Discussion
We agree with Edison and find that the costs tracked in the TRRRMA account should be considered distribution-related and reasonable. In deciding whether or not to permit recovery of these costs, we must first look to the burden that Edison must meet in order to recover these costs. D.97-08-056 rejected Edison's proposed approach of calculating the distribution revenue requirement through a rate credit. Effectively, the rate credit would have calculated the distribution revenue requirement residually after FERC made a final determination of the transmission revenue requirement. D.97-08-056 stated:
"We reject the utilities' proposals to set distribution rates residually because it would put us in the position of second-guessing FERC decisions. To the extent that FERC reduces the utilities' proposed revenue requirements, it finds that for whatever reason the costs of utility transmission are not reasonable. The utilities propose that we effectively overlook the FERC's findings and to determine that those same costs are reasonable by including them in distribution rates. We would only grant such a request with a showing that the specific costs are both reasonable and associated with distribution activities." (74 CPUC 2d. at 19)
It is evident the burden Edison must meet here is to make a "showing that the specific costs are both reasonable and distribution-related."8
The question thus becomes: did Edison meet the burden that the Commission imposed upon it? Edison has met this burden through its showing in the application that the Commission has already approved these costs as reasonable. In addition, these costs are distribution-related. In particular, since these specific indirect and common costs do not lend themselves to the cost causation principles that the Commission has imposed on Edison to prove in prior decisions, we find this allocation of these specific costs to be reasonable.
Edison sets forth its proof in its Application when it states that,
"The Commission established the TRRRMA to track certain costs that were requested by SCE for recovery in transmission rates if such costs were later rejected by FERC for inclusion in transmission rates. The revenue requirement reflected in the TRRRMA meets all the requirements of the TRRRMA tariff as authorized by Resolution E-3544:
(1) The costs were categorized by FERC to be non-transmission;
(2) The costs were not disallowed by FERC or the Commission;
(3) The costs are eligible for recovery in the Performance Based Ratemaking proceedings; and
(4) Any costs included as a part of the authorized distribution revenue requirement by the Commission but later deemed to be transmission-related by the FERC should be credited to the TRRRMA. (Application at p. 2)
In further support, Edison states that:
"Recovery of the $24.0 million annualized revenue requirement through distribution PBR rates is appropriate because it is associated with overhead costs that the Commission initially authorized as nongeneration, and the FERC subsequently rejected as transmission-related, solely due to the FERC's use of a different cost allocation methodology. The TRRRMA preliminary statement states 'no costs shall be recorded in the TRRRMA if those costs are not eligible for recovery in the PBR proceedings.' A&G and G&I plant costs are definitely eligible for recovery through SCE's PBR ratemaking mechanism since the Commission-adopted distribution PBR 'starting point revenue requirement' contains the portion of the A&G and G&I plant costs allocated to distribution though the cost allocation methodology adopted in D.97-08-056." (Application at pp.29 - 30)
ORA disagrees that Edison has met its burden of proof. Edison rebuts this point in its reply to ORA's protest:
"In [D.97-08-056] the Commission found reasonable and adopted a nongeneration revenue requirement, based on 1995 GRC authorized A&G and G&I plant costs, a portion of which is now recorded in the TRRRMA. FERC adopted a transmission revenue requirement that did not include the TRRRMA costs based solely on the use of a different allocation methodology. Logically, (1) the TRRRMA costs have been determined by the Commission to be reasonable nongeneration costs, (2) the FERC found them not to be transmission related and neither the CPUC [n]or FERC disallowed the costs from recovery,[9] therefore, by definition, (3) they are distribution-related costs." (Reply to Protest, p. 4.)
We agree with Edison that the Commission by (1) authorizing a level of base rate revenues in the 1995 GRC (which included the A&G and G&I costs at issue here), and then subsequently (2) adopting Edison's proposed A&G and G&I plant cost separation methodology, has already found these costs reasonable for retail recovery. We believe this Commission in previous decisions has already decided the issue of reasonableness and as such, the language in D.97-08-056 that Edison must in the future, "make a showing that the specific costs are...reasonable" does not apply to these particular costs, which have already been deemed reasonable.
