4. Discussion
Although Edison has presented some interesting policy and historical arguments in support of its change of interpretation of Rule 15.E.6, we agree with CBIA that the change Edison made in early 2006 violates both Pub. Util. Code § 454 and GO 96-A. Contrary to Edison's contentions, we also find that this case presents a situation very analogous to Barratt American.
In a case that turns so heavily on questions of tariff interpretation, we think it is appropriate to begin our discussion with the actual language of the tariff. As noted in the introduction, Rule 15.E.6 provides in full:
"When any portion of a refundable amount has not qualified for a refund at the end of twelve (12) months from the date SCE is first ready to serve, Applicant will pay to SCE a Monthly Ownership Charge for administration and general (A&G) expense including Franchise Fees and Uncollectibles (FF&U), ad valorem tax, insurance, and operations and maintenance (O&M) in the percentages shown in Rule 2, Section H.2.c on the remaining refundable balance. Monthly ownership charges are in addition to the refundable amount and will normally be accumulated and deducted from refunds due to Applicant. This provision does not apply to individual residential Applicants."
Even on a cursory reading, several things stand out about this language. First, it does clearly state, as SCE has repeatedly pointed out, that "monthly ownership charges are in addition to the refundable amount." Second, it states that these charges "will normally be accumulated and deducted from the refunds due to Applicant," thus setting forth what Edison presumably considers the "normal" situation. However, even if one assumes that the "abnormal" situation is one in which no refund is due,4 the rule does not specify how monthly ownership charges are to be collected in that instance.
Edison admits this linguistic gap exists, but seeks to plug it (and thus defend its 2006 change of interpretation) by relying on the clause that "monthly ownership charges are in addition to the refundable amount." Edison argues that this clause is authorization to bill separately for the charges, as it has been doing since January 2006. However, while Edison's reading is a plausible interpretation of the rule's language, it is not the only possible interpretation, as indicated by Edison's practice from 1995 to 2005 of accounting for monthly ownership charges when no refund was due by deducting the monthly charges from the remaining refundable balance, a practice SCE now claims is improper.
Edison also tries to argue that the linguistic gap in Rule 15.E.6 is not an ambiguity, and that this position is strengthened by the deletion in 1985 of language from Rule 15's predecessor stating that "payment of such ownership charges will normally be made by deduction from the developer's advance."
However, while the 1985 deletion arguably supports Edison's position, that position has been substantially undercut by the way in which Edison's own Ledgers Department accounted for remaining refundable balances through the end of 2005. As Edison witness Lisa Vallenoweth conceded in her opening testimony, the "collection process" of how to account for monthly ownership charges in situations where no refund is due "is not specifically addressed in Rule 15.E.6, nor is it addressed in any other subsection of Rule 15." (Ex. 5, p. 5, lines 11-12.) Further, as SCE witness Tracy Reeves pointed out, the Rule 15 issue was referred to Edison's RP&A Department in the fall of 2005 partly because the Ledgers Department "was unsure whether applicants could be directly billed" monthly ownership charges when no refund was due, "because Rule 15 did not specifically address this issue." (Id. at 3, lines 17-19.) In view of the uncertainties about the permissible scope of Rule 15 within Edison's own department charged with administering the rule, we conclude that Rule 15.E.6 is ambiguous, because it is silent on the issue of whether developers not due a refund may be billed separately for monthly ownership charges.
It is also clear that the effects of the billing change Edison instituted in 2006 have not been trivial. As noted in the introduction, Edison has billed developers about $1.45 million for monthly ownership charges since the change of interpretation of Rule 15.E.6 took effect. As CBIA has repeatedly pointed out, these billings are for charges that Edison had not previously billed; until the 2006 change, monthly ownership charges had always been deducted from the developer's remaining refundable balance, even if no refund was due. The 2006 change of interpretation means that, whatever the tariff language may say, developers are now expected to pay for charges that for more than 35 years have been deducted from refunds, if any, owed to the developer.
