III. Line Extension Allowance Background
When a residential dwelling is constructed, the entity that owns the dwelling (applicant) will have to apply to the electric and/or gas utility to be connected to the utility's system.2 The facilities that will have to be built to make the connection are of two kinds. First, the utility's distribution line will have to be extended to the edge of the applicant's property if not already there. This is called a line extension. Second, the utility's distribution line will have to be connected to the dwelling's meter. This is called a service extension. As used herein, the term "line extension" refers to both the line and service extension.
The cost of a residential line extension is divided into two parts: non-refundable and refundable. The non-refundable costs are paid for by the applicant. The refundable costs are covered in whole or in part by the line extension allowance. The allowance is a fixed amount for each utility. For example, PG&E's line extension allowance for electric service is currently $1,313. The refundable costs (electric wire, etc.), in excess of the allowance, are advanced by the applicant to the utility. Refunds are paid to the applicant due to additional services subsequently connected to the line extension and/or line extensions subsequently connected to the applicant's line extension, and continue for up to 10 years from the date the utility is first ready to serve.3 In most cases, the applicant will be the developer who constructs the dwelling, not the customer who ultimately occupies the dwelling. It is the applicant who receives any refunds.
For gas service, the line extension allowance works the same way except that the amount of the allowance will vary depending on the types of gas usages in the dwelling. The four types of usage are space heating, water heating, cooking, and clothes drying. For example, PG&E's gas line extension allowances for the four types of usages are currently as follows:
· Space heating-$323
· Water heating-$310
· Cooking-$69
· Clothes drying-$60.
The total gas line extension allowance would be the sum of the allowances for each usage. In the above example, a dwelling with all four usages would have an allowance of $762.
The allowance goes into the utility's rate base. Costs in excess of the allowance are paid for by the applicant for the line extension. Excess refundable costs are subject to refund to the applicant over a 10-year period. Refunds are based on additional services subsequently connected to the line extension and/or line extensions subsequently connected to the applicant's line extension.4 The utility is responsible for the operation, maintenance, and replacement of the line extension facilities. For any portion of the refundable amount that has not been refunded to the applicant after 12 months for electric service or 36 months for gas service, the applicant is charged a monthly COO charge to recover the operations and maintenance (O&M) costs and other costs of the facilities.5 After the 10-year period, any unrefunded amount becomes the utility's property.
In addition to the COO charge applicable to the unrefunded amount, there are COO charges that apply to special facilities.6 These are addressed in Section X of this decision.
The electric line extension allowance is calculated using the following general formula:
Allowance = Net Revenue
COS factor
The net revenue is the annual revenue expected to be received by the utility from the customer residing in the dwelling. For electric service, the net revenue is calculated based on the utility's average annual distribution revenue per residential customer. For gas service, the net revenue is based on average annual residential usage for each type of appliance (space heating, water heating, cooking, and clothes drying) times the average residential distribution rate.
Associated with the cost of the line extension facilities that go into the utility's rate base are costs for such things as depreciation, return, income taxes, property taxes, O&M costs, administrative and general (A&G) costs, and franchise fees and uncollectibles (FF&U). The COS factor is the ratio of such costs to the cost of the line extension. Thus, a COS factor of 0.16 means that for every $100 of line extension cost, $16 in revenues is needed to recover the associated costs. Using this hypothetical example, if the net revenue is $160 and the COS factor is 0.16, the allowance would be $1,000.
2 The term "applicant," as used herein, refers to the applicant for the line extension, rather than the utilities who filed the instant applications.
3 Refunds are made on line extensions, not service extensions.
4 Refunds are made on line extensions, not service extensions.
5 The COO charge does not apply to individual applicants, such as a person building his or her own home.
6 Special facilities are facilities requested by the applicant that are in addition to, or in substitution for, standard facilities the utility would normally provide.
