III. Implementation and Transaction Costs

AB 117 addresses how the utilities would recover the costs they incur to accommodate the CCA program and provide related services to CCAs. Section 366.2(c)(17) provides general guidance about how the utilities may recover costs associated with CCA program implementation and services.

"An electrical corporation shall recover from the [CCA] any costs reasonably attributable to the [CCA], as determined by the Commission, of implementing this section, including, but not limited to, all business and information system changes, except for transaction based costs as described in this paragraph. Any costs not reasonably attributable to a [CCA] shall be recovered from ratepayers, as determined by the Commission. All reasonable transaction-based costs of notices, billing, metering, collection and customer communications or other services provided to an aggregator or its customer shall be recovered from the aggregator or its customers on terms and at rates to be approved by the Commission."

The section refers generally to "implementation" costs and a subset of implementation costs called "transaction" costs, which it specifies are those costs related to billing, metering, customer communications and other customer costs. We infer from the language of the section that implementation costs are those associated with setting up the CCA program, and the infrastructure required to maintain and operate it. Such costs might include those associated with computer programming and data base development, and other overhead costs. Implementation costs would include all costs except those that are identified as "transaction" costs in AB 117, such as metering and billing costs conducted on behalf of an individual CCA. We address transaction costs and implementation costs separately below.

In general, we consider how to allocate and permit recovery of CCA program costs consistent with the statute. Where the statute provides the Commission with discretion, we treat CCAs as customers who are buying services from the utilities. With that in mind, we apply ratemaking and cost allocation principles that are comparable to those applied to other utility customers. Where there exist special circumstances or conditions that favor different treatment of CCA costs, we make exceptions to this general rule, consistent with AB 117.

A. Allocation of Implementation Costs Between Ratepayers and Individual CCAs

The utilities and prospective CCAs differ in their interpretation of AB 117 with regard to allocating AB 117 implementation costs among CCAs, their customers and utility ratepayers more generally. "Implementation costs" in this context are those costs of establishing the CCA program and serving CCAs that are not identified as "transactions costs" pursuant to Section 366.2(c)(17).

SCE and SDG&E argue that CCAs and their customers must assume all CCA implementation costs, citing the portion of AB 117 that requires the electric utility to "recover from the CCA any costs reasonably attributable to the CCA, as determined by the Commission, of implementing this section." Assuming there are some implementation costs that are not directly attributable to a single CCA but are reasonably allocated to CCAs, SCE proposes two models for allocating costs among CCAs. The first would allocate all costs to the first CCA and provide a refund to that CCA when subsequent CCAs pay their proportional share. The second would estimate the number of CCAs and establish charges accordingly. SCE would true-up the mismatch between estimated and actual revenues, and subsequently refund or charge CCAs accordingly. SDG&E argues that AB 117 does not permit cost-shifting of any type and that imposing implementation costs on the general body of utility ratepayers would represent cost-shifting.

PG&E would allocate "a minimum level" of "basic implementation costs," such as computer programming, to all ratepayers. It would charge "exceptional" implementation costs to individual CCAs. PG&E identifies these services as customized to the CCA and argues that it is not required to provide such services. ORA concurs with PG&E to the extent that it has concerns that startup costs could become an insurmountable barrier to the creation of CCAs. ORA argues that the program generally will benefit all ratepayers because they may at some point have an opportunity to choose service from a CCA. Accordingly, ORA proposes that utilities' ratepayers "loan" CCAs the costs of upfront funding, to be repaid in increments when CCAs initiate service during each open season.

CCSF, LA/CV, and King's River concur with PG&E that some costs should be allocated to all ratepayers, citing Section 366.2(c)(17) which states "Any costs not reasonably attributable to a CCA shall be recovered from ratepayers, as determined by the Commission."

Discussion. AB 117 requires CCAs or their customers to assume any costs incurred on behalf of individual CCAs. Based on the plain language of the statute, we find that those costs which may be identified as being incurred on behalf of a CCA should be assumed by the CCA and its customers. Those costs that cannot be associated with an individual CCA may be allocated to all ratepayers, at the discretion of the Commission. If the Legislature intended that no CCA program implementation costs be allocated to all ratepayers, we must assume that it would not have required that utility ratepayers assume program costs "not reasonably attributable to a CCA." The choice of the phrase "a CCA" in this context also supports the CCAs' interpretation of the statute. If the Legislature had intended that the general body of ratepayers assume no implementation or transaction costs, this phrase would have said "not reasonably attributable to CCAs." That construction, however, would appear superfluous because the statute does not address the treatment of costs incurred by entities other than CCAs.

