7. Rate of Return Issues

7.1. Parties' Position

SCE requests that its investment earn 100 basis points above its authorized ROR. SCE claims that D.06-05-039 allows the Commission to authorize this increase for utility-owned renewable generation.⁶⁰ SCE first made its request as follows:

"As authorized in D.06-05-039, SCE calculated the rate of return on rate base using SCE's current authorized rate of return of 8.75%, plus 1%, since this new plant will be utility-owned renewable generation."⁶¹

SCE later in its rebuttal testimony noted that its proposal meets the requirements of § 454.3(c), because it will develop a segment of the market that currently lacks production.⁶²

DRA and TURN oppose SCE's request on the basis that it does not meet any one of the requirements of § 454.3, although TURN in its opening brief notes that the minimum 50 basis points could be justified, albeit "under the most expansive reading of the statute."⁶³ DRA argues that "the rooftop solar systems that SCE proposes in this application are not experimental in nature, but rather the same basic technology as the other 280 MW of grid-connected solar PV already installed in California."⁶⁴

TURN also argues that the ability of utilities to avail themselves of the ITC as established by the 2008 federal bailout legislation provides sufficient incentive to the utilities to pursue renewables and therefore the additional incentive offered under 454.3 is unnecessary.⁶⁵

7.2. Discussion

Pub. Util. Code § 454.3 in relevant parts provides that:

The Commission may, after a hearing, approve an increase of from one-half of 1 percent to 1 percent in the rate of return otherwise allowed an electrical corporation on its electric plant for investment by the corporation in facilities meeting the following requirements: ...

(c) ...The facility is experimental and is, in the determination of the commission, reasonably designed to improve or perfect technology for the generation of electricity from renewable resources or to more efficiently utilize other resources in a manner which will decrease environmental pollution from and lower the costs of the electricity generated.

SCE argues that its SPVP investment should earn 100 basis points above its authorized ROR because D.06-05-039 authorized the increased ROR. We disagree.

In D.06-05-039 at p. 28, the Commission acknowledged § 454.3 and stated that:

"a utility may build a renewable resource and, and under appropriate circumstances, earn between 0.5% and 1.0% increased rate of return on the investment. That is, the Legislature has authorized an increased incentive for utility ownership of renewable generation. We think IOUs should consider taking advantage of this law and, where reasonable and appropriate, we will authorize the increased rate of return."

The sole purpose of the above statement was to signal to the utilities the availability of incentives for the utility-owned renewable generation under circumstances authorized by § 454.3. The decision did not automatically authorize an increased ROR for SCE's renewable projects. Moreover, § 454.3 requires the Commission to hold hearings before granting an increase in a utility's ROR. No such hearings were conducted prior to our issuing D.06-05-039. Thus, the Commission did not authorize the increase to SCE's ROR in D.06-05-039, and that issue should be decided here. We proceed to determine if SPVP qualifies for an increased ROR under § 454.3 and if so, the amount of such increase.

Section 454.3 provides three categories under which projects would be eligible for additional return. The first and the second categories are irrelevant here. We therefore consider whether the SPVP meets the requirement of § 454.3(c), quoted above.

Section 454.3(c) does not define the criteria for assessing whether a facility is experimental. Absent a clear definition, we are left to determine what types of projects might fit this criteria. We can definitively say that the core technology SCE has proposed to deploy is not experimental. As DRA observes, the projects SCE proposes to build under the SPVP rely on the same basic technology as the vast majority of all other grid connected solar PV in California. SCE's arguments, regarding the notion that the projects are experimental because they are targeting a new market segment, are not persuasive. While the program is intended, in part, to facilitate market transformation in a heretofore untapped segment of the energy market, we do not believe that objective fulfills the requirement or intent of 454.3(c). The program is not designed to address or refine the core technology, rather it is about driving the costs of deploying an existing technology down by creating a new market opportunity.

We disagree with TURN's argument that the availability of the ITC, and the associated increase in the profitability of utility owned renewable projects this provides, should substitute for the additional incentive that can be provided via the authority granted under 454.3. While we do not believe the UOG projects under the SPVP qualify for the increase in the authorized rate of return, we can envision circumstances where the Commission may wish to grant an increase in the rate of return for eligible projects despite the fact that utilities can now take advantage of the investment tax credit.

⁶⁰ Exhibit SCE-1 at p. 55.

⁶¹ Id at p. 54.

⁶² Exhibit SCE-2 at p. 20.

⁶³ TURN Opening Brief at p. 26.

⁶⁴ Exhibit 404.

⁶⁵ TURN Comments at p. 6.