Conclusions of Law
1. The adopted summaries of earnings and the quantities and calculations that underlie them are reasonable for ratemaking purposes and should be adopted.
2. The Commission should seek clarification from the Legislature as to a jurisdictional question that may arise when SCE's new gas plant switches from mixed liquefied petroleum gas to all-propane gas.
3. No rate increase should go into effect until SCE's new gas vaporization system and upgrade have been completed and the new plant is fully operational.
4. The $60,000 allocation for a basement upgrade should be effective July 1, 2005, rather than April 1, 2005, as originally requested by SCE.
5. SCE has not met its burden of proof at this time in showing the necessity of a Gas Revenue Adjustment Mechanism balancing account.
6. Attrition increases in operations and maintenance expenses after 2005 have not been justified.
7. Because of the limited number of customers who must bear these costs, ORA's three-year rate phase-in proposal is more reasonable than the four-year phase-in plan proposed by SCE.
8. The rate increase should be allocated 15% to the fixed portion of a customer's bill and 85% to volume so that customers will have more control over their gas costs.
9. Low-income customers should receive a 20% discount in gas service rates under a CARE schedule for gas service.
10. SCE should be authorized to implement the rate changes set forth in this order.
11. This decision should be made effective immediately to allow SCE opportunity to earn the return found reasonable for it in Test Year 2005.
IT IS ORDERED that:
1. Southern California Edison Company (SCE) is authorized to file in accordance with the General Order 96 series, and make effective on not less than five days' notice, the revised tariff schedules for gas rates for 2005 included as Appendix A to this order. The revised tariff schedules shall apply to service rendered on and after their effective date.
2. Advice letters for authorized rate increases for 2006 and 2007 may be filed in accordance with the General Order 96 series no earlier than November 1 of the preceding year. The filing shall include appropriate work papers. The increase shall be the amount authorized in Appendix A.
3. The summaries of earnings and the quantities and calculations that underlie them, as set forth in this decision, are adopted.
4. The Office of Governmental Affairs is directed to review the jurisdictional question set forth in Appendix B with appropriate members of the Legislature and, in cooperation with the Commission's General Counsel, seek any necessary changes in the Public Utilities Code prior to SCE's next gas general rate case.
5. This proceeding is closed.
This order is effective today.
Dated _____________________, at San Francisco, California.
(END OF APPENDIX A)
Will the Commission Continue to Have Jurisdiction
Over SCE Catalina Gas Service When SCE Switches
From Blended LPG Gas to All-Propane LPG Gas?
1. Summary
In its gas service to 1,335 customers on Santa Catalina Island (Catalina), Southern California Edison Company (SCE) plans later this year to operate a new liquefied petroleum gas (LPG) plant using all-propane gas instead of the blend of propane and butane that it has used since 1962. In 1980, the Legislature amended Pub. Util. Code § 221 to exclude propane gas plants from those that come under the ratemaking jurisdiction of the Commission. The Commission at that time continued to assert jurisdiction over SCE's Catalina gas service because the service used a mix of 60% butane and 40% propane. SCE has stated that if the Commission's ratemaking jurisdiction ceases with the switch to an all-propane gas plant, SCE intends to implement cost-of-service rates. In its 2004 general rate case, that would have meant that Catalina gas customers would see an increase in rates substantially higher than that authorized by the Commission.
2. Statutory Background
Effective January 1, 1980, the Legislature amended Pub. Util. Code § 221 to add the words "except propane," so that the section now reads:
"Gas plant" includes all real estate, fixtures, and personal property, owned, controlled, operator, or managed in connection with or to facilitate the production, generation, transmission, delivery, underground storage, or furnishing of gas, natural or manufactured, except propane, for light, heat, or power. (Emphasis added.)
The definition of "gas plant" is important because the Legislature gives the Commission jurisdiction over rates only of "gas corporations," as defined in the Code. The definition of "gas corporation" is set forth in Pub. Util. Code § 222, which in pertinent part states:
"Gas corporation" includes every corporation or person owning, controlling, operating, or managing any gas plant for compensation within this state..."
