8. Utility Cost Recovery Policy for Residential Upgrades and Extensions
The utilities anticipate the need to make infrastructure upgrades to accommodate the added load from residential Electric Vehicle charging. For example, if a residential customer installs electric vehicle service equipment, the utility may determine that the distribution transformer, a service panel, or other equipment needs to be upgraded to facilitate vehicle charging.
We now address the issue of who pays for service upgrades or extensions to accommodate basic Electric Vehicle charging in the residential setting. In considering this issue, we look to the existing tariff rules on residential upgrades and extensions in light of the State's policy goals under AB 32 to reduce greenhouse gas emissions and the related ARB 2008 Scoping Plan, which includes a comprehensive strategy to reducing greenhouse gas emissions from the transportation sector.30 Electrification of vehicles is a critical component of the ARB's 2008 Scoping Plan.
We are also guided by other programs intended to reduce greenhouse gas emissions from California's transportation sector, including (1) the Pavley greenhouse gas vehicle standards AB 1493 Pavley, Stats. 2002, c. 200) to achieve near-term vehicle emission reductions to the maximum extent technologically feasible; (2) the ZEV program to transform the future vehicle fleet by placement of increasing numbers of ZEVs (including hydrogen fuel cell and battery electric vehicles) and (3) the Alternative and Renewable Fuel and Vehicle Technology Program (AB 118 Núñez, Stats. 2007, c. 750) to, among other things, develop, demonstrate, and deploy innovative technologies to transform California's transportation fuel and vehicle types.
In addition, we are guided by the directive in § 740.2(a) to adopt rules to address, among other things, "infrastructure upgrades necessary for widespread use" of Electric Vehicles. (Pub. Util. Code § 740.2(a).) Lastly, we are mindful that early adopters' experiences with upgrade costs related to Electric Vehicle charging may have an overall influence prospective Electric Vehicle buyers' perceptions of the cost of vehicle ownership.
8.1. Existing Policy -- Tariff Rules 15 and 16
The existing policy concerning electric grid upgrades due to increased new and permanent customer load is set forth in two Electric Tariff Rules--Rule 15 (Distribution Line Extensions) and Rule 16 (Service Line Extensions). Tariff Rule 15 generally pertains to grid equipment used by multiple customers, for example, a transformer serving multiple homes. Rule 16 generally pertains to network equipment used by just one customer.
According to Rule 15, an upgrade to equipment serving multiple customers is generally considered a utility expense and the associated cost is borne by the general body of ratepayers. Thus, if in conjunction with a customer's addition of Electric Vehicle charging, the utility determined that a transformer serving that customer and the surrounding neighbors needed to be upgraded, the cost of that upgrade would be borne by the general body of ratepayers, not just by the Electric Vehicle customer or just by the group of neighbors being served by the transformer.
The cost allocation of upgrades to equipment serving a single customer, which is governed by Tariff Rule 16, is more complex. For equipment upgrades due to increased electricity usage designated as "new and permanent load," the customer is provided an "allowance" to off-set the costs of the upgrade. The allowance is a fixed dollar amount for all residential customers within a utility service territory. Generally, any upgrade costs up to the dollar amount of the allowance are paid for by the general body of ratepayers and any costs in excess of the allowance are paid for by the specific customer served by the equipment. The utilities' interpretation of these rules varies and as a result, each utility has slightly different types and levels of allowances. 31
For example, according to PG&E, under Tariff Rule 15, the cost to replace a shared distribution transformer would be considered a total system asset and, as a result, be included in rate base (without any need for assessment of an allowance under Tariff Rule 15). On the other hand, the cost to replace an existing customer-specific service transformer would be at the customer's expense. No allowance would apply. However, under Tariff Rule 16, a new residential customer (i.e., with or without Electric Vehicle load) would be given the current fixed allowance for hookup as determined by PG&E Electric Tariff Rule 15(C)3 ($1,918 per meter or residential dwelling unit) as well as for upgrades to existing facilities as determined by Tariff Rule 16(F)1 (Service Reinforcement). SCE and SDG&E may apply these rules in a manner that does not result in any allowance for new or existing customers
8.2. Electric Vehicle Load as New and Permanent Under Tariff Rules 15 and 16
Before determining how the allowances provided for in Rules 15 and 16 apply to upgrades or extensions related to Electric Vehicle load, we first address whether Electric Vehicle load constitutes new and permanent load under those rules. Parties took a variety of positions on this issue.
