ALJ/TRP/hkr * DRAFT H-3
2/21/2002
Decision ____________________
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) |
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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) |
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Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527. |
Application 00-10-028 (Filed October 17, 2000) |
(See Appendix D for a List of Appearances.)
TABLE OF CONTENTS
Title Page
II. Regulatory and Statutory Mandates Relating to DWR Power Procurement 66
III. Joint Roles of CPUC and DWR in Implementation of DWR Requirements 1010
IV. Procedural Summary of DWR Revenue Requirement Implementation 1313
V. DWR's Representations Concerning the Reasonableness of Its Revenue Requirement 1717
VI. Elements Comprising the DWR Revenue Requirement 2222
VII. Miscellaneous Considerations Relating to DWR Revenue Requirement 3434
VIII. Allocation of Aggregate DWR Revenue Requirement Among the Utility Service Areas 4040
2. Parties Supporting the Pro Rata Allocation Approach 4646
3. Parties Supporting Geographically Differentiated Cost Allocations 4848
1. Statutory Basis for Allocation Methodology 5757
2. Cost-Based Principles as a Basis for DWR Allocation Methodology 5858
3. Allocation of Administrative and Financing Costs 6060
4. Allocation of Power Procurement Commodity Costs 6060
a. Statewide Versus Regional Procurement and Cost Measurement 6161
b. Transmission Congestion Criterion 6363
c. Distinctions in the Allocation of Fixed Price Versus Short Term Purchases 7070
d. Allocation Based on Monthly Versus Hourly Cost Data 7272
e. ORA's Averaging Approach Criterion 7575
IX. Implementing Annual DWR Update Proceedings 8585
X. Implementation of DWR Revenue Remittance Procedures 9292
XI. DWR Revenue Requirement Implications for Utility Rate Adjustments 103103
XII. Rehearing and Judicial Review 104104
XIII. Comments on the Proposed Decision 104104
I. Overview
This decision implements cost recovery of the revenue requirements of the California Department of Water Resources (DWR) relating to its power purchase program pursuant to Assembly Bill 1 of the First Extraordinary Session (Stats. 2001, Ch. 4), hereafter referred to as AB1X. On November 5, 2001, DWR submitted to the Commission its most recent revenue requirement of $10,003,461,000, representing the total to be collected from utility customers of the three major California utilities. On February 21, 2002, DWR submitted a revised revenue requirement of $9,045,462,000, approximately $958 million lower than its November 5th request. The revisions provided by DWR reflect comments from parties in this proceeding, and corrections to mathematical errors and calculations in DWR's prior submittals.
The $9.045 billion retail revenue requirement represents only little more than half of the total expenditures included in its estimates covering the period 2001 and 2002 relating to its power purchase program. Total DWR expenditures during this period amount to approximately $18.014 billion, as set forth in Appendix A of this decision. The excess over $9.045 billion is being financed with advances from the State of California General Fund and proceeds from an interim loan. The portion of DWR expenditures that are being financed with external debt will be recovered from ratepayers in future years through funds to be used for repayment of principal and interest on bond financing, as explained further below.
In this decision, we determine how DWR revenue collections are to be allocated among the customers of the three major California electric utilities: Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E), and we establish procedures to implement the collection process. DWR will collect its revenue requirements through charges remitted from billings to retail customers of the three major electric utilities based on designated per-kilowatt-hour (kWh) charges as set forth in this decision. We allocate the total DWR revenue requirement among each of the three major utilities' service territories as follows:1
($000's)
Utility Revenue Allocation % Allocation
PG&E |
$ 4,327,511 47.8% |
SCE |
$ 3,373,764 37.3% |
SDG&E |
$ 1,344,187 14.9% |
Total |
$ 9,045,462 100% |
The allocations specified above include all funds sought to be recovered at this time by DWR, specifically including the costs DWR assumes it would incur if its bonds, as provided for under AB1X, are not issued during 2002. DWR has stated that it anticipates that bonds will be issued by June 2002, but its revenue requirement request does not incorporate this assumption. Instead, DWR assumes that it must continue to make quarterly interest and principal payments, for the duration of 2002, on an Interim Loan obtained in June 2002. DWR explains that because of the financing requirements of the Interim Loan, it must determine its revenue requirement on the assumption that bonds are not issued during 2002. Accordingly, it has included interest charges on the Interim Loan in its revenue requirement. DWR has removed a large portion of these contingent costs in its February 21, 2002 revenue requirement.
