X. The Relationship of the Monthly COO Charge to Monthly Charge for Operations and Maintenance of Special Distribution Facilities, and the Cost of Service Factor

The COS factor is the ratio of the annual costs associated with line extension facilities to the cost of those facilities (the amount included in ratebase is the allowance).

The costs included in the COS calculation are as follows:

In addition to the COO charge discussed previously, there are COO charges that apply to special facilities.22 Based on the utilities' tariffs and submissions in this proceeding, the components of the COO charge applicable to special facilities are as follows:

The applicant-financed COO includes the costs of:

The utility-financed COO includes the above costs plus the following:

In addition to the above, PG&E includes replacement at the end of the facilities' useful lives. SCE includes replacement in perpetuity and, in some cases, offers replacement options of no replacement (the customer would pay for replacement) and replacement for 20 years after which the customer would pay for replacement. Sempra includes replacement of the facilities in the first 10 years, if needed.

A. Positions of Parties

PG&E

PG&E states that its COS factor is 12 times its COO charge.

TURN

TURN states that the only difference between the COO charge for unused portions of line extensions and the COO charge for special facilities should be that the COO charge may have options as to whether the facilities are utility financed, over what time the facilities are financed, and for what period of time replacement costs are included.

CBIA

CBIA states that the COO charge for unused facilities and special facilities should be the same and should not include depreciation and return because the facilities are paid for by the applicant.

CBIA argues that the COS factor represents utility-financed facilities and should include depreciation and a return on the investment.

B. Discussion

As shown above, the utilities' COO charges applicable to special facilities contain the following elements:

The applicant-financed COO charge includes the costs of:

· O&M;

· A&G;

· Property taxes;

· FF&U; and

· Replacement of the facilities.

The utility-financed COO charge includes the above costs plus the following:

· Income taxes;

· Return on investment; and

· Depreciation.

The only difference between the utilities' methodologies is due to the time over which replacement by the utility is covered.

The COO charge applicable to special facilities and the COO charge applicable to refundable costs should be the same if the special facilities are applicant-financed and replacement is provided for the same period of time. This is reasonable since both charges would be recovering the same costs. If the special facilities are utility-financed, we would expect the utility to recover income taxes, return on the investment, and depreciation. Likewise, if replacement of the facilities is included by the utility, the charge should include the cost of replacements. The utilities' calculation methodologies for the COO charge applicable to special facilities meet these requirements and we find them reasonable.23

Based on the above discussion, the COS factor should not equal 12 times the COO charge applicable to refundable costs because the COO charge does not include utility-financing of the costs to which it applies whereas the COS factor includes utility financing of the allowance. However, the monthly COO charge applicable to special facilities would be equal to one twelfth of the COS factor if the special facilities are utility financed and the utility pays for replacement over the same period.

22 Special facilities are facilities requested by the applicant that are in addition to, or in substitution for, standard facilities the utility would normally provide.

23 In these proceedings, we address the calculation of the COO charge applicable to special facilities, but not its application.

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