Opinion ID: 1365791
Heading Depth: 1
Heading Rank: 2

Heading: offset proceeding

Text: (1a) Pointing out that change in the method for spreading increased costs involves substantial policy decisions, petitioners urge that the change was not proper in an offset proceeding but may be accomplished only in a general rate proceeding. (2) In a general rate setting proceeding, the commission determines for a test period the utility expense, the utility rate base, and the rate of return to be allowed. Using those figures, the commission determines the revenue requirement, and then fixes the rates for the consumers to produce sufficient income to meet the revenue requirement. ( City of Los Angeles v. Public Utilities Commission (1972) 7 Cal.3d 331, 336 [102 Cal. Rptr. 313, 497 P.2d 785].) Among the matters considered by the commission in a general rate proceeding is the method by which charges are to be allocated among the consumers. ( Id., at p. 349.) (3) The rates are fixed in the general proceedings on the basis of historical data. Adjustments may be made in that proceeding for anticipated future extraordinary changes. ( Id., at pp. 345-348.) It is obvious revenue, expense, and rate base arrived at on historical data will not remain constant in future years when the rates take effect. The assumption underlying fixing of future rates on historical data is that for future years changes in the revenue, expense, and rate base will vary proportionately so that the utility will receive a fair rate of return. (1b) When an item of either expense or revenue tends to vary abnormally in comparison to the utility's other financial criteria, adjustments of rates charged have been permitted in abbreviated proceedings. ( City of Los Angeles v. Public Utilities Com. (1975) 15 Cal.3d 680, 692 [125 Cal. Rptr. 779, 542 P.2d 1371].) Such proceedings  termed offset proceedings by the parties  have been used in the past to make rate adjustments necessitated by increases in fuel costs disproportionate to the variation in other costs. ( Id., at p. 695.) Although language exists in Southern Cal. Edison Co. v. Public Utilities Com. (1978) 20 Cal.3d 813, 828 [144 Cal. Rptr. 905, 576 P.2d 945], stating true ratemaking procedures involve many variables and broad policy determinations, whereas fuel cost adjustment proceedings are narrowly restricted and semi-automatic, such language should not limit the commission to exercising its discretion and to determining policy only in general proceedings. The proceedings in that case reflect that major policy decisions may be made in abbreviated proceedings. There, the commission had fixed the rates for the utility in 1971 in a general rate proceeding. Because of large increases in the price of fuel, the commission in 1972 established a fuel cost adjustment clause providing for periodic changes in the rates and granted an immediate increase. Several years later, in the decision reviewed, the commission as a result of an investigation concluded that the traditional basis for calculating fuel requirements (average weather conditions) should be abandoned in favor of a recorded data basis with adjustments in rates and credits for past rates. It is obvious that major policy determinations were made affecting rates in both the 1972 determination to authorize fuel cost adjustments, and the decision under review modifying the method for calculating the adjustment and ordering credits. By affirming the commission's order changing the method of calculating the fuel cost adjustment and directing credits in Southern Cal. Edison Co. v. Public Utilities Com., supra, 20 Cal.3d 813, 831, this court's decision reflects that the commission may make policy decisions in offset proceedings and that it need not wait for general rate increase proceedings. Moreover, to hold that the commission's power in abbreviated or offset proceedings is limited to mechanical or semi-automatic adjustments would unduly hamper the commission's work. The commission would then be required to hold general proceedings when deciding to question any segment of the prior general proceeding. Indeed, as illustrated by the applications in this case, even the power to grant fuel cost adjustment would become largely illusory. It was apparent that in order to grant the utilities fuel cost adjustments, the commission had to decide whether to continue to exempt from rate increases the lifeline volume when the exemption was no longer required by statute. (See ante, fn. 2.) Little purpose is served by requiring the commission to hold a general rate proceeding, recalculating all expenses, revenues, rate base, and rate of return, when the only substantial issues are extraordinary changes in fuel costs and method of apportionment of the increase in the revenue requirement to customers.