The silence of Rule 15.E.6 on this critical billing issue, and the uncertainty within Edison as to the permissible scope of the rule, give this case a strong resemblance to the Barratt American case, D.01-03-051. In that proceeding, the issue was whether homebuilders who were compelled by SCE's Rule 20.B to convert overhead to underground electric facilities should receive a credit for the costs of pole removal. It was undisputed that for more than 30 years, Edison had granted such a credit to developers who were compelled by the tariff to convert their electric facilities to underground. However, after an "internal review," Edison began to charge for pole removal, a change of practice it argued was consistent with the tariff language.
When questioned by the ALJ about its change of practice, Edison argued that the change was permissible, because it was not inconsistent with the tariff language. The description of Edison's position on this point in Barratt American is virtually identical to the language SCE has used in this case:
"SCE's practice is to implement procedures in accordance with its tariffs. So long as SCE's procedures are not inconsistent or in conflict with its tariffs, SCE does not typically seek approval of the specific procedures it is implementing. Likewise, if SCE determines that a procedure should be changed, it does not seek approval if the procedure, as changed, is still consistent with SCE's tariff." (D.01-03-051, p. 2.)
Edison is correct that in Barratt American, the Commission examined the language and history of Rule 20.B and concluded that Edison's new position on pole removal costs was not inconsistent with the tariff's language. However, this linguistic consistency did not prevent the Commission from finding that an ambiguity was present:
"SCE insists that its change in policy is consistent with the language of Rule 20. Certainly, when the tariff language is considered as a whole--including the Rule 20.B.3 provision specifically addressing removal of overhead facilities--that interpretation appears valid. When determining whether there is ambiguity in a tariff, we are required to consider tariff language as a whole . . . On the other hand, Rule 20.B.2.c does not address pole removal costs and, given the Commission's intent in D.73078 to encourage conversion to underground facilities, it was not unreasonable for SCE for 30 years to assume that it should bear the removal costs. It is settled law that an ambiguity in a tariff must be construed against the utility and in favor of the customer . . ." (Id. at 7.)5
Thus, although agreeing with Edison that its new position on pole removal costs was consistent with the tariff language of Rule 20.B, Barratt American nonetheless held that the change was impermissible, because it violated Pub. Util. Code § 454 and GO 96-A:
"The issue here, however, is not whether SCE's pole removal practice conforms to its tariffs. The issue is whether the change in that practice required prior Commission approval. We conclude that it did. To conclude otherwise would allow a utility, in practical effect, to increase its charges without Commission authorization. This would contravene Pub. Util. Code § 454, GO 96-A, and the rule of construction just cited that a tariff must be construed in favor of the customer." (Id. at 7-8; emphasis in original.)
It is clear that under the reasoning of Barratt American, Edison's change of interpretation of Rule 15.E.6 -- a change that allowed it to begin separately billing monthly ownership charges to developers not due a refund -- is impermissible under § 454 and GO 96-A.
Not surprisingly, Edison has sought to distinguish this case from Barratt American on a number of grounds. First, Edison argues that Barratt American should be restricted to its facts, relying upon a sentence in D.01-03-051 that "our order is confined to the facts of this case." (Edison Reply Brief, p. 6, n. 15.)
However, it is apparent when one examines the full passage in which this sentence appears that the Commission was not holding that Barratt American was non-precedential. Responding to Edison's argument that seeking Commission approval for the change of practice would amount to obtaining an advisory opinion, and that the Commission would be "inundated" with filings if Commission approval were required each time such a practice was changed, the Commission said:
"We believe these contentions overstate the effect of our decision today. Our order is confined to the facts of this case. It finds that Barratt American has stated a valid complaint under GO 96-A. SCE should have sought Commission approval before changing a practice that had been in place for 30 years and that eliminated a substantial credit to applicants for underground conversion." (D.01-03-051, p. 8; emphasis supplied.)
