c. Office of General Counsel i. Positions of the Parties Legal services to PPL Electric are provided by PPL Corporation’s Office of General Counsel (OGC), and PPL’s jurisdictional FTY claim for OGC is $6.083 million. I&E Exh. 2, Sch. 17 p. 2. According to I&E, PPL’s claim is based on its HTY expense increased by $1.2 million in estimated costs for outside counsel fees related to this proceeding. Because of this, I&E recommended a ratemaking allowance of $4.833 million for OGC expense, which is a $1.2 million reduction to PPL’s claim. The basis for I&E’s adjustment is to eliminate the additional expense associated with outside counsel for this proceeding since the Company also includes a claim for rate case expense in its pro forma adjustments. I&E M.B. at 38. PPL agreed with the adjustment but argued that it was more appropriate to eliminate the duplication from O&M expenses because the expense in question will be incurred by the OGC and then charged directly to PPL. PPL St. 8-R, at 41-42. PPL M.B. at 47. I&E acknowledged PPL’s acceptance of the expense reduction, but contended that it is appropriate to reflect the reduction as a part of the affiliate support allocation, and not as a rate case expense reduction. I&E M.B. at 39. I&E explained that keeping the expense as a part of PPL’s affiliate support allocation will overstate the level of OGC affiliate support dedicated to the provision of electric distribution service in years when there is no rate case. Id. In other words, ratepayers will be allocated an inflated portion of OGC expenses based upon rate proceeding expenses that are not provided annually or regularly by OGC. Id. Further, the overstated level of OGC affiliate support allocated to PPL in this proceeding will then be used in future proceedings to support similarly overstated OGC allocations. Id.
distribution plant based on customer count. As a “compromise” position, OCA recommended that the Commission allocate 100% of primary plant on a demand basis and apply the OCA’s minimum size study to allocate secondary plant on a customer and demand basis. OCA M.B. at 77-82. The OCA further argued that the Parties have misinterpreted the Commission’s 2010 Order that NARUC has updated its cost of service principles since issuing the 1992 NARUC Manual, and argued that its recommendation reflects a compromise. OCA R.B. at 33-38. The OSBA, PPLICA and REG supported PPL’s position on COSS allocation and believe that it is consistent with the NARUC Manual and reflects a more realistic operation of PPL’s system than the OCA counterproposal. The OSBA stated that its primary focus in this case has been to determine whether the COSS presented by the Company conformed to the COSS approved by the Commission in the 2010 base rate case. The OSBA concluded that it did, and therefore, there was no need to re-litigate it in this proceeding. OSBA M.B. at 7. REG agreed with the Company’s classification of distribution plant as partially customer-related and partially demand-related, and the Company’s allocation of the plant. This, REG argued, is consistent with the Commission’s disposition of the Company’s last rate case as well. REG M.B. at 4-5. PPLICA argued in favor of the Company’s COSS, which it believed properly allocates primary distribution facilities costs in both a customer and demand component and is consistent with NARUC policies. PPLICA characterized the OCA approach as “a results-driven density analysis with no meaningful relation to the cost of service principles historically applied by the Commission and supported by NARUC.”
In its Replies to Exceptions, the OSBA points out that, as the OCA readily admits, the adoption of the OCA’s revenue allocation proposal requires the Commission to agree to the OCA’s version of the COSS. According to the OSBA, because the ALJ correctly rejected the OCA cost allocation methodology, the OCA’s revenue allocation methodology should similarly be rejected. OSBA R.Exc. at 13-14. In its reply, PPLICA states that the OCA’s proposed COSS is contrary to Commission precedent and unsupported by the NARUC Manual and, as such, any revenue allocation based on the OCA’s proposed COSS must be summarily rejected. In response to the OCA’s argument about gradualism, PPLICA acknowledges that gradualism is a legitimate ratemaking construct designed to mitigate unreasonable rate increases. However, according to PPLICA, because PPL’s COSS shows that residential customers are paying rates significantly below cost-of-service, PPL’s revenue allocation limits gradualism adjustments to ensure that customers paying above-cost rates move reasonably closer to cost-of-service. PPLICA posits that as the ALJ’s recommendation to approve PPL’s revenue allocation incorporates gradualism, it should be approved by the Commission without modification. PPLICA R.Exc. at 9-10. d. Disposition Based upon our prior determination and discussion, supra, with respect to the rejection of the OCA COSS, we are in agreement with the ALJ that PPL’s proposed revenue allocation should be approved. As the OCA’s revenue allocation recommendation is based upon its COSS, which we have rejected, we conclude that its allocation proposal should similarly be denied. Additionally, we find that PPL’s revenue allocation proposal is consistent with Lloyd, moves all rate classes closer to cost of service in a reasonable manner and considers the principle of gradualism. Accordingly,
calendar-year basis, to provide consumer education programs and competitive retail electricity market enhancement initiatives for all customers who receive distribution service from PPL. According to PPL, the CER will be a Section 1307(e), 66 Pa. C.S. § 1307(e), cost recovery mechanism developed to recover the Company’s education and retail market enhancement (RME) related costs. PPL St. 8 at 30-32; PPL Exh. DAK 2; PPL M.B. at 180. PPL argued that the Commission and the appellate courts have held that an automatic adjustment clause is appropriate when the expenses to be recovered are substantial, subject to variation and beyond the control of the utility. PPL M.B. at 206 (citing Popowsky v. Pa. PUC, 869 A.2d 1144, 1159 (Pa. Cmwlth. 2005); Pennsylvania Industrial Energy Coalition v. Pa. PUC, 653 A.2d 1336 (Pa. Cmwlth. 1995); Pa. PUC v. Newtown Artesian Water Co., Docket No. R-2009-2117550 (Order entered April 15, 2010); Pa. PUC v. Philadelphia Thermal Energy Corp., 1991 Pa. PUC Lexis 80). According to PPL, its competitive enhancement expenses meet each of these standards. PPL M.B. at 206. The Company estimated that the costs of the mandates in the RMI and other proceedings will be more than $6 million annually, at least at the beginning, but will depend on the Commission’s direction and are not within the control of the Company. PPL M.B. at 206. The OCA, the OSBA, and Direct Energy have raised various issues and concerns regarding the proposed CER. The OCA cautioned that care must be taken to prevent double recovery of these costs. In addition, the OCA noted that the Commission had recently held that the competitive enhancement costs should not be collected from ratepayers but from the EGSs. OCA M.B. at 125 (citing Petition of FirstEnergy, Docket No. P-2011-2273650, at