residential line and service extension allowance testimony · residential line and service...

Application No.:

Exhibit No.: SCE-1

Witnesses: C. Silsbee S. Reed J. Schichtl L. Vellanoweth

(U 338-E)

Residential Line and Service Extension Allowance Testimony

Before the

Public Utilities Commission of the State of California

Rosemead, California

LAW #1250219 October 14, 2005

RESIDENTIAL LINE AND SERVICE EXTENSION ALLOWANCE TESTIMONY

Table Of Contents Section Page Witness

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I. INTRODUCTION .............................................................................................1 C. Silsbee

A. Summary Of Issues Raised By Resolution E-3921 ...............................1

B. Summary Of Recommendations ............................................................1

II. BACKGROUND ...............................................................................................1 C. Silsbee

A. History....................................................................................................1

III. SCE’S RESPONSE TO THE ISSUES RAISED BY RESOLUTION E-3921......................................................................................1

A. Methodology For Determining The Residential Line And Service Extension Allowance ................................................................1

1. SCE’s Current Methodology For Determining Line And Service Extension Allowances...........................................1 S. Reed/J. Schichtl

2. Alternative Methods Of Calculating Net Revenue For The Residential Allowance .................................................1 J. Schichtl

3. The Cost Of Service Factor Appropriately Adjusts Net Revenues To Calculate The Line And Service Extension Allowance .................................................................1 S. Reed

4. Criteria For Requiring A Revenue Impact Estimate..................1 L. Vellanoweth

5. Service Territory Adjacent To Competing Municipal Utilities .....................................................................1 C. Silsbee

B. Policy And Methodology For Determining Monthly Cost Of Ownership Charges For Unused Electric Line And Service Extension Capacity ...................................................................1 S. Reed

1. Cost Components To Be Recovered ..........................................1

Appendix A WITNESS QUALIFICATIONS

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I. 1

INTRODUCTION 2

A. Summary Of Issues Raised By Resolution E-3921 3

On December 15, 2004, Southern California Edison (SCE) filed Advice 1847-E to revise SCE’s 4

tariff Rule 15 Distribution Line Extensions, Residential Allowances provision in accordance with Rule 5

15, Section I.2, “Periodic Review,” and Public Utilities Code Section 783(a). Protests were filed on 6

January 3, 2005, by the Office of Ratepayer Advocates (ORA) and on January 5, 2005, by the Utility 7

Reform Network (TURN). ORA submitted supplemental comments on February 10, 2005. SCE 8

provided comments on each of these submissions. On June 16, 2005, the Commission issued Resolution 9

E-3921 which addressed a number of the issues raised in the protests and adopted SCE’s changes to the 10

residential distribution line and service extension allowance on an interim basis, as modified by the 11

resolution. Resolution E-3921 also addressed issues associated with San Diego Gas & Electric 12

(SDG&E) Advice 1647-E/1494-G, filed on December 20, 2004. The resolution directed SCE, Pacific 13

Gas &Electric (PG&E), SDG&E and Southern California Gas (SoCalGas) to file applications “that 14

address possible changes in policy, and the methodology for determining both (a) allowances and (b) the 15

monthly cost of ownership charges for unused electric and gas line and service extension capacity.”1 16

The purpose of this testimony is to address the following issues which were raised in Resolution 17

E-3921: 18

19 1. Possible changes in policy and the methodology for determining line extension allowances. 20

a. The need for allowances to continue in areas of the Investor Owned Utilities (IOU’s) 21 service territory that are adjacent to competing municipal utilities, and the need in 22 nonadjacent areas if different; 23

b. Alternative methods of calculating the net revenue on which future residential line 24 extension allowances are based, including: average residential distribution rate 25 proxy, averaging the cumulative revenue from each residential schedule, and a 26 marginal versus base cost approach; 27

1 Page 18, OP 7 of E-3921.

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c. Revenue sources to be used when calculating the residential allowance, including that 1 from substations, primary circuits, and sub-transmission; 2

d. Sources of data for calculating the residential allowance including the numbers of 3 customers, distribution rates, average appliance usage, and revenue cycle service 4 (RCS)2 credit and other credits; and 5

e. Criteria for requiring a revenue impact estimate to be included in a residential 6 allowance change advice letter filing. 7

