27. Cost Recovery Mechanisms
The majority of the utilities' requests for cost recovery of demand response program funding are unopposed by parties. These requests largely continue cost recovery approaches adopted during previous demand response budget cycles. This section discusses the utility cost recovery requests, other party positions when appropriate, and the revenue requirements and funding mechanisms adopted for 2009-2011.
27.1. SCE
SCE's total requested funding level of $291.4 million would represent an increase of approximately $93.8 million over the budget for demand response activities for the 2006-2008. SCE is proposing to apply $56.6 million in revenue requirement over four years to recover its projected $291.4 million in demand response program costs. SCE proposes to divide its annual $56.6 million revenue requirement in the following manner:313
· $0.890 million would be allocated to the Critical Peak Pricing program and associated with 2009 generation revenue requirement and included in distribution rate levels beginning in 2009.314
· $55.7 million would be allocated to SCE's distribution revenue requirement and included in distribution rate levels beginning in 2009.315
SCE does not request changes to the currently authorized ratemaking treatment for its demand response programs. Specifically, SCE recovers authorized demand response funding on an annualized basis through the Base Revenue Requirement Balancing Account (BRRBA). Year-end overcollections recorded in the BRRBA are refunded to customers and undercollections are recovered from customers in the subsequent year. SCE proposes to include the 2009 demand response funding level authorized in this proceeding in rate levels as part of its next Energy Resource Recovery Account (ERRA) Forecast proceeding.
SCE records the difference between the authorized demand response funding and the actually incurred demand response program expenses in the Demand Response Program Balancing Account (DRPBA), which includes distribution and generation sub-accounts. Consistent with past practice, SCE proposes including the three year operation (i.e., 2009 through 2011) of the DRPBA in its April 2012 ERRA Reasonableness application for Commission approval.
SCE's proposed demand response budget would also include $16.8 million in Demand Response Purchase Agreements, which would be allocated to its generation revenue requirement and included in distribution rate levels beginning in 2009.316
SCE proposes no change to its currently authorized ratemaking for its demand response purchase agreements. The current ratemaking approach includes recovery of the actual capacity payments associated with purchase agreements (aggregator contracts) and recovery of the annualized demand response purchase agreement administration funding. SCE records the difference between the authorized and actual administration levels in the Purchase Agreement Administrative Cost Balancing Account (PAACBA). SCE reports on the four-year operation of the PAACBA in its 2013 ERRA Reasonableness application for Commission approval. No parties objected to the SCE request to retain its existing cost recovery mechanisms.
Consistent with the determinations made in this decision, we approve a total revenue requirement of $184,041,287, of which approximately $38.8 million is for its purchase agreements, to be collected consistent with SCE's existing cost recovery mechanisms, described in this section.
27.2. SDG&E
SDG&E requests approval of $19.591 million, $20.068 million and $20.956 million in budgeted funds for 2009, 2010 and 2011, respectively, a total of $60.615 million, to fund its Demand Response programs. SDG&E's funding request updates an original request for $48.535 million to include $12.080 million from previously-authorized 2006-2008 Demand Response program budgets to fund its Commission-required Participating Load Pilot program.317
SDG&E's regulatory accounting and cost recovery treatment is outlined in D.03-03-036 and D.05-06-017. In its application, SDG&E states that it currently records all program costs associated with its existing Demand Response programs in its Advanced Metering and Demand Response Memorandum Account (AMDRMA). SDG&E records the energy component of the customer incentive payments to its ERRA.
SDG&E is requesting that authorized demand response program costs related to Operation and Maintenance (O&M) expenses, capital related costs (i.e., depreciation, return and taxes), customer capacity incentive payments, participating load pilot costs and all other costs, not recovered through SDG&E's 2008 General Rate Case (GRC), be recorded in AMDRMA.
SDG&E is proposing no change in the disposition of AMDRMA balances; namely, that the balances are transferred to the Rewards and Penalties Balancing Account (RPBA) on an annual basis for amortization in SDG&E's electric distribution rates over 12 months, effective January 1 of each year, consistent with its adopted tariffs. No parties objected to the SDG&E request to retain its existing cost recovery mechanisms.
Consistent with the determinations made in this decision, we approve a revenue requirement of $51,432,413 for SDG&E's 2009-2011 programs, to be collected consistent with SDG&E's existing cost recovery mechanisms, described in this section.
