3. Discussion

Underlying SCE's request is the objective to offset the financial consequences of the difference between the date the Commission adopts its final decision in this proceeding and the date that the decision would have been expected under the Rate Case Plan. According to SCE, a memorandum account that becomes effective May 22, 2003 would accomplish that objective. As highlighted in Aglet's response, and as explained in SCE's motion, SCE is asking for more than just a memorandum account. The company also seeks approval of rate recovery of any undercollection that might be recorded in the account:

SCE is moving the Commission for authority to establish a [General Rate Case (GRC)] Revenue Requirement Memorandum Account (GRC RRMA) with an effective date of May 22, 2003. During the period between May 22, 2003 and the date of a final Commission decision in this proceeding, SCE would track in the GRC RRMA the recorded or authorized GRC-related revenue requirements reflected in the various Commission-approved ratemaking mechanisms. When the Commission adopts its 2003 GRC decision (which Commissioner Wood's Ruling has scheduled for August 21, 2003), SCE would determine the balance (i.e., over- or undercollection) in the GRC RRMA by comparing the authorized GRC revenue requirement to the revenue requirement recorded in the GRC RRMA. If the final 2003 GRC decision were to be issued during the [Procurement Related Obligations Account (PROACT)] Rate Repayment Period, the balance in the GRC RRMA (whether over- or undercollected) would be transferred to the Settlement Rates Balancing Account. [Footnote omitted.] If the decision were to be issued after the PROACT Rate Repayment Period, the balance in the GRC RRMA would be recovered from customers through applicable rate components, similar to the recovery of the adopted GRC revenue requirement. (Motion, pp. 4-5.)

We consider here SCE's entire proposal, as described in the foregoing passage, not merely the request to establish a memorandum account. Before we rule on the proposal, we address two preliminary matters.

We first observe that the Rate Case Plan adopted in D.89-01-040, as modified from time to time, sets forth the Commission's expectations for the processing of energy utility ratemaking matters. Among other things it signifies the Commission's intention to avoid or at least minimize regulatory lag and the financial consequences that delays in processing complex rate proceedings can have upon utilities and ratepayers. However, the Rate Case Plan is not an entitlement that guarantees utilities immunity from any adverse effects of procedural delays. If circumstances require, it may be reasonable and appropriate for the Assigned Commissioner and the Presiding Officer to pursue a procedural schedule that departs from strict adherence to the Rate Case Plan.

As noted earlier, D.89-01-040 provides that any revenue increase or decrease adopted in a rate case will become effective by January 1 of the test year. Significantly, SCE has not proposed that the relief it seeks in the instant motion become effective on January 1, 2003. Instead, it requests an implementation date of May 22, 2003. We take this to be recognition by SCE that the specific terms of the Rate Case Plan are not binding upon the processing of a particular case. We also take this to be recognition by SCE that it would be unreasonable to provide for an implementation date of January 1, 2003, when SCE tendered the application more than five months after the date that a 384-day processing schedule could have resulted in a decision prior to January 1, 2003.

Second, we affirm the Assigned Commissioner's decision to provide ORA with additional time to prepare its showing in this case. We expect ORA to provide us with critical analysis in cases that have significant consumer impact. Moreover, the Commission has an affirmative statutory obligation to provide for the assignment of personnel to, and the functioning of, ORA, and this includes the provision of personnel and resources "at a level sufficient to ensure that customer and subscriber interests are fairly represented in all significant proceedings."³ Time is a resource, and if we were to fail to provide adequate time for ORA to participate in a meaningful way in major proceedings such as this one, we would act in contravention of this statutory obligation.

If the final revenue requirement decision were to authorize a base rate revenue requirement increase, the deferred schedule for this case could potentially lead to adverse financial consequences for SCE. Similarly, ratepayers could be harmed by delay if the final decision were to authorize a revenue requirement decrease. The principle question before us is whether to adopt a mechanism that either prevents such consequences from occurring or, at a minimum, mitigates their effects. We answer this question in the affirmative. In the absence of such a mechanism, ratepayers or shareholders might be harmed by procedural delays. Neither outcome strikes us as reasonable, if such outcome is avoidable. We prefer an approach that leaves both ratepayers and shareholders relatively indifferent to the precise date that the final decision is delivered;⁴ reduces incentives for any party to achieve gains that could be realized through delay in the effective date of the proceeding's outcome; and allows sufficient time, for parties as well as decisionmakers, for review and critical analysis of the record. SCE's proposal is consistent with these policy objectives.

As SCE notes, the Commission has a longstanding practice of establishing memorandum accounts to avoid retroactive ratemaking:

It is a well-established tenet of the Commission that ratemaking is done on a prospective basis. The Commission's practice is not to authorize increased utility rates to account for previously incurred expenses, unless, before the utility incurs those expenses, the Commission has authorized the utility to book those expenses into a memorandum account or balancing account for possible future recovery in rates. This practice is consistent with the rule against retroactive ratemaking.⁵

Under SCE's proposed GRC RRMA mechanism, any memorandum account undercollection would be transferred to SCE's Settlement Rates Balancing Account for eventual recovery from customers if the final revenue requirements decision is issued before SCE recovers the PROACT balance. If the final decision is issued after full PROACT recovery, then any memorandum account undercollection would be recovered in rates directly. Aglet contends that this inappropriately transfers the risk of procedural delays to ratepayers. Therefore, in the event that we approve SCE's request to establish a memorandum account, Aglet proposes that we deny the rate recovery provisions of SCE's proposal without prejudice, and permit SCE to make a future showing that rate recovery is justified.

Our primary consideration in determining whether to approve SCE's proposed memorandum account and related rate recovery provisions is to advance our previously stated policy objectives of holding both utility shareholders and ratepayers harmless for any required procedural delays in this proceeding, removing incentives for any party to seek or promote delay, and providing parties and decisionmakers with sufficient time to review and analyze the record. It is our judgment that establishment of the memorandum account alone will further these objectives, and that SCE's proposed rate recovery provisions are premature. We will therefore approve the memorandum account, and address the disposition of the memorandum account balances when we issue our decision on SCE's base rate revenue requirement.

Generally, it would be retroactive ratemaking to compensate utilities for costs incurred above the revenue requirement, unless a specific memorandum account is set up for that purpose. The Commission has specifically allowed certain memorandum accounts to mitigate the risks for certain costs that are beyond the utilities control.

Memorandum accounts were designed to allow utilities the opportunity to record costs incurred prior to the Commission's review of the costs for reasonableness. In order to carry out its ratemaking duties fairly and orderly, the Commission has decided to parallel the prohibition against retroactive ratemaking by requiring that the establishment of a memorandum account not be retroactive. That is, the memorandum account can start to record debits or credits only prospectively from the date the account is authorized. In that way, if recorded costs are subsequently approved for recovery in rates, there will be no confusion or entanglement of issues regarding retroactive ratemaking.