8 2. Possible changes in policy and the methodology for determining the monthly cost of 9

ownership charges for unused electric line and service extension capacity. 10

a. The cost components to be recovered by the monthly cost of ownership charges; and 11 b. The relationship of the monthly cost of ownership charges to: (1) monthly charges for 12

operation and maintenance (O&M) of added (special) distribution facilities; and (2) 13 the cost of service (COS) factor as used in Rule 2. 14

B. Summary Of Recommendations 15

SCE recommends, and requests that the Commission adopt, the following with respect to the 16

issue of possible changes in policy and the methodology for determining line extension allowances: 17

1. At this time, SCE expresses no opinion as to whether allowances should vary based on 18

the proximity of an applicant to the service area of a municipal utility adjacent to the 19

utility granting the allowance. 20

2. SCE recommends that the Commission continue to rely on the existing net revenue 21

calculation as presented herein, which includes all the distribution-related revenues which 22

support the allowance, as the basis for line and service extension allowances. 23

3. For the sake of uniformity, SCE is willing to use the SDG&E approach of relying on 24

information from the revenue allocation adopted in its most recent general rate case to 25

calculate net revenues. 26

4. SCE believes the revenue sources and sources of data it currently uses when calculating 27

the residential allowance are appropriate and should remain unchanged. 28

2 We note that OP 8(d), page 19, of E-3921 refers to “CRS credit.” SCE believes that this is a typographical error and that

the Commission meant to refer to “RCS credit.”

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5. SCE believes that a revenue impact estimate should not be included in a residential 1

allowance change advice letter filing. 2

SCE recommends, and requests that the Commission adopt, the following with respect to the 3

issue of possible changes in policy and the methodology for determining the monthly cost of ownership 4

charges for unused electric line and service extension capacity: 5

1. SCE believes that its current cost of ownership factor is the appropriate charge for unused 6

capacity costs because it is derived from the added facility rate charge in which there is 7

no capital recovery and which does not include components for ratebased costs (rate of 8

return, income tax, carrying cost of capital, and depreciation). 9

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II. 1

BACKGROUND 2

As directed by Resolution E-3921 and as detailed above, the purpose of this Application is to 3

address possible changes in SCE’s policy or methodology used to calculate residential line and service 4

extension allowances and monthly cost of ownership charges for the unused portion of the line and 5

service extension capacity. Upon review, SCE has concluded that its current policies and methodologies 6

relating to residential line and service extension allowances and monthly cost of ownership charges, 7

with the exception noted below, are appropriate and, as such, should be adopted by the Commission as 8

presented herein. In addition, SCE believes that such policies and methodologies are fully supported by 9

past Commission proceedings and legislation relating to line and service extension policies which favor 10

the balancing of the cost of new line and service interconnections between existing customers and new 11

applicants. 12

A. History 13

There is a lengthy history of Commission proceedings and legislation addressing the subject of 14

line and service extension policies, in particular, residential extensions. In fact, it was only until the 15

1990’s that the Commission, after working closely with utilities and other interested parties, established 16

the current “balancing” principle based on a “net revenue” methodology which balances the cost of new 17

line and service interconnection between existing customers and new applicants. Initially, utilities were 18

expected to invest in distribution line and service extension facilities as part of their obligation to 19

provide service. Later, the Commission excused the utilities from this obligation by allowing utilities to 20

provide free footage allowances in the form of a dollar credit towards the applicant’s obligation (costs 21

for installing the line extension), which allowances were not to exceed the total estimated installed costs 22

of the extension. In the 1980’s, in response to increasing marginal costs and uncertainty over future gas 23

and electric supply, the Commission sought to eliminate the free footage allowances out of concern that 24

the allowances promoted increased energy growth. However, legislative intervention led the 25

Commission to abandon the elimination of the free footage allowance and eventually, in the early 26

1990’s, the Commission moved to a “net revenue” methodology which balances the cost allocation 27

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between existing customers and new applicants. The “net revenue” methodology granted allowances, in 1

the form of a dollar credit, towards the applicant’s obligation (costs of the line extension), which 2

allowances were not to exceed the total estimated installed costs of the extension. Said net revenues are 3

to be economically justified based on the expected revenues provided by the new customer that 4

