Opinion ID: 3048937
Heading Depth: 3
Heading Rank: 4

Heading: Methods of Pricing Transmission Services

Text: The two types of pricing structures at issue in this case are rolled-in pricing and subfunctionalized pricing. “When a utility uses the rolled-in allocation method for transmission costs, all customers share proportionately in the ownership, operation, and maintenance costs of all transmission facilities.” Sierra Pac. Power Co. v. FERC, 793 F.2d 1086, 1088 (9th Cir. 1986). Rolled-in pricing of transmission facilities is the method traditionally used in the industry. See Pac. Gas & Elec. Co., 53 F.E.R.C. ¶ 61,146, at 61,521 (1990) (Opinion No. 356). 6912 CAL DEP’T OF WATER v. FERC In 1978, PG&E developed a “subfunctional” pricing method for its wholesale transmission rates. Id. at 16,520. Subfunctional allocation was implemented in response to the complaint of a transmission-only customer that it should not have to pay PG&E’s “fully allocated” transmission rates because those rates included the cost of PG&E’s generation tie lines, which the customer did not use. According to the PG&E employee who developed the rate methodology, PG&E “develop[ed] the subfunctionalized transmission rate method in order to more accurately track the costs of customers.” PG&E studied its transmission facilities and assigned each facility a subcategory based on the facility’s function within the transmission category. “Transmission” referred to line and substation facilities with nominal operating voltages of at least 50 kV. The five subcategories or “subfunctions” are: (1) backbone; (2) generation tie; (3) system interconnection; (4) exclusive use; and (5) area transmission. See id. at 61,520-21 (describing the subfunctions). Customers were charged “postage stamp” rates for each subfunction utilized, meaning the rate was set without regard to the distance the power traveled. See id. at 61,521 (giving examples of transmission rates broken out by subfunction). Generation ties were defined as transmission facilities with the primary purpose of providing electrical paths between generating facilities and the integrated transmission network. Id. at 61,520 n.65. Under the subfunctionalized method, the loops and transformers in this case were classified as generation tie.