6. Comments on Proposed Decision

The proposed decision of Commissioner Peevey in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were filed on March 14, 2010 by WEM, PG&E, DRA, Greenlining, SCE, SDG&E, and Aglet. One set of joint comments was filed by Aglet, DRA, DACC, TURN, and WEM and another set, pertaining to the
non-tariffed products and services issues, was filed by DRA, PG&E and TURN. Reply comments were filed on March 21, 2010 by Aglet, TURN, SCE, PG&E, SDG&E, DRA, and Greenlining. To the extent that the comments merely reargued the parties' positions taken in briefs, those comments have not been given any weight. The comments that focused on factual, legal or technical errors have been considered, and, if appropriate, changes have been made.

In its comments, Greenlining requested an opportunity for final oral argument in this proceeding. Greenlining's request is denied. The request is inconsistent with the requirements for presenting such argument, as detailed in the March 5, 2010 Scoping Memo.⁷¹ Also, the retired meter issue, the only issue not settled, was thoroughly briefed by a number of parties.⁷² A final oral argument is not necessary.

6.1. Revenue Requirement Calculations

In comments, PG&E and Aglet proposed revisions to the calculations of the return on the electromechanical meters if either the ALJ proposed decision or the Assigned Commissioner's alternate proposed decision were adopted.

PG&E proposes that the revenue requirement for the amortization of the retired meters over six years be increased for three reasons:

(1) The incremental capital recovery triggers additional California income tax expense. PG&E state this is because California income tax is computed on a "flow through" basis, meaning tax expense for ratemaking purposes matches the taxes the utility expects to pay based on the State tax code. In the early years of an asset's life, the benefits of accelerated State tax depreciation are used dollar for dollar to reduce the forecast of State income tax for ratemaking purposes. Conversely, in the later years of an asset's life, the recovery of the cost of the asset triggers revenues that exceed available tax deductions, resulting in additional tax expense.

(2) The incremental capital recovery also triggers additional federal income tax that is reflected for ratemaking purposes as an increase to rate base. PG&E states that additional federal income taxes are reflected under standard ratemaking practice as a reduction to deferred taxes (increase to rate base).

(3) To be consistent with the Settlement Agreement, PG&E's rate base should be reduced in the attrition years so as to reflect only the incremental capital recovery amount as a result of the incremental amortization above the originally envisioned
18-year amortization. PG&E states the technical adjustments impact the attrition years and result in PG&E continuing to earn a return on an additional 1/18^th of the retired meter investment in attrition year 2012 and an additional 2/18^th of retired meter investment in attrition year 2013.

PG&E requests that it be allowed to file a Tier 2 advice letter that sets forth additional revenue requirements for this GRC on a levelized basis consistent with the discussion in this decision, with the provision that in no event shall such additional revenue requirements exceed $15 million for this GRC cycle. Such additional revenue requirements would become effective when approved, retroactive to January 1, 2011.

PG&E does not explain the accounting for the remaining state tax depreciation that has not yet been used. Specifically, it is not clear why those amounts should not be used to offset a portion of the additional state tax liability over the six-year amortization period. Also, it is not clear whether the additional state taxes can be used as additional federal tax deductions. With respect to the federal tax related rate base increase, it is not clear whether, or how, remaining accelerated and book depreciation amounts are being used to offset the increase related to the additional amortization over the six-year period.

In reply comments, DRA and TURN took the position that the additional revenue requirements requested by PG&E should not be allowed because none of the information used by PG&E is part of the record. We disagree with respect to income tax calculations. Income tax calculations and all the information that supports such calculations are embedded in the results of operations model that is used for calculating the GRC revenue requirements. While the Commission decided to amortize the net plant associated with retired meters over six years, the associated revenue requirements were not calculated using a completely revised results of operations model. If they had been, the income tax adjustments proposed by PG&E would, at least to some extent, have been reflected in the authorized revenue requirements generated by the model. It is therefore reasonable to adjust the revenue requirements accordingly. PG&E may file a compliance advice letter that sets forth the annual amortization schedule base on the reduced rate of return. This amortization schedule should then be used to determine any incremental recovery amounts related to state and federal income taxes, to the extent the information is a part of the results of operations data base for this proceeding and is consistent with the manner in which the results of operations model calculates revenue requirements.

In calculating the associated revenue requirements for the compliance advice letter filing, PG&E should, to the extent possible, reflect any remaining state tax depreciation and federal tax and book depreciation as deductions over the six year amortization period; to the extent applicable, reflect any increased state taxes as increased deductions for calculating federal income taxes; and reflect any other standard ratemaking adjustments that would lower the revenue requirements.

We do not agree with PG&E's adjustment related to the rate base for the attrition years. The Settlement Agreement fixed the attrition year rate increases, not the rate base. By the Settlement Agreement, the attrition year revenue requirement increases are not tied to the outcome of the retired meter issue. Whether TURN or PG&E had prevailed on this issue, the attrition year increases would have been as specified in the Settlement Agreement. We choose to maintain that same outcome here. That is, even though the resolution of the issue does not comport with the recommendation of either PG&E or TURN, the attrition year increases should still be the same as specified in the Settlement Agreement.

In its comments, Aglet states that the levelized cost calculations are simple but incorrect, because they grant PG&E the chosen rate of return on retired meters and on deferred revenue requirements. According to Aglet, under conventional ratemaking, without the levelization procedure, PG&E would record in a balancing account (1) authorized revenue requirements as a debit,
(2) associated revenues as a credit, and (3) short-term interest on the account balance. Aglet recommends amending that procedure to allow PG&E to earn balancing account interest on the undercollection. Balancing account interest rates are short-term commercial paper rates, which are substantially lower than PG&E's overall rate of return. Aglet proposes that this be accomplished by
(a) creating a new Retired Meter Balancing Account, (b) authorizing monthly debits equal to capital-related revenue requirements (depreciation, rate of return at the chosen rate of return, incremental income taxes, franchise fees and uncollectibles) on the undepreciated plant balance, (c) authorizing credits equal to incremental revenues, and (d) authorizing interest at short-term commercial paper rates. Aglet states that the new accounts would look much like existing balancing accounts for PG&E's base rate revenue requirements, which allow only short-term commercial paper rates on account undercollections.

While Aglet's proposal is a Commission-approved method for treating undercollections and overcollections in balancing accounts, it is not appropriate for our purpose here, which is merely to create a levelized annual revenue requirement for the six-year amortization of the retired meter balance. The consequences of Aglet's proposal run contrary to the mortgage-style recovery where the revenue requirement is levelized with more of the revenue going to return in the early years and less going to return in the later years, but all return is on unamortized plant, not on deferred revenues. We will not adopt Aglet's recommendation.

⁷¹ The Scoping Memo states that any party seeking to present a final oral argument should have filed and served a motion within 10 days of the filing date of reply briefs. Such motion should have stated the request, the subjects to be addressed, the amount of time requested, any recommended procedure and order of presentations, and all other relevant matters, so that the Commission would have all the information necessary to make an informed ruling on the motion and to provide an efficient, fair, equitable, and reasonable final oral argument. Greenlining did not file such a motion or provide the required information in its proposed decision comment request.

⁷² It is also noted that that Commissioner Sandoval and Commissioner Ferron held an All-Party Meeting on April 20, 2011 regarding the ALJ proposed decision and Commissioner Peevey's alternate proposed decision.