“support” the distribution line and service extension. A brief review of some of the Commission 5

proceedings in the 1990’s relating to line and service extension policies is presented below to help 6

explain the development of the Commission’s “net revenue” or “balancing” principle and SCE’s current 7

policies and methodologies. 8

In its 1992 “Order Instituting Rulemaking on the Commission’s Own Motion to Consider the 9

Line Extension Rules of Electric and Gas Utilities” (R.92-03-050 or OIR), the Commission expressed its 10

desire to consider the Line Extension Rules of the gas and electric utilities and revisions to such rules. 11

On September 15, 1994, following a series of workshops and negotiations, parties3 filed a Settlement 12

Agreement which was approved in Decision (D) 94-12-026. The Settlement Agreement allowed the 13

following changes to the line extension rules: (1) allowances would be based on revenues produced by 14

the customer (revenue based allowances), (2) a discount option was adopted which provided builders the 15

opportunity to lower up-front costs, (3) the publishing of unit costs was allowed, (4) flat residential 16

allowances which provided builders predictably were adopted, and (5) provisions which removed 17

uncertainty as to when the utility would impose changes other than the filed unit cost for the line 18

extension were adopted. In creating revenue based allowances, the Settlement Agreement stated, “. . . 19

California utilities have an obvious and important interest in creating a fair and efficient statewide line 20

extension policy. From the utility standpoint, the rule must balance the interests of current and future 21

customers, affected industries, and the utilities themselves in a manner that does not hamper utility 22

efficiency.” (Emphasis added.) 23

On January 14, 1997, the Joint Utilities submitted a joint status report regarding outstanding 24

issues not addressed by the Settlement Agreement. D.97-12-098 further modified the existing line and 25 3 Parties to R.92-03-050 include PG&E, SCE, SoCalGas, SDG&E (Joint Utilities) and others (Southwest Gas Corporation,

Pacificorp, TURN/UCAN, Sierra Pacific Power Co, and Division of Ratepayer Advocates)

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service extension rules and practices for the electric utilities in order to reduce the amounts by which 1

ratepayers already connected to the utility systems subsidize the costs caused by new ratepayers 2

requiring new line and service extensions. These modifications resulted in more uniform and consistent 3

practices among the utilities. The Commission concluded and adopted, in short, the following: (1) 4

“applicants should receive such free allowances only to the extent that the revenue expected to be 5

received from the load to be served matches the utility’s investment (“revenue justifying”),” (2) the 6

adoption of “distribution basing allowances to reflect the unbundling of utility rates mandated by 7

Assembly Bill (AB) 1890” and, (3) the adoption of “a streamlining mechanism to keep the allowances 8

current with changes adopted by the Commission in the new worlds of gas and electric regulation.” 9

On January 20, 1998, the California Building Industry Association (CBIA) filed an application 10

seeking rehearing of D.97-12-098 and contended the Commission decision did not satisfy requirements 11

of Section 783 of the California Public Utilities Code. The Commission denied rehearing of D.97-12-12

098 in D.98-03-039 and reiterated that line extension charges should be premised on projections of 13

distribution-related revenues only and that residential line and service extension allowance changes may 14

be filed by advice letters when a Commission decision affects factors in the formula for its calculation. 15

Later that year in D.98-09-070, the Commission went further and removed revenue cycle service costs 16

from line extension calculations, together with downstream costs such as meter reading and customer 17

billing. 18

In D.03-03-032, the final decision in R.92-03-050, the Commission addressed additional changes 19

to the line extension rules which included, among other things, allowing the cost of inspections to be 20

absorbed by the line extension allowances, where available, and requiring the utility to book to ratebase 21

the lower of the utility’s bid amount or the applicant’s costs, for applicant installed projects. 22

On December 15, 2004, SCE filed Advice 1847-E requesting a change to the residential line 23

extension allowance, in accordance with SCE’s Rule 15, Section I, Periodic Review. TURN and ORA 24

protested SCE’s Advice 1847-E alleging that SCE did not properly compute the net revenues used in the 25

calculation of residential allowances, and that the current allowances include cost elements that do not 26

support the cost of serving new customers. On June 16, 2005, Resolution E-3921 approved changes to 27

