COM/SK1/bb1 Mailed 9/03/2003

Decision 03-08-062 August 21, 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 APPROVING APPLICATION TO RECOVER COSTS

BOOKED IN THE TRANSMISSION REVENUE REQUIREMENT
RECLASSIFICATION MEMORANDUM ACCOUNT

155121

TABLE OF CONTENTS

Title Page

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

Summary 2 2

Background 5 5

Resolution E-3544 and the Creation of TRRRMA 8 8

Edison's Transmission Rate Proceeding at FERC 11 11

Edison's Application 15 15

ORA's Protest 19 19

The July 18, 2001 Prehearing Conference and
Submission of the Case Without Hearings 21 21

Discussion 25 25

Comments on Draft Decision 30 30

Assignment of Proceeding 31 31

Findings of Fact 31 31

Conclusions of Law 36 36

DECISION APPROVING 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 Commission adopted nongeneration revenue requirement approved in our decision on 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 $211 million of the revenue requirement derived from the 1995 GRC to transmission. We also concluded that $1.668 billion of the 1995 GRC revenue requirement should be allocated to distribution. See, 74 CPUC2d at 43, 58 (Appendix B, Table 1.) We cautioned, however, that these were not final allocations, because FERC would make its own independent assessment of the proper revenue requirement for transmission, and Edison would be expected to prove in later proceedings that all of the claimed $1.668 billion was properly allocable to distribution. (74 CPUC2d at 19.)

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 solely 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) Resolution E-3544 also defined the scope of TRRRMA and specified what costs could be booked into TRRRMA. Resolution E-3544 established that "only costs categorized by FERC to be non-transmission and only costs not disallowed by FERC or this Commission" are allowed to be booked into TRRRMA. (Finding No. 8)

In this application, Edison asks for recovery in its distribution rates certain overhead costs that have been tracked in the TRRRMA. Edison is seeking only recovery of costs in distribution rates that adhere to the specific criteria in E-3544 as stated above. In addition, Edison has shown that the costs it seeks authorization to recover have not been disallowed by FERC. Instead, FERC declined to include these costs in transmission rates due solely to FERC's use of an overhead allocation methodology different from the Commission-adopted methodology.

In D.97-08-056, the Commission determined that "we would only grant such a request [recovery of specific costs found by FERC not to be transmission-related] with a showing that the specific costs are both reasonable and associated with distribution activities."³ When TRRRMA was established for Edison, the Commission found that the "establishment of a TRRRMA does not allow for automatic recovery of costs booked into that account. Cost recovery and ratemaking issues associated with the amounts entered into that account will be considered in future proceedings." (Finding No. 5)

By way of this decision, we will consider the recovery of costs booked into TRRRMA. The costs at issue in this application were adopted as part of Edison's overall revenue requirement in Edison's 1995 GRC (D.96-01-011), and were determined to be nongeneration in D.97-08-056.

As described more fully herein, these specific types of costs, by their nature, cannot be directly assigned to one specific function or service. As such, the burden set by the Commission to show that these costs are reasonable distribution costs is one that has been met by Edison in this application. Since the Commission has never disallowed these costs, and has determined them to be non-generation, they must either be transmission or distribution. Based on a difference in allocation methodology, FERC determined these costs to be non-transmission. We will therefore permit Edison to recover these costs as distribution-related, as we do not see a rationale for disallowing previously- approved costs due solely to a difference in allocation methodology.

For all these reasons, we grant the request of Edison for authorization to recover the costs booked in TRRRMA in its distribution rates.

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.)

³ D.97-08-056, p. 19