The statute gives the Commission discretion to establish which costs should be borne by utility ratepayers and we find that the assumption of implementation costs by such ratepayers is not "cost-shifting." Our interpretation of Section 366.2(c)(17) reflects our view that, while AB 117 would limit the cost liability of customers remaining with the utility, it recognizes that some program costs could not reasonably be assumed by a single CCA without creating insurmountable practical problems or barriers to entry that the statute probably did not intend.

The question then is which costs are attributable to individual CCAs and their customers and which are more appropriately allocated to utility ratepayers. We agree with PG&E that individual CCAs should not assume the costs of developing the CCA program's basic infrastructure. The CCA program is supported by the state's legislature as good public policy and one that will promote the state's interests. For that reason alone, we do not consider future CCAs and their customers as the sole beneficiaries of the program. We also wish to avoid the practical problems associated with isolating infrastructure costs and allocating them to individual CCAs as SCE proposes, for example, by charging early CCAs the bulk of the costs and refunding them later. This formula is complex and would present a significant artificial barrier to the creation of CCAs. ORA's suggestion that utility ratepayers "loan" CCAs the costs of program startup is also untenable because of its complexity and the uncertainty it creates for CCAs. For these reasons, the costs of developing the CCA program's infrastructure should be assumed by all customers, the CCA's and the utility's.

We adopt PG&E's proposal to allocate basic startup implementation costs to all customers and to charge individual CCAs the costs of specific specialized services. We will direct all three utilities to design tariffs accordingly. The utilities should account for these costs as they would any infrastructure costs, whether in capital accounts or expensed. We will address the issues of cost recovery from ratepayers more fully in a subsequent section of this order.

B. Transaction Costs

Section 366.2(c)(17) requires that "all reasonable transaction-based costs of notices, billing, metering, collections, and customer communications or other services provided to an aggregator or its customers" be recovered from the CCA or its customers in rates.

The utilities presented a list of the types of costs that should be recovered from CCAs or their customers and also the methods for determining the related rates. They did not propose final specific cost recovery from ratepayers in this phase of the proceeding, seeking to develop those cost allocations in Phase 2.

The utilities generally propose an "incremental costing methodology" to base charges to individual CCAs for tariffed services. This methodology would recognize the additional costs the CCAs impose on the system. The utilities propose that all transaction costs, including those that might be incurred for a single service, be charged directly to individual CCAs. In some cases, they propose to charge CCAs for services for which they are already reimbursed in existing rates. In those cases, SCE and PG&E would account for CCA revenues as "Other Operating Revenue" and subtract them from the utility's revenue requirement.

Other parties generally agreed with the incremental costing methodology in concept but raised concerns about the ways the utilities applied the principle. LGCC suggests the Commission order the three utilities to develop a consistent and transparent methodology. To that end, LGCC would have the utilities prepare a joint exhibit that describes (1) services to be provided; (2) the details of utility proposals for providing the services; and (3) costs related to current tariffs for similar services to direct access customers. LGCC proposes that the actual level of service charges be adopted in Phase 2 of this proceeding. LA/CV states that, as a matter of fairness, the utilities should not be able to charge for any service for which existing customers do not currently pay. They also suggest that tracking and monitoring associated costs and changing rates will present practical difficulties.

CCSF argues that the utilities' cost estimates must recognize the operational cost savings that the utilities will realize from CCA formation and operation. CalCLERA proposes that the utilities' rates recognize the more global benefits of CCAs to California and its customers associated with reduced risk, reduced wholesale power costs, and economic development.

Related to the utilities' costing methodology is the issue of whether to apply existing charges for direct access customers to CCAs and their customers for identical transactions and services. The utilities argue that these charges should not be applied because they are out of date, having been adopted in l997. Other parties argue that they are reasonable for the time being. If necessary to avoid delay of CCA program implementation, LGCC and King's River suggest utilities apply direct access tariffs in the interim. ElectricAmerica presents similar arguments and believes the Commission should find a way to credit CCAs for the fees they have paid the utilities to develop information infrastructure.