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the calculation of residential line extension allowances on an interim basis. SCE and SDG&E were 1

ordered to clarify and coordinate language in Rules 2, 15, and 16. Resolution E-3921 also ordered that 2

SCE, SDG&E, PG&E, and SoCalGas file applications addressing changes in policy and the 3

methodology for determining both allowances and the monthly cost of ownership charges for unused 4

electric and gas line and service extension capacity. 5

The historical perspective provided above evidences the importance of the Commission’s desire 6

to maintain a balance between the degree to which the cost of new line and service interconnections are 7

borne directly by new individual applicants/customers or developers (which develop residential projects 8

on behalf of applicants for new service interconnections) and by utilities, which would in turn recover 9

such costs through utility rates charged to existing customers. The policy positions advanced by ORA 10

and TURN in their respective protests of SCE’s Advice 1847-E would upset the current balance set forth 11

in historical Commission decisions, resolutions, and proceedings, which were the culmination of years 12

of work and effort by the Commission, the Joint Utilities, and outside interested parties. For the above 13

stated reasons, SCE recommends that the Commission not make any changes to the existing residential 14

line and service extension allowance calculation methodology used by SCE, with the following 15

exception: SCE is willing to use the SDG&E approach to calculate Net Revenue, as more fully 16

discussed below. 17

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III. 1

SCE’S RESPONSE TO THE ISSUES RAISED BY RESOLUTION E-3921 2

A. Methodology For Determining The Residential Line And Service Extension Allowance 3

1. SCE’s Current Methodology For Determining Line And Service Extension 4

Allowances 5

Extension of service to a new customer may involve a distribution line extension (Rule 15) 6

and/or a service extension (Rule 16). Distribution extensions, as it relates to electric, are the overhead 7

and underground electric lines typically installed along streets and roadways as well as other lands. 8

They generally supply electric power to multiple customers in a given area. A service extension is the 9

electric wiring that extends from the distribution facilities up to, and including, the electric meter. 10

Service extensions typically provide electric power to one premise. 11

As noted above, since the mid 1990’s, the utility’s justifiable investment (allowance) for a line 12

and service extension has been based on the portion of the extension costs that are supported by the 13

loads served by the extension (revenue based) rather than on a free footage allowance based on end use 14

appliances. For residential allowances, the Commission allows a flat revenue based allowance. The 15

revenue based allowance approach allows allowances to be calculated in a manner that can easily 16

accommodate changes in rates, cost allocation, and usage levels, and treats all applicants equally. The 17

following formula illustrates the methodology currently used by SCE for calculating revenue based 18

allowances: 19

20 Allowance = Net Revenue _____ 21 (Supported Extension costs) Cost of Service Factor 22

The numerator of this formula (Net Revenue) represents the proposed distribution revenues that 23

will be produced by the applicant’s loads, and which will be utilized to support a portion or all of the 24

distribution extension costs. The denominator in the formula (Cost of Service Factor) is the ratio of 25

revenue requirements to distribution capital investments, which is weighted by all added facility project 26

jobs. 27

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For the purpose of establishing the standard allowance for residential line and service extensions, 1

SCE calculates net revenues using the distribution component of the TOU-D-1 rate schedule, which 2

reflects the averaged (summer/winter) residential distribution rate and excludes all non-distribution 3

components after deducting the RCS cost. The baseline credit shown on schedule TOU-D-1, adjusted to 4

reflect the ratio of average residential baseline allowance to total kWh consumption per customer, is also 5

deducted from the residential distribution rate used in the calculation. Schedule TOU-D-1 clearly breaks 6

out the distribution component of the rate from other parts of the rate which recovers both distribution 7

related capital and O&M. 8

To calculate the Cost of Service Factor, SCE uses the Company-Financed, With Replacement at 9

Additional Cost rate from the Added Facilities Rates set forth in Rule 2, Section H (Rule 2). For 10

calculation purposes, costs are divided into two cost components: capital and O&M. The capital-related 11

cost component is derived from the carrying charge rates associated with each Federal Energy 12

