VI. Wood Pole Attachment Charge

The following discussion addresses issues between the parties related to the development of the wood pole attachment charge, which is detailed in Attachment A to this decision.

A. Net Pole Investment

There are three issues related to net wood pole investment-the 12/31/00 wood pole plant balance, the number of poles over which the pole plant costs should be spread and the value of the appurtenance adjustment factor that accounts for pole costs that are not necessary for pole attachment.

SDG&E uses a value of $34,678,260 as the embedded wood pole investment as of 12/31/00. Complainants use a value of $34,212,088. The difference of $466,171 is due to Complainants exclusion of the stub/anchor balance from the total investment for wood poles. We will adopt the use of SDG&E's value, which includes plant associated with stubs and anchors. Stubs and anchors are necessary pole related items and should be included in the analysis.

Regarding the number of poles over which the wood pole investment will be spread, in SDG&E's June 5 submittal, the company indicated that the total number of wood transmission poles as of 12/31/00 was 13,430.⁴ Complainants used that number in calculating a wood pole attachment fee in its July 8 filing. However, in its August 5 response, SDG&E indicated (1) that the actual number of wood poles was 13,344 and (2) that the number of 13,344 should be reduced by 589 to account for non-attachable poles in multiple pole structures such as an H-Frame formation. SDG&E therefore spread the wood pole investment over 12,755 poles.⁵ We note the difference from 13,430 to 13,344 is minor and will assume that the more recent total of 13,344 is the appropriate number to use for this proceeding. However, we do not agree with SDG&E's adjustment for non-attachable poles in multiple pole structures. In their August 13 reply, Complainants argue, "That only one of the poles in such a structure is attached to at a time by third parties does not mean that both poles should not be counted in determining the average pole investment. It is especially unwarranted to take the number of these poles out of the equation while leaving in the equation SDG&E's investment in these poles." We agree. The intent is to calculate the average pole investment, not to spread the total pole investment over only those poles to which television cable could be attached. If it were determined that television cable could only be attached to certain poles, it would make more sense to use only those poles and the associated costs for only those poles in the analysis. In agreeing with the Complainants on this point, we determine the number of wood poles over which to spread the pole investment is 13,344, which is SDG&E's restatement of the number of poles, without adjusting for non-attachable poles in multiple pole structures. The average investment in wood poles would then be the adopted investment of $34,678,260 divided by 13,344 poles, or $2,598.79 per pole.

The last issue related to net pole investment is the appropriate value of the appurtenance adjustment factor. Under Pub. Util. Code § 767.5(a)(9), annual cost of ownership related to pole attachment fees "shall not include costs for any property not necessary for pole attachment." In its June 5 submittal of its proposed transmission ROW charge, SDG&E stated, "The amount recorded in Account 355 adjusted for associated depreciation reserve and deferred income tax is $28,418,416. This dollar amount includes appurtenances such as cross arms, guy wire, and anchors that are necessary to the functional operation and integrity of the transmission pole."⁶ Therefore, SDG&E made no adjustments to remove property not necessary for pole attachment.

On the other hand, the Complainants argued that there should be 15% deduction from pole investment for fixtures and appurtenances that are not pole related.⁷ They cited Federal Communications Commission (FCC) as well as Commission precedents on this matter. In D.98-04-062,⁸ the Commission incorporated a 15% appurtenance adjustment factor in establishing a wood distribution pole cable attachment rate for Southern California Edison Company.

In its August 5 response, SDG&E agreed with the concept of the appurtenance adjustment factor but argued the value should be limited to 10.5%. That value is based on SDG&E's assertion that 30% of its wood transmission poles do not have any appurtenances and fixtures. The company therefore reduced the 15% factor by 30% to 10.5%.

In its August 13 reply, the Complainants argue that SDG&E's 30% reduction to the 15% factor is unverified and unsupported. Also, the 15% deduction necessarily recognizes that poles have different numbers and types of appurtenances. Without some basis to believe that SDG&E has no poles with appurtenances greater than 15 %, there is no reason to reduce the overall average. Complainants also state that SDG&E appears to misunderstand the nature of what appurtenances and fixtures should not be considered in the pole cost. They cite the example of cross-arms on steel poles, which SDG&E would choose not to deduct, but which are not used by the cable operator and are not necessary to support the pole and which the FCC has traditionally included as part of the 15% deduction.

