12. Should the Commission Authorize an Advice Letter Procedure for Establishing New Service Fees?
SCE requests authority to establish new service fees through the advice letter process.153 Because SCE also seeks to eliminate the "discretionary" and "non-discretionary" DA service fee categories, new DA services that would otherwise be categorized as "non-discretionary" would also be eligible for approval via the advice letter process.154 SCE contends that the flexibility of an advice letter process is necessary to keep pace with improvements in technology. SCE states that, because new meter types are continually being developed with enhanced capabilities, it needs the ability to provide customers with new products and services more quickly than permitted by the three-year rate case cycle.155
AReM and CMTA oppose SCE's request, stating that, while advice letters are appropriate for implementing Commission-approved changes in rates or for truing up balancing accounts, they are not appropriate for setting rates.156 AReM and CMTA assert that cost-based tariffed rates are set in GRCs or special ratemaking applications and, because DA service fees are cost-based tariffed rates, they should be addressed in full applications and not through advice letter filings.
According to AReM and CMTA, given the lack of time-and-motion studies or objective measurements used in SCE's OEA, the rates proposed in the Application should not be used as a starting point for future rate adjustments, as would most likely result using the advice letter process.157 AReM and CMTA contend that applications are more public than advice letters, receive greater attention and afford greater opportunities for parties to investigate and/or oppose utility proposals.
AReM and CMTA state that the advice letter process does not provide adequate time for discovery or other procedural guarantees afforded by the formal application process, such as cross-examination or the filing of briefs,158 and AReM contends that the streamlined advice letter process is an insider's game that does not benefit ESPs or DA customers.159 AReM is concerned that advice letters are not widely disseminated to those who will pay the increased fees, and will likely "fly under the radar."160 AReM contends that SCE has not adequately justified use of the advice letter process, and recommends that SCE be required to file a formal application to revise existing or propose new service fees.161
SCE responds that the advice letter process is appropriate for implementing a new fee for a new DA product or service.162 SCE contends that the advice letter process will enable it to expeditiously offer new DA products and services, while the more lengthy formal application process can take more than a year.163 SCE asserts that it does not intend to make changes to existing DA service fees through the advice letter process.164 SCE states that it intends to request changes to, or elimination of, existing fees in its GRCs.165
SCE also contends that the advice letter process is a more effective use of the Commission's and parties' time, and can accommodate the implementation of new fees, on a fee-by-fee basis, as new products and services arise.166 SCE states that it plans to use the advice letter process in limited circumstances where technological advances allow new, and potentially cost-saving, DA products and services to become available between GRCs.167 SCE states that it does not expect the fees for new DA services or products introduced through advice letters to be controversial.168
SCE states that advice letters are public documents that are served on relevant service lists, published on SCE's website when filed with the Commission, and may be reviewed and protested.169 Also, according to SCE, parties may propound discovery, and may comment on any draft resolution concerning an advice letter.170 Therefore, according to SCE, interested parties will have the opportunity to comment on any proposed new fees filed through an advice letter.
Discussion
Rules governing informal filings, including advice letters, are contained in General Order (GO) 96-B.171 Among other things, GO 96-B contains Energy Industry Rules and rules applicable to all informal filings.172 These rules identify matters appropriate for the use of advice letters versus those matters that must be addressed through formal applications.173 GO 96-B sets forth filing requirements and procedures, and additional rules applicable to different industry areas.
The Energy Industry Rules apply to gas, electrical, pipeline, and heat corporations and to load-serving entities as defined in § 380, and classifies advice letters according to three tiers.174 Tier 1 advice letters are effective when filed pending disposition, while Tier 2 and Tier 3 advice letters are effective upon Industry Division staff, or Commission approval, respectively.
The advice letter process provides a quick and simplified review of the types of utility requests that are expected neither to be controversial nor to raise important policy questions.175 The primary use of the advice letter process is to review a utility's request to change its tariffs in a manner previously authorized by statute or Commission order, to conform its tariffs to the requirements of a statute or Commission order, to get Commission authorization to deviate from its tariffs, or to request modification of a Commission resolution addressing a prior advice letter of the utility. A matter that requires an evidentiary hearing may be considered only in a formal proceeding, and a utility may seek a rate increase via advice letter only if use of an advice letter for this purpose is authorized by statute or Commission order.176
A utility must file an application, an application for rehearing, or a petition for modification, as appropriate, if the utility requests modification of a decision issued in a formal proceeding or otherwise seeks relief that the Commission can grant only after holding an evidentiary hearing, if the utility seeks Commission approval of a proposed action that the utility has not been authorized by statute or Commission order to seek by advice letter, or if the utility seeks to challenge a Commission resolution addressing an advice letter submitted by the utility. Except as provided in General Rule 5.1, a utility must file an application to seek approval of a rate increase, a change to its tariffs, or an alteration of any classification, contract, practice, or rule that results in a new rate.177
Pursuant to General Rule 5.1, SCE would be able to use the advice letter process to establish new DA service fees if this decision authorized it to do so. If the Commission were to grant such authority, those advice letters would be filed under Tier 3 and require Commission approval (i.e., a Commission resolution) to become effective.178 Thus, Commission rules permit the use of advice letters for the purpose SCE seeks. The question before us is whether the Commission should authorize SCE to use the advice letter process to establish new DA service fees.
