Assignment of Proceeding
Loretta M. Lynch is the Assigned Commissioner and A. Kirk McKenzie is the assigned Administrative Law Judge in this proceeding.
1. The restructuring of the electric industry that began in California in the mid-1990s made it necessary to allocate Edison's revenue requirement among generation, transmission, distribution, and other functions.
2. The first step in this allocation process occurred in D.96-09-092, in which the Commission adopted an interim PBR mechanism for Edison's transmission functions (which mechanism was to remain in effect until the transfer of transmission rate-setting responsibilities to FERC), as well as a PBR mechanism for Edison's distribution functions that was to remain in effect until 2001.
3. As part of D.96-09-092, the Commission adopted, with modifications, Edison's proposal for allocating the revenue requirement derived from its 1995 GRC between generation and nongeneration.
4. In D.97-08-056, the Commission made interim allocations of the nongeneration revenue requirement derived from the 1995 GRC among transmission, distribution, and other functions.
5. In D.97-08-056, the Commission adopted Edison's proposal to allocate $211 million of the nongeneration revenue requirement to transmission, while recognizing that FERC would eventually make its own determination as to the amount of costs properly includable in Edison's transmission rates.
6. In D.97-08-056, the Commission determined the amount of Edison's nongeneration revenue requirement that should be allocated to distribution on an interim basis by subtracting the $211 million that Edison proposed to allocate to transmission, as well as $282 million that Edison proposed to allocate to nuclear decommissioning and public purpose programs.
7. In D.97-08-056, the Commission accepted Edison's proposal to allocate A&G costs among the various functions by using a multi-factor allocation methodology in which the first step is to determine whether the cost at issue is direct, joint or common.
8. In D.97-08-056, the Commission expressly declined to set distribution rates through the "residual" or "rate credit" method proposed by Edison; i.e., by subtracting the revenue from FERC-approved transmission rates from the total nongeneration revenue requirement.
9. Rather than use the residual approach advocated by Edison, D.97-08-056 ruled that costs not included by FERC in transmission rates would be eligible for inclusion in distribution rates only upon a showing that these costs were both reasonable and distribution-related.
10. In late 1997, Edison submitted a transmission rate proposal to FERC based upon the $211 million allocated to transmission in D.97-08-056.
11. Edison's transmission rate proposal to FERC allocated A&G and G&I costs by using the multi-factor allocation methodology described in Finding of Fact (FOF) No. 7.
12. FERC's order accepting Edison's filing provided that the proposed transmission rates (a) would go into effect, subject to refund, on the date the California ISO began operation, and (b) would be the subject of hearings.
13. In Advice Letter 1298-E, Edison requested that the TRRRMA be established to track the revenue requirement associated with costs that Edison had requested be included in transmission rates, but which FERC might later find were not properly includable in transmission rates because they were not transmission-related. SDG&E filed an advice letter seeking similar relief.
14. In Resolution E-3544, the Commission authorized the establishment of TRRRMA. However, the resolution noted that by authorizing this new memorandum account, the Commission was not authorizing the automatic recovery in distribution rates of amounts that FERC declined to include in transmission rates on the ground they were not transmission-related. Rather, Resolution E-3544 stated that before Edison and SDG&E could recover such costs in distribution rates, they would be required to show that the costs were reasonable distribution costs.
15. In addition to the requirement set forth in the preceding FOF, Resolution E-3544 stated that (a) only costs eligible for recovery in the respective PBRs of Edison and SDG&E could be tracked in TRRRMA, and (b) Edison and SDG&E would be required to treat as a reduction to their TRRRMA balances, any costs that the utilities had characterized as distribution-related but that FERC subsequently determined were transmission-related, and thus includable in transmission rates.
16. In his Initial Decision in Docket No. ER97-2355-000, the FERC ALJ ruled that Edison had failed to demonstrate that the multi-factor allocation methodology described in FOF No. 7 was superior to FERC's traditional labor cost ratio allocation methodology, or that the multi-factor methodology was just and reasonable.
17. Edison appealed the ALJ's determination on the multi-factor allocation methodology to FERC, but in Opinion 445, FERC affirmed the ALJ's determination for the reasons set forth in the Initial Decision.
18. In affirming the ALJ's Initial Decision, FERC noted that Edison would have an opportunity to recover in CPUC-determined distribution rates, the A&G and G&I costs not included in transmission rates as a result of using the labor ratio allocation methodology.
19. Edison has filed a Conditional Request for Rehearing of Opinion 445, in which it argues that FERC's decision to affirm the ALJ's determination with respect to the multi-factor allocation methodology is erroneous for both legal and policy reasons.
20. As a result of FERC's decision in Opinion 445 with respect to the allocation of A&G and G&I costs, approximately $24 million of such costs are eligible for inclusion annually in Edison's TRRRMA balance.
21. In addition to requesting that the balance in its TRRRMA account be transferred as a debit to its TCBA revenue account, Edison's application requests that it be authorized to collect in existing distribution rates, the $24 million annual amount described in the preceding FOF.
22. In Edison's application here, Edison argues that FERC did not disallow the costs described in FOF 20. Instead, FERC declined to include these costs in transmission rates due solely to FERC's use of an overhead allocation methodology different from the methodology adopted by the Commission in D.97-08-056.
23. The burden of proof established in Resolution E-3544 for the recovery of TRRRMA costs in distribution rates is that the costs must be reasonable distribution costs.
24. Edison has shown that the costs tracked in the TRRRMA meet all of the requirements of the TRRRMA tariff authorized by Resolution E-3544.
25. Owing to their very nature, it is not possible to show with certainty that Administrative and General and General and Intangible plant costs are distribution related, because such costs are indirect.
26. The $24 million of costs booked in TRRRMA for which Edison requests recovery here were accepted as reasonable in D.96-01-011, Edison's 1995 GRC decision.
1. The testimony that ORA served on September 7, 2001, should be made part of the record in this proceeding.
2. Edison has adequately satisfied the burden of proof set forth in Resolution E-3544, which requires that before costs booked in TRRRMA can be recovered in distribution rates, the utility must prove that the costs are reasonable distribution costs.
3. The application in this proceeding should be approved.
IT IS ORDERED that:
1. The testimony of the Office of Ratepayer Advocates served in this proceeding on September 7, 2001, is hereby admitted into evidence as Exhibit 1.
2. The application of Southern California Edison Company in this proceeding is approved.
3. Edison shall file tariffs implementing the recovery of the TRRRMA as instructed in this decision ten days after the effective date of this decision.
This order is effective today.
Dated August 21, 2003, at San Francisco, California.
MICHAEL R. PEEVEY
President
CARL W. WOOD
GEOFFREY F. BROWN
SUSAN P. KENNEDY
Commissioners
I dissent
/s/ LORETTA M. LYNCH
Commissioner