We agree with many aspects of the Complainants' reply. Without better substantiation of the assumptions related to the 15% appurtenance adjustment and how SDG&E's poles specifically differ from those assumptions, we do not have a solid basis for adjusting the factor at this time. We recognize that the 15% adjustment factor was derived for distribution poles and that appurtenances on transmission poles may differ from those on distribution poles. However, there is no evidence in this proceeding to show whether the costs of appurtenances on transmission poles are a larger or smaller percentage of the total pole cost than that for distribution poles. There may be good cause to modify the value of this factor for transmission wood poles, but we will only do so with a fully developed record on the issue. For these reasons, we will use a wood pole appurtenance adjustment factor of 15% for the purposes of this proceeding. Reducing the previously developed average investment per wood pole of $2,598.79 by 15% results in an average investment without appurtenances of $2,208.97 per pole.

In order to calculate the net investment in wood poles, a gross to net plant in service factor was developed. Both SDG&E and the Complainants refer to this as the "Application Factor". The factor reduces gross plant by the accumulated depreciation reserve and the accumulated deferred tax reserve associated with that plant. The parties agree that the correct value for this factor is 2.458. Since this factor was derived based on transmission "poles and fixtures" data and is being applied to "poles and fixtures" data, we concur with that factor value. Therefore, the average net investment in wood poles without appurtenances is equal to the gross amount of $2,208.97 per pole divided by 2.458, or $898.69 per pole. This is the amount included on line 1 in Attachment A.

B. ROW Overhead Factor

In D.02-03-048, we determined that the charge for electric transmission ROW costs should be calculated as an overhead in the pole attachment fee. Those overhead, or shared, costs related to ROW costs for transmission poles were to be spread over all electric transmission plant excluding land and buildings. The Complainants and SDG&E disagree on the values for both the net investment in ROW for poles (the numerator) and the net transmission plant excluding land and buildings (the denominator).

For the numerator, Complainants calculate a net plant value of $16,648,792, for transmission pole ROW, while SDG&E calculates a value of $14,153,645. In calculating the net plant value, Complainants deducted $1,214,719 in deferred taxes from a gross plant amount of $17,863,511. SDG&E deducted the amortization reserve of $2,480,013 as well as $1,230,148 in deferred taxes from a gross plant amount of $17,863,806. The deduction of the depreciation or amortization reserve associated with the write off of plant is one of the principal factors in determining the net value of that plant. Therefore, the amortization reserve should be included as a deduction in this calculation. There are minor rounding differences between the parties in the gross plant amount. Also, there is an error in Complainants' calculation of the deferred tax amount.⁹ SDG&E's calculation is more correct and we adopt $14,153,645 as the numerator for the ROW overhead factor.

D.02-03-048 defines the denominator of the ROW overhead factor to be total net electric transmission plant excluding land and buildings. To calculate the denominator, the Complainants take the total transmission gross plant balance of $724,631,543, and subtract $57,898,784 for land and land rights (land) and $52,378,251 for structures and improvements (buildings), yielding a gross plant balance of $614,354,508. This calculation is consistent with the provisions of D.02-03-048. Complainants then divide that calculated balance by an application factor of 2.458 to derive a net plant balance of $249,940,809 (adjusted for depreciation reserves and deferred income taxes). In this instance, we do not agree with the use of the 2.458 application factor. That factor was derived using data for poles and fixtures only and should be applied to pole and fixture balances only. The $614,354,508 plant balance reflects all transmission plant categories other than land, land rights and buildings and should be analyzed accordingly. From detailed plant information provided by SDG&E,¹⁰ the associated net plant balance is $278,577,933 rather than $249,940,809.

SDG&E's calculates a ROW overhead denominator of $39,201,659. Besides deducting land and buildings from total transmission plant, the company deducted additional amounts for station equipment, towers and fixtures, overhead conductors and devices, underground conduit, underground conductors and devices and the development of roads and trails. SDG&E also makes an appurtenance adjustment as well as a franchise adjustment¹¹ in determining the denominator. SDG&E justifies its deviation from the direction of D.02-03-048 by arguing, "The purpose of the ROW overhead factor is to reflect a cause and effect relationship between plant and ROW, where an investment in plant causes an additional investment in ROW. SDG&E derives the denominator of the ROW overhead factor to only include poles and its associated plant investment since the numerator only includes investment in ROW for poles."¹² In D.02-03-048, we rejected SDG&E's contention that any ROW charges should be treated as directly assignable charges. SDG&E now proposes that the factor should be based on cause and effect. We will reject that notion also. Detailed cause and effect analysis is not consistent with our determination in D.02-03-048 that the ROW costs should be reflected as an overhead factor to be allocated to net transmission plant, excluding land and buildings.

