3. Least-Coach Dispatch
SCE's least cost dispatch obligations are explained in D.05-01-054 where the Commission states that in conducting the daily economic dispatch of energy, utilities must comply with SOC 4 as follows:
The utilities shall prudently administer all contracts and generation resources and dispatch the energy in a least-cost manner. Our definitions of prudent contract administration and least-cost dispatch are the same as our existing standard.1
The Commission elaborated on this standard in D.02-12-074, where it placed the following explanation of SOC 4 in the utilities' approved procurement plans:
Prudent contract administration includes administration of all contracts within the terms and conditions of those contracts, to include dispatching dispatchable contracts when it is most economical to do so. In administering contracts, the utilities have the responsibility to dispose of economic long power and to purchase economic short power in a manner that minimizes ratepayer costs. Least-cost dispatch refers to a situation in which the most cost-effective mix of total resources is used, thereby minimizing the cost of delivering electric services.... The utility bears the burden of proving compliance with the standard set forth in its plan.2
Once this definition of SOC 4 was placed in the utilities' procurement plans, it became the "upfront standard" under Assembly Bill (AB) 57 regarding prudent contract administration and the daily dispatch of energy. The question to be addressed in the ERRA proceeding regarding least-cost dispatch is whether the utility has complied with this standard -- that is, (1) whether the utility has dispatched the dispatchable contracts under its control "when it is most economical to do so," (2) whether it has "disposed of economic long power and purchased economic short power in a manner that minimizes ratepayer costs," and (3) whether it has used "the most cost-effective mix of its total resources, thereby minimizing the cost of delivering electrical services." In its testimony, SCE addresses these questions in detailing how it complied with SOC 4 during the Record Period.
In its opening brief, DRA indicates that it does not take issue with SCE's least-cost dispatch record in this proceeding.
Based on the testimonies of SCE and DRA, we conclude that all dispatch-related activities SCE performed during the Record Period complied with Commission orders and SCE's procurement plan.
3.1. SCE Trigger Filing
DRA is no longer pursuing recommendations with respect to an ERRA trigger application (Application (A.) 08-09-011)3 filed by SCE pursuant to Pub. Util. Code § 454.5(d)(3) and then withdrawn shortly thereafter.4 However, DRA indicates that it is concerned that SCE may not be prudently anticipating its revenue requirement, resulting in unnecessary rate adjustments to its customers. DRA states that although it recognizes that fuel and purchase power costs are difficult to predict, it is still incumbent on the IOU to avoid rate increases as much as possible by minimizing the frequency of ERRA revenue requirement adjustments it seeks.
In response, SCE states that the evidence in this proceeding shows that SCE acted prudently in withdrawing its December 2008 ERRA Trigger Application to avoid an unnecessary rate increase to its customers. According to SCE, DRA's statement that it is "concerned" about unnecessary customer rate increases ignores SCE's testimony on this subject. To the extent DRA's criticism concerns perceived flaws in SCE's forecast methodology, SCE notes that its methodology for forecasting its ERRA revenue requirement is sound, and has been repeatedly reviewed and approved by the Commission on an annual basis in SCE's ERRA Forecast proceedings. SCE adds that, to the extent that there are large variations in SCE's forecast of its ERRA revenue requirement, these are usually driven by factors beyond SCE's control, such as unexpected swings in the price of natural gas. Based on the foregoing, SCE urges that the Commission find DRA's concern regarding "unnecessary rate adjustments" to SCE's customers to be unsupported and therefore without merit.
DRA's concern that SCE may not be prudently anticipating its revenue requirement, resulting in unnecessary rate adjustments to its customers, is not supported by the record. DRA has not provided any specific information regarding rate changes that it feels could have been avoided, if SCE had more prudently anticipated its revenue requirement. The trigger application in question was withdrawn, so there was no associated rate adjustment. SCE acted prudently in first filing the trigger application as required and then in withdrawing the trigger application when more recent information indicated that the threshold would not be exceeded. DRA has not documented any historic problems related to, or made clear how SCE might more prudently anticipate, its revenue requirement. Forecasted ERRA revenues requirements are reviewed and approved by the Commission in the annual ERRA forecast proceedings based on the best information available at the time of the reviews. To the extent that DRA's concerns relate to SCE's ERRA forecasts, DRA should pursue such concerns in those proceedings.
Even though DRA's recommendation with respect to the trigger filing has been withdrawn, SCE requests that this decision discuss the differences between the ERRA forecast, review and trigger applications. While we believe such differences are clear, SCE's rebuttal testimony (Exhibit 4) provides a summary of the Commission's processes for review and approval of a utility's forecasted fuel and purchased power expenses for the purpose of setting rates (ERRA forecast proceeding and ERRA trigger mechanism) and the processes for the review and approval of recorded utility procurement costs (long-term procurement plan proceeding, quarterly compliance report advice letter filings and the ERRA review proceeding). SCE's characterization of the different processes is correct, should be used to determine where specific ERRA related issues should be addressed, and is summarized in the Appendix to this decision.
3.2. Monthly Average Price Comparisons
SCE states that DRA's least cost dispatch testimony repeats the same kind of inappropriate monthly average price comparisons that DRA made in past ERRA proceedings, asserting that DRA has calculated monthly average purchase and sales prices for SCE transactions and compared them with "hybrid" prices reported by the ICE for power delivered to the CAISO's SP-15 location. In its rebuttal testimony,5 SCE describes why this is inappropriate and why the use of such "hybrid" monthly average price data for electricity product, at one delivery point in making price comparisons with spot transactions of different electricity products at multiple delivery points produces misleading, if not erroneous, results. SCE requests that the Commission determine that such comparisons should not be used to review SCE's compliance with SOC 4 in this or any future ERRA Review proceedings.
DRA did not respond directly to SCE's criticisms of its comparisons in either its opening or reply briefs. However, in light of SCE's request that the Commission rule on the validity of various approaches to analyzing least-cost dispatch, DRA suggests that the Commission institute a rulemaking to address the preferred methodology for evaluating least cost dispatch.
SCE's criticisms of DRA's monthly average price comparisons appear to be valid, and this decision does not make use of such comparisons in any determinations. While we will not dictate the substance of future DRA showings, we suggest that DRA take into consideration the points made by SCE in its rebuttal testimony. If DRA continues to make use of such comparisons in future ERRA Review proceedings, it should explain why such comparisons are meaningful or relevant, in light of the points made by SCE.
With respect to DRA's suggestion that the Commission institute a rulemaking to address a preferred methodology for evaluating least cost dispatch, we decline to do so. The utility has the burden to demonstrate compliance with SOC 4, and we will leave it up to the utility to determine how that should best be done. DRA and SCE are encouraged to explore the development and use of supplemental information or techniques that may be valuable in evaluating future SCE ERRA Review filings, but that can be done informally. A separate rulemaking is not necessary do so.
1 D.02-10-062, Conclusion of Law 11.
2 D.02-12-074, Ordering Paragraph 24b. The ellipsis indicates language deleted by D.03-06-076, at 27 and Ordering Paragraph 16.
3 In Exhibit 9, DRA had recommended that $255 million associated with A.08-09-011 be found unreasonable or this proceeding be bifurcated to determine the reasonableness and compliance associated with the $255 million.
4 The purpose of the trigger application is to "adjust rates or order refunds, as necessary [and] to promptly amortize a balancing account" to "balance the utilities need for timely cost recovery and the consequences of frequent rate adjustments on consumer behavior." (D.02-10-062, at 71, Finding of Fact 24.)
5 Exhibit 4, at 12-17.
