9. Does the Incremental Cost Methodology Help Reduce Cost Shifting? If So, Which Cross-Subsidies are Reduced, and Which Ones Remain?

SCE states that its proposed changes will better align the service fees with the actual cost of the services and thereby reduce cost-shifting among customers who utilize these services and those who do not.¹³⁸ SCE contends that the proposed service fees provide accurate price signals to current and prospective DA participants about how much their electricity choices actually cost, and reduce cross-subsidies between DA and bundled service customers.¹³⁹ SCE states, for example, that the MAMF (Monthly Account Maintenance Fee) is necessary in order to align the service fees with the actual cost of services provided, and thereby reduce cost-shifting among DA participants and bundled service customers.¹⁴⁰

AReM contends that SCE's incremental cost methodology was not appropriately implemented.¹⁴¹ AReM states that the MAMF, in particular, is not based on an incremental cost approach and collects 47% of all DA fees through a flat charge spread across all customers, regardless of which customers actually cause the utility to incur those costs.¹⁴² AReM contends that by averaging the costs across all DA accounts SCE ensures that some DA accounts pay for costs and charges that they have neither requested nor required while others who actually required services pay less than the cost of their provision.¹⁴³

Discussion

SCE's methodology, for the most part, appears to reduce subsidies between DA customers and bundled service customers. However, overstating or understating an OEA estimate results in cross-subsidies between DA and other customers, with the direction of the cross-subsidy depending on whether the OEA estimate was overstated or understated. Because the accuracy of the OEA estimates is unknown, the extent of cross-subsidization between the DA and other customers, too, is unknown.

Also, combining costs for exception services and services for particular ESPs into a fee paid by all ESPs results in cross subsidies between ESPs. As discussed above, SCE's methodology does not adequately reduce cost shifting between DA participants who cause costs to be incurred and those who SCE proposes should pay those costs.

Until the shortcomings with SCE's methodology discussed above are corrected, we do not know the actual costs SCE incurs to provide non-discretionary services. SCE states that costs for non-discretionary services were previously recovered through a regulatory mechanism consistent with § 376, but does not state if, or how, costs are currently being recovered.

Our approval of the proposed discretionary service fees will reduce cross subsidization of DA services by bundled service customers. However, we are concerned that cross subsidy of DA services will continue to exist to the extent that costs for non-discretionary DA services are currently being recovered from SCE's bundled service customers. We do not want these costs to be included in general rates. Therefore, to the extent that rates for bundled service customers contain costs for non-discretionary DA services, SCE should be required in its current GRC and future GRCs to remove the costs for non-discretionary DA services from bundled service customer rates.

SCE should also be authorized, but not required, to book the incremental costs to provide non-discretionary services, including the costs of DASR services, voluntary and involuntary ESP Termination services, ESP Service Establishment services, CISR services, ESP Non-Energy Billing Receivables services, Meter Establishment services, and the non-discretionary services contained in the proposed MAMF services, to a memorandum account for possible recovery pending a Commission decision regarding the appropriateness of such costs. SCE may establish additional subaccounts for this purpose.

We expect to consider the appropriateness of these non-discretionary costs in the Anticipated Proceeding. Thus, authorization to establish a memorandum account and subaccounts is not a decision on the merits of the costs for providing non-discretionary services. Our discussion above concerning the defects in the methodology used to develop DA service costs and proposed fees should provide guidance to SCE in determining the non-discretionary DA service costs that may be booked to any memorandum account and subaccounts that SCE may establish.

SCE may file a Tier 2 advice letter to establish a memorandum account and subaccounts to track the costs of providing non-discretionary DASR services, voluntary and involuntary ESP Termination services, ESP Service Establishment services, CISR services, ESP Non-Energy Billing Receivables services, Meter Establishment services, and the non-discretionary services contained in the proposed MAMF services, pending further Commission action. If SCE chooses to establish a memorandum account or subaccounts for this purpose, SCE should file the advice letter within 60 days of the effective date of this decision. The advice letter should become effective upon approval of the Energy Division.