Indicated Shippers Application for Rehearing
H. North Line Expansion Project
Shippers contend the Decision erred because allowing the attrition adjustment for the North Line Expansion Project was contrary to Commission policy and precedent. (Shippers Rhg. App, at pp. 5-9, relying on Re Pacific Gas & Electric Company, [D.85-12-071], supra, 19 Cal.P.U.C.2d 453.) .)
Shippers support their argument based on the following Commission statement:
Attrition is the year-to-year decline in a utility's earnings caused by increased costs that are not offset by increased rates or sales. In order to protect utility shareholders from the effects of attrition to some extent, the Commission has adopted a ratemaking mechanism called the Attrition Rate Adjustment (ARA). The mechanism was designed to provide the utilities with the reasonable opportunity of achieving their authorized rate of return during years in which they are not permitted under the Commission's rate case plan procedures to file for general rate relief but in which they still face volatile economic conditions. (D.85-12-076, Finding of Fact 1, 19 CPUC2d 453, 476.)
(Application of Pacific Gas and Electric Company for Authority, Among Other Things, to Increase Revenue Requirements for Electric and Gas Service and to Increase Rates and Charges for Gas Service Effective on January 1, 2003, and Related Matters [D.04-05-055] __ Cal.P.U.C.3d __, at p. 23 (slip op.).)
Shippers argue that SFPP is not subject to the rate case plan, thus the circumstance we contemplated as justifying such an allowance did not exist. That may be true. However, D.85-12-071 did not limit such adjustments to only that circumstance. Nor does it prohibit us from exercising our discretion to allow similar adjustments for utilities not covered by the plan.
The crux of Shippers challenge really appears to be a dispute with our rationale. The Decision reasoned an adjustment was reasonable since it would avoid the need for SFPP to file again in 2004 to recover project costs.68 SFPP argues that reasoning was flawed because SFPP did file again in 2004.
SFPP ignores the context for our rationale. Specifically, that although we are now aware SFPP filed again in 2004 to recover those costs, our review of this issue was necessarily limited to only the record in support of SFPP's TY 2003 rate case calculations.69 As a result the determination could not consider the subsequent 2004 filing.70 In that context, it was reasonable to conclude that an attrition adjustment could have avoided the need to again file for recovery of the project costs. Further, as discussed above, our approval was consistent with normal regulatory practice to allow such recovery when a project is placed into service.
Shippers also suggest we allowed a double recovery of project costs. They argue that will occur since SFPP was awarded the attrition allowance and it also included those costs in A.04-11-017. (Shippers Rhg. App., at p. 9.) Shippers are wrong.
The Decision authorized only a 2004 attrition adjustment. Nothing in the Decision approved any costs associated with A.04-11-017, and that proceeding remains open for subsequent disposition.
I. Capital Structure
The Decision approved SFPP's proposed capital structure (60% equity, 40% debt), stating in part that it best represented the capital structure of SFPP's financing source, KMEP.71 Shippers contend no evidence showed 60% / 40% was KMEP's "actual" capital structure. It was merely KMEP's "target" structure. Accordingly, Shippers argue the Decision is not supported by substantial evidence and it is improperly based on an artificial equity-debt ratio. (Shippers Rhg. App., at pp. 10-16.)
We were aware the evidence shows that the adopted equity-debt ratio was KMEP's "target" structure.72 To the extent our Decision could be interpreted incorrectly, we will modify it to reflect that clarification. The proposed modifications are set forth in the Ordering Paragraphs of this Order.
Notwithstanding that clarification, nothing demonstrates the Decision was unlawful. Shippers argument assumes it is only lawful to approve a capital structure that matches an entity's "actual" equity-debt ratio. (Shippers Rhg. App., at pp. 13, 16.)
Shippers cite to no legal authority to supports such a proposition. There is no set rule or formula for determining an appropriate capital structure. In determining capital structures, the Commission generally considers a number of factors. These often include: the frequency of rate case reviews; the nature of capital investments; operating, business and financial risks; liquidity and borrowing capability; credit rating impacts; interest rates; the ability to attract capital; cost of debt; and the interplay with ROE. The Commission then makes various adjustments which in its judgment it finds appropriate. Commission policy and practice requires only that the adopted capital structure reflect a reasonable balance of all these factors in any particular case.73
Consistent with normal practice, we considered several of these factors in this case. Only one factor considered was SFPP's financing source, KMEP. We also considered the nature of SFPP's capital investments, how capital structure would impact its ability to attract capital, its risk levels, and its liquidity and borrowing capability.74 In addition, we considered the fact that a 60% equity level would allow for a reduction to the ROE.75
These considerations were supported by the record evidence.76 We fulfilled our legal duty to weigh that evidence, and we applied our expertise to make adjustments as deemed reasonable under the circumstances.
J. Status of C.97-04-025
Shippers contend it was unreasonable for the Decision to close C.97-04-025 because we failed to resolve: (1) whether SFPP must refund alleged overcharges in rates for Watson Station and the Sepulveda Line; and (2) whether SFPP must continue to charge separate rates for those facilities. Shippers request that if we decline to resolve these issues in this rehearing, we keep C.97-04-025 open to resolve them through settlement or further litigation. (Shippers Rhg. App., at pp. 16-35, citing Order Granting Rehearing [D.99-06-093], supra, __ Cal.P.U.C. 3d __ , 1999 Cal. PUC LEXIS 442.)
Since we did not address these issues in D.11-05-045, it would be inappropriate to resolve them as part of this Order. It is also not our preference to leave C.97-04-025 open since that docket is so old and there are other related dockets that are still open. Accordingly, we direct that if parties wish to seek resolution of the two issues specified above they may request consideration in the related open proceedings
(C.06-12-031, A.04-11-017, A.06-01-015, & A.06-08-028).
68 D.11-05-045, at p. 36. Shippers also argue the Decision improperly allowed SFPP to recover project costs before project was placed into service. (Shippers Rhg. App. at pp. 7-8.) The recommendation in Part D above resolves this issue. Accordingly discussion is not reiterated here.
69 SFPP Application in A.03-02-027, dated February 21, 2003, at pp. 3-4.
70 D.11-05-045, at p. 36.
71 D.11-05-045, at p. 33.
72 Exh. 102A [SFPP/Williamson], at p. 2 [KMEP target 60% equity 40% debt]; Exh. 200A [Shippers/O'Loughlin], Attachment B, p. 19 [KMEP 2003 equity-debt with PPA removal 44.1% / 55.9% and without PPA removal 47.5% / 52.5.].
73 See e.g., Application of Pacific Gas and Electric Company for Authority to Establish its Authorized Rates of Return on Common Equity for Electric Utility Operations and Gas Distribution for Test Year 2003 [D.02-11-027] (2002) __ Cal.P.U.C.3d __, 2002 Cal.PUC LEXIS 718, *8.
74 D.11-05-045, at pp. 30-34.
75 D.11-05-045, at p. 34.
76 See e.g., Exh. 102A [SFPP/Williamson]; Exh. 103A [SFPP/Williamson]; Exh. 105A [SFPP/Turner]; Exh. 200[Shippers/O'Loughlin].
