to develop a record justifying why these accounts should be removed from the ERRA Review proceeding and consolidated for review in a separate proceeding. In particular, the Commission observed the following issues that would need to be addressed before such a finding could be made: (1) the extent of the problems related to addressing non-ERRA accounts in the ERRA proceeding; (2) where and how the other IOUs address each of the non-ERRA accounts presented by SCE in this proceeding; and (3) why it would be appropriate to override previous Commission determinations that certain non-ERRA accounts should be addressed in SCE's ERRA Review proceeding.
It is SCE's position that DRA has either ignored or failed to sufficiently address these issues in its Report. Furthermore, DRA has not explained the extent of problems related to addressing these non-ERRA accounts in this proceeding. Instead, it just observes that the number of non-ERRA accounts in SCE's ERRA proceedings "has grown and continues to grow." According to SCE, this observation by itself does not justify the Commission finding that review of these non-ERRA accounts is problematic, especially when DRA has not stated that it is having difficulty reviewing these non-ERRA accounts in this proceeding, and has successfully reviewed these accounts in past ERRA proceedings.
Finally, with respect to DRA's argument that these accounts should be removed from this proceeding because they require reasonableness review, instead of compliance review, by the Commission, SCE explains that the Commission has not limited the ERRA Review proceeding to only a review of the utility's compliance with its procurement plan and SOC 4. For example, the Commission has considered the reasonableness of forced outages in prior ERRA Review proceedings, as well as in this proceeding. In addition, the Commission also reviews the reasonableness of SCE's administration of various contracts in the ERRA Review proceedings.
We will not adopt DRA's recommendation that SCE, PG&E, and SDG&E should not submit non-ERRA balancing and memorandum accounts in any ERRA proceeding, but that instead, these non-ERRA accounts should be combined together and submitted in a separate reasonableness review proceeding.
First of all, we do not fully understand DRA's recommendation. DRA has not specified which accounts should be included in its proposed consolidated reasonableness review proceeding. It is not clear that each and every balancing or memorandum account that is identified (50 for SCE, 77 for PG&E and 37 for SDG&E) requires a reasonableness review. Also, there may be accounts where costs are being recorded or accumulated but a separate application is required for cost recovery. If DRA's recommendation is that non-ERRA accounts that are, or are anticipated to be, submitted in ERRA proceedings should instead be reviewed in a separate consolidated proceeding, that recommendation does not appear justified. DRA's information indicates that while SCE may include as many as 33 non-ERRA accounts in future ERRA compliance review filings, PG&E, in general, does not submit non-ERRA accounts in ERRA proceedings and SD&GE only submitted two in its 2008 ERRA compliance review proceeding and anticipates possibly six in future reviews. The value of consolidating review for the three utilities would be minimal under those circumstances. More importantly, in either case, DRA has not adequately justified the need for a consolidated review for the three IOUs.
DRA was able to review the non-ERRA accounts submitted by SCE in this proceeding as it has apparently been able to do in the last four proceedings. Other than indicating that the number of non-ERRA accounts are growing, DRA has not demonstrated (1) the extent and types of analyses that would be required for each of the accounts and why it would be a burden to continue to do such analyses in the ERRA for SCE; (2) any problems in reviewing and analyzing non-ERRA accounts for PG&E and SDG&E, whether in ERRA proceedings or elsewhere; and (3) what aspects of its analyses for each account is common for all three IOUs, and even if there were common analyses why it would be reasonable, necessary, or desirable to compare the results for the three IOUs.
In summary, we do not adopt DRA's recommendation because it is vague, and there is insufficient reason to disregard the current cost recovery mechanisms for each of the three IOUs and consider non-ERRA accounts in a consolidated reasonableness review proceeding.
16.6. DRA's Internal Audit Recommendation
DRA recommends that SCE's Audit Service Department (ASD) audit the ERRA balancing account at least once every three years. Currently, no audits are done, and DRA states the revenues, costs and expenses are material and have a significant rate impact on SCE's customers. SCE states that although it believes ASD's limited resources would be better spent reviewing potentially higher-risk areas, it is nonetheless willing to have ASD conduct an audit of the ERRA balancing account once every three years. DRA's recommendation is reasonable, acceptable to SCE, and will be adopted.
13 Background information on the MRTU and MRTUMA is provided by SCE in Exhibit 2 and by DRA in Exhibit 9 and in its opening brief.
14 According to SCE, these are primarily labor costs associated with training, CAISO stakeholder activities, organizational readiness, data migration to the new systems, modification of user developed application interfaces to the new MRTU systems, and other business process development activities that did not qualify to be capitalized into the new systems.
15 In its July 19, 2010 Comments on the Proposed Decision, SCE indicates that such information could be found in workpapers or data request responses. However that information has not be entered as evidence in this proceeding. Therefore, the Commission cannot consider it in determining whether SCE has met its burden of proof with respect to its showing on this aspect of its request. Also, while DRA did dispute this issue on a policy level, it never indicated that it agreed that the O&M costs, as presented by SCE, were incremental and verifiable.
16 DRA states that the implementation approach that the CAISO described to FERC involves three major releases: Release 1, which is the initial implementation that occurred on April 1, 2009; Release 1A, which includes Convergence Bidding, to be implemented within 12 months of Release 1; and Release 2 to be implemented within three years of the initial implementation date.
17 See, D06-05-016, Conclusion of Law 8.
18 Exhibit 5, Appendix D, at 185-230.
19 Since (1) SCE was able to respond to DRA's revised proposal in its reply brief and (2) we are merely clarifying a previous decision and applying that here, it is not necessary to ignore DRA's new argument as requested by SCE.
20 In its July 19, 2010 Comments on the Proposed Decision, SCE requested that it be allowed to present its trial costs in its April 2011 ERRA Review Application and present its appellate costs after the litigation has reached its final conclusion in a future ERRA Review application. However, it is not clear when the proceeds would be reflected in rates by this proposal. If that were not to happen until litigation of the appeal were completed, SCE's request would not address our concern regarding authorizing incremental cost recovery when there is no assurance that proceeds in excess of costs will be realized. For that reason, we will not adopt SCE's request at this time.
21 Detailed results are included in Exhibit 9.