PG&E, SCE, SDG&E, NRDC, and Coulomb suggested that Electric Vehicles should be categorized as new and permanent load and that, as a result, the tariff allowance should apply to Electric Vehicle upgrades. These parties point out that the Electric Vehicle load is supported by the State's transportation policy goals set forth in AB 32 (related to greenhouse gas emission reductions) and that by designating this load as temporary, Electric Vehicle customers would be penalized because allowances would not apply. These parties argue that this result would ultimately not serve the State's goals.
In contrast, TURN argued that Electric Vehicles do not fit within the definition of permanent load. TURN's principle argument is that residential upgrades resulting from Electric Vehicle load will result in stranded infrastructure costs. For example, TURN points out that the average life of an Electric Vehicle is shorter than the useful life of any potential service upgrade facilities. An Electric Vehicle could be sold or suffer irreparable mechanical problems, or the Electric Vehicle owner could move to a different utility service territory. According to TURN, the Commission should not designates Electric Vehicle load as permanent because a single Electric Vehicle may not be used long enough for the general body of ratepayers to be made whole from revenues generated by that Electric Vehicle's energy consumption.
Based on the similarity of Electric Vehicle load to the load created by other large residential appliances, such as large portable air conditioners,32 and based on the State's goal to reduce greenhouse gas emissions through the electrification of the transportation sector, we find it appropriate to designate Electric Vehicle load as new and permanent. This designation reflects the goal of the State to fully integrate Electric Vehicles into the transportation sector.
While it is too early to say with any degree of certainty whether Electric Vehicles will become a mainstream feature of California's vehicle fleet or a given customer's fleet of vehicles, we want the policies we adopt today to create an environment to facilitate customers' positive initial experiences with Electric Vehicles and, as a result, greatly improve the likelihood that Electric Vehicles will become a permanent feature of California's vehicle fleet. In this way, we will reduce the risk of stranded costs.
To the extent TURN's cost allocation arguments reflect the fact that historically Rules 15 and 16 probably did not contemplate how to incorporate residential transportation load onto the electric grid, we agree that the State's policy to encourage the electrification of the transportation sector is requesting that we stretch our application of these rules.
Moreover, while TURN's arguments focus on the immediate infrastructure costs created by individual residential Electric Vehicles, we choose to weigh the costs and benefits from a broader perspective. Individual Electric Vehicles may initially place more costs on ratepayers than recovered through revenue generated from charging the vehicle. However, we also recognize that incremental Electric Vehicle load on a larger scale has the potential to yield improved electricity system asset utilization in the long-term. (SCE Oct. 5, 2009 comments at 40; SDG&E Oct. 5, 2009 comments at 25). We further recognize that on a large scale Electric Vehicle charging occurring during off-peak periods could actually reduce the price of energy for all ratepayers, by increasing the electricity system's asset utilization. As such, in applying Rules 15 and 16 to Electric Vehicles, we are creating the foundation for a shift in the transportation sector. Our goal is to create a future where residential Electric Vehicle charging will be the norm. As we approach this goal, we anticipate that Electric Vehicle load will carry an increasing portion of the related infrastructure costs.
TURN's argument related to the average life of an Electric Vehicle relative to the projected life of an Electric Vehicle service extension facility is unpersuasive. As discussed above, the argument fails to take into consideration the State's policy goal. Furthermore, when a customer installs charging equipment at their premise that requires a service panel upgrade, the panel upgrade is a new and permanent capacity addition at the customer premise. The utility sizes the distribution system to accommodate peak customer loads irrespective of the customer's actual usage and the goal is for peak load not to increase with the use of Electric Vehicles.