Edison also argues that Barratt American is distinguishable because although the Commission found the undergrounding rule to be silent on the issue of who should pay for pole removal, the language of Rule 15.E.6 clearly states that "monthly ownership charges are in addition to the refundable amount." Thus, in Edison's view, there is no tariff ambiguity, and Rule 15.E.6 should not be considered ambiguous merely because the rule fails to spell out SCE's possible billing options:
"CBIA would like the Commission to believe that the absence of phrases like `SCE shall send a bill to Applicant' in Rule 15 creates an ambiguity as to whether or not the Applicant is responsible for the payment of ownership fees. Clearly, this ambiguity does not exist in Rule 15. Attempting to spell out every conceivable collection methodology available to SCE in the abnormal circumstance where the Applicant is not due a refund would be imprudent, unnecessary and inefficient. Rule 15 clearly holds the Applicant responsible for the payment of ownership costs." (Edison Opening Brief, p. 12; emphasis in original.)
The answer to this argument is that it fails to recognize that by starting to bill developers separately for monthly ownership charges when they are not due a refund, Edison has changed an accounting practice of 35 years' standing. The discussion in Barratt American makes clear that such a change is covered by the language of § 454 and GO 96-A:
"SCE next contends that the requirements of Pub. Util. Code § 454 apply only to `new rates,' and that no new rates are at issue here. That is a highly restrictive -- and incorrect -- reading of Section 454 and the implementing requirements of GO 96-A. As noted in the draft decision, those rules provide that a utility may not change a practice that results in an increase in a tariff schedule without a finding by the Commission that such increase is justified. SCE is incorrect in its contention that Section 454 does not apply to the facts of this case." (D.01-03-051, p. 10.)
Edison also argues that the Commission would be creating a dangerous precedent if it ruled that Rule 15 is ambiguous merely because it is silent as to billing options, even though the tariff language is very clear about SCE's right to collect monthly ownership charges:
"SCE urges the Commission to reject CBIA's recommendations and not find that there is an ambiguity in Rule 15 as to the payment obligations of Applicants with respect to ownership fees. A finding suggesting an ambiguity given the clear language in the tariff would create a dangerous precedent[,] as it would require utilities to make advice letter filings whenever they find it necessary to change an internal policy and would unduly burden the Commission with excessive and unnecessary filings." (Edison Reply Brief, p. 4.)
The short answer to this contention is that we doubt there are very many situations in which Edison or any other utility has changed a decades-long practice by which it accounts for the charges required by one of its tariffs. If a utility wishes to make such a change to a well-established practice, it is required by Pub. Util. Code § 454 to seek our approval through the advice letter process (or, if necessary, an application).
In attempting to distinguish Barratt American, Edison also argues that what CBIA is seeking to do here is establish its right to a large subsidy at ratepayer expense:
"CBIA would like the Commission to believe that Rule 15 was deliberately set up to give developers a large subsidy at the expense of ratepayers. The most basic analysis of Rule 15's history contradicts CBIA's theory. Applicants have always been liable for the payment of ownership fees in both the refund and no-refund context under Rule 15. Rule 15 simply does not provide a `subsidy' or `credit' to developers that are not eligible for a refund because they have not provided the revenue necessary to justify the construction costs of the line extension. A Commission-approved `credit' or `subsidy' to developers does not exist under Rule 15 and should not be adopted by the Commission as it would be in contravention of Rule 15 and would violate the Commission's long-standing policy of having the cost-causer pay line extension costs." (Id. at 3.)
Although this argument has some appeal from a policy perspective, we agree with CBIA that in making it, Edison has misstated the key issue in this proceeding:
"Even if the Commission eventually agrees with SCE's interpretation of Rule 15 . . . that issue must be resolved in a separate proceeding than this one in which CBIA will have the opportunity to present its full case for its interpretation that Rule 15 requires SCE to deduct ownership charges from the remaining refundable balance[,] as it and the other major IOUs have been doing for the last 35 years. Here, CBIA only asks that the Commission acknowledge that SCE has unilaterally changed its practice and procedure which has resulted in an increased charge on CBIA members in violation of § 454 and GO 96-A." (CBIA Reply Brief, p. 5; emphasis supplied.)
