2. Background

This proceeding relates to the applications (A.) of SoCal Gas and SDG&E (A.02-03-047), SCE (A.02-03-048), and PG&E (A.02-03-049) for Commission authorization of continued funding of their respective LEV programs. Decision (D.) 95-11-035 had authorized funding for these utility LEV programs for six years, but the funding expired on December 21, 2001 by the terms of the decision. The Commission subsequently adopted Resolution G-3322, which extended funding for the LEV programs on an interim basis, pending a decision on the utilities' applications, but until no later than December 31, 2002.

In D.93-07-054, the Commission adopted guidelines to determine whether proposed utility LEV programs are suitable for ratepayer funding² and ordered the utilities to file applications that addressed all funding requirements for a period of six years. The Commission developed these guidelines pursuant to Public Utilities Code Section 740.3,³ which requires the Commission to work with the State Energy Conservation and Development Commission, the State Air Resources Board, air quality management districts and air pollution control districts, regulated electrical and gas corporations, and the motor vehicle industry to adopt and implement policies that promote the development of equipment and infrastructure necessary to facilitate the use of electric power and natural gas to fuel LEVs. Under Section 740.3(c), the Commission's policies authorizing utilities to develop equipment or infrastructure needed for LEVs must ensure that utilities do not pass through the costs and expenses of their LEV programs to ratepayers unless the programs are in the ratepayer's interest. Utility LEV programs also may not unfairly compete with non-utility enterprises.

In D.95-11-035, the Commission approved the elements of each utility's LEV program proposal that met the previously adopted guidelines⁴ and set a maximum of ratepayer and shareholder funds⁵ that could be spent by the utilities for LEV programs during the six-year period that would expire on December 21, 2001.

Under D.95-11-035, the utilities recorded their LEV program expenses in one-way balancing accounts. With this procedure, funds that had been reflected in rates but left unspent would be refunded to ratepayers, while undercollections would not be tracked. D.95-11-035 permitted the utilities to recover the reasonable costs of their programs in rates set for the following year. Any expenditures in excess of the authorized amounts could not be recovered from ratepayers.

In anticipation of the expiration of their LEV program funding, the utilities filed the advice letters approved in Resolution G-3322 to seek funding on an interim basis, with the intent that the Commission would consider their LEV program funding requests as part of their general ratemaking proceedings rather than separately. However, Resolution G-3322 ordered the utilities to file separate applications for continued LEV program funding to be considered in this proceeding. Resolution G-3322 also continued the balancing account treatment for utility LEV program expenditures.

Each of the utilities took a different approach in their applications for continued LEV funding. SCE, SoCal Gas, and SDG&E requested only interim funding until other proceedings are decided. SCE had already filed its General Rate Case (GRC) application for test year (TY) 2003, which included LEV funding. SoCal Gas and SDG&E intended to request LEV funding in their TY 2004 Performance Based Ratemaking application due December 31, 2002. PG&E sought funding through 2005 and included in its application the LEV funding request that will be included in its Results of Operations (RO) to be submitted in its TY 2003 GRC.

In order to avoid duplication and inconsistent results in its decisions regarding LEV program funding, the Commission will consider only discretionary LEV program activities, such as customer service, training, research and development and other "non-mandatory" LEV programs, in this proceeding.⁶ The Commission will review mandatory LEV program activities, which relate to the utility's traditional public service obligations as part of each utility's GRC or cost of service proceeding.⁷ We have previously designated the following LEV program activities as mandatory:

· Acquisition of alternative fuel use fleet vehicles pursuant to federal law [The Energy Policy Act of 1992 (Pub. L. 102-486) requires energy utilities to purchase alternative fueled vehicles for at least 90 percent of their newly acquired light duty vehicles for model year 2000 (10 C.F.R., Ch. 11, Part 490, sec. 490.302 and 490.307];

· Operation and maintenance costs associated with use of alternative fuel use fleet vehicles and associated infrastructure;

· Infrastructure (fueling facilities and related equipment) needed to support alternative fuel use fleet vehicles;

· Employee training and instruction necessary for the use of alternative fuel use fleet vehicles; and

· Accounting for the costs of these mandatory activities.⁸

SCE, SoCal Gas and SDG&E have filed amended applications, which include funding requests for discretionary LEV activities, as ordered by the scoping memo.

² These guidelines are as follows:

a) Ratepayers will pay the reasonable costs of programs that help develop and facilitate the use of LEVs and further the goal of substantial market penetration if the utility can meet one or more of the utilities traditional responsibilities to provide reliable and efficient service, safe service, environmentally and socially responsible service, and reasonable rates;

b) To the extent that they are applicable, programs must comply with statutory and Commission guidelines related to Research Development and Demonstration (RD&D) projects and Demand Side Management;

c) The utility must demonstrate that it has reviewed the programs of the motor vehicle industry, public agencies, research groups and, if appropriate, consulted with these entities to ensure that each program element does not unnecessarily duplicate and is complementary of programs undertaken by these entities to encourage substantial market penetration of LEVs;

d) The utility is required to demonstrate that its programs are generally consistent with the goals, policies, and objectives of California and federal legislation and agencies, and air districts and local agencies within the service territory; and

e) The utility is required to demonstrate that each element of its LEV program does not unfairly compete with non-utility enterprises.

³ All Code references are to the Public Utilities Code, unless otherwise stated. ⁴ Approved LEV program elements generally included: (a) acquisition of alternative fuel fleet vehicles pursuant to federal requirements; (b) RD&D programs regarding items such as recharging hardware and natural gas refueling equipment; (c) public education regarding LEV safety, proper equipment use and related topics; (d) construction of infrastructure to support LEV use; and (e) overhead and administrative expenses. ⁵ D.95-11-035 approved certain infrastructure activities of SDG&E and SCE subject to shareholder funding. ⁶ Scoping Memo and Ruling of Assigned Commissioner and Administrative Law Judge, June 26, 2002. ⁷ Id. ⁸ Id.