IV. Ratemaking Considerations

A. Background

We next address the question of whether any further ratemaking or accounting measures need to be adopted in this order as a result of the instant order. In D.02-02-052, we authorized certain interim measures pending a final resolution of the dispute relating to franchise fees following analysis of the legal and factual issues involved.

We directed each IOU to continue remitting franchise fees to the municipalities related to the portion of gross receipts attributable to DWR power sales revenue and to establish a memorandum account to track franchise fee remittances associated with DWR sales. The memorandum account allows for segregation of DWR-related franchise fee remittances from other remittances, and provides appropriate record keeping for any subsequent ratemaking adjustments that might be warranted for shortfalls or surpluses in IOU cost recovery caused by variations in remittances.

We recognize that because municipal surcharges will be remitted as a percentage of DWR sales revenue, the portion of revenues collected from ratepayers that will be attributable to the municipal surcharge on DWR sales will fluctuate monthly. Since we did not change overall retail rate levels to reflect DWR costs at the time we adopted the DWR revenue requirement in D.02-02-052, there was likewise no change in the level of franchise fee remittances to municipalities.¹⁰ We directed the IOUs to draw upon funds generated from then- existing rate levels as a basis to remit the franchise fees associated with DWR power sales.

B. Parties' Positions

SDG&E does not believe any further ratemaking or accounting measures are necessary in its case, but recommends that the Commission simply continue SDG&E's ratemaking treatment of franchise fees and municipal surcharges as previously implemented under D.01-09-059 and approved in D.01-10-035 (in which a provision for the recovery of franchise fees on DWR power sales was included.) This provision for franchise fees was reflected in the revised tariff sheets filed by SDG&E on September 27, 2001 in compliance with D.01-09-059. In response to D.01-09-059 SDG&E filed tariffs, customers taking power from DWR are billed the municipal surcharge (pursuant to Sections 6350 to 6354 of the Public Utilities Code) to compensate local government for the use of public lands. Under these tariffs, SDG&E states that it is already collecting the municipal surcharge for DWR sales and remitting those amounts to municipalities in accordance with D.01-05-059 and D.01-10-035 (which denied rehearing of D.01-09-059).

SCE believes that the Commission should clarify what mechanism will be used for IOUs to be compensated for municipal surcharges remitted on power sold by DWR. SCE argues that the IOUs should not be required to subsidize municipal surcharges or bear any risk of undercollection of these costs. If the Commission does not authorize retail rates sufficient for SCE to recover franchise fees (or equivalent municipal surcharges) on power sold by DWR, SCE claims that DWR will be responsible for reimbursing SCE for those costs under Section 7.3(b) of the Servicing Agreement between DWR and SCE.

PG&E and SCE were authorized by the Commission to collect a surcharge on power delivered to its customers¹¹ that was intended to be used, in part, for payment of funds to DWR for power procured under AB1X. At the time the surcharge was authorized, the precise amount of the DWR revenue requirement had not yet been determined. Likewise, at the time that the DWR revenue requirement was implemented in D.02-02-052, we did not make specific findings on precisely what portion of the surcharge authorized in D.01-03-082 would be required to cover DWR remittances. Likewise, no specific findings have been made concerning whether the surcharge was intended to include franchise fees or municipal surcharges.

SCE states that the Commission has not considered how the collection of franchise fees (or municipal surcharges) might be affected by the requirement under D.02-02-052 that IOUs pay DWR a fixed amount for each kWh of power DWR supplies to IOU customers. SCE also states that the Commission has not clarified whether its previously authorized surcharges include, or should be "grossed-up" for, franchise fees or municipal surcharges.

PG&E did not offer specific comments concerning ratemaking considerations, but its position is that no funds should be remitted to municipalities under present statutory requirements.

C. Discussion

We conclude that previously authorized accounting and ratemaking measures adopted in D.02-02-052 adequately provide for the ongoing collection and remittance of municipal surcharges related to DWR revenues and that no additional measures need to be authorized for purposes of the instant order. To the extent that future rates may be adjusted to reflect variances between collections and remittances to municipalities, those adjustments can be considered as part of the overall review and revision of URG rate levels. On an ongoing monthly basis, any fluctuations in remittances of municipal surcharges can be accounted for through the memorandum accounts that have already been established for that purpose. These fluctuations can be taken into account in determining URG revenue needs through the same process as we described in D.02-02-052 with respect to remittances of charges to DWR. As we stated therein:

"With fixed retail tariffed rates and a fixed per kWh charge payable to DWR, there is, in effect, an amount that the utility is entitled to receive for its own account for the kWh that it supplies to its retail customers. We will call this amount the "imputed utility rate." To the extent that the actual percentage of DWR sales to each utility's retail customers is either less than or exceeds the forecast percentage of DWR sales to those customers for any month, the customers' bills for that month will not reflect exactly the imputed utility rate for the kWh the utility provides. The balancing account mechanisms that we have authorized elsewhere in this order are intended to ensure that over time, the utility recovers its imputed utility rate by segregating the effects of DWR sales and providing for a true up of estimated to actual DWR sales and allocated costs." (Mimeo., at 99.)

Since the municipal surcharges are remitted as a direct percentage of DWR revenues, the accounting and ratemaking procedures for the municipal surcharges logically should mirror the procedures previously established to segregate and true up URG revenues for variances in forecasted versus actual DWR sales. Accordingly, fluctuations in monthly remittances of municipal surcharges for DWR revenues will correspondingly affect the "imputed utility rate" reflected in the customer's bill for recovery of utility retained generation URG-related costs. Consistent with D.02-02-052, however, this order is not the appropriate place to determine or adopt specific retail rate adjustments in response to municipal surcharge fluctuations. The memorandum accounting records already being maintained by the IOUs provide a satisfactory vehicle for keeping track of actual collections and remittances, and for making any subsequent ratemaking adjustments that may be deemed appropriate.

To the extent that the funds collected under the surcharge previously authorized for PG&E and SCE in D.01-03-082 exceed remittances to DWR, any residual amount remains available to cover the municipal surcharges remitted relating to DWR sales. To the extent that remittances to DWR and remittances of municipal surcharges relating DWR sales revenues impact revenues collected by PG&E and SCE to recover URG costs, the Commission can address any necessary ratemaking adjustments as part of the overall review and revision of retail rates, as discussed in D.02-02-052.¹² We reiterate our prohibition in D.02-02-052, however, on any double recovery of franchise fees on DWR sales from customers.