Regulatory Commission (FERC) account. Calculation of the Cost of Service Factor is explained in 13

more detail in Section III.B.1 below. 14

SCE recommends that the Commission continue to rely on SCE’s use of the existing net revenue 15

calculation, which includes all the distribution-related revenues which support the allowance, as the 16

basis for residential line and service extension allowances. 17

2. Alternative Methods Of Calculating Net Revenue For The Residential Allowance 18

SCE is willing to use the SDG&E approach of relying on information from the revenue 19

allocation adopted in its most recent general rate case to calculate net revenues. To apply SDG&E’s 20

methodology, SCE would take the residential distribution revenue requirement adopted in Phase 2 of a 21

General Rate Case (GRC), subtract out the last adopted Residential Revenue Cycle Service Credits, and 22

divide by the current number of residential customers. In theory, this new method should generate the 23

same net revenue as the method SCE currently employs. Currently, SCE uses the distribution rate 24

component from Schedule TOU-D1 tariff, multiplied by recorded average sales less RCS credit, to 25

generate total revenue. If the total sales and the total number of customers equal that which was used in 26

the GRC, the net revenues resulting from SCE’s current method and SDG&E’s method should be the 27

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same. The advantage of moving to the SDG&E approach is simplification and uniformity between 1

utilities. 2

3. The Cost Of Service Factor Appropriately Adjusts Net Revenues To Calculate The 3

Line And Service Extension Allowance 4

The single lifetime Cost of Service factor is appropriate to scale net revenues to a capital 5

allowance because it is comparable to the numerator in that it includes O&M, and is designed to convert 6

an annual revenue amount to a corresponding investment amount. The cost of service factor is derived 7

from an added facility rate charge with no capital recovery: i.e., the Company-Financed, With 8

Replacement at Additional Cost option under Rule 2. SCE may agree to install facilities under Rule 2, 9

when a customer requests facilities with costs beyond standard service (where there is no immediate 10

stream of revenue to “support” the special/added installed facilities). Line and/or service extensions can 11

be similar to added facility installations, since in many cases SCE’s costs for the facilities being installed 12

may be beyond what the customer’s load will generate in revenues or otherwise support the costs of the 13

line and/or service extension. Thus, the cost of service factor used to convert capital investments for 14

added facilities installation to monthly payments should be used in the denominator of the allowance 15

calculation to convert an annual revenue amount into a corresponding investment amount. 16

The Cost of Service Factor is composed of capital related cost components and operations and 17

maintenance related cost components. The capital related cost components are derived from the 18

carrying charge rates associated with each FERC account. The development of carrying charge rates is 19

based on current assumptions of rate of return, depreciation, book lives, administrative and general 20

expenses, ad valorem tax, insurance, Federal income tax, and State income tax. The operations and 21

maintenance-related cost component is calculated as the ratio of the most recent ten-year average 22

operations and maintenance expense and the most recent ten-year average plant in-service relevant to 23

added facilities. 24

SCE’s added facilities rates under Rule 2 include Company and Customer financed options. In 25

addition, the following three replacement options are offered for each finance option: With Replacement 26

at Additional Cost, With Limited Replacement, and With Perpetual Replacement. The most appropriate 27

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added facilities rate to be used in the allowance calculation is the With Replacement at Additional Cost 1

option because it does not include an amount to cover future cost of replacement. 2

If a customer chooses the rate With Replacement at Additional Cost option under Rule 2, the 3

customer must pay for replacement facilities when they are needed and will continue to pay the monthly 4

ownership charge for the added facilities. If a customer chooses the With Limited Replacement option 5

under Rule 2, SCE provides replacement with no additional cost to the customer for a period up to 20 6

years. Finally, if a customer chooses the With Perpetual Replacement option under Rule 2, SCE 7

provides replacement facilities at no additional cost to the customer as long as the customer continues to 8

pay the monthly ownership charge for the added facilities. Because line extensions are evaluated over a 9

single life, the replacement options, the With Limited Replacement option and the With Perpetual 10

