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ALJ/ANG/sid Mailed 1/4/2001

Decision 01-01-018 January 4, 2001

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (E 3338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.

Application 00-11-038

(Filed November 16, 2000)

Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)

Application 00-11-056

(Filed November 22, 2000)

Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527.

Application 00-10-028

(Filed October 17, 2000)

(See Appendix A for Appearances.)

INTERIM OPINION REGARDING

EMERGENCY REQUESTS FOR RATE INCREASES

I. Summary

In this interim decision, we consider the emergency requests of Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (Edison) that they be allowed to raise rates on an interim basis, subject to refund. We will implement an immediate, interim surcharge, subject to refund and adjustment. On this basis, we will allow PG&E and Edison each to raise their revenues by increasing the electric bill of each customer by one cent per kilowatt-hour (kWh), applied on a usage basis.1 The surcharge will be applied on an equal cents per kWh basis and will result in an increase of approximately 9% for residential customers, 7% for small business customers, 12% for medium commercial customers, and 15% for large commercial and industrial customers. We exempt those low-income customers of Edison and PG&E eligible for the California Alternative Rates for Energy (CARE) program from this rate increase. Other than CARE customers, this surcharge applies to all customers, including direct access customers.

The increase will be a temporary surcharge to improve the ability of the applicants to cover the costs of procuring future energy in wholesale markets that they cannot produce themselves to serve their loads. The temporary surcharge will be in effect and applied to recovery of the future electricity procurement costs for the next 90 days, during which time the Commission will conduct further proceedings and investigations to determine ratemaking issues affected by the interaction among provisions of Assembly Bill (AB) 1890 (Stats. 1996, Ch. 854), Commission orders issued both prior to and subsequent to the legislature's enactment of that law, and the provisions of the Public Utilities Act affecting the Commission's basic obligation to assure that utilities provide adequate reliable service at just and reasonable rates. Moreover, the 90 days will allow the independent auditors engaged by the Commission to perform a comprehensive review of the utilities' financial position, as well as that of their holding companies and affiliates.

We will track the surcharge revenues in a balancing account, subject to refund and applied to ongoing wholesale electricity procurement costs. We will consider whether and how rates should be further adjusted after additional hearings. We take this action after emergency hearings on December 27, 28, 29, 2000 and January 2, 2001, closing arguments in lieu of briefs on January 2 and final oral argument on January 3, 2001. In this short time frame, we have heard from the public, the utilities, consumer groups, and other parties. The arduous schedule, that saw Commission staff, contractors and the parties working continuously through the holiday weekends, demonstrates the high degree of importance we attach to responding to the conditions in electricity wholesale markets created by orders of the Federal Energy Regulatory Commission (FERC) that defy common sense, logic and law.

In an abundance of caution and in view of the actions of the FERC to remove any bounds on wholesale prices charged in the electricity market and the response by wholesale sellers pushing average prices to levels several times higher than what we saw in San Diego last June, we find that we must take interim action on an emergency basis, pursuant to our emergency authority.2 PG&E and Edison have raised sufficient concerns in their prima facie cases that the applicants may not be able to procure power at just and reasonable rates and consequently may not be able to provide adequate service for their customers without some intervening action on our part.

We have balanced the public interest in ensuring that PG&E and Edison remain able to procure and deliver power for their bundled customers and the public interest in avoiding exorbitant rate increases in order to take this interim step. In doing so, we recognize the utilities' claims of financial difficulties engendered by the steep and unanticipated increases in the cost of procuring wholesale electric energy. The problem occurs because PG&E and Edison are charging rates frozen at 1996 levels, pursuant to Pub. Util. Code § 368,3 but must procure wholesale electric power at so-called market-based rates that are not just and reasonable, as found by FERC. The elimination of wholesale electricity price caps by FERC on December 8 as confirmed by its order on December 15 and the resulting five-fold increase in wholesale electricity prices has expanded the crisis to one that involves not only utility solvency but the very liquidity of the system.4

On December 21, 2000, we issued Decision (D.) 00-12-067 to address the financial difficulties facing PG&E and Edison. We intend to ensure the continued ability of PG&E and Edison to provide reliable service at just and reasonable rates. We are also committed to the continued welfare of all customers of PG&E and Edison. This decision begins to make good on those commitments.

1 We are not addressing natural gas prices in this decision. 2 We note that the D.C. Circuit Court of Appeals is expected to rule on January 5 on an emergency writ sought by applicant Edison to compel the FERC to fix just and reasonable rates in Western wholesale electric markets. 3 All statutory references are to the Public Utilities Code, unless otherwise noted. 4 Currently the applicants purchase their energy for resale from the Power Exchange and the Independent System Operator. These institutions are California not-for-profit corporations which have no financial assets or capabilities separate from the load serving entities (utilities). C.f., ISO Tariff rule 14; Tariff Sheet 245. Settlement and Billing Protocol 1.3.2; Tariff Sheet 872. The ISO's spot purchases of highest cost spinning reserves adds to the utilities' liquidity problems.

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