14. 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.²⁹

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.

In D.10-07-049, the Commission deferred addressing the reasonableness of $5.1 million in expenses requested by SCE for MRTU and allowed SCE to include that request and make an appropriate showing in this ERRA Review application for the 2009 Record Period. This was done so that SCE's capital revenue requirement associated with capital costs that were incurred in 2007 and 2008 can be addressed and analyzed together with 2009 activities.

14.1. DRA Proposal for a Consolidated Proceeding
for MRTU Costs

On May 18, 2011, DRA filed a Motion to bifurcate the MRTU implementation cost recovery portions of ERRA compliance proceedings and consolidate those portions into a single and separate proceeding.³⁰ DRA calls for MRTU expenses to be examined across all IOUs. DRA contends that because of changes presented by the MRTU system and the common factors driving all utilities' reasonableness requests, the applications of each of the IOUs on this topic should be reviewed at the same time in a consolidated proceeding that is separate from future and pending ERRA applications. DRA argues that resolving these issues in a consolidated fashion will be efficient, fair and in the Commission's, utilities and ratepayer's interests.

DRA's Motion was opposed by SCE. 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.

D.10-07-049 addressed this issue as follows:

(W)e 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.

An ALJ Ruling was issued on June 23, 2011 denying DRA's Motion. Below we consider SCE's request regarding MRTU costs and revenue requirement.

14.2. SCE's Request

SCE requests recovery of $8.685 million of incremental and verifiable O&M costs recorded in the MRTUMA from 2007 through 2009. In addition, SCE requests $56.2 million of MRTU-related direct capital costs incurred on the MRTU Project through the initial market implementation and approval that these capital costs and associated overhead are the appropriate capital base to use in determining the capital revenue requirement recorded in the MRTUMA that will be recovered over the life of the project. Based on the capital addition, SCE states that it recorded a capital-related revenue requirement in the MRTUMA of $2.45 million in 2009.

14.3. DRA's Position in Testimony

The Commission in D.09-12-021 required SCE to present substantial testimony demonstrating the incremental and verifiable nature of its recorded costs in the MRTUMA. While DRA requested bifurcation of MRTUMA issues in its Motion, DRA also served testimony on this issue. In its testimony, DRA reviewed SCE's supporting material and concludes that SCE met its burden in this proceeding by providing sufficient data to support its request. However, in its testimony DRA recommends a disallowance of $77,000.

SCE responds that DRA did not explain how it calculated this disallowance, but simply argues that SCE incorrectly determined which costs are incremental to SCE's currently-authorized GRC revenue requirement for funding the MRTU initiative. SCE calls for rejection of the DRA argument. In addition, SCE argues that its actual incremental costs in 2009 were much higher than what it is requesting to recover in this proceeding, because SCE was able to reduce its expenses by over $5 million from levels below those authorized in the 2009 GRC.

14.4. Discussion

In its Opening Brief, DRA does not recommend the $77,000 disallowance for MRTU. After review of SCE's testimony and supporting documentation, we find SCE's 2007 through 2009 MRTU expenses and capital costs to be incremental and reasonably incurred. However, we cannot for certain determine the verifiability of SCE's figures at this time.

We therefore authorize the recovery the expenses and capital costs recorded in SCE's MRTUMA for the years 2007, 2008, and 2009, subject to refund based upon an audit of the MRTUMA. This audit must be completed within 12 months from the effective date of this decision. This audit will be paid for by SCE, and performed by an independent auditor chosen by the Commission's Division of Water and Audits - Utility Audit, Finance, and Compliance Branch (DWA). The resulting audit report must be filed by DWA as a compliance filing in SCE's 2010 or 2011 ERRA proceeding (or a consolidated proceeding addressing MRTU costs) and served on the service list of that proceeding. Within 30 days of the audit being filed, SCE must file and serve a response to the audit. DRA and any interested party may then file and serve a reply to such response within 20 days of SCE's response.

The audit must include but not be limited to the following items:

1. Compliance with requirements of the Resolution in which the MRTUMA was authorized (Resolution E-4087);

2. Verification that amounts recorded in the MRTUMA since inception have been spent on the incremental costs of the MRTU program;

3. Verification that amounts recorded in the MRTUMA since inception are incremental to the amounts otherwise authorized by this Commission for SCE's Information Technology program;

4. Verification that amounts recorded in the MRTUMA since inception have not been spent on non-MRTU Information Technology programs; and

5. Verification that amounts recorded in the MRTUMA are separately identified in SCE's accounting system.

²⁹ 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.

³⁰ DRA also simultaneously filed this Motion in the 2010 Compliance ERRA dockets for Pacific Gas and Electric Company (PG&E) (A.10-02-012), San Diego Gas & Electric Company (SDG&E) (A.10-06-011), and the 2010 ERRA applications of SCE (A.11-04-001) and PG&E (A.11-02-011).