We are next faced with the issue of whether or not the costs in the TRRRMA are distribution-related. Edison argues that these costs must be considered distribution-related, because (1) the Commission has previously found them to be non-generation, and (2) FERC, due solely to the use of a different overhead allocation methodology, has determined that these costs are not transmission-related. The type of costs at issue here are A&G and G&I plant costs; these costs cannot specifically be determined to be distribution, transmission or generation-related. Because of this, an allocation methodology had to be employed by the Commission to separate these costs into the necessary categories. The discussion in D.97-08-056 (at 74 CPUC2d 19) of whether or not the burden that Edison demonstrate these costs are distribution-related begs the question whether such proof is feasible, and assuming it is, how strong the proof must be. We recognize that in light of the specific type of indirect and common costs at issue, the burden of proof set forth in D.97-08-056 is likely to be impossible to meet. Even Edison's attorney at the Pre-Hearing Conference stated that, "I don't have a witness to put on the stand who can point to a particular dollar in this $24 million a year and say, `[t]hat's definitely a distribution dollar.'" (PHC Tr., p. 9.)10
In light of this discussion, we approve Edison's request that it be permitted to recover the TRRRMA costs in distribution rates. The burden of proof set forth in D.97-08-056 should not be applied mechanistically in view of the fact that the types of common and indirect costs that A&G and G&I represent cannot by their nature, be directly assigned to specific functions. Thus Edison would not be able to attribute these costs solely to its distribution function.11
Finally, we note that ratemaking circumstances have changed since this application was originally filed thus, we are not authorizing Edison to recover the costs booked in TRRRMA through the TCBA, as Edison originally suggested. Instead, we authorize Edison to recover the balance in TRRRMA through its Electric Distribution Revenue Adjustment Balancing Account (EDRABA). This filing for recovery should be made 10 days after the effective date of this decision. In addition, Edison notes that it will make the appropriate filings at FERC to refund amounts owed to customers associated with the $24 million annualized revenue requirement that was collected in transmission rates during the period April 1, 1998 through August 31, 2002.12 Edison is ordered to serve a copy of this filing on the Commission's Energy Division.
8 The second place where the burden was reiterated was in Resolution E-3544. Specifically, Resolution E-3544 stated, "In order 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, we allow the utilities to establish a TRRRMA with the sole purpose of tracking such costs for future review. Consistent with the above statement, the scope of the TRRRMA will be limited to certain costs that meet the following criteria:1. Only costs categorized by FERC to be non-transmission;
2. Only costs not disallowed by FERC or this Commission. 9 Edison repeatedly notes in its papers, and ORA does not disagree, that while FERC declined to include the TRRRMA costs in transmission rates, neither FERC nor this Commission has "disallowed" these costs; i.e., found that they are unreasonable. 10 Later during the PHC, Edison's counsel elaborated upon the difficulties of proof he saw in this case:
11 However, we disagree with Edison's assertion that the Commission staff, in arguing before FERC, promised that costs excluded from transmission rates due to FERC's use of the labor ratio allocation methodology would be recovered by Edison in the distribution rates subject to our jurisdiction. It is clear from an examination of the November 30, 1999 reply comments in FERC Docket No. ER97-2355-000 that no such representation was made. Rather, Commission staff was merely demonstrating to FERC that there is a forum available in which Edison may seek recovery of these costs, if disallowed. After describing the circumstances leading to the authorization of TRRRMA, staff's comments concluded that "if Edison is able to subsequently demonstrate that these costs are reasonable, distribution-related costs (as opposed to generation-related costs), Edison can recover these costs in distribution rates." (Emphasis added.) 12 Edison's comments on Draft Decision of Administrative Law Judge denying application, p. 11."[W]e were using a methodology here [i.e., the multi-factor methodology] that had several steps to it . . . some parts of it you're looking directly at certain costs and you're assigning them . . . "But for the most part, there comes a point where you're using a methodology that doesn't enable you to look at a particular dollar and put somebody on the stand and say, `Yep, that was in my business unit and I spent that dollar, and next year I'll need it and I'll spend it again next year.' "So we are at this position where we don't have a witness to take the stand to talk specifically to those costs." (PHC Tr., p. 14.)
