California Division of Ratepayer Advocates restates opposition to SCE recovery

The California Division of Ratepayer Advocates (DRA) called Southern California Edison’s (SCE) report describing the status of contract negotiations needed for services and materials to underground a portion of the Tehachapi Renewable Transmission Project (TRTP) through the city of Chino Hills, Calif., “insufficient” and asked California regulators to deny the utility’s request for permission to recover contract termination charges (Docket No. A07-06-031).

In its contracting report submitted to the California Public Utilities Commission (CPUC) on Jan 17, SCE identified up to $33m in costs for which it sought cost recovery assurance, including up to $28m for contract termination penalties related to cable procurement contracts. Specifically, the utility is seeking assurance that it will be able to recover costs incurred in evaluating an underground alignment for a portion of Segment 8A in the city of Chino Hills, Calif., even though the full commission has not yet ruled on the matter.

In its Jan. 22 response to SCE’s contracting report, the DRA disagreed. “It would be unreasonable for the commission to authorize SCE to incur contracting costs for a project that the commission has not yet authorized,” the DRA said, and asked that the commission “not authorize SCE to enter into any contracts with such termination clauses, until a final decision has been made on the CPCN” and the subsequent petition for modification (PFM) filed by the city of Chino Hills.

In its response, the DRA pointed out that the law requires the commission to ensure that all charges incurred by utilities are just and reasonable.

“How could the commission possibly justify incurring a contract termination clause as reasonable when the project for which the contract was executed has not been authorized?” the DRA asked.

The DRA cited SCE’s admission that the costs of undergrounding the portion of TRTP Segment 8A that passes through Chino Hills would not be known until the bids are short-listed and contracts are negotiated.

DRA further took issue with the 50% contingency on contract costs that SCE included in its December 2012 testimony. However, in its contracting report, SCE stated that the costs that will be reflected in testimony due to be filed by February 28, “should be solid enough to warrant a contingency factor of less than 50%.”

In concluding remarks, the DRA stated, “These costs should be a clear indication to SCE and the commission that this project is unreasonable and not likely to make the anticipated online date.”

The issue of timely completion is germane to the numerous recent CPUC filings and responses by a broad range of interested parties. SCE originally requested permission to incur costs associated with evaluating the practicality and cost of undergrounding the portion of the TRTP prior to a decision by the full commission as an effort to keep the project on schedule to meet its 2015 in-service date.

In his Nov. 15, 2012 amended memo and ruling of assigned commissioner, CPUC President Michael Peevey revised the schedule for the proceeding, creating a “two-track path to a final decision on whether to underground Segment 8A” but did not include assurance of expense recovery.

Many parties, including SCE, have since taken the position that a single commissioner does not have the authority to authorize expenses prior to a project’s authorization by the full commission.

In a prior filing, DRA concurred with SCE’s concern. “DRA maintains that none of the costs associated with the new underground option has been authorized, as an [assigned commissioner’s ruling] ACR cannot approve or authorize rate recovery,” DRA said in its Dec. 14, 2012 response to SCE’s rate recovery proposal.

In its rate recovery proposal, SCE acknowledged that the full commission should weigh in.

“Simply put, the commission will need to determine whether SCE’s immediate undertaking of the additional above-described activities and associated costs, particularly the additional contracting and design activity that is necessary to minimize undergrounding-related delays in project completion represents a prudent expenditure that is reasonable and necessary, even if the request for undergrounding is ultimately denied,” SCE wrote.

The utility continued: “Specifically, the commission should expressly recognize the possibility that such activities and costs will not result in actual constructed facilities in the event that the commission ultimately rejects Chino Hills’ request for undergrounding.”

The 250-mile, $2.2bn, 500-kV TRTP will be capable of moving up to 4,500 MW of renewable energy from the Tehachapi, Calif., area to population centers in Los Angeles and San Bernardino counties in California.

SCE has called the Tehachapi project “a critically important, high-voltage transmission line, the timely completion of which is essential for California’s progress toward its aggressive renewable energy goals.” California’s renewable portfolio standard calls for 33% renewable energy by 2020.

SCE is a subsidiary of Edison International (NYSE:EIX).