ALJ/MCK/avs DRAFT Agenda ID #2186

Ratesetting

8/21/2003 Item 83

Decision DRAFT DECISION OF ALJ McKENZIE (Mailed 5/6/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) For An Order Under Section 701 of the Public Utilities Code Granting Southern California Edison Company Authorization to Recover TRRRMA Costs.

Application 01-02-030

(Filed February 28, 2001)

DECISION DENYING APPLICATION TO RECOVER COSTS

BOOKED IN THE TRANSMISSION REVENUE REQUIREMENT
RECLASSIFICATION MEMORANDUM ACCOUNT

TABLE OF CONTENTS

Title Page

DECISION DENYING APPLICATION TO RECOVER COSTS BOOKED IN THE TRANSMISSION REVENUE REQUIREMENT RECLASSIFICATION MEMORANDUM ACCOUNT 2 2

Summary 2 2

Background 4 4

Resolution E-3544 and the Creation of TRRRMA 6 6

Edison's Transmission Rate Proceeding at FERC 8 8

Edison's Application 11 11

ORA's Protest 13 13

The July 18, 2001 Prehearing Conference and
Submission of the Case Without Hearings 14 14

Discussion 17 17

Comments on Draft Decision 27 27

Assignment of Proceeding 27 27

Findings of Fact 27 27

Conclusions of Law 32 32

DECISION DENYING APPLICATION TO RECOVER COSTS
BOOKED IN THE TRANSMISSION REVENUE REQUIREMENT
RECLASSIFICATION MEMORANDUM ACCOUNT

Summary

In this application, Southern California Edison Company (Edison or SCE) asks for authority to recover, as a debit to its Transition Cost Balancing Account (TCBA), costs that have been tracked since 1998 in the Transmission Revenue Requirement Reclassification Memorandum Account (TRRRMA), which was established by Resolution E-3544. Edison also seeks authority to recover on an ongoing basis the costs that are booked annually in TRRRMA, which amount to about $24 million, in the distribution rates that are currently in effect for Edison.

As explained below, TRRRMA was created because of the need, as a result of electric restructuring, for the Federal Energy Regulatory Commission (FERC) to set electric transmission rates, while jurisdiction over retail distribution rates remained with this Commission. For the purpose of setting transmission rates, FERC was called upon to allocate to the transmission function, a suitable portion of the nongeneration revenue requirement derived from the decision in Edison's 1995 Test Year General Rate Case (GRC), Decision (D.) 96-01-011. In D.97-08-056 (74 CPUC2d 1), the so-called "unbundling" decision, the Commission adopted Edison's proposal to allocate tentatively to transmission, $211 million of the revenue requirement derived from the 1995 GRC.

FERC issued its decision on Edison's retail transmission rates in 2000. Opinion 445, 92 FERC ¶61,070, issued July 26, 2000 (Opinion 445). In that opinion, FERC rejected Edison's proposed allocation of certain Administrative and General (A&G) and General and Intangible plant (G&I) expenses to the retail transmission function, based on the conclusion that FERC's traditional labor cost ratio method of allocation was superior to the "multi-factor" allocation methodology proposed by Edison.¹ Under the terms of Resolution E-3544, the total of A&G and G&I expenses found ineligible for inclusion in transmission rates by FERC (i.e., $24 million annually), could be booked in TRRRMA.²

As stated in Resolution E-3544, the purpose of TRRRMA is "to provide the opportunity for the utilities to make a showing that the costs which are deemed non-transmission related by FERC may be reasonable distribution costs." (Finding No. 7; emphasis added.) In this application, Edison asks, in effect, that it be excused from making such a showing, based on the argument that if the A&G and G&I costs at issue are not transmission-related, they are ipso facto distribution-related. Because we rejected this argument in D.97-08-056, and for the other reasons set forth below, we decline to excuse Edison from meeting the burden of proof that was clearly established for the recovery of TRRRMA costs in Resolution E-3544. However, as noted in the application, Edison still has an opportunity to pursue recovery of these costs through the Conditional Request for Rehearing of Opinion 445 that it has filed at FERC.

¹ FERC described the multi-factor allocation methodology (which this Commission had approved in D.97-08-056) as follows:

"A&G and G&I costs would be assigned to generation, ISO transmission, and non-ISO business segments by grouping these costs into one of three cost attribution pools: direct, joint, or common. These costs would then be assigned to the appropriate business segment based on the attribution technique specific to that pool, with the stated objective of limiting the amounts to which general allocation formulas are applied." (92 FERC at p. 61,267.)

For D.97-08-056's similar description of the multi-factor allocation methodology, see 74 CPUC2d at 17. ² Edison's application describes the components of the $24 million as follows:

"A&G expenses including franchise fees account for nearly $6.1 million of the $24.0 million difference in revenue requirements resulting from the use of the labor allocator approach as compared with the Commission-adopted cost separation methodology. The remaining $18 million relates to the lower G&I plant costs allocable to ISO transmission under FERC's labor allocator approach." (Application, p. 24.)