VIII. Criteria for Requiring a Revenue Impact Estimate to be Included in a Line Extension Allowance Change Advice Letter
General Order 96-A, Section III.C requires utilities to provide an estimate of the annual revenue effect if a tariff schedule filed in an advice letter will result in a change in revenues.20 In D.94-12-026, the Commission adopted a settlement that, among other things, required the utilities to periodically review factors used to determine residential line extension allowances and modify the allowance if the review results in a change of over five percent. In D.98-03-039, the Commission stated "when the Commission issues a decision that impacts factors in the formula for line and service extension allowances, the utilities should apply that decision to a recalculation of the allowances without initiating or requesting a separate ratemaking or rulemaking proceeding."21 Thus, the resulting allowance revisions have been implemented by advice letter.
A. Positions of Parties
PG&E
PG&E argues that it is not necessary to include a revenue impact estimate in allowance change advice letters. It states that revenue impacts and revenue requirements associated with line extensions have and should continue to be addressed in GRCs and annual true-up advice letters that reflect changes to base revenues.
PG&E proposes to update its allowances prior to the filing of phase 1 of its GRC where revenue requirements are addressed. The update would be filed early enough that the revenue requirement and, therefore, the revenue impact associated with the revised allowance could be addressed in the GRC.
SCE
SCE acknowledges that a change in the allowance could eventually affect the ratebase that, in turn, could affect rates. However, it argues that this is appropriately addressed in GRCs.
SCE recommends against DRA's proposed $5-$10 million threshold before a revenue impact estimate is needed because DRA has not provided a basis for those figures.
SDG&E
SDG&E argues that periodic changes to the allowances should have no revenue impact because they reflect changes in revenues and costs that are already built into current rates.
DRA
DRA recommends that allowances be set in GRCs. However, if the Commission decides to continue the advice letter process, DRA recommends that a revenue impact estimate be included if the impact would be greater than a specified threshold. DRA did not have a specific threshold in mind but suggested that a $5-$10 million annual revenue impact threshold should be sufficient to indicate a risk to the general body of ratepayers.
TURN
TURN stated its agreement with DRA's recommendation.
B. Discussion
An allowance change advice letter does not change rates. Changes in the allowance may eventually result in a change in ratebase that, in turn, may contribute to a change in rates. Rates change due to a number of factors in addition to a change in rate base. Thus, it would be uncertain, at the time an advice letter is filed, what any future rate change would be. For these reasons, we do not require inclusion of a revenue impact estimate in advice letter filings to revise the allowance. To the extent that an allowance change eventually contributes to a rate change, the impact should be addressed in the proceeding that makes the rate change.
20 D.07-01-024 adopted General Order 96-B, effective July 1, 2007, which does not contain this requirement.
21 D.98-03-039, mimeo., p. 6.
