IX. Cost Components to be Recovered by the Monthly COO Charge

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 refundable costs (electric wire, gas pipe, etc.), in excess of the allowance, are advanced by the applicant to the utility. Refunds are based on the revenues from the customer residing in the dwelling and continue for up to 10 years from the date the utility is first ready to serve.

Except for individual residential applicants, when any part of the refundable costs have not qualified for a refund at the end of 12 months (36 months for gas) from the date the utility is ready to serve, a monthly COO charge is applied. The COO charge is designed to recover the costs of operating and maintaining such facilities that are not fully utilized. After 10 years, any unrefunded amounts revert to the utility. There are additional types of COO charges that apply to such things as special facilities. However, the COO charge we address in this section applies only to the refundable costs, for facilities of the type the utility would normally install, in excess of the allowance.

A. Positions of Parties

PG&E

PG&E recommends that FF&U continue to be included in the COO charge because the utility will have to pay such costs.

SCE

SCE calculates the COO charge for the unused portion of the line extension assuming it is customer-financed with replacement at additional cost. SCE believes it may be appropriate to also include replacement value in its COO charge calculation.

SCE recommends that FF&U continue to be included in the COO charge because costs, such as O&M costs and A&G costs on unutilized portions of line extensions are included in rates set in the GRC. The resulting revenues are subject to FF&U.

SDG&E

SDG&E states that its COO charge includes possible replacement by use of a sinking fund factor.

SDG&E recommends that FF&U continue to be included in the COO charge because costs, such as O&M and A&G on unutilized portions of line extensions are included in rates set in the GRC. Thus, there will be revenues subject to FF&U.

TURN

TURN states that there should be no distinction between the monthly COO charge for unused facilities (times 12) and the annual COS charge.

CBIA

CBIA states that the monthly COO charge for unused facilities should not include any charges that are revenue-based because there is no revenue generated by the unused portion of the facilities. Thus, CBIA recommends that FF&U, to the extent franchise fees are revenue-based, should not be included.

CBIA states that the COO charge should not include replacement costs, except in the 10-year refund period because replacement costs will be recovered in rates through depreciation.

B. Discussion

Based on the utilities' tariffs and submissions in this proceeding, the components of the utilities' COO charges include the following:

In addition to the above, PG&E's COO calculation assumes the facilities will be utility-financed and that 80% of the facilities will be replaced by the utility at the end of their useful lives. SCE's COO calculation assumes the facilities will be applicant-financed with replacement at additional cost to the customer. Sempra's COO calculations assume the facilities will be applicant-financed and the utility will replace the facilities in the first 10 years if needed.

As shown above, the utilities' current practices differ as to whether utility financing is assumed, and to what extent the facilities will be replaced. The other elements of the calculation are common to the utilities, and no party expressed disagreement with their inclusion except for FF&U.

Line extension facilities will have to be replaced at the end of their useful lives and, since they are owned by the utility, it will have to replace them. Therefore, the COO charge calculation should include facility replacement for the same reasons the COS factor does.

The COO charge does not apply to the allowance. The line extension costs in excess of the allowance, to which the COO charge applies, were contributed by the applicant. Therefore, the utility has no capital investment in the facilities to which the COO charge applies and no capital-related costs should be included for them.

As to FF&U, the utility will incur O&M, A&G, and property taxes on the line extension facilities regardless of whether they are contributed by the applicant. These costs will be recovered through rates set in the GRC. The resulting revenues will result in FF&U. Therefore, FF&U is appropriate for inclusion in the COO charge.

For the above reasons, the components of the COO charge should be based on applicant financing with replacement as follows:

As is the case for the COS factor, and for the same reasons, 60 years will be used as the period during which replacements will be performed.

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