We therefore calculate the ROW overhead factor, as specified in D.02-03-048, by dividing $14,153,645, the ROW investment for transmission poles, by $278,577,933, the total net transmission plant, excluding land and buildings. This results in a ROW overhead factor of 5.08%. This calculation spreads the ROW overhead to all transmission poles. It must be adjusted to take into consideration that some poles are in the franchise position (public ROW) and do not have any ROW costs. Both Complainants and SDG&E adjust their calculations so that the total ROW overhead for poles is spread to those in private ROW only. Complainants adjust the ROW overhead factor by applying the ratio of total poles to poles in private ROW. We will use that method. SDG&E deducts the net plant associated with poles in public ROW from the denominator of the ROW overhead factor. However, by SDG&E's proposal for calculating the ROW overhead factor, only plant associated with transmission poles is in the denominator. Since we did not adopt that proposal, it would not be appropriate to use SDG&E's method for the public ROW adjustment. In its June 5 submittal, SDG&E states that 32% of its poles are in franchise positions and do not have any ROW costs.¹³ However, based on certain information contained in SDG&E's June 5 submittal, Complainants claim that 4,200 out of 14,674 (29%) are in the franchise position.¹⁴ In its August 5 response, SDG&E provided additional information showing that, on a net plant basis, 32% of the poles are in the franchise position.¹⁵ Therefore, for our calculations, we will assume 32% of the poles are in public ROW and the remaining 68% are in private ROW. Spreading the 5.08% ROW overhead factor over 68% of the poles results in a factor of 7.48%¹⁶ to be applied to poles in private ROW. This is the amount that is shown on line 2 of Attachment A.

C. Maintenance Expense Factor

There are two issues between the parties related to the maintenance expense factor (line 4 in Attachment A). The first is the relevant expense accounts to include in the factor. The second is whether to use one year or five-years of data to determine the appropriate expense level to include in the factor.

To calculate this factor, Complainants divide the recorded 2000 expense for account 571, maintenance of overhead lines, by the 2000 plant balance for accounts 354 (towers & fixtures), 355 (poles & fixtures), 356 (overhead conductors & devices) and 359 (roads & trails). The resulting rate on a net plant basis is 2.30%. In its estimate of the maintenance expense factor, SDG&E includes five years (1996 - 2000) of recorded data for accounts 560 (operation supervision & engineering), account 566 (miscellaneous transmission expenses), account 568 (maintenance supervision & engineering), account 571 (maintenance of overhead lines) and account 573 (maintenance of miscellaneous transmission plant). For each of those expense accounts, SDG&E determines the percent related to plant account 355 (poles & fixtures) based on a plant balance allocation, sums the allocated expense, and divides by the account 355 plant balance. The resulting maintenance factor, on a net plant basis, is 4.12%.

Including only transmission overhead line maintenance expenses (account 571) in the factor that is applied to the net loaded transmission pole investment results in an approximation of the direct maintenance expense related to transmission poles, which is the primary interest here. In establishing distribution pole attachment rates, FERC uses only the expense account for maintenance of distribution overhead lines in determining the maintenance expense factor.¹⁷ The Commission did the same in establishing a pole attachment rate for Southern California Edison.¹⁸ However, regarding SDG&E's proposal to include additional expense accounts, we will include a portion of account 568-maintenance supervision and engineering. While direct costs, including field supervision, would be charged to the appropriate maintenance account, account 568 includes costs of general supervision and direction related to maintenance of the transmission system. The costs in this account would then support all transmission maintenance activities on an indirect basis. It is reasonable to allocate these maintenance related costs to the specific maintenance activities that it supports. We will do that by expressing account 568 as a percentage of total maintenance expenses (less account 568) and apply that loading to the relevant maintenance expense accounts in our analysis. Based on data provided by SDG&E¹⁹ the account 568 loading is 3.75% to be spread to all other maintenance expense accounts.