Replacement option, do not impact the allowance calculation. 11

4. Criteria For Requiring A Revenue Impact Estimate 12

Resolution 3921-E required utilities to address, in their respective applications, relevant issues 13

related to the criteria for requiring a revenue impact estimate to be included in an allowance change 14

advice letter filing. 15

As ordered by General Order 96-A, Section III.C, utilities are required to provide an estimate of 16

the annual revenue effect if a tariff schedule filed in an advice letter will result in an increase or decrease 17

in revenues. The estimated annual revenue effect is to consider areas, schedules, and classes of 18

customers where practicable. In all such relevant advice letters, SCE provides the annual revenue 19

impact. 20

SCE has historically filed changes to its residential line and service extension allowances by 21

advice letter pursuant to Rule 15, Section I.2. 4 This tariff provision requires that SCE must periodically 22

review the factors used for determining the residential allowance and modify that allowance if such 23

review results in a greater than five percent change, “…SCE will submit a tariff revision proposal to the 24

Commission for review and approval.” This provision was ordered by the Commission in D.94-12-026 25

4 Prior Advice Letters include Advice 1095-E/E-A, Advice 1150-E, Advice 1309-E, and Advice 1441-E.

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which adopted the Settlement Agreement proposed by parties to R.92-03-050.5 When filing advice 1

letters to request changes to its residential line extension allowance, SCE does not currently conduct an 2

analysis of the annual revenue effect on customers. This is consistent with existing policy and was 3

confirmed in a Commission decision, which states, “…when the Commission issues a decision that 4

impacts factors in the formula for line and service extension allowances, SCE should recalculate the 5

allowances in accordance with that decision without initiating or requesting a separate ratemaking or 6

rulemaking proceeding.”6 This finding confirms the Commission’s view that recalculating the 7

residential line extension allowance for purposes of incorporating updated factors from other 8

Commission decisions does not constitute a rate change, which would otherwise require ratemaking 9

protocols, and thus, does not result in revenue impacts to other ratepayers. 10

The question of whether a change in the line and service extension allowance is a “rate change” 11

was reviewed in R.92-03-050 and finalized in Commission D.98-03-039. In that decision, the 12

Commission responded to R.92-03-050 participants during its discussion of revenue justifying the line 13

and service extension allowances and described its view of such allowances as follows: “Allowances are 14

payments from the utility to developers for the utility infrastructure. They are not rate schedules, 15

contracts, or tariff options. Nor do they shift costs among customer class, rate schedules, or tariff 16

options.”7 Furthermore, in its discussion of the line extension allowance within the context of Assembly 17

Bill 1890, the Commission stated, “On its face, the allowance for line and service extension costs does 18

not appear to constitute a rate, fare, toll, rental or charge, since those terms connote payments to the 19

utility, and allowances represent amounts that would not be paid by the applicant to the utility.”8 The 20

Commission affirms its view again in D.97-12-098, Findings of Fact 13 when it stated, “…line or 21

service extension allowances do not serve to collect the subject utility’s revenue requirement, but rather 22

5 Appendix B, STIPULATION AND SETTLEMENT AGREEMENT, Section III. Proposed Uniform Electric Extension Rules, Page 9.

6 D.98-03-039, Page 6. 7 D.97-12-098, page 15. 8 Id, page 32.

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are set to determine an allocation of the line and service extension costs between the new customer and 1

the existing body of ratepayers.” 2

For a residential line and service extension allowance change such as that which was filed in 3

Advice 1847-E and which was the conduit for this Application, SCE does not include an estimated 4

annual revenue effect because such change would have no impact on revenues. The allowance is 5

designed as an upfront advance in the form of dollars, as stated earlier, and is applied towards the 6

estimated costs of the line and/or service extension. In other words, the advance is applied to the cost of 7

the project and may reduce the payment required from the applicant prior to the start of construction. 8

The allowance is based on revenues that will be realized over a given time, as stated in Rule 15, from 9

that line and/or service extension. Theoretically, the allowance is a one-for-one offset based on the 10

immediate load/revenues from the individual customer utilizing the line and/or service extension and 11

does not impact other ratepayers. Thus, SCE is prudent in its practice of not performing a revenue 12

impact study when filing an advice letter to modify the residential line and service extension allowance 13

as described in this section. 14

SCE believes that the existing procedures, which were extensively reviewed and approved in 15