Additionally, contrary to TURN's position, the longevity of a given vehicle is not particularly germane to the question of whether the load the vehicle represents is new and permanent. The more critical question is whether the infrastructure deployed to serve an Electric Vehicle will continue to be used over its useful life to serve load anticipated from Electric Vehicles, regardless of whether that load is from an initial Electric Vehicle or subsequent Electric Vehicles charged at that premises or even other appliances.
In short, TURN's description of Electric Vehicles fails to fully reflect the State's goals to encourage the electrification of the transportation sector as a means of reducing overall greenhouse gas emissions. Working with other state agencies, we seek to create a future that includes Electric Vehicles as a critical and mainstream component of the State's transportation sector. By designating Electric Vehicle load as new and permanent, we are creating the foundation needed to integrate Electric Vehicles into California's transportation sector. Evaluating Electric Vehicles from this perspective and taking into consideration the anticipated growth of California's Electric Vehicle fleet rather than the transient lifecycle of any single electrical appliance, including the individual Electric Vehicle, we find it reasonable to designate Electric Vehicles as new and permanent load under Tariff Rules 15 and 16.
8.3. Tariff Rules 15 and 16 Standard Allowance for Electric Vehicles
Based on the designation of Electric Vehicle load as new and permanent under Rules 15 and 16, we now turn to the issue of whether residential customers should be afforded the standard Rule 16 allowance to cover the costs of any required customer facilities upgrades or extensions to accommodate Electric Vehicle load.
Historically, the standard Rule 16 allowance seeks to apply a revenue-based justification for costs created by upgrades or extensions. As we state above, however, the immediate infrastructure costs created by Electric Vehicles may exceed the revenues generated through the corresponding load. In this sense, the allowances provided for under Rules 15 and 16 do not contemplate the more complex scenarios created by a State policy based on the electrification of the transportation sector. Rules 15 and Rule 16 may need to be refined to better reflect cost allocation principles underlying our State's policy. To the extent needed, we welcome the opportunity to improve the application of the cost principles underlying these rules in the near future.
Nevertheless, today we seek to balance the goal of reasonable cost allocation with the goal of supporting Electric Vehicle market growth. Our decision reflects the desire to ensure positive early consumer experiences with Electric Vehicles and relies on the § 740.2(a) directive to adopt rules to address, among other things, "infrastructure upgrades necessary for widespread use" of Electric Vehicles. Most importantly, however, our decision is based on the policy set forth in AB 32 and ARB's 2008 Scoping Plan to encourage the electrification of the transportation sector as a means of reducing overall greenhouse gas emissions.
For these reasons, we find that the standard allowances under Rules 15 and 16 apply to upgrades and extensions resulting from Electric Vehicle charging.
8.4. Interim Policy - Residential Upgrades or Extensions in Excess of Utility Allowances
In some instances, the costs of residential upgrades to enable Electric Vehicle changing will exceed the allowances provided under Rules 15 and 16. We now address whether to allocate such excess costs to the general body of ratepayers. In evaluating this issue, we are again guided by the policy set forth in AB 32 and ARB's 2008 Scoping Plan to encourage the electrification of the transportation sector as a means of reducing overall greenhouse gas emissions.
As referenced in the Rates Staff Paper, there exists a great deal of variability with respect to the forecasted costs of different Electric Vehicle charging scenarios depending on whether residential customers will respond to incentives to charge off-peak. A preliminary PG&E analysis suggests "distribution upgrade costs to accommodate charging for residential circuits may be as much as five to twenty times greater on-peak as compared to off-peak." Given this variability, Better Place recommends the Commission may want to consider establishing allowance pools for each investor-owned utility's customers rather than employing individual residential allowances to optimize Electric Vehicle adoption. In this way, Better Place explains, existing allowances do not act as a disincentive to Electric Vehicle adoption and the costs are tracked on a system-wide IOU basis. (Better Place September 24, 2010 comments at 3.)