Finally, we agree with CBIA 6 that despite Edison's argument that its 2006 change of interpretation merely corrected SCE's internal accounting process for a charge SCE had long been entitled to collect, in fact Edison had an incentive to change its interpretation of Rule 15. As noted in CBIA witness Lower's testimony, a developer applicant is eligible for refunds only for 10 years on the advance it has paid; after that time any remaining balance that has not been refunded reverts to Edison. (Ex. 1, p. 3.)7 During cross-examination, Edison witness Reeves acknowledged that when SCE receives an unrefunded balance because of this 10-year limit, it is applied to reducing the amount of the ratebase on which the company's future rates are set. Thus, although she could not quantify it, Reeves acknowledged that the practical effect of the 2006 change would be that eventually, larger amounts of unrefunded balances would become available to reduce Edison's ratebase. 8
4 During his cross-examination by the ALJ, CBIA witness Lower acknowledged that the word "normally" does not clarify the meaning of Rule 15.E.6:
"Q: What has been your understanding of the use of the term `normally'?
That is a word that always causes concern, I think, for a lawyer who sees it because no two people probably can ever agree on what `normally' means.
A: Your Honor, I was involved in writing these rules, and that was a very bad choice in language. But as it stands right -
Q: Are you confessing that you came up with this? (Laughter)
A: No, I'm not, sir, but I was very much involved in a six-year project to redo these rules from 1989 to '95.
And the word `normally' to me doesn't mean much unless they would identify the abnormal. And there's no other alternative here except the deduction from the refunds due to the applicant. So the word `normally' doesn't add anything." (Transcript, p. 40.)
5 Although, as noted in footnote 2, this case is governed by GO 96-A rather than GO 96-B, it should be noted that the rule requiring ambiguities in a tariff to be construed against the utility is now expressly incorporated in GO 96-B, which became effective on July 1, 2007 pursuant to D.07-01-024. General Rule 8.2.1 of GO 96-B provides in pertinent part:
"Any ambiguity in a tariff provision shall be construed in the way most favorable to the customer, and any representation made by a utility, in advertising or otherwise, with respect to a tariffed service shall be consistent with the terms and conditions of the applicable tariff." (Emphasis supplied.)
Thus, in view of the ambiguity we have found in this case, the outcome in this proceeding would be no different under GO 96-B than it is under GO 96-A.
6 See CBIA Opening Brief, p. 5; CBIA Reply Brief, pp. 3-4.
7 A provision to this effect also appears in the form contract Edison enters into with developers, which is attached to the Answer as Appendix A. The paragraph entitled "Refund Period" in Section 3.7 of the contract provides in full:
"The total refundable amount is subject to refund for a period of ten (10) years after the Distribution Line Extension is first ready to serve. Any unrefunded amount remaining at the end of the ten-year period shall become the property of SCE."
8 The testimony on this issue was as follows:
"Q: And what happens to the remaining refundable amount after ten years if the customers does not receive the full refund because the line extension is not being fully utilized enough to justify that full refund?
A: That remaining refundable balance becomes an offset to our plant account to calculate the rate base going forward.
Q: So is it right to characterize that to say it goes back to SCE, back to the utility?
A: No. It goes back to the ratepayers. It reduces the amount of the rate base that the rates are going to be subsequently calculated on.
Q: Would you agree that in many cases there is some remaining refundable amount that has not been refunded to SCE's customer?
A: I cannot say many. I do not have those figures in front of me.
Q: But it does happen?
A: It does happen, yes.
Q: In those cases where there is some remaining refundable amount left in ten years, would you agree that it is to the ratepayers' advantage . . . to have a higher remaining refundable amount?
A.: Yes." (Transcript, p. 60.)
