IV. IOUs' Proposed 2005 CARE Programs

The CARE program subsidizes rates of low-income customers. The IOUs receive reimbursement on a dollar-for-dollar basis of all bill subsidies, so the primary issue before us here is the level of their administrative costs to run the CARE programs for 2005.

We authorize the following large IOU CARE administrative budgets for 2005:

A. SCE's Proposed CARE Program

1. SCE's Proposal

SCE estimates its planned 2005 CARE subsidies at $168.1 million (as compared to actual subsidies for 2002 of $96.5 million, 2003 of $136.4 million, and planned subsidies for 2004 of $167.2 million). SCE attributes the increase in planned subsidies for 2005 to two factors. First, it notes that increased numbers of customers are participating in the CARE program. Its CARE participation increased in 2003 to an annual average of 838,409 customers from 748,890 in 2002. Second, the "PROACT" settlement the Commission adopted in D.03-07-029 lowered rates by 8% on average. The difference between regular rates and CARE subsidized rates formerly was the result of a specific exemption adopted by the Commission. In post-PROACT rates, however, the differences simply became part of the CARE subsidy, increasing the subsidy amount.¹⁸

SCE's proposed CARE administrative budget of $4,104,000 breaks down as follows:

Indirect costs are not charged to the CARE program. SCE states that there is a shrinking pool of remaining CARE-eligible but non-participating customers in its territory, requiring increasingly sophisticated outreach to reach these customers. SCE also believes it needs to reduce the percentage of customers that are removed from the program during the recertification process. (After two years in the CARE program, customers must recertify their financial eligibility. The recertification process requires active efforts by customers and thus causes customers who fail to respond to requests for recertification to fall off of the rolls.) SCE states that its 2005 CARE program is designed to develop automated systems that more accurately track how customers enroll in CARE, including language preference at the time of initial enrollment, so that SCE may direct highly targeted communications to customers when it is time for them to recertify.

Because the remaining CARE eligible pool is shrinking, and SCE wishes to automate its recertification process, SCE projects an increase in its 2005 CARE administrative budget to $4,104,000 from $2,882,838 in 2004 and $2,882,838²⁰ in 2003.

SCE also proposes $60,000 for automatic enrollment efforts. This budget item refers to the Commission's effort in D.02-07-033 to make enrollment in the CARE program automatic for customers receiving public benefits from the Medi-Cal, Healthy Families; Women, Infants and Children and state Department of Community Services and Development (DCSD) Energy Assistance programs.

The Commission has implemented an automatic enrollment program for recipients of DCSD energy assistance programs, but efforts to implement automatic enrollment for recipients of other public benefits as envisioned in D.02-07-033 have not yet been successful. California's Department of Health and Human Services (DHS), the state agency that implements the federal Medi-Cal program, explained that the federal Social Security Act, as well as the related Code of Federal Regulations, prohibits DHS from releasing client information to the CPUC, even for purposes of providing a CARE discount, unless it has the client's explicit permission.²¹ Commission staff encountered similar privacy obstacles in attempting to obtain client information from other programs.

SCE collaborates with SoCalGas to electronically share CARE participant data to enroll customers in each utility's program. In 2003, according to SCE, 37,079 customers were enrolled in CARE through this ongoing effort. From January 2004 through May 2004, SCE added 16,250 new customers. SCE has also worked with Southwest Gas Company to electronically share CARE participant data. SCE added over 13,000 new customers from January through May 2004 as a result of the first file transfer with Southwest Gas, and anticipates smaller incremental increases through further transfers.

SCE proposes no changes to its currently-approved CARE ratemaking. SCE currently recovers the CARE administrative revenue requirement through the Public Purpose Programs Charge rate component. Under-collections recorded in the CARE balancing account are recovered from customers. Over-collections are used to reduce future funding requirements. In SCE's annual August 1 Energy Resource Recovery Account forecast, SCE will set forth its consolidated revenue requirements for subsequent Public Purpose Program rate adjustments.

