Brown Ruling denies the motion of the Electric Generator Alliance (EGA) to strike testimony on embedded cost-based allocation or, in the alternative, to remove such testimony to another phase or proceeding.

Summary of Positions

In summary, EGA contends that the embedded cost-based allocation should not be part of the current BCAP because 1) this proposal conflicts with the Commission's long and consistent preference for LRMC allocation; 2) consideration of this new proposal will unduly complicate and prolong this proceeding; and 3) a separate phase or proceeding will allow for a fuller consideration of the embedded cost proposal.

Numerous parties supported EGA's motion, and some presented additional arguments to bolster their position. CCC, in addition to adopting EGA's arguments, posits that if the BCAPs include embedded costs in addition to LRMC, inconsistencies in the gas market could result. PG&E supports EGA's motion and agrees with CCC that inconsistencies in the gas market will result in a playing field that is not level and will create rate-making chaos. Watson also supports EGA's motion, and in particular, is concerned that embedded costs will not promote the policy goals of statewide consistency and rate stability. In addition, Watson claims that using the embedded cost methodology will have a major financial impact on non-core customers. SCGC supports EGA's motion out of concern that the deliberation of embedded costs will unduly complicate and delay the proceeding-a proceeding that has already been delayed to the point that it will be difficult to complete this case by the end of the current BCAP period of December 31, 2002.

TURN argues that the GIR partially moots EGA's motion. The GIR unbundled backbone transmission and storage costs on an embedded² cost basis. Turn contends that the GIR is an indication that the Commission is moving away from LRMC and therefore consideration of an embedded cost methodology does not violate Commission policy. TURN does agree with EGA that litigating both competing cost allocation philosophies will prolong the proceeding, but TURN is more concerned with the end result of the BCAP and its impact on core customers than the schedule. In fact, TURN requests that the Commission not only consider embedded costs for distribution and customer costs, but also to review the embedded cost methodology used in the GIR for backbone transmission and storage.

ORA opposes EGA's motion. ORA does not agree with EGA and others that consideration of embedded costs conflicts with the Commission's

long-stated preference, especially in light of D.10-12-018. Since the GIR removes backbone transmission and storage from this proceeding, both subjects that are traditionally contentious issues, ORA argues that consideration of embedded costs for distribution and customer costs will not unduly complicate or prolong the proceeding.

WMA presents a number of arguments in opposition to EGA's motion that are very similar to ORA's. In summary, WMA argues that in light of the GIR, embedded cost allocation is the direction in which the Commission is heading, and WMA wants the maximum flexibility of considering both the LRMC and the embedded cost approach in one proceeding.

SoCalGas and SDG&E also oppose EGA's motion. In their initial application filings, the utilities announced that they would be presenting amended testimony on the embedded cost methodology, so all parties were on notice that this BCAP proceeding would involve an analysis of the competing methodologies when the parties agreed to the hearing schedule. Therefore, the utilities contend that the addition of embedded cost will not unduly complicate or delay the proceeding. In fact, SoCalGas and SDG&E allege that since the GIR resolved several substantial issues, specifically transmission and storage, additional time is available for consideration of the embedded cost issue. The utilities do not see any purpose in using the LRMC in the BCAP to allocate costs to the customer classes, and then having all the same parties consider embedded costs in a separate phase or proceeding.

² TURN characterizes the CSA as using a "supposedly" embedded cost basis since the result of the CSA "mimics" the outcome of the LRMC allocation. Simultaneously with filing its response to EGA's motion, TURN filed a Petition for Modification or Clarification of D.01-12-018 asking that the Commission review the specific elements of the embedded cost allocation methodology in this BCAP proceeding.