We acknowledged, above, that Electric Vehicle load is similar to other large residential appliances. We also acknowledged that Electric Vehicle load offers benefits beyond the typical electric appliance in terms of the potential to reduce overall greenhouse gas emissions. Therefore, in light of the policy set forth in AB 32 and ARB's 2008 Scoping Plan to encourage the electrification of the transportation sector as a means of reducing overall greenhouse gas emissions, we adopt special interim cost treatment for service upgrade costs resulting from Electric Vehicle charging that exceed the Rules 15 and 16 residential allowances. Our decision today is also supported by the directive in § 740.2 to reduce barriers to Electric Vehicle adoption and our goal to encouraging early adopters.
Between the effective date of this decision and June 30, 2013, service facility upgrade costs to enable basic Electric Vehicle charging that exceed the residential allowance will be treated as common facility costs rather than being paid for by the individual Electric Vehicle charging customer. This policy will not apply in the non-residential context, nor does it apply to certain costs that are currently the customer's responsibility and not subject to allowances or refunds, such as "excavation..., conduit and substructures...and protective structures" or incremental costs associated with so-called "Special or Added Facilities."33
TURN and DRA expressed the concern that this approach will create an incentive for some customers to gold-plate their charging equipment or undertake extensive electrical upgrades at the same time as they install electric vehicle service equipment. It is not our intent to require the general body of ratepayers to subsidize elaborate or unrelated service upgrades. For this reason, we apply this policy only to "basic" charging arrangements only. While the interpretation of this term is flexible to a certain degree, we provide guidance that it is intended, generally, in most cases to encompass Level 1 and 2 charging for at least one vehicle.
We expect the utilities' cost tracking and load research plans described in Section 9 to track costs in excess of the standard residential allowance that result from the interim policy adopted herein. In January 2013, several months before the expiration of this June 30, 2013 deadline, the utilities will have completed the Electric Vehicle-related load research discussed at Section 9. This load research will inform the Commission of the nature of the load impacts, upgrade costs and potential system benefits from Electric Vehicle charging, including treating the facility upgrade costs in excess of the residential allowance as common facility costs. Utilities shall propose a policy to address these upgrade costs in their January 2013 reports, and a procedural mechanism for the Commission to address these costs, if needed.
In summary, in recognition of the fact that Electric Vehicles are uniquely positioned to contribute toward the policy goals set forth in AB 32 and ARB's 2008 Scoping Plan to encourage the electrification of the transportation sector as a means of reducing overall greenhouse gas emissions, we designate Electric Vehicles as new and permanent load and also adopt this special interim cost treatment for costs in excess of the allowances provided for under Rules 15 and 16. We also acknowledge that the historic cost allocation principles underlying Rules 15 and 16 may need to be refined to fully reflect new types of load, such a Electric Vehicles, that present environmental benefits that, to date, have not be quantified under costs principles of these rules.
30 ARB's 2008 Scoping Plan at 38.
31 PG&E recommended that the Commission approve alignment of its tariff interpretation with SCE's and SDG&E's. (PG&E April 5, 2011 comment at 12.) We decline to address this matter.
32 PG&E November 12, 2010 comments at 10.)
33 See, for example, PG&E Tariff Electric Rules 16.D.1.a and 15.D.5.d and 16.A.5. In the case of an Electric Vehicle charging station, an example of a special facility might be the installation of a 480 Volt transformer for a fast-charging station where the customer's load does not meet the Tariff Rule 2 minimum load limit for a 480 Volt service. In such cases, the special facility would be paid for by the individual customer. See, also, SCE Rule 16.D.1 "Applicant Responsibility" (costs of conduits, structures, and trenching")