2. ORA's Comments on SCE CARE Application

First, ORA asks for more information on SCE's CARE subsidy costs, which SCE estimates at $168.1 million for 2005:

Though the Commission does not limit the CARE subsidy, an estimate of the subsidy is helpful in estimating total CARE budgets and calculating appropriate CARE surcharge costs. ORA is concerned that SCE's subsidy costs have increased more quickly over the past several years than can be explained by increases in [the number of customers enrolled in CARE].²²

ORA nonetheless does not object to the change in projected CARE subsidies if SCE can support its request with data.

In its reply comments, SCE supplemented the record with the requested information. According to those comments, when SCE furnished the data request responses to ORA, ORA stated that, "an initial review of the response appears to satisfactorily explain the increases."²³

3. Discussion of SCE CARE Application

With a few exceptions described below, we find SCE's CARE administrative budget reasonable. We also find that SCE has reasonably projected its anticipated CARE subsidy for 2005, and explained why the subsidy will increase. We approve SCE's 2005 CARE administrative budget.

a) Estimated CARE Subsidy

As noted above, ORA is now satisfied with SCE's estimated CARE subsidy of $168.1 million for 2005. We note that the CARE subsidy projection is important because we set the surcharge that appears on non-CARE customers' bills based on these projections. Significant errors in projected subsidies can cause over- (or under-) collection, and obviously affects what ratepayers pay in public goods charges on their bills. Nonetheless, we are satisfied that SCE has adequately projected its CARE subsidy payments for 2005.

b) CARE Administrative Budget

SCE's 2005 proposed CARE administrative budget is $4,104,000, $1,221,162 more than its 2004 budget, as noted in the following chart:

TABLE 11
SCE 2003 and 2004 Authorized CARE Administrative Budgets
	2003			2004
Cost Category
Outreach	$ 840,840			$ 840,840
Automatic Enrollment	$ -			$ -
Processing/Certification/Verification	$ 520,798			$ 520,798
Billing/Programming	$ 500,000			$ 500,000
Measurement/Evaluation	$ 344,000			$ 344,000
Regulatory Compliance	$ 80,000			$ 80,000
General Administration	$ 464,500			$ 464,500
Indirect Costs	$ 82,700			$ 82,700
Energy Division	$ 195,500			$ 195,500
LIOB	$ 50,000			$ 50,000
Total Administration	$ 2,882,838			$ 2,882,83824

We note that the expenses listed in SCE's "General Administration" category are much higher than those of PG&E, SoCalGas and SDG&E. This comparison is most apparent if one examines Table 3 of this decision, where PG&E's CARE "General Administration" budget is $450,000, SCE's is $1,063,300, SoCalGas' is $297,315 and SDG&E's is $177,314. However, we are satisfied that SCE's expenses are warranted this year, with conditions, as discussed below.

Included in the General Administration expenses for SCE are funds for additional staff because of increased program activity. SCE also allocates funds to update its computer system for LIEE/CARE programs, add new computers designated for CARE only, and purchase printers. The other IOUs are not measurably expanding their employee base or adding computers in 2005. PG&E updated its computer system 2 years ago and spent a considerable amount of money for the dedicated system, which tracks LIEE/CARE information.

Moreover, SCE's program is expanding because the company is now receiving referrals from SoCalGas and Southwest Gas. Therefore, in 2005, SCE will have a larger customer base than it had before. Further, SCE's low-income group will now handle its own financial and other reporting - matters that another SCE unit prepared in the past.

With increased enrollment and more referrals from utilities that provide gas service to SCE's customers, SCE will incur greater costs tracking these customers, ensuring they are enrolled in and recertified for CARE, and randomly verifying the new CARE customers for CARE eligibility. Therefore, we are satisfied that SCE's "General Administrative" costs are reasonable.