As discussed above, we see important differences between discretionary and non-discretionary services. Discretionary products and services are somewhat less controversial than are non-discretionary services because ESPs and customers have a choice not to purchase such services from the UDC. If ESPs consider the UDC's price for discretionary services to be too high, ESPs can provide the service themselves or purchase products and services elsewhere.
SCE states that it does not expect the fees for new DA services or products introduced through advice letters to be controversial. However, we believe the level of controversy will depend in part on whether the services and proposed fees are discretionary or non-discretionary. As we have discussed, considerable controversy already surrounds certain non-discretionary service fees, due to the impact that the fees can have on facilitating or impeding competition for electric services. ESPs that compete with UDCs, their DA customers, and bundled service customers all have an interest in ensuring that non-discretionary DA service fees are appropriately priced in accordance with the established incremental costing standards.
If fees for non-discretionary services exceed the incremental costs of providing the service, ESPs and their customers will pay more than they should. Such a result could discourage competition for electric services (when competition becomes available) and send inaccurate price signals that non-discretionary services cost more than they actually do.
However, if a proposed new fee for a non-discretionary service is less than the incremental cost of providing that service the UDCs' bundled service customers could ultimately pay the shortfall, thereby unfairly subsidizing ESPs and DA customers and sending inaccurate price signals to the market that the non-discretionary service costs less than it actually does. Neither result is appropriate or desirable. Thus, interested parties will likely have a keen interest in ensuring that new fees proposed for non-discretionary services are appropriately priced.
Because GO 96-B limits the advice letter process to requests that are expected neither to be controversial nor to raise important policy questions, the advice letter process is not appropriate for establishing new non-discretionary services. Therefore, SCE's request to use the advice letter process for establishing new service fees for non-discretionary services should be denied. Requests for establishing new service fees for non-discretionary services should be made by formal application, either in GRCs or other ratemaking applications.
Although important policy concerns could arise with respect to new discretionary products and services, these issues are likely to arise less frequently and be less controversial. SCE states that new meter types are continually being developed with enhanced capabilities, and contends it needs the flexibility of the advice letter process to keep pace with improvements in technology. Because technology changes rapidly and because we want new equipment to become available quickly, we believe the advice letter process is appropriate for introducing new discretionary products and services.
We recognize that controversies may arise if interested parties contend a proposed new product or service is, in fact, non-discretionary service, and as a result, whether the advice letter process has been used appropriately. However, we believe that these questions should be resolved in the resolution addressing the advice letter. Therefore, SCE's request to use the advice letter process for establishing new fees for discretionary products and services should be approved.
153 Exh. SCE-1, p. 10.
154 TR 43:17-18.
155 Exh. SCE-1, p. 10. SCE Reply Brief, p. 18.
156 Exh. AReM/CMTA-1, pp. 5, 16-17. CMTA Opening Brief, p. 5.
157 Exh. AReM/CMTA-1, p. 17.
158 AReM Opening Brief, pp. 20-21. CMTA Opening Brief, p. 5.
159 AReM Opening Brief, pp. 20-21.
160 Exh. AReM/CMTA-1, p. 17. AReM Opening Brief, pp. 20-21.
161 AReM Opening Brief, p. 21. AReM Reply Brief, p. 12.
162 SCE Opening Brief, p. 18. SCE Reply Brief, p. 19.
163 Exh. SCE-2, pp. 14-15.
164 SCE Opening Brief, p. 17.
165 TR., p. 40.
166 Exh. SCE-2, p. 14.
167 Exh. SCE-2, p. 14. SCE Opening Brief, pp. 17-18. SCE Reply Brief, p. 18.
168 Exh. SCE-2, p. 14.
169 Exh. SCE-2, pp. 14-15.
170 SCE Opening Brief, pp. 17-18. SCE Reply Brief, p. 18.
171 "Informal" refers to an advice letter or other matter submitted to the Commission outside a formal proceeding at the Commission, and is either an uncontested matter or a matter for which a hearing is not required in order to resolve the contested issues. "Formal" refers to a proceeding initiated by an application, complaint, petition, order instituting investigation or rulemaking, or order to show cause. (Section 3.7.)
172 Section 1.1.
173 GO 96-B, Sections 5.1 and 5.2.
174 GO 96-B, Energy Industry Rule 5.
175 GO 96-B, Section 5.1.
176 Ibid.
177 GO 96-B, Section 5.2.
178 The Energy Industry Rules establish Tier 3 treatment of advice letters for a new product or service. See Energy Industry Rule 5.3(3).