R.92-03-050, are reasonable. SCE sees little benefit in conducting revenue impact analyses for such 16

allowance changes and does not believe that such analyses should be included as a criterion to be 17

included in an advice letter when SCE requests an allowance change pursuant to Rule 15, Section I.2. 18

SCE does not view the changes as discussed above, where the factors are updated due to other 19

Commission decisions, to be rate changes and, therefore, following existing procedures is sufficient and 20

achieves the tariff’s objectives. 21

However, in stating the above, SCE does recognize that eventually a change in the allowance 22

may affect utility rates, since a change in the amount of utility investment will eventually affect rate 23

base. The actual revenue impact, which could eventually affect a change in the allowance, will depend 24

on the ratemaking practices adopted and announced by the utility in its General Rate Case. SCE 25

believes that forecasting the eventual revenue impact of a change in the allowance would require SCE to 26

forecast the Commission’s response to some future rate change request. Therefore, it is sufficient for the 27

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Commission to address distribution line and service extension allowances on a policy basis, and rate 1

change requests in utility General Rate Case proceedings. 2

5. Service Territory Adjacent To Competing Municipal Utilities 3

At this time, SCE expresses no opinion as to whether allowances should vary based on 4

the proximity of an applicant to the service area of a municipal utility adjacent to the utility granting the 5

allowance. As a general practice, SCE believes that similar customers should be treated similarly as to 6

rates and terms of service. However, the Commission has allowed deviation from this general practice 7

where good cause can be shown. For example, the Commission has allowed SCE to offer economic 8

development and business retension rates, where such rates would benefit overall ratepayers by 9

spreading utility fixed costs over a broader volume of customers and load. 10

B. Policy And Methodology For Determining Monthly Cost Of Ownership Charges For 11

Unused Electric Line And Service Extension Capacity 12

1. Cost Components To Be Recovered 13

SCE is responsible for operating, maintaining, and if necessary, repairing or replacing an 14

extension, anytime after it is placed into service. When the extension, or part of the extension, begins to 15

serve load, the share of the costs applicable to the load being served is added to ratebase and, thus, is 16

recovered by rates. The unused portion of the extension is not added to ratebase and, thus, the costs are 17

not recovered by rates. The monthly ownership charge recovers the costs associated with Customer-18

Financed facilities that are not fully utilized (i.e. property tax, operations and maintenance, 19

administration and generation, franchise fees and uncollectibles, and possible facility replacement). 20

SCE believes that the current method of calculating the cost of ownership factor is appropriate 21

for unused capacity costs because it is derived from the added facility rate charge for which there is no 22

capital recovery, the Customer-Financed With Perpetual Replacement rate. This rate does not include 23

components for ratebased costs (rate of return, income tax, carrying cost of capital, and depreciation). 24

Ownership charges begin to accrue after 12 months and are calculated based on the refundable 25

balance which has not qualified for a refund. The accrued ownership charge is subtracted from any 26

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future refunds due to the customer commencing on the Ready-to-Serve date and continuing through the 1

ten-year life of the contract. 2

Appendix A

WITNESS QUALIFICATIONS

A-1

SOUTHERN CALIFORNIA EDISON COMPANY 1

QUALIFICATIONS AND PREPARED TESTIMONY 2

OF CARL H. SILSBEE 3

Q. Please state your name and business address for the record. 4

A. My name is Carl H. Silsbee, and my business address is 2244 Walnut Grove Avenue, Rosemead, 5

California 91770. 6

Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7

A. I am Manager of Regulatory Economics in the Regulatory Policy and Affairs Department. In 8

this position, I am responsible for marginal cost studies and related studies to support rate design, 9

performance based ratemaking, and a variety of special projects. I have held the position since 10

November 1985. 11

Q. Briefly describe your educational and professional background. 12

A. I received a Bachelor's degree in Engineering from Harvey Mudd College in 1974 and a Master's 13

degree in Engineering-Economic Systems from Stanford University in 1975. I joined Southern 14

California Edison in 1981. Prior to my present position, my responsibilities have included 15

coordinating and preparing operating and maintenance expense forecasts for general rate cases, 16

preparing revenue requirement analyses in support of Certificate of Public Convenience and 17

