3. PG&E's Request

PG&E's Rules 15.I.3 and 16.G (exceptional case) provide that when application of the rule appears impractical or unjust to either party (PG&E or the applicant) or the ratepayers, PG&E or the applicant may refer the matter to the Commission for a special ruling or for special conditions which may be mutually agreed upon that allow PG&E to deviate from its standard line extension requirements. PG&E contends that the delay inherent in this process (applying for Commission advance approval) causes developers to take service with POUs since POUs can react faster because they do not need such approval. PG&E also claims that the POUs can offer more attractive line extension allowances and terms than it is able to offer through Rules 15 and 16.

In this application, PG&E requests approval of its incentive program whereby it would offer pre-approved contracts for residential and commercial line extensions in the limited areas where POUs are extending distribution facilities in PG&E's service territory and offering service to new developments under more generous terms than PG&E is able to offer under the standard provisions of Rules 15 and 16. The contracts would provide a project-specific new load incentive (incentive) over and above the standard line extension allowance. PG&E states that the standard line extension allowance with the incentive is intended to match, but not exceed, the POU's financial offer.

When PG&E's standard allowance is not enough to make it comparable to the POU's standard tariff amount, or a bona fide line extension offer from the POU different from the POU's tariff amount, PG&E would calculate the difference between the developer's cost under the POU's tariff or offer and under PG&E's standard allowance. The calculation would factor in PG&E's estimated costs, refundable and non-refundable, including the Income Tax Component of Contributions (ITCC), so that the overall cost to the applicant, most likely a developer, will be comparable to the costs under the POU's offer.4

The incentive would be the cost difference adjusted so that the revenue gained from the development exceeds the marginal costs of providing service, thus providing a positive contribution to margin (CTM) that would ultimately result in rates being lower than would otherwise be the case. The incentive could include an extension of the compliance period up to five years, as needed, on a case-by-case basis. As discussed previously, the current compliance period is six months for residential loads and 12 months for non-residential loads.

If the POU's offer is not based on its standard tariffs, PG&E proposes to require the developer to provide a sworn affidavit affirming the POU's offer and providing details of the offer.5

The areas in which PG&E proposes to offer such contracts include the Cities of Ripon, Escalon, Riverbank, Oakdale and surrounding areas where Modesto Irrigation District offers electric distribution service, the Cities of Merced, Atwater, and Livingston and surrounding areas where Merced Irrigation District offers electric distribution service, and the Cities of Hercules and Santa Maria. PG&E also proposes to offer the incentives in areas served by the City and County of San Francisco (CCSF) as well as those served by the following POUs adjacent to PG&E's service territory.6

PG&E also proposes to request authority to provide the incentive, in other geographic areas where a POU is offering service, by advice letter.

For backbone-only electric main line extensions (where no services are added by the developer) PG&E proposes not to apply any allowance. Instead, PG&E proposes to calculate a project-specific incentive. The developer would be required to sign an agreement ensuring that new services in the development will be connected to PG&E's distribution system for the period of years, not to exceed five years, required to justify the incentive. The incentive would be adjusted as necessary to ensure that the revenue to be gained from the development exceeds the marginal cost of providing service to the development.

At the end of the compliance period, if there are any remaining units not connected to the backbone system, the developer will be billed (deficiency billing) for the portion of the allowance, including the incentive, attributable to the units not connected during the compliance period.7

PG&E proposes that the exceptional case contracts be reviewed in an annual reasonableness review. The reasonableness review would address the contracts entered into in the previous calendar year. PG&E proposes that the review address the reasonableness of the contracts based on the information PG&E had available at the time the contracts were entered into.

PG&E proposes that, during the annual reasonableness review, the POUs whose bona fide offers were matched by PG&E would be allowed to request copies of the applicant's affidavit subject to confidentiality limitations.

If the Commission, as the result of a reasonableness review, determines that PG&E's provision of an incentive was wholly unreasonable, and the developer has made no physical connection to PG&E's system at the end of the compliance period, the applicant would be allowed to reconsider whether it would take service from PG&E under the standard tariff conditions or to take service from the POU.8

PG&E says it is not seeking any changes to Rules 15 and 16. Instead, it asserts that a decision granting this application would constitute a special ruling under the exceptional case provisions of Rules 15 and 16. Public Utilities Code Section 783 (§ 783) requires the Commission to make certain findings whenever the Commission considers an order amending line extension rules.9 PG&E contends that since this application falls under the exceptional case provisions of Rules 15 and 16, it does not require changes to those rules and does not trigger § 783.

4 A portion of the line extension costs paid by the applicant becomes PG&E's property. The value of this contributed property is treated as taxable income for income tax purposes. The ITCC covers the income tax PG&E will pay on the contributed facilities.

5 PG&E initially proposed to use a letter but changed the requirement to an affidavit.

6 CCSF was not specifically identified in the application as covered by the incentive. However, CCSF was addressed in the body of the application. At hearings, PG&E clarified its intent that CCSF be covered by the incentive.

7 Deficiency billing occurs when, at the end of the compliance period, the load (number of services for residential) is less than the projected load the allowance was based on. The developer would be billed for the portion of the allowance, including the incentive, which corresponds to the amount of load that was not connected.

8 The period for interconnection (up to five years) may not have expired when the reasonableness review takes place.

9 All section (§) references are to the Public Utilities Code unless specified otherwise.

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