However, we will require SCE to document that it actually hires the proposed new employees and installs the planned new computer equipment and upgrades. During 2005, but in no event after the end of the year, SCE shall make a compliance filing documenting its new hires and computer upgrades once these processes are near completion.

c) Automatic Enrollment

It is unclear whether SCE's budget for automatic enrollment recognizes the limited success of the program due to DHS' confidentiality concerns. Given the modest amount budgeted, and the fact that SCE acknowledges that automatic enrollment negotiations have resulted in an agreement only with the DCSD, we assume SCE has done so. We direct SCE to reevaluate its budget request for automatic enrollment to ensure that the budget only includes amounts for transactions involving DCSD records. If the budget includes other amounts, SCE shall furnish this information to the Energy Division for review. We authorize the Assigned Commissioner to approve a revised budget for this item if appropriate.

B. PG&E's 2005 CARE Program

1. PG&E's Proposal

PG&E proposes a CARE administrative budget of $7.457 million, which reflects a $151,148 increase over its 2004 administrative budget. PG&E attributes this increase to costs associated with the new CARE automatic enrollment program recently ordered by the Commission. PG&E explains that it has added close to 100,000 new CARE customers to its rolls based on the order through coordination with the state DCSD. (As noted above, attempts to achieve coordination with other federally funded programs such as Medi-Cal encountered confidentiality concerns from DHS.)

PG&E also automatically enrolls eligible customers under informal agreements with several neighboring utilities. It began a data exchange with SCE and SoCalGas in 2004.

PG&E notes that while there are now more than twice as many CARE customers enrolled since outreach efforts started in 2001, PG&E does not need to apply for additional administrative funds because "we have captured efficiencies through process improvement."²⁵ It details those processes at length in its application.

PG&E proposes to continue the adopted methodology for incorporating in rates the electric and gas CARE balancing account balances for 2005. It states that "in a future proceeding" it will consolidate the electric revenue requirement change authorized in this proceeding in a proposal to change PPP rates and total rates. It will consolidate the gas revenue requirement change we authorize here into gas PPP rates in its annual true-up or the next Biennial Cost Allocation Proceeding.

2. ORA's Comments on PG&E's CARE Application

ORA initially recommended further review of PG&E's estimated CARE subsidy costs, which PG&E does not list in its application. PG&E provided a table of past and future estimates of CARE administrative costs, but did not provide an estimate of CARE subsidy costs for 2004 or 2005. ORA noted that an estimate of the subsidy is helpful in estimating total CARE budgets and calculating appropriate CARE surcharge costs.

ORA therefore sent a data request on this issue to PG&E, and in response, PG&E estimated CARE subsidies of $162 million in 2004 and $174 million in 2005. ORA still contended PG&E should supplement the record with further explanation of how it arrived at these subsidy levels.

In response, PG&E provided further information on its estimated subsidy levels. It explained that the rise in the subsidy from 2004 to 2005 is attributable in large part to a rise in the CARE gas subsidies, as well as to a rise in CARE participation. For the increase attributable to gas, PG&E based the projected rise in subsidies on the rise in its gas rates from 2004 to 2005.

3. Discussion of PG&E CARE Application

We approve PG&E's CARE application as set forth. We discuss two issues more specifically below.

a) Automatic Enrollment

We commend PG&E and the other utilities for efforts they have made to date to accommodate Commission orders regarding automatic enrollment. Automatic enrollment causes large numbers of eligible customers to enroll in the program at limited expense. We plan to continue examining how to expand the program going forward, through arranging for specific customer consent or other methods. In the meantime, the Commission has ordered the IOUs to automatically enroll customers whose data we have received from the DCSD. We grant PG&E $151,148 in its CARE administrative budget to cover this expense.

b) Subsidy Estimate

PG&E has adequately explained its CARE subsidy through the supplement to its application. PG&E shall furnish similar information, including the level of detail it furnished in its supplement, in future applications. ORA is correct that while we do not cap the subsidy because it fluctuates year to year with energy usage and prices, each utility must provide an accurate estimate so that we can correctly set the surcharge amount. It is not fair to ratepayers to over- or under-assess this important component of the public purpose surcharge.

