Background

In Decision (D.) 02-10-062, the Commission established the ERRA balancing account - the power procurement balancing account required by Pub. Util. Code § 454.5(d)(3). Pursuant to D.02-10-062 and D.02-12-074, the purpose of the ERRA is to provide recovery of SDG&E's energy procurement costs, including expenses associated with fuel and purchased power, utility retained generation, California Independent System Operator related costs, and costs associated with the residual net short procurement requirements to serve SDG&E's bundled service customers.¹

As set forth in D.02-10-062, the balance of the ERRA was not to exceed 5% of the electrical utility's actual recorded generation revenues for the prior calendar year, excluding revenues collected for the California Department of Water Resources (CDWR.)² Decision 02-10-062 established a trigger mechanism designed to avoid the 5% threshold point, that requires SDG&E to file an expedited application for approval to adjust its rates 60 days from when the ERRA balance reaches an under-collection or over-collection of 4% and is projected to exceed the 5% trigger.

The purpose of the Transition Cost Balancing Account (TCBA) is to accrue all ongoing Competition Transition Charge (CTC) revenues and recover all ongoing CTC-eligible generation-related costs. Pursuant to D.02-12-074 and D02-11-022, payments to Qualifying Facilities (QFs) that are above the market benchmark proxy are charged to the TCBA. Eligible ongoing CTC expenses reflect the difference between the market proxy and the contract price of costs associated with the Portland General Electric and other QF contracts.³

In D.06-07-030 (as modified by D.07-01-030), we adopted the total portfolio methodology and market benchmark for determining the above-market costs associated with the utility/CDWR total portfolio for deferring departing load charges, and replaced the CDWR Power Charge Component with the Power Charge Indifference Adjustment (PCIA). The purpose of the total portfolio methodology is to reasonably ensure that bundled customers are indifferent with respect to departing load. Rather than focus on each individual resource cost, the total portfolio method recognizes that bundled customers are served from the entire portfolio of commodity resources and that when load departs the utility may, in general, offset a portion of the costs of departing load through additional market sales. Although the ERRA forecast filing directly addresses only SDG&E's fuel and purchased power costs, the calculation of PCIA and associated revenues must take place in the ERRA forecast proceeding.

On October 1, 2008, SDG&E submitted its 2009 ERRA Forecast Application. SDG&E amended its application on October 17, 2008, following the discovery of errors made in calculating gas hedging costs and the PCIA charge. The overall impact of these errors was mitigated by SDG&E's use of a more current gas price forecast such that the amended ERRA revenue requirement was $67,000 less than the original forecast of $969.650 million and the amended CTC revenue requirement was $14,023 less than the original forecast of $69.342 million.

Between November 17, 2008, and January 28, 2009, SDG&E and the Division of Ratepayer Advocates (DRA) engaged in discovery and repeatedly met to confer about the issues. The parties' efforts focused on how SDG&E's 2009 ERRA revenue requirement had been affected by the considerable decreases in the price of natural gas during the latter part of 2008 and whether it would be appropriate for SDG&E to recalculate its ERRA forecast based on a new, lower gas price forecast. Though its amended application made use of a lower, more current gas price forecast, SDG&E agreed to again change its natural gas price forecast, so as to reflect more of the recent drop in the price of natural gas. In addition to the recalculations associated with the use of a new, lower gas price, other changes were made so as to reflect Energy Division's calculation of the 2009 market benchmark. As a result of these adjustments, SDG&E's 2009 ERRA revenue requirement was reduced to $874.555 million ($95.028 million less than the $969.583 million proposed in SDG&E's amended 2009 ERRA Forecast Application). Similarly, SDG&E's ongoing CTC revenue requirement was reduced to $44.414 million ($10.905 million less than the $55.319 million proposed in SDG&E's amended 2009 ERRA Forecast Application).

The final issue addressed by the parties was SDG&E's proposed modification to the ERRA triggering rules whereby beginning with the consolidated rate change for January 1, 2010, SDG&E would include the forecasted December 31 ERRA balance in its Electric Account Update (filed in October of each year), if such balance is below the ERRA trigger amount.

¹ We also established a semiannual update process for fuel and purchased power forecasts and the ERRA mechanism.

² See D.02-10-062 at 62.

³ Expenses eligible for CTC recovery are defined by Assembly Bill 1890.