10. Z-Factor
In post-test year ratemaking the Commission has recognized the need to protect both the utility and the customers and allow a way to adjust for unexpected and uncontrollable events. SoCalGas and SDG&E propose that the previously adopted mechanism,51 a Z-factor, should be continued. The nine criteria52 for a Z-factor's occurrence are:
1. The event must be exogenous to the utility;
2. The event must occur after implementation of rates;
3. The costs are beyond the control of the utility management;
4. The costs are a normal part of doing business;
5. The costs must have a disproportionate impact on the utility;
6. The costs and event are not reflected in the rate update mechanism;
7. The costs must have a major impact on overall costs;
8. The cost impact must be measurable; and
9. The utility must incur the cost reasonably.
No one opposes the continued use of a Z-factor. Aglet has a different post-test year ratemaking proposal, but alternatively supports ORA who would maintain a $5 million "deductible" for all events before applying a Z-factor. SoCalGas and SDG&E would exclude the deducible for government mandates. ORA cites the SoCalGas example of a change in carbon monoxide inspection services.53 We need not tinker with the
Z-factor: SoCalGas and SDG&E are as randomly likely to have mandates change in their favor, as they are to incur unexpected increases. We will apply the deductible to all Z-factors.
SoCalGas and SDG&E propose, "providing sufficient detail for the Commission to conduct an examination"54 of the event. Instead, we remind SoCalGas and SDG&E, that the ninth criterion, the reasonableness of the costs as incurred by the applicants,55 clearly and squarely puts the full burden of proof on SoCalGas and SDG&E to show that they competently responded to the event in a reasonable and efficient manner before they can recover any costs in a Z-factor Memorandum Account.56 There is no presumption of recovery of an identified event.
51 Ex. 155 cites to D.96-09-092 in A. 93-12-029 filed by Southern California Edison. It in turn cited and did not modify the Z-factors as adopted in D.94-06-011 and originally recognized in D.89-10-031. See Findings of Facts 24 and 25,
D.96-09-092 (68 CPUC 2d, 275, 311).
52 The restatement here is a further paraphrasing of SoCalGas and SDG&E's paraphrasing of prior decisions. The intention here is to avoid the specific jargon of PBR proposals by the applicants. The underlying analysis and the Commission's prior adoption of these criteria are found in the appropriate portions of D.89-10-031, D.94-06-011, and D.96-09-092.
53 Ex. 333, p. 2-15, lines 1-13.
54 Ex. 155 and 156 at p. 19 and 20, respectively.
55 Or on an intervenor for any proposed rate decreasing Z-factor event noticed by ORA or others.
56 See for example, D.02-08-064, dated August 22, 2002, mimeo, pp. 5-8, for a discussion on the standards for a reasonableness review.