Besides account 568, SDG&E includes accounts 560, 566, and 573 in the maintenance factor. Some of the expenses may relate to the maintenance of poles, but it appears that many do not. What the specific elements and costs associated with pole maintenance are is not defined or quantified in SDG&E's proposal. We therefore only include the appropriate amounts of accounts 568 and 571 in the maintenance factor. We will spread 100% of account 571, and the 3.75% loading for account 568, over the balances for plant accounts 354 - towers and fixtures, 355 - poles and fixtures, 356 - overhead conductors and devices and 359 - roads and trails. We use these four plant accounts, since SDG&E and Complainants allocate almost the entirety of expense account 571 to these plant accounts.²⁰

The other issue related to deriving the appropriate maintenance expense factor is whether to use a five-year average of recorded expense and plant information as proposed by SDG&E or to use only recorded 2000 data as proposed by Complainants. The relevant data is shown in the table below and reflects significant fluctuations from one year to the next for expenses as well as for the resulting expense factors. As a general principle, we agree with SDG&E. When there is significant variation in recorded information that is being used for prospective purposes, it is reasonable to use a multi-year average in order to normalize the results. We will use a five-year average of expenses and plant, which results in a maintenance expense factor of 1.01%. We note that, because of the expense categories that we are using, the recorded 2000 factor of 0.97% is very close to the five-year average.

		(a)	(b)	(c)	(d)	(e)
			=3.75%x(a)	=(a)+(b)		=(c)/(d)
	Year	Acc 571	Acc 568	Acc 571	Plant - Accs. 354	Mtce.
			Loading	Loaded	355, 356 & 359	Factor
	1996	2,134,810	79,955	2,214,765	282,035,312	0.79%
	1997	2,530,837	94,787	2,625,624	293,295,531	0.90%
	1998	3,328,303	124,654	3,452,957	295,343,758	1.17%
	1999	3,606,817	135,085	3,741,902	303,322,842	1.23%
	2000	2,934,344	109,899	3,044,243	312,932,935	0.97%
	Avg.	2,907,022	108,876	3,015,898	297,386,076	1.01%
	Application Factor					2.287
	Maintenance Expense Factor on a Net Plant Basis					2.31%

Both SDG&E and the Complainants converted the calculated maintenance expense factor from a gross plant basis to a net plant basis by using the application factor of 2.458 discussed previously. In this instance, we will adjust that factor to compensate for the fact that the maintenance expense factor should only apply to a portion of the net loaded plant investment (line 3 of Attachment A), which consists of the net pole investment and the ROW overhead. The net pole investment is composed of plant from account 355 - poles and fixtures, to which a portion of maintenance expenses should be spread. However, the ROW overhead consists of land and land rights, neither of which was included in the determination of the maintenance expense factor. The maintenance expense factor should therefore not be applied to the ROW overhead portion of the net loaded pole investment. Rather than adjusting the plant balance to which the maintenance factor is applied, for purposes of Attachment A, it would be preferable to adjust the 2.458 application factor by the net pole investment as a percentage of the total net loaded pole investment. The result will be the same, and the format for Attachment A can be left intact. The adjusted application factor for maintenance expenses is 2.287,²¹ which we will use to convert the maintenance expense factor to a net plant basis. As shown in the table above, the derived maintenance expense factor is 2.31%, which is the amount on line 4 of Attachment A.

D. A&G Expense Factor

There is one issue between the parties related to the A&G expense factor (line 5 in Attachment A). That issue is whether to use a five-year average of recorded expense and plant information as proposed by SDG&E or to use one year of recorded data as proposed by Complainants. The relevant data is shown below and, as in the case of maintenance expenses, reflects significant fluctuations from one year to the next for A&G expenses as well as for the resulting expense factors. For the same reasons discussed previously in adopting the five-year average for the maintenance expense factor, we will adopt the use of a five-year average, which results in an A&G expense factor of 2.58%, on a gross plant basis.