Necessity (CPCN) applications, and filing, avoided cost pricing for qualifying facilities and 18

supporting wholesale rate case applications before the Federal Energy Regulatory Commission. 19

I have previously testified before this Commission. 20

Q. What is the purpose of your testimony in this proceeding? 21

A. The purpose of my testimony in this proceeding is to sponsor the portions of Exhibit SCE-1, 22

entitled Residential Line and Service Extension Allowance Testimony, as identified in the Table 23

of Contents thereto. 24

Q. Was this material prepared by you or under your supervision? 25

A-2

A. Yes. 1

Q. Insofar as this material is factual in nature, do you believe it to be correct? 2

A. Yes, I do. 3

Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 4

judgment? 5

A. Yes, it does. 6

Q. Does this conclude your qualifications and prepared testimony? 7

A. Yes, it does. 8

A-3



OF SUSAN C. REED 3


A. My name is Susan C. Reed, and my business address is 2244 Walnut Grove Avenue, Rosemead, 5

California 91770. 6


A. I am a Financial Analyst for the Regulatory Economics group in the Regulatory Policy and 8

Affairs Department. In this position I am responsible for providing economic analytical support 9

for a variety of projects at Southern California Edison. 10


A. I received a Bachelor of Science degree in Economics and Finance from the University of 12

Wyoming in 2001 and a Masters of Science degree in Economics from the University of 13

Wyoming in 2003. I began working at Southern California Edison in January 2003 and have 14

held my current position since hired. I am responsible for calculating added facilities rates and 15

real economic carrying charges, coordinating and preparing annual Safety and Reliability 16

Performance Incentive Mechanism reports, developing cost-benefit analyses for distributed 17

generation projects, evaluating street light marginal costs, and providing economic analytical 18

support for various departments within Southern California Edison. 19






A. Yes, it was. 25


A. Yes, I do. 27

A-4


judgment? 2

A. Yes, it does. 3


A. Yes, it does. 5

A-5



OF JAMES SCHICHTL 3


A. My name is James Schichtl, and my business address is 2244 Walnut Grove Avenue, Rosemead, 5

California 91770. 6

Q. Briefly describe your present responsibilities at the Southern California Edison Company (SCE). 7

A. I am Manager of the Rate Design Section in the Revenue and Tariffs Division of the Regulatory 8

Policy and Affairs Department. 9


A. I received a Bachelor of Science Degree in Engineering in 1987 and completed all required 11

course work for a Master of Science Degree in Economics at the University of Texas, El Paso in 12

1993. I began working as a Tariff Analyst for Southern California Edison in April of 1994, 13

responsible for pricing-related research and analysis. I became a Financial Analyst with SCE’s 14

Pricing Research group in 1997 responsible for marginal cost of service studies, calculation of 15

marginal cost revenue responsibility, evaluation of new pricing options and analytical support for 16

various other departments within SCE. I attained my present position, responsible for 17

developing retail pricing structures, in July of 1999. I have previously testified before the 18

California Public Utilities Commission. 19






A. Yes, it was. 25


A. Yes, I do. 27

A-6


judgment? 2

A. Yes, it does. 3


A. Yes, it does. 5

A-7



OF LISA VELLANOWETH 3


A. My name is Lisa Vellanoweth, and my business address is 2244 Walnut Grove Avenue, 5

Rosemead, California 91770. 6


A. I am the Manager of Tariffs in the Regulatory Policy & Affairs Department. In this capacity, I 8

oversee the development and management of SCE’s California Public Utilities Commission 9

(Commission) jurisdictional tariffs, and the management and resolution of customer Complaint 10

Cases filed with the Commission. 11


A. I hold a Masters Degree in Business Administration from California State Polytechnic 13

University, Pomona and a Bachelor of Science degree in Organizational Management from the 14

University of La Verne. I began my career with SCE in 1982 and have held various 15

professional, supervisory, and management positions within the Customer Service and 16

Regulatory Policy & Affairs Departments. I have been involved in developing and managing 17

SCE’s tariffs since 1996. 18






A. Yes, it was. 24


A. Yes, I do. 26

A-8


judgment? 2

A. Yes, it does. 3


A. Yes, it does. 5

residential line and service extension allowance testimony · residential line and service...

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