III. The Framework for These Cost of Service Proceedings
In these cases, as in all others brought under the various provisions of the Public Utilities Act, we seek to promote the public interest. This involves balancing the interests of numerous stakeholders -- residential, business and agricultural end-use customers; utility investors and employees; utility managers; providers of energy services; exponents of environmental and social concerns. In these cases, where we determine the pricing of electric and gas distribution service, we are dealing with essential services that is critical to the well being of our entire state. Through local franchises and the orders of this Commission, California has entrusted management of this infrastructure to the stewardship of SoCalGas and SDG&E, subject to our ongoing regulatory oversight. These two companies are pervasive presences in our communities, and a vital force in the economy of California. We intend to hold them to a high standard of service quality, and we expect prudent and effective management of the financial and human resources we have placed under their control. Under these conditions, we intend to provide sufficient revenues to meet the costs of providing quality distribution service.
SoCalGas and SDG&E enjoy an effective monopoly in the provision of electric and gas distribution service. (C.f., Pub. Util. Code5 §§ 330(f) (electric) and 328 and 328.2 (gas, added by Statutes 1999, Ch. 909, effective January 1, 2000).) This means not only are they the sole provider of the service in their respective territories, but also that they have exclusive control over the costs and conditions of such service and, importantly, control over the information about costs and conditions. In order to prevent abuse of this monopoly and its incidents, the Legislature has given the Commission broad powers of investigation intended to make the real costs and conditions of monopoly service transparent. We exercise those powers to assure the public that the prices they pay for monopoly service are in fact just and reasonable, that they are in fact reasonably related to costs prudently incurred by efficient, conscientious managers to provide the quality of service we expect. This is at the core of our responsibilities.
The schedule adopted in these proceedings6 reflected the stress and strain on the resources of the Office of Ratepayer Advocates (ORA), the Commission's internal analytical and investigative body, that have been sorely tested by the workload before the Commission. We were further constrained by the fiscal crisis in recent California history that has seen the staff of the entire agency, including our industry advisory divisions, shrink dramatically and the operating budget shrink alarmingly, and thus hamper the ability of this agency to exercise its role in an optimal fashion. Of necessity, not choice, we address Phase One revenue requirements after the start of the test year. In 2003, the Commission staff, including ORA, was stretched by concurrently processing major rate proceedings not only for SoCalGas and SDG&E, but also for PG&E for a Test Year 2004 and Southern California Edison Company (Edison) for a Test Year 2003. Over the initial objections of the applicants, we have taken the time to "do these cases properly."
In D.97-07-054 (73 CPUC 2d, 469), the Commission first adopted an incentive ratemaking mechanism for SoCalGas and the requirement to file a general rate case (GRC) was suspended for the life of the mechanism. (Ordering Paragraph (OP) 8, 73 CPUC 2d, at 535).) D.01-10-030 extended for a year a five-year rate period that was to expire on December 31, 2002. For SDG&E, the requirement to file a general rate case for Test Year 1999 was suspended by D.97-12-041 (77 CPUC 2d, 139) and the company was ordered to file a "cost-of-service showing" as a part of the performance based ratemaking (PBR) form of incentive ratemaking mechanism in a proceeding ordered by D.94-08-023.7 This latter decision adopted an "experimental" mechanism as an alternative to the traditional proceeding. SDG&E's last-adopted incentive ratemaking mechanism was to remain in effect through 2002 and was extended by the same D.01-10-030 through 2003 along with SoCalGas.
In D.97-04-085, the Commission had found that the typical GRC requirements were a burden on the limited resources of staff and parties because of the workload imposed by the in-progress implementation of electric restructuring.8 We now have the opportunity and obligation to re-establish a rigorous and appropriate review of both SoCalGas and SDG&E when they next file applications seeking to revise their base rate revenue requirements. Accordingly, SoCalGas and SDG&E must comply fully with the extant general rate case processing plan (rate case plan) requirements when they next file, regardless of the outcome or precise nature of the incentive mechanism, if any, which may be adopted in Phase 2 of these proceedings. As a further requirement, we direct SoCalGas and SDG&E to provide the Notice of Intent (NOI), a draft of the intended application, required by the rate case plan to The Utility Reform Network (TURN) and the Utility Consumers' Action Network (UCAN). We will allow TURN and UCAN to provide a list of filing deficiencies to the applicants along with ORA. We add this requirement in light of the very detailed and significant analysis performed by these two intervenors in this Phase 1 and in light of the detailed discovery that they conducted.
We expect the rate case filings of the utilities to be the very best of estimates, supported with competent and detailed planning and analysis of the most likely image of the test year. Over time, errors in that image tend to correct in the next test year; actual expenses that are higher or lower than forecast help shape the next estimation, and differences in plant additions to rate base are reflected in the actual balances on the balance sheet. We must rely completely on the representations of SoCalGas and SDG&E, and the vigorous critique of all intervenors, to develop a detailed record to justify the rates that we impose on retail customers. In the next comparable rate proceedings for SoCalGas and SDG&E, we direct the applicants to demonstrate that they performed the tasks, provided the services, replaced, repaired or installed the facilities, and employed the people as authorized by this decision to provide safe and reliable service at the adopted rates.
5 Unless otherwise noted, all Code references are to the California Public Utilities Code.
6 April 22, 2003 Assigned Commissioner's Ruling Establishing Scope, Schedule and Procedures for Proceeding (Scoping Memo), and as modified by the May 22, 2003 Ruling Clarifying the Scoping Memo and Modifying the Schedule (Clarifying Ruling).
7 OP 4: "The requirement set forth in Appendix B of Decision (D.) 89-01-040 (30 CPUC 2d 576) that SDG&E file a general rate case application with a proposed test year three years from the last adopted test year used by the Commission in setting SDG&E's existing rates is waived. Subject to further order of the Commission, SDG&E shall, in accordance with D.89-01-040, file a general rate case application with a proposed test year of 1999." (55 CPUC 2d 592.)
8 Reference to D.97-04-085 within D.97-12-041, (77 CPUC 2d 138, 142). See also Finding of Fact 2, D.97-04-085 (72 CPUC 2d 348, 352).