DWR has the ability to propose changes to its revenue requirements as conditions change, and the Commission has the authority to modify the costs allocated in this decision to reflect future updates. The Commission will authorize DWR to recover its costs at the time necessary for DWR to carry out its requirements.
As described below, we agree with the goal of allocating DWR costs in relation to the costs of providing service. We do not believe, however, that segregating disproportionately higher priced DWR power for allocation exclusively to northern California consumers is a proper or fair application of traditional cost-based ratemaking policies. The primary purpose of the Public Utilities Act is to ensure the public adequate service at just and reasonable rates without discrimination. (Pub. Util. Code §§ 451 et seq., 761; see also United States Steel Corp. v. Public Utilities Com., 29 Cal. 3d 603, 610 (1981), quoting Pacific. Tel. & Tel. v. Public Utilities Com. 34 Cal. 2d 822, 826 (1950).) The allocation proposed by SCE and SDG&E would unreasonably discriminate against customers served by PG&E by charging the latter a disproportionately high cost per kWh.
The allocation issue here, involving costs incurred by single entity (i.e., DWR) purchasing power on behalf of customers in three separate utility service territories is novel, and is not addressed by traditional cost-based ratemaking procedures as typically applied. Nonetheless, the allocation approach we adopt is consistent with the philosophy underlying traditional cost-based ratemaking. Our adopted approach allocates DWR costs in relation to the relevant cost driver, namely the net short position by utility.
Our statewide pro rata allocation recognizes the integrated nature of power procurement undertaken by DWR for California utility customers, but also adjusts for utility-specific differences, where applicable, as proposed by The Utility Reform Network (TURN). As a basis for the utilities to remit revenues to DWR in accordance with these allocations, we adopt a per-kWh charge for customers in the service territory of each utility of 8.924 cents/kWh for PG&E, 9.250 cents/kWh for SCE and 9.724 cents/kWh for SDG&E. These adopted DWR charges form the basis for the utilities to remit funds to DWR that they are currently collecting. We do not, however, change the overall level of retail rates for PG&E, SCE, or SDG&E in today's order. We will address the need for any change in rates for SDG&E customers in order to meet DWR's costs of serving SDG&E customers in a separate docket (Application (A.) 00-10-045 et al.).2 For SCE and PG&E customers, any need for a change in overall rates charged to customers as a result of this decision cannot be addressed until we after we issue our decision on utility retained generation (URG) issues.
We note that the high DWR contract prices now in effect in California reflect the exorbitant wholesale electricity costs caused by the crisis experienced in electric purchased power markets over the past year. These prices measure, in part, the terrible price California has paid to restore stability. Individual Commissioners and Governor Gray Davis have previously endorsed contract renegotiations to reduce prices that were set when market prices were at or near their peak. (Exhibit 160, Weil, p. 4.) DWR now forecasts that from October 1, 2001 through the end of 2002, average DWR contract prices will be 3.3 times average residual net short prices. (Reference Item C, DWR, November 5 revenue requirement document, p. 16, Table 6; compare DWR contract costs to residual net short costs for Q4 2001 and all of 2002.) DWR assumes that residual net short energy will be purchased in spot markets.
It is our hope that the actions of DWR and the utilities, as well as the efforts of public and private parties involved in cases at the Federal Energy Regulatory Commission (FERC) and in the courts to reduce costs, will be successful, and that we will be able to revisit the DWR's revenue requirement to lower these charges in the future.