Discussion. We adopt the utilities' incremental costing methodologies because conceptually those methodologies would protect bundled customers from cost-shifting, prevent the utilities from realizing unreasonable profits from the CCA program and conform to the statute's requirement that costs associated with a CCA be charged to a CCA. Although we adopt the costing methodologies the utilities propose, we do not apply them as they would in all cases. Costs for which the utilities are already reimbursed in the utility revenue requirements shall not be charged to CCAs at this time. For example, utilities today recover the costs of the billing system and customer service calls. If CCAs were charged for these services, the utilities' shareholders would receive a windfall except to the extent the customer's bills reflect only those additional costs imposed on the system by the CCAs. The utilities' proposal to implement the charges now and credit "other operating revenues" does not cure this problem prior to a general rate case order. Because general rate cases incorporate "other operating revenues" into the revenue requirement on a forward-looking basis, the utilities would receive a windfall between the time they implement the CCA charges and the time of the next general rate case order. If the utilities wish to propose to unbundle CCA services for which they are already reimbursed, such as customer service inquiries, they may propose to do so in their future general rate cases. Until that time, their CCA tariffs should not include any costs for which the utilities are already reimbursed.

As CCSF and King's River suggest, we also expect the utilities' fees to recognize the operational cost savings that might occur with CCA formation. To the extent that the utilities' cost methodologies really do reflect incremental costs, their proposed fees will incorporate program cost savings. We are not prepared, at this time, to quantify the benefits of the CCA program on the state's energy or economic infrastructure, as CalCLERA proposes. While there may be such benefits, we do not have before us an adequate record to develop an associated methodology and their estimation would be highly speculative. Parties may raise this issue in the future if they are able to present reasonable methods for estimating these benefits, supported by an adequate record.

Unfortunately, and in spite of the Commission's intent, we do not have a complete record to adopt final charges in this phase of the proceeding. The parties representing prospective CCAs agreed to bifurcate this proceeding at the urging of the utilities with the understanding that to do so would provide them with an early understanding of the charges they would face as CCAs and in order to determine whether it would be worth their time and resources to proceed to Phase 2. In spite of this understanding, the utilities have stated they have not had the opportunity to create the tariffs anticipated in R.03-10-003. They have now had a year to create those tariffs since the initiation of this proceeding and another year prior since the Governor signed AB 117. By this order, we direct the utilities to submit proposed tariffs consistent with this order no later than 30 days following the effective date of this order for consideration in Phase 2 of this proceeding.

In the meantime, we will not suspend progress toward implementation of the CCA program to accommodate the utilities' delay in presenting final tariff proposals. Instead, we direct the utilities to use existing direct access tariffs until their CCA tariffs are approved and final as suggested by several parties, including LGCC, King's River and ElectricAmerica. We believe that the charges in direct access tariffs provide a reasonable proxy for costs while we finalize CCA charges.

In sum, we adopt the utilities' proposed costing methodologies for those services which are not already included in the utilities' rate base. Any service for which the utility is already reimbursed, at any level, shall not be included in CCA tariffs at this time. The utilities are ordered to submit and serve tariffs consistent with this order within 30 days of the issuance of this order. We intend to approve final tariffs in Phase 2 of this proceeding and direct the utilities to apply the direct access CRS tariffs in the meantime.

We discuss several specific tariff proposals in following section.

C. Specific Transaction and Implementation Costs

1. Incremental Billing Costs

SCE and SDG&E state they will have incremental billing costs because they will have to receive usage and other information from the CCA, then bill the customer on a separate page from the utility's bill, then remit the payments to the CCA. CCSF proposes that the utilities unbundle billing services so that inquiries about billings are charged separately, as with direct access customers. CCSF also proposes that when an inquiry is required to reconcile a utility error, the CCA should not be charged.

Discussion. We agree with the utilities that the CCA program will impose incremental billing costs beyond those that are already included in utility revenue requirements. The utilities should estimate those costs consistent with this order and propose a recovery that does not include the costs of mailing the bill to the customer, since those costs are already recovered in existing customer bills. SCE notes that the utilities may incur additional postage costs for including CCA information in utility bills. In such cases, we agree with the utilities that CCAs should assume this incremental cost.