Thus, if SCE's Catalina gas operation runs entirely on propane, then it would not be a "gas plant" as defined in § 221. If it is not a gas plant within the Code's definition, then SCE's gas operation is not a "gas corporation" as defined in § 222. If SCE's gas operation is not a gas corporation, then it does not fit into the definition of "public utility" as defined in Pub. Util. Code § 216(a), which in pertinent part states:
"Public utility" includes every common carrier, toll bridge corporation, pipeline corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, sewer system corporation, and heat corporation, where the service is performed for, or the commodity is delivered to, the public or any portion thereof.
3. SCE's Fuel Mix at Catalina
SCE serves 1,335 commercial and residential gas customers in Catalina, delivering the gas through 6.5 miles of underground distribution pipes. The existing LPG system uses a blend of 60% propane and 40% butane, which is delivered to Catalina by barge and transported to SCE's Pebbly Beach gas plant by tanker truck.
In SCE's current general rate case, the largest cost component of the proposed rate increase is associated with SCE's replacement of its existing propane/butane vaporization plant with a new 100% propane vaporization plant at a cost of more than $1.3 million. The Office of Ratepayer Advocates (ORA), noting that the existing plant is more than 30 years old and has serious deterioration issues, supports SCE's decision to replace the plant. In its application for a rate increase, SCE states:
These new [storage] tanks...will allow SCE to convert its operations to an all-propane LPG vaporization process. SCE has decided to eliminate the use of blended LPG and instead use LPG propane. The transition from blended to propane LPG would occur during major upgrades to the vaporization plant scheduled to be completed in 2004. The new vaporization process will be more efficient and easier to maintain. In addition, propane LPG is more readily available than blended LPG. (Testimony of SCE witness Cagnolatti, Ex. 1 at 3.)
4. Commission's 1980 Decision on Catalina Jurisdiction
The Commission addressed the issue of its jurisdiction over SCE's Catalina gas operation in the 1980 gas general rate case. In its decision (D.92059), the Commission stated:
Effective January 1, 1980, Sections 210, 211, and 212 of Title 10 of the Code of Federal Regulations (CFR) were amended by the Economic Regulatory Administration (ERA) of the Department of Energy (DOE). The amendments exempt butane and natural gasoline from ERA's mandatory petroleum allocation and price regulations. Deregulation of propane was specifically not undertaken.
At the time of the amendment of Section 221, it was generally assumed that the exemption of propane would result in the deregulation of nine utilities, including Edison's Catalina Island operations.
Of importance to the Legislature in undertaking this deregulation was the fact that propane was subject to federal regulation. This basis for amending Section 221 is reflected in Section 2 of Chapter 512, quoted above, in which the Legislature has required the Commission to notify it of any substantial changes in federal regulation of propane "including but not limited to, rate deregulation.
....
While the ERA has also determined that a natural gas liquids stream priced without reference to component products would continue to be controlled, this fact alone is insufficient for us to conclude that Edison's predominantly butane gas supply and operations on Catalina Island come within the propane exemption under Section 221....[G]iven the Legislature's limitation on the Section 221 exemption to propane and its reliance on federal regulation in adopting such an exemption, excepting butane from the definition of "gas plant" would seem to be contrary to the language and intent of the section as it is presently written. Because butane, not propane, is the primary component of the gas supplied by Edison to both domestic and commercial customers on Catalina Island, we should assert jurisdiction over Edison's operations and issue a rate decision. (D.92059, 1980 Cal. PUC LEXIS 786, at 4-5.)
ORA comments that there is little legislative history regarding the amendment of Section 221. ORA reasons that the Commission may have felt that the federal government's price regulation of propane (but not butane) was a necessary ingredient to allow state deregulation of propane operations. (It should be noted that the Federal Energy Regulatory Commission (FERC) has no rate jurisdiction over SCE's gas operations on Catalina. FERC regulates natural gas transmitted in interstate commerce, which does not include SCE's service to Catalina.)
The Commission's regulation of SCE's gas operation does not impose price regulation on the propane itself, only on the delivery of that propane through SCE's underground pipeline system. The wholesale price of the propane is flowed through to ratepayers via a Gas Cost Adjustment Mechanism. Customers also can fill their propane tanks by taking the tanks to SCE's site, and the price SCE charges for that service is not regulated by the Commission (although the revenues are an offset to the revenue requirement).
5. Other Propane Distribution Companies in California
The Catalina gas operation is SCE's only retail ga
s operation, but it is not the only propane system in California that delivers propane through pipelines to residential and commercial customers. As to those operations, the Commission has consistently disclaimed jurisdiction based on the legislative amendment to Section 221.