In converting from a gross plant to net plant basis, both SDG&E and Complainants used an application factor of 2.458. We disagree with the use of that value. As opposed to maintenance expenses, the A&G expense factor is derived as a percentage of total electric plant. Therefore, the A&G expense factor should be applied to the total net loaded pole investment (line 3 of Attachment A). However, that investment includes poles and fixtures, which directly relate to the 2.458 application factor, as well as the ROW overhead, which includes land and land rights. Compared to poles and fixtures, land and land rights have different depreciation/amortization and deferred tax relationships to the gross plant balances. For example, land is not depreciated or amortized at all. Also the amortization of land rights is over a longer period then the depreciation of other transmission plant assets. From detailed plant information provided by SDG&E,²² the calculated application factor for land is 1.074 and the application factor for land rights is 1.292. A weighted average application factor for the loaded pole investment can be calculated based on the amount of investment for each of the three plant categories (poles and fixtures, land and land rights) and the associated application factors for each of those categories. This calculation results in a weighted average application factor of 2.375, which we will use to convert the A&G expense factor to a net plant basis. As shown in the table below, the derived A&G expense factor is 6.13%, which is the amount on line 5 of Attachment A.

	(a)	(b)	(c)=(a)/(b)
	A&G Expenses	Electric Plant	Factor
	(Electric)
1996	104,262,095	4,285,475,157	2.43%
1997	91,828,414	4,411,269,639	2.08%
1998	145,957,627	4,536,331,167	3.22%
1999	123,593,412	4,261,890,791	2.90%
2000	100,871,657	4,419,648,710	2.28%
Avg.	113,302,641	4,382,923,093	2.58%
Gross to Net Factor			2.375
Net Plant Factor			6.13%

E. Depreciation Expense Factor

Both SDG&E and Complainants calculate the depreciation expense associated with the net pole investment by multiplying the depreciation rate from the FERC Form 1, first by their respective estimates of the net pole investment (including ROW overhead) and then by the application factor of 2.458. The parties' methodologies differ with respect to the depreciation rate that is applied to the estimate of net pole investment. SDG&E uses a weighted average depreciation rate of 3.66%. This rate includes the pole and fixture rate of 4.08% associated with the Southwest Power Link (SWPL) as well as the 3.60% rate for all other transmission poles and fixtures²³ and is calculated by weighting the respective depreciation rates (SWPL and other) by the amount of plant in service for each category. The Complainants use the 3.60% depreciation rate for other poles and fixtures exclusively. Since we have included the total transmission pole and fixture plant balance, which includes SWPL, in our analysis, it is appropriate to use a depreciation rate that directly relates to those plant balances. Therefore for the purposes of this proceeding, we will adopt SDG&E's calculated depreciation rate of 3.66% as the depreciation rate related to transmission poles and fixtures.

In developing the depreciation expense factor, both SDG&E and Complainants use the depreciation rate for poles and fixtures only and convert that rate to a net plant basis using the pole and fixtures application factor of 2.458. However, the depreciation expense factor will be applied to the net loaded pole investment, which includes the ROW overhead. As described previously, the ROW overhead consists of land and land rights associated with the pole investment. Land and land rights do not have the same depreciation rate as poles and fixtures. It would therefore be more appropriate to apply the 3.66% depreciation rate for poles and fixtures to the portion of the plant investment related to poles and fixtures only. Consequently, separate rates for land and land rights have to be determined. Land is not depreciated or amortized,²⁴ so the associated rate is 0%. The amortization rate for land rights is 1.01%.²⁵ Depreciation expense factors can be calculated for (1) poles and fixtures, (2) land and (3) land rights by multiplying the depreciation or amortization rate for each category by the appropriate application factor. A composite depreciation expense factor can then be determined by weighting the individual expense factors based on the percentage of net loaded plant investment for each category.²⁶ This calculation results in a composite rate of 8.45%, which we will adopt for use in Attachment A, line 6.

F. Other Items

SDG&E and Complainants agree on a 5.30% cost factor for taxes, which is reflected on line 7 of Attachment A. The parties also agree on an 8.75% return factor (line 8). The cost of ownership factor (line 9) is the sum of the five individual cost factors, while the annual cost of ownership (line 10) is equal to the product of the net loaded pole investment (line 3) times the cost of ownership factor (line 9). The parties agree on the 7.40% space allocation factor (line 11). The annual charge for wood poles (line 12) is then the product of the annual cost of ownership (line 10) times the space allocation factor (line 11) and amounts to $22.12 per pole.