We also adopt CCSF's proposal for unbundling billing processing fees. We agree that a CCA should not be required to pay for a service that it may choose not to use and should not incur fees for billing errors attributable to the utility. We expect to explore this issue in more detail in Phase 2 of this proceeding as we consider issues relating to program operation and administration.

2. Incremental Call Center Costs

SCE states it will incur incremental costs relating to helping customers at its call centers. CCSF objects to the utilities' proposals to charge for such calls since other customers do not pay individually for those calls. CCSF proposes these costs be assumed by ratepayers as a group, as they are currently.

Discussion. We are not convinced that the CCA program will significantly increase the number of calls to utility call centers. Because the utilities already recover the costs of customer call center operations in customer bills, and assuming CCA customers do not call the utilities more frequently than they would as utility bundled customers, the utilities are not penalized if they do not charge CCAs for CCA customer calls. To the extent that the utilities are able to demonstrate in future general rate cases that a CCA program has caused incremental costs to operate the call centers to address CCA business matters, we will consider approving an associated fee at a later time. In that case, we would expect the utilities to make corresponding reductions to the revenue requirement for call center services to bundled customers. In addition, fees to CCAs should not include the costs of calls that concern utility services. While CCAs should ultimately pay for the services they or their customers receive, they should not be charged for calls that involve utility distribution, transmission, or other utility services.

Prior to the utility's general rate case, the utility may track and recover incremental call center costs, should they occur, by establishing an "800" number dedicated to CCA customer service calls and billing the individual CCA separately for those calls, as SCE proposes. This separate call system will help assure that CCAs do not inadvertently pay for calls about utility services while allowing the utilities to recover incremental costs of the CCA program.

3. Incremental Costs for Opt-Out Provision and Re-entry Fees

SCE and SDG&E believe they will incur incremental costs relating to the "opt-out" provision of AB 117, that is, the option for utility customers to remain bundled utility customers rather than transfer to the CCA. SCE argues that neither its shareholders nor its remaining ratepayers should assume liability for those costs. ORA suggests the initial implementation costs for this part of the program should be assumed by the general body of utility ratepayers. After that, ORA argues that utility shareholders should assume the cost of luring a customer back to its bundled service. ORA believes it would be "fundamentally unfair and against the basics of a competitive market place to make a CCA pay its competitor's cost of taking away its customer."

CCSF proposes that utility ratepayers assume the cost of processing the opt-out provisions of the CCA program, while recognizing that the opt-out notification costs are allocated to CCAs by the statute. CCSF also believes it is inappropriate for the utility to charge the CCA an opt-out fee for the cost of transferring a CCA customer back to the utility. LA/CV makes similar points.

Discussion. Start-up costs associated with implementation of the opt-out provision should be assumed by CCAs individually because such costs are primarily incurred to implement each CCA program and are not infrastructure development costs. The costs the utilities incur to create, mail or otherwise facilitate a CCA's notification shall be included in utility tariffs.

As CCSF, LA/CV and ORA suggest, the cost of transferring a customer from the CCA to the utility should not be assumed by the CCA. With regard to "re-entry" fees referred to in R.03-10-003, we find that the utility may charge the customer for the transfer back to the utility once that customer is again a bundled utility customer. The re-entry fee as we use the term here refers to the utility's administrative cost of making the transfer. We will address how to calculate and allocate the cost of incremental procurement and reliability in Phase 2 of this proceeding. As a general matter, the CCA should not have to assume the cost of activities that ultimately deprive the CCA of a customer.

SDG&E suggests utility customers receive a notice of the CCA program in advance of the CCA's notice. These preliminary notices would give customers information about the program and the release of customer information. We agree this notice might provide important information to the customer about potential changes in service. However, we do not believe the CCA should pay for a notice that is not required by the statute and is sent at the utility's discretion. Therefore, if the utility chooses to send such a notice, the associated cost should be assumed by the general body of utility ratepayers as start-up costs and consistent with the Commission's treatment of all customer notices regarding changes in markets and rules, and utility programs and services. If a utility chooses to send such a notice, it shall receive review from the Commission's Public Advisor office of its draft notice to assure the notice may not be misconstrued as a marketing tool for utility services. The notices shall provide basic information to customers explaining what the CCA will do, and how it may affect relevant customers and their service options.

