3. Edison's Position
In both its testimony and briefs, Edison takes the position that its new practice of separately billing developers not due a refund for monthly ownership charges, rather than deducting these charges from the remaining refundable balance, is not only consistent with the tariff language that has been in effect since 1995, but more in keeping with that language than Edison's prior practice, which SCE now considers erroneous.
In its direct testimony, Edison notes that its Ledgers organization is responsible for keeping track of contracts entered into with developers pursuant to Rule 15, as well as managing those contracts and computing the amounts of any remaining refundable balances and monthly ownership charges. Edison also notes that since the early 1990s, the Ledgers organization has used an in-house computer system to keep track of these matters. However, after the Rule 15 tariff language changed in 1995, the in-house system was not kept up-to-date:
"Since 1992, Ledgers has utilized an in-house built system known as the Ledgers Accounting System (LAS) to manage Rule 15 Form Contracts in accordance with applicable tariffs. LAS is a single source system that contains the data necessary for such management.
" . . . Rule 15 was modified in 1995. At such time, LAS was not updated to reflect the changes made to Rule 15. Instead, a manual process was created to accommodate the changes made to Rule 15. Specifically, once it was determined that ownership charges were due on nonresidential or developmental Rule 15 Form Contracts, Ledgers used manually-prepared spreadsheets to make the calculations deemed necessary to comply with the applicable tariffs. The calculation results were then manually entered back into LAS." (Ex. 5, p. 2.)
After new leadership took over the Ledgers organization in 2002, the new leaders began to raise questions about how certain accounting issues were being handled. One of the areas examined was Rule 15 contracts:
"In or around June 2005, as part of its on-going efforts for system consistency, efficiency and compliance, Ledgers commenced a review of the calculation and collection of ownership charges from applicants. One of the questions that arose after Ledgers reviewed and compared the manually-prepared paper spreadsheets against LAS programming was whether or not reducing the remaining refundable balance by the calculated ownership charges was appropriate when no refunds were due to the applicant. Specifically, Ledgers questioned whether the collection of ownership charges from applicants by way of reducing their remaining refundable balance was supported by Rule 15. In addition, Ledgers was unsure whether applicants could be directly billed the ownership charges due to SCE when no refunds were due to applicants because Rule 15 did not specifically address this issue." (Id. at 3.)
Because of these issues, the Ledgers Department sought a "tariff clarification" from Edison's RP&A Department, which responded in late December 2005. Edison describes the changes it made in response to the RP&A tariff clarification as follows:
"In or around January of 2006 and in accordance with RP&A's recommendations, Ledgers changed the methodology used to collect ownership charges when no refunds were due to applicants. Instead of collecting ownership charges by reducing the applicant's remaining refundable balance, Ledgers began directly billing ownership charges on a quarterly basis when no refunds were due to the applicant. Billing of ownership charges when no refund was due to the applicant was deemed an internal process correction needed to comply with the language set forth in Rule 15.
"Based on the clarification received from RP&A, system modifications were made to LAS. The system modifications were implemented in late June 2007 using RP&A's clarification as a guideline. In addition, Ledgers' staff was instructed on the proper application of ownership charges and billing requirements to ensure consistent application of RP&A's clarification." (Id. at 4.)
Although Edison does not take issue with CBIA's description of how monthly ownership charges were computed before and after the January 2006 change in billing practice, SCE insists that the change it made in situations where a refund is not due is more consistent with the language of Rule 15.E.6 than the practice SCE followed - with the help of the manual spread sheets described above - from 1995 to 2005.
In its testimony, Edison argues that until Rule 15 assumed its present form in 1995, prior versions had expressly provided for the reduction of refundable balances by the amount of monthly ownership charges. According to Edison, the 1995 removal of this language from the rule - plus the addition of language that "monthly ownership charges are in addition to the refundable amount" -- supports Edison's new practice:
"Ownership charges have always been a part of line extension project costs. However, the methodology used to collect ownership charges has evolved over the years. In fact, prior to 1985, Rule 15.1 specifically stated that ownership costs will normally be made by deducting the developer's advance. When the three rules [i.e., Rules 15, 15.1 and 15.2] were consolidated in 1995, the reference to deducting from the developer's advance was not reinstated into Rule 15 and the phrase `monthly ownership costs are in addition to the refundable amount' was added. The fact that the reference to a reduction of the developer's advance was removed from Rule 15 is a strong indication that by 1995 the Commission no longer favored the collection of ownership charges through the reduction of the remaining refundable balance." (Id. at 6; footnote omitted.)
Edison argues that its previous practice of deducting monthly ownership charges from remaining refundable balances was not only inconsistent with the language of Rule 15.E.6 as amended in 1995, but was also conceptually incorrect, because "the deduction of ownership charges owed by the applicant from the remaining refundable balance when no refund is due to the applicant inappropriately reduces the amount available for refund to the applicant." (Id. at 5.) 3
Finally, in addition to arguing that its new interpretation of Rule 15.E.6 is more consistent with the history and language of the rule, Edison argues that CBIA's position finds no support in Barratt American. In Edison's opinion, Barratt American was a case that turned on tariff ambiguity, and there is no ambiguity in the tariff here:
"Barratt American dealt with a major change by SCE to its 30-year practice of not charging developers the cost of pole removal when they converted existing overhead facilities to underground facilities. To determine whether there was an ambiguity in Rule 20 with respect to the payment of pole removal costs, the Commission reviewed Rule 20 in its entirety. The fact that Rule 20 was completely silent on the issue[,] coupled with the fact that it was the Commission's policy to encourage conversion to underground facilities, convinced the Commission that it was not unreasonable for SCE to assume that it should bear the removal costs. Although SCE's [new] interpretation that the Applicant should bear the removal costs was plausible and compliant with Rule 20, there was enough ambiguity on the issue of cost responsibility to sway the Commission against Edison's [new] interpretation." (Edison Opening Brief, p. 12.)
Edison argues that unlike the tariff in Barratt American, there is no ambiguity in Rule 15, because that rule and its predecessors have always required the payment of monthly ownership charges when the capital costs of line extensions were not being fully recovered. The 1995 addition of the phrase "monthly ownership charges are in addition to the refundable amount," plus the 1985 deletion of language providing for the reduction of remaining refundable balances by the amount of monthly ownership charges, are clear evidence to Edison that the utility is authorized to bill developers separately for monthly ownership charges when a refund is not due. (Id. at 12; Ex. 5, p. 6.)
3 Elsewhere in its testimony, Edison points out that the Ledgers Department had also raised the issue whether SCE's longstanding method of calculating remaining refundable balances when no refund was due amounted to an inappropriate mixing of distinct accounting concepts:
"Although Ledgers was unclear about whether or not Rule 15 supported direct billing of ownership charges when no refunds were due to applicants, it was believed that the deduction of ownership charges from the remaining refundable amount when no refunds were due created an inappropriate mixed use of capital and expense funds. The refundable advance is intended to support the capital investment (e.g., building the electrical distribution and/or service facilities) made by SCE to serve the applicant. On the other hand, ownership charges are intended to cover the ongoing expenses associated with maintaining electrical facilities, such as administration and general expenses, insurance and operations and maintenance expenses, among others." (Id. at 3-4.)