27.3. PG&E
PG&E requests an annual revenue requirement of $148.44 million for its 2009-2011 demand response activities, to be collected from all distribution service customers.318 In D.06-03-024, the Commission established the Demand Response Revenue Balancing Account (DRRBA) and the Demand Response Expense Balancing Account (DREBA) to track and recover costs of most of PG&E's demand response activities. In addition to these balancing accounts, PG&E is authorized to recover funding for certain specific demand activities through other mechanisms, including the following:
· Costs associated with the Base Interruptible Program (E-Base Interruptible Program) are recovered through PG&E's Distribution Revenue Adjustment Mechanism (DRAM).
· Costs associated with the California Department of Water Resources (CDWR) and the Aggregator Managed Portfolio (AMP) incentives are recovered through the EERA.
· Costs associated with Air Conditioning Program expenses are recovered through the Air Conditioning Expense Balancing Account (ACEBA) and DRRBA.
· PG&E will record its MRTU-related information system costs in the MRTU Memorandum Account (MRTUMA) approved by the Commission in Resolution E-4093.
PG&E's DRRBA is a two-way balancing account with a separate rate sub-component that records the actual revenues from customer sales and tracks these revenues against PG&E's authorized revenue requirement. DRRBA is adjusted on an annual basis through the Annual Electric True-Up advice letter filing.
DREBA is a one-way balancing account that tracks actual demand response portfolio expenses against the authorized revenue requirement. Year-end overcollections recorded in the DREBA are refunded to customers, and under-collections are absorbed by PG&E shareholders.
PG&E requests Commission approval to revise its current DREBA mechanism to create a two-way balancing account for event-based demand response program incentive costs. This revision would affect the cost recovery for the Capacity Bidding program, the Demand Bidding Program, and the Peak Choice program.319 According to PG&E, without a two-way balancing account mechanism, it is possible that the utility might have insufficient funds for certain incentive-based demand response programs if actual events exceed forecasted events. PG&E asserts that such a situation could shut down the affected programs before the end of the current program cycle, or could lead to the dispatch of more costly peak generation resources in the absence of the ability to call on demand response.320 PG&E explains that its forecast for incentives is not based on extreme conditions such as those that occurred during the 2006 heat storms, and that a two-way balancing would ensure that it is prepared for such dramatic events that may increase demand response program enrollment such as the 2006 heat storms.
TURN recommends that the Commission reject PG&E's request for two-way balancing account treatment. According to TURN, PG&E's request could lead the utility to invest in programs that may not be cost effective.321 TURN asserts that even during 2006, PG&E spent only a fraction of its authorized incentive budget. This low level of actual incentive deployment occurred during the very conditions that PG&E uses to justify its request for two-way balancing account treatment.
PG&E's request for two-way balancing account treatment for the DREBA departs from the cost recovery rules in place for that utility in 2006-2008. The purpose of this proceeding is to estimate the likely level of future activity based on many factors, including past activity, program changes, and forecast growth. PG&E, like the other utilities, has provided budget estimates that have been reviewed thoroughly in this proceeding. Based on past program performance, it is extremely unlikely that the incentive budgets authorized in this decision will exceed the approved amounts. However, two-way balancing account treatment for program incentives would allow recovery of additional incentive costs in the unlikely event that such a situation did occur, without requiring additional ratepayer funding unless extreme conditions cause the incentive budget to be exceeded.
The PG&E request to change the DREBA from a one-way to a two-way balancing account for program incentives only is adopted; administrative expenses will continue to be subject to one-way balancing account treatment, and are capped at 50% of the program costs for each approved progam, as provided in this decision. Consistent with the determinations made in this decision, we approve a revenue requirement of $108,980,996 for PG&E's 2009-2011 programs, to be collected consistent with PG&E's cost recovery mechanisms, described in this section.
313 SCE Exhibit 201, p. 233.
314 SCE Exhibit 201, p. 234.
315 SCE Exhibit 201.
316 SCE Exhibit 201.
317 Amended Application of San Diego Gas and Electric Company (U 902-M) For Approval of Demand Response Programs and Budget For Years 2009 Through 2011, Application 08-06-002, September 19, 2008, p. 8.
318 PG&E Exhibit 201, Chapter 8, p. 1.
319 PG&E Exhibit 201, Chapter 8, p. 4.
320 Ibid.
321 Opening Brief of The Utility Reform Network on the Demand Response for 2009-2011: The $360 Million Utility Slush Fund, January 28, 2009 at p. 88.