C. SDG&E's 2005 CARE Program

1. SDG&E's Proposal

SDG&E proposes a CARE administrative budget of $3.329 million for 2005, the same authorized budget as 2004,²⁶ and estimates a CARE subsidy cost of $32.9 million for the year. Its costs are allocated 23% from the gas side of SDG&E's operations, and 77% from the electric side. This is the same proportion as SDG&E used in 2003.

SDG&E does not anticipate any carryover funding from 2004 except with regard to M&E expenses. It states that for M&E, some of the tasks the Commission intended to complete in 2004 will be carried over into 2005: "As there is uncertainty as to when billings for the [CARE Management and Financial Audit]²⁷ will occur, SDG&E has included the full amount of the cost in its 2005 budget. If audit costs are incurred in 2004, then the amount projected for 2005 should be reduced commensurate with the actual amount paid in 2004."²⁸ This audit has been postponed and the contract to conduct the audit cancelled.

As of the end of May 2004, SDG&E had 187,113 customers enrolled in its CARE program, an increase of approximately 6,100 or 3.4% over year-end 2003. With $1.632 million in funding for outreach from its 2005 CARE administrative budget, SDG&E hopes to add 21,000 new customers by the end of 2005. SDG&E proposes to spend $21,000 on automatic enrollment of clients served by the DCSD's LIHEAP program.

The following is a more detailed summary of SDG&E's proposed CARE administrative budget:

2. ORA's Comments on SDG&E's CARE Proposal

ORA recommends (as it does with regard to SoCalGas) that the Commission deny SDG&E's request to include funding in its CARE outreach budget for customer call center staff. ORA states that call centers receive funding through base rates, so it is not clear whether the activities are incremental CARE costs. ORA also notes that other utilities such as PG&E and SCE do not specifically mention using CARE outreach money for their call center operations.

In its August 23, 2004, response to ORA's protest, SDG&E states that funding for CARE activity was not included in SDG&E's 2004 cost of service application. In a supplemental response filed October 7, 2004, SDG&E states that it has been including call center costs in its CARE administrative budget since 1989 in accordance with D.89-09-044 (at p. 11).

3. Discussion of SDG&E's CARE Proposal

In D.02-09-021, we required that that all low-income program costs funded from the public goods charge be incremental costs: "We have ... given the utilities clear direction that the administrative costs booked to low-income assistance balancing accounts must be `incremental' costs, i.e., not provided for in the utility's base rates."²⁹ Where a cost is one the utility would have to incur regardless of the presence of the low-income programs, it should be funded in base rates, rather than by the limited/earmarked PGC surcharge. SDG&E must have call center staff regardless of whether or not it offers the CARE program.

Moreover, contrary to SDG&E's claim that D.89-09-044's adoption of the LIRA program (CARE's predecessor) implicitly authorized recovery of call center costs from the low-income surcharge, D.89-09-044 states the following:

LIRA program administrative costs shall be recovered in the utilities' base rates, rather than in the LIRA surcharge, in the general rate case following at least one reasonableness review of LIRA administrative costs in the LIRA revision proceeding.³⁰

Thus, it is not correct that D.89-09-044 stands for the proposition that SDG&E may recover call center costs from PGC funds. Rather, D.89-09-044 contemplates that all LIRA administrative costs be recovered in base rates. While the Commission later softened this stance and allowed recovery of incremental CARE administrative costs from the PGC, D.89-09-044 does not support SDG&E's claim with regard to call center costs.

We have also expressed our desire that the utilities account for low-income program costs consistently, and ORA points out that while SDG&E and SoCalGas ask for call center costs from PGC funds, the other large utilities do not. As we noted in D.02-09-021, "The submittals in this proceeding convince us that the utilities are still not employing consistent accounting conventions for recovering or reporting CARE administrative costs." There, we ordered that the Commission's Energy Division audit these expenses due to the inconsistency.³¹

It is crucial to our ability to assess the comparability and cost effectiveness of each IOU's program that they charge their program expenses consistently. If one IOU includes call center costs in its public goods charge-funded budget while the other IOUs do not, it will be impossible for us to compare how cost effectively the IOUs are accomplishing their mission.