In sum, we herein allocate the start up costs for opt-out provisions to each CCA. CCAs shall also assume all costs associated with their own opt-out notices. The utilities shall not charge the CCA for the CCA customer's transfer back to the utility once the customer becomes a utility customer. The utilities may charge these customers a re-entry fee for such a transfer, once they again become a utility bundled customer. The costs of customer re-entry associated with procurement and other liabilities will be considered in Phase II of this proceeding.

4. "Detailed Processes" Outlines

SCE, PG&E, and SDG&E each developed an initial proposal of "detailed processes" required to implement the CCA program. The utilities discussed these outlines with all interested parties at Commission workshops conducted prior to evidentiary hearings and were subsequently included in the utilities' testimony. SDG&E asks the Commission to adopt the specific processes in Phase 1 to facilitate Phase 2 of this proceeding, where the Commission will be addressing terms of service and operational issues. Except as discussed in other sections of this order, no party took issue with the content of these outlines.

The detailed processes outlines are useful explanations of internal procedures and form a reasonable foundation for considering cost and processing issues. Unless stated otherwise in other parts of this order, we state our intent to use them as foundation for future CCA program tariffs and further development of operational issues in Phase II of this proceeding.

5. Recovery of Implementation and Transactions Costs

The utilities propose accounting mechanisms to ensure that they are made whole for the costs they incur to implement AB 117. SCE proposes a memorandum account and seeks funding for CCA program implementation in advance. PG&E would include a forecast of CCA costs in its distribution revenue adjustment mechanism with a true-up at a later date, which is substantially similar to SCE's proposal. LGCC suggests the Commission adopt a forecast of utility costs and hold the utilities to that amount.

PG&E and SCE propose to update transaction costs by way of advice letters, which would be deemed automatically effective within 40 days unless protested, or suspended by Commission staff.

Local Power and other parties oppose upfront funding of implementation costs, arguing that CCAs are captive customers of the utilities for many services and should not be subjected to extraordinary financial burdens.

Discussion. We agree with the utilities that, for initial program costs prior to general rate case review, implementation costs should be recoverable dollar-for-dollar. We refer here only to implementation costs that would be recovered from the general body of utility ratepayers and ultimately subject to review in general rate cases. We take this step to permit the creation of balancing accounts only for the period prior to each utility's next general rate case. For subsequent periods, the utilities should treat CCA costs like those incurred for any other customer service or operation cost and include the amount in the general rate case revenue requirement.

To the extent the utilities provide services to CCAs, CCAs would be customers of the utilities and, consistent with our treatment of the operational costs of serving other customers, the utilities should assume some risk for serving them and be able to reap the benefits of cost savings they implement between general rate cases. Moreover, CCAs should not have to assume liabilities for infrastructure development in advance. Such a requirement would be unprecedented in our treatment of utility customers and is unjustified here.

Consistent with the foregoing discussion, the utilities shall establish balancing accounts for the initial period of program implementation and prior to their next general rate cases. As part of their respective general rate cases, they should recover those costs and propose forward looking CCA implementation and infrastructure costs as part of their revenue requirements, consistent with treatment of similar costs for other types of customers.

For transaction costs, we will not permit the utilities to develop balancing accounts and instead order them to develop tariffs for transaction costs. Rates for recovery of transaction costs should be forecast based on incremental costs and, as the utilities propose, imposed on CCAs directly and included in tariffs. CCAs, like all customers, are entitled to some expectation that their charges will be predictable and subject to review by the Commission. As we suggest in our discussion of implementation costs, we are concerned that open-ended balancing accounts and true-ups will undermine incentives for cost containment by the utilities and corresponding opportunities to make a reasonable rate of return on the provision of related services. Moreover, as LA/CV suggests, we wish to avoid constant litigation concerning the level of dozens of possible tariffed charges, which would be expensive for the utilities, the CCAs and the public. The utilities should track their transaction costs to justify prospective changes to charges included in CCA tariffs, which we will consider in general rate cases. We will not consider changes to CCA tariffs between general rate cases or, where general rate cases are deferred, more than every three years. In the latter case, we will consider utility applications for CCA changes. Between general rate cases, utilities may file advice letters if they wish to propose changes in CCA tariffs to components other than increases to existing rates, or for new services or to reflect changes in the industry or CCA program operation.