Mountain Utilities provides electric and propane service to 500 customers at and near the Kirkwood Ski Resort. Prior to the legislative amendment to Section 221, the Commission regulated the rates for both electricity and gas service provided by Mountain Utilities. Since the amendment, however, the Commission has deemed the "propane bulk plant and distribution system ...unregulated, except for safety purposes." (In re Mountain Utilities, D.01-04-031, 2001 Cal. PUC LEXIS 878, at *4.)
Rolling Green Utilities (Rolling Green) operates public utility water and sewer systems as well as a propane gas system that serve about 200 customers in Big Pine, a mountain community about 15 miles from Bishop in Inyo County. In D.83-03-004, the Commission stated that the utility in 1965 had been authorized to provide public utility water and public utility propane gas services, but it added in a footnote:
Buyer's [Rolling Green's] propane gas corporation is no longer under Commission jurisdiction. (See PU code Sections 221 and 222.) (D.83-03-004, 1983 Cal. PUC LEXIS 626.)
In subsequent decisions in 1993 and 1995, the Commission reiterated its view that the Commission does not have jurisdiction over Rolling Green's propane operations. In D.93-06-089, the Commission stated: "In 1979, the definition of gas plant in Public Utilities Code § 221 was amended to exclude systems delivering propane gas service, thus terminating Commission jurisdiction over Rolling Green's propane gas operation." In D.95-02-026, the Commission stated: "Commission jurisdiction over propane gas operations was terminated in 1979 when the definition of gas plant in Public Utilities (PU) Code § 221 was amended to exclude systems delivering propane gas."
6. Commission Jurisdiction Over Gas Safety
ORA asserts that, regardless of the Commission's authority to regulate propane gas rates, the Commission continues to have jurisdiction over safety regulation of propane gas systems. It states:
The statutes that describe the Commission's safety jurisdiction over propane occur in entirely different sections of the Code (Pub. Util. Code §§ 4451, et seq.) These code sections are separate from, and independent of, the Commission's regulation over the price of propane delivered to retail customers. ORA does not see these sections as giving the Commi8ssion any additional authority to set prices for propane distributed through a pipeline system. (ORA Opening Brief, at 7.)
7. Policy Considerations
ORA asserts that the jurisdictional question regarding SCE's Catalina gas service raises important policy considerations.
SCE's gas operations on Catalina appear to be closer to an effective monopoly than might be the case for other propane customers. Catalina customers are unlikely to buy tanks of propane rather than accept delivery of gas through SCE's pipelines. Even if they were to do this, Edison at this time is the only retail vendor of tanks or propane refills on the island. ORA comments:
The Commission was established to protect ratepayers from market power abuses associated with monopolies. Here we have a clear monopoly. (ORA Opening Brief, at 8.)
ORA states that another concern is that, if it were concluded that SCE's Catalina gas operation is outside the Commission's jurisdiction, other gas utilities could be tempted to switch their fuel to propane to avoid the Commission's jurisdiction. ORA cites the case in Pennsylvania of UGI Utilities, which this year was fined $750,000 by the Pennsylvania Public Utility Commission for switching 100 customers from natural gas to propane. (Gas Daily, June 25, 2004.)
Finally, at Catalina, SCE operates electricity, water and gas services, and apportions its rate-based costs for manpower, construction, equipment and general expenses, among those three utility operations. In its 2004 general rate case, for example, SCE allocated the cost of a Pebbly Beach pipeline replacement between its gas operation ($200,000) and its water operation ($65,000). If in the future two of these utilities were regulated by this Commission, and one utility was not, the ability to monitor the allocation of costs would be impeded. Indeed, there may be room for a regulatory analysis concluding that when the personnel, equipment and facilities of three utilities are as closely intertwined as they are in Catalina, deregulation of one of the utilities cannot as a practical matter be countenanced.
Because of the unique circumstances of this case, the question of this Commission's continued jurisdiction over SCE's Catalina gas operations is a matter that should be reviewed by the Legislature. Accordingly, the Commission's order in SCE's gas general rate case directs the Office of Governmental Affairs and the Commission's General Counsel to confer with the Legislature and, if necessary, to seek amendment or clarification of the statutes governing the Commission's jurisdiction.
(END OF APPENDIX B)
