Should applicants for line and service extensions be required to pay up-front for meters?

According to TURN, the goal in this proceeding is not to create competition in the metering market, but rather to address the competition that exists between taking bundled service from the utility and taking some other form of service, whether from the utility or an ESP, that requires some form of interval metering. As stated in the RCS decision, TURN's concern is as follows:

"...TURN/UCAN observes that the practice of automatically providing a meter as part of the service extension is anti-competitive and harmful to direct access. Currently, the meter does not permit time-of-use calculations, is not charged to the customer and is included in the utility's ratebase. According to TURN/UCAN, ORA, and Enron, this regulatory convention discourages customers from purchasing their own meters, from installing meters which are compatible with direct access, and creates a disadvantage to utility competitors..." (D.98-09-070, p.22.)

We believe there are complex issues that the TURN proposal raises that must be resolved if we are to implement competitively neutral changes to the line and service extension rules. We will discuss some of these issues.

To implement the TURN proposal, PG&E proposes that the applicant for a line and service extension should: (1) not be allowed to apply the line extension allowance to the capital and labor cost of installing a new meter at a new service location; and, (2) pay up-front for any meter that is provided. The applicant could either obtain a meter from the utility, or supply a utility approved meter and deed it back to the utility.⁸

In evaluating PG&Es' tariff proposal, it should be kept in mind that, in most cases, the applicant under the line extension rule is the builder, not the customer. Any change in line extension allowances has only an indirect impact on the customer, only to the extent that the builder will seek to recover the additional cost from the buyer, who becomes the utility's customer.

If an applicant pays for the capital and labor cost of procuring and installing the meter and then deeds the ownership of the meter over to the utility, the transfer would constitute a taxable contribution that is subject to ITCC. Thus, if both an ESP and the utility are willing to provide a meter to the applicant for a price of $100, the applicant has an artificial incentive to pay for the meter provided by the ESP because the meter provided by the utility will actually cost the applicant $137. This outcome clearly saddles the utility with an unfair competitive disadvantage, and is inconsistent with the Commission's goal of eliminating any potential anti-competitive effects of the current line and service extension rules.

The argument may be made that the ITCC issue is de minimis to the extent that the price of a meter is small in relation to the price of a house. Such arguments are not persuasive. Typically, a builder who seeks to minimize his/her costs, would compare the cost of meters from various suppliers, the same as for home appliances and building materials. By choosing the lowest priced meter, the builder would tilt the competitive playing field for meter installations in favor of ESPs.

Also, to the extent that the applicant for a line extension is usually a builder or developer, common sense dictates that the applicant/builder should not make the meter selection decision for the customer or final end-user. Obviously, having the builder make the decision on behalf of the buyer of the house does not address the problem of the customer automatically accepting the utilities' bundled service.

One of the features of the TURN/PG&E proposal is that the line extension allowance would be calculated in a way that delivers to the builder the equivalent of the meter ownership credit the customer would receive. The assumption, apparently, is that although the builder would incur an up-front cost for the meter, the builder would not include that cost in the price charged for the house because the builder would receive an offset for the meter cost in the line extension allowance. That argument sounds good in theory but would have little effect in practice because under the TURN/PG&E proposal the builder pays cash for a meter and in exchange receives a token addition to the builder's line extension allowance. Generally, the builder has little need for the additional allowance because the allowance, in most cases, provides the builder with a "free" line and service extension. ⁹ To the extent that the builder has to pay up-front for the meter, common sense dictates that the builder would likely seek to recover that cost in the price of the house.

As pointed out by the SE Utilities, the TURN proposal could impose a cost of $13.7 million per year on builders which they will attempt to recover from homebuyers. This will result in a corresponding reduction in the utilities' rate base. However, there has to be a good reason to shift this cost from ratepayers to builders regardless of whether the buyer pays for this cost through a 30-year mortgage. Such costs should not be shifted without justification, in our haste to promote direct access.

We agree that TURN's cost causation argument, that customers must pay for costs they cause, and TURN's rate base reduction and stranded investment arguments, provide some justification for its proposal. Unfortunately, the proposal itself has not been carefully thought out. The primary objective here is not rate base reduction or avoidance of stranded investment, however worthy those objectives may be. The objective is to get the customer to focus on direct access.

We believe TURN and the utilities need to address the root cause of the problem which is that the meter is "automatically" provided by the utility.¹⁰ Requiring builders to pay up-front for meters will simply increase the price of houses, but will not focus customer interest on direct access.

Currently, most new homes are sold with a meter installed and the buyer does not get directly involved in the meter installation decision. Getting the buyer involved requires that all new homes be sold without a meter. This would force the buyer to select a meter and service provider, the same as he or she would choose carpeting or appliances for the new home. However, requiring new homes to be sold without meters raises many new issues. Likewise, Edison, SE Utilities and CBIA have raised many issues which should be addressed before the TURN proposal can be implemented. However, this is not the proceeding to address those issues.

In summary, we conclude that the TURN proposal to require new customers to pay up-front for a meter, is an idea which has merit but is not ready for implementation through the line and service extension rules.

Removal of Unbundled RCS Revenues from the Net Revenue Calculation Used to Calculate An Applicant's Line and Service Extension Allowance

We will adopt Edison's proposed Attachment B tariff proposal.¹¹ Under this proposal, the meter ownership cost is allowed to remain a refundable cost to the applicant for a service and line extension. However, meter services, meter reading and billing, and payment services will no longer be a refundable cost in the line extension allowance calculation. Edison's proposed tariff is consistent with the scope of this proceeding and conforms to the requirements of D.98-09-070, Conclusion of Law 5, item (2). It should be adopted pending resolution of meter ownership and competitive issues in other pending proceedings. As stated above, Edison's Attachment A tariff proposal is the same as PG&E's amended proposal. Edison provided it for discussion purposes.

We decline to adopt PG&E's tariff proposal for the reason that the TURN proposal should not be implemented until the policy issues have been resolved in other pending proceedings.

Likewise, we decline to adopt SDG&E's tariff proposal which according to the SE Utilities is no different from the PG&E tariff proposal with regard to the meter ownership credit.