SDG&E should not include call center costs in its CARE administrative budget. It has not established that such costs are incremental - i.e., that it would not have to incur them but for the presence of the CARE program. Nor does it appear that SDG&E's treatment of such costs is consistent with what PG&E and SCE do, despite our requirement of consistency in the utilities' accounting for low-income programs.

It is clear, however, that SDG&E has accounted for certain call center costs in the same way since 1989. We do not wish our cost disallowance here to disrupt the CARE program in any way, or result in a reduction in efforts to support the program. Thus, while we disallow the call center funding from PGC rates, SDG&E will continue to recover in base rates the call center costs we disallow here.

4. CARE Management and Financial Audit

As noted above, the Commission has cancelled the contract for the CARE Management and Financial Audit ordered in D.02-09-021. Thus, SDG&E should not budget in 2005 for the audit. Within 60 days of the effective date of this decision, SDG&E and other IOUs with similar budgets shall file a compliance advice letter backing out such funding.

5. Low Income Oversight Board (LIOB)

SDG&E included $1,000 in expenses for the LIOB. No LIOB expenses are funded through the PGC fund, and thus we disallow this amount.³²

D. SoCalGas' 2005 CARE Program

1. SoCalGas' Proposal

SoCalGas proposes a CARE budget of approximately $80 million in 2005, with $4.7 million in administrative costs and $75.3 in direct subsidies to CARE eligible customers. The subsidy amount includes $72 million for bill subsidies and $3.3 million for discounts to the gas connection charge.

SoCalGas' CARE administrative budget breaks down as follows:

SoCalGas' CARE administrative budget was $4.7 million in 2003.³³ While SoCalGas wishes to maintain the same overall budget level during 2005, it states that it seeks to reallocate costs within various categories to place greater emphasis on customer outreach. It wishes to spend $2.4 million in outreach costs in 2005, as compared to $2.5 million for outreach in 2004. SoCalGas explains:

in order to embrace the Commission's goal to enroll all eligible customers who wish to participate in the CARE program, SoCalGas is constantly seeking new methods to make more customers aware of and enrolled in CARE . . . . As experienced in 2003 and 2004, the fewer the number of eligible customers remaining to enroll, the more difficult it is to reach them to maintain the same enrollment growth rate.

2. ORA's Comments on SoCalGas' CARE Proposal

ORA questions whether the Commission should grant SoCalGas $453,000 for customer contact center (i.e., customer service) staff as part of its CARE administrative budget. We discuss this issue in full in connection with SDG&E's CARE administrative budget application and do not repeat that discussion here.

We disallow call center costs as part of CARE funding because such costs are not incremental to LIEE activity and are already fully funded in base rates.

3. Discussion of SoCalGas' CARE Proposal

a) Outreach Budget Increase

As noted, SoCalGas seeks to increase its outreach budget (while not changing its overall CARE administrative budget over the 2004 level) in order to place greater emphasis on customer outreach. It is not surprising that recruitment from an ever-smaller pool of eligible customers might require greater effort and an increased budget. We acknowledged the difficulty of recruiting new CARE customers from a decreasing pool of eligible households not already on the program in D.02-07-033:

We also recognize that the law of diminishing returns applies to CARE outreach efforts over time, i.e., it becomes increasingly difficult to enroll additional customers, the closer the utility moves towards achieving 100% participation."³⁴

Thus, we will allow SoCalGas to redistribute its budget in 2005 for CARE outreach as it requests, without increasing its overall CARE budget from the 2004 level.

b) Low Income Oversight Board

SoCalGas included expenses for the LIOB. LIOB costs are not deducted from the PGC funds and are therefore disallowed.³⁵