2. Background
The California Department of Water Resources (DWR) submitted its 2012 revenue requirement determination to the Commission on August 4, 2011. This submission consisted of the August 4, 2011 "Determination of Revenue Requirements for the Period January 1, 2012 Through December 31, 2012," the August 4, 2011 "Notice of Determination of Revenue Requirements," and an August 4, 2011 memorandum from John Pacheco of DWR to President Michael R. Peevey of the Commission. The memorandum notified the Commission of DWR's 2012 revenue requirement determination, and requested "that the Commission calculate, revise and impose Bond Charges in accordance with Article V of the Rate Agreement..." and "that the Commission calculate, revise and impose Power Charges in accordance with Article VI of the Rate Agreement...."2
On August 25, 2011, Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (SCE) filed Prehearing Conference Statements regarding issues of interest to each of them. On September 1, 2011, the Commission held a prehearing conference (PHC) to discuss the processing of DWR's 2012 revenue requirement determination. At the PHC, DWR informed the Administrative Law Judge (ALJ), that it was planning to submit a revised 2012 revenue requirement determination to the Commission in October 2011.
In addition to the determination of a 2012 revenue requirement, parties raised other related issues in their PHC statements and at the PHC, including the following:
1. As DWR contracts expire and are novated, DWR's required operating reserves are also reduced. With the novation of these contracts, utilities will experience a "negative revenue requirement", which will require operating reserves to be returned to the investor-owned utilities' (IOU) customers, resulting in a reduction of customer rates. PG&E requests that the method for determining and returning the negative revenue requirement authorized in Decision (D.) 10-12-006 at Ordering Paragraph 1.a., should be reaffirmed for it in the current proceeding. SCE requests that the Commission allow DWR and each of the IOUs to develop a plan for returning those monies for the benefit of customers. In particular, SCE requests that DWR institute a monthly payment to the IOUs (to be refunded to customers) in the amount of the negative revenue requirement.
2. SCE raised the issue of how to allocate $130 million of the funds paid to DWR by Sempra for the 2010 global settlement, which resolved the 2000-2001 California Energy Crisis claims by the California Parties3 against RBS Sempra Commodities (Sempra).4 In particular, the Sempra Settlement resolved claims related to the long-term energy delivery contract between Sempra Generation and DWR, which was administered by SCE. SCE proposes that these funds should be allocated to the California Parties using a two-step process. The first step of SCE's proposal would be to determine a rate (dollar amount) per megawatt-hour (MWh) contracted, by taking the total benefit amount ($130 million) and dividing by the total number of MWhs stipulated throughout the life of the contract. The next step of SCE's proposal would be to determine the allocation of MWhs across the contract delivery period, which is complicated by differing cost allocation methodologies during different timeframes of the contract.5
3. PG&E and SCE each raise the issue of how to allocate the discount funds addressed by the Sempra Continental Forge class action settlement (Continental Forge funds) of approximately $269 million. These funds represent amounts unrelated to the California Energy Crisis Claims concerning the Sempra contract discussed in Item 2 above. PG&E is concerned that DWR has received but not distributed the Continental Forge funds for the period 2006-2011. PG&E proposes that these Continental Forge funds should be distributed to the IOUs using the permanent allocation percentages authorized in D.08-11-056. SCE proposes that the parties meet to discuss how to resolve the allocation of Continental Forge funds.
Pursuant to the Scoping Memo and Ruling Regarding the Request of the California Department of Water Resources to Allocate its 2012 Revenue Requirement Determination and Related Issues (Scoping Memo) dated September 7, 2011, the filing of Opening and Reply Briefs regarding allocation of Sempra Settlement funds and Continental Forge funds was set for September 22 and 30, 2011, respectively. Opening and Reply Briefs were timely filed by PG&E, SCE, and SDG&E.
Pursuant to the ALJ's ruling dated October 18, 2011, a workshop was scheduled for November 21, 2011 to begin the process of resolving the three issues listed above, involving current and future IOU negative revenue requirement disposition, and allocation of the Sempra Settlement funds and the Continental Forge funds. A Workshop Report on these issues will be issued shortly after the workshop by the Commission's Energy Division. We anticipate issuing a separate decision on the workshop issues in the near future. Item number 1 above, regarding return of negative revenue requirements is resolved in the current decision.
On October 17, 2011, DWR initiated its revision of the 2012 revenue requirement by issuing a "Proposed Revision to the Determination of Revenue Requirements." The deadline for submitting comments with DWR through its administrative process was October 24, 2011. DWR did not receive any comments on its proposed revision.
On October 27, 2011, DWR submitted its revised 2012 revenue requirement determination to the Commission.6 This submission consists of the October 27, 2011 "Revision to the Determination of Revenue Requirement for the Period January 1, 2012 Through December 31, 2012," and the October 27, 2011 "Notice of Determination of Revenue Requirements," and DWR's October 27, 2011 memorandum to President Michael R. Peevey titled "Notification of Revised Revenue Requirement Determination for 2012." DWR stated in its revised 2012 determination that it may propose further revisions to its 2012 revenue requirement, given the potential for significant or material changes in the California energy market. These changes in the market could include forecasted fuel costs, DWR's associated obligations and operations, novation of its power contracts, and many other events that may materially affect the realized or projected financial performance of the Power Charge or Bond Charge accounts.
In her ruling dated October 27, 2011, the ALJ announced the procedure for the filing of a protest or objection to the allocation of the revised 2012 revenue requirement determination. Shortly after DWR submitted and served its revised determination, the ALJ reminded the service list by e-mail of this procedure and directed that any protest or objection to the allocation of the revised 2012 revenue requirement determination be filed by noon on October 31, 2011. Since no protests or objections were filed, we conclude there are no protests concerning DWR's request to allocate its revised determination.
2 The terms "Bond Charge" and "Power Charges" are defined in Article I of the Rate Agreement that was adopted in D.02-02-051.
3 California Attorney General, DWR (through the California Energy Resources Scheduling), the Commission, PG&E, SCE, and San Diego Gas & Electric Company.
4 For the remainder of this decision, this settlement is referred to as the Sempra settlement.
5 There are four time periods associated with the duration of the contract, which started in May 2001. For each time period, SCE believes refunds should be allocated among the three IOUs according to how costs were allocated.
6 On September 30, 2011, DWR sent a memorandum to Commissioner Michel Peter Florio and the assigned ALJ, correcting some technical errors in the outline of settlements submitted by PG&E in Attachment A to its Opening Brief. These corrections will be addressed when the issues are addressed in a separate decision.
