ALJ/TRP/sid DRAFT Agenda ID #2267
Ratesetting
7/10/2003 H-13
Decision PROPOSED DECISION OF ALJ PULSIFER (Mailed 5/20/2003)
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking Regarding the Implementation of the Suspension of Direct Access Pursuant to Assembly Bill 1X and Decision 01-09-060. |
Rulemaking 02-01-011 (Filed January 9, 2002) |
(See Decision (D.) 02-11-022 for a list of appearances.)
O P I N I O N
O P I N I O N 2
I. Introduction 2
II. Procedural Summary 6
III. Framework for Evaluating the DA CRS Cap 8
IV. Relationship of this Proceeding to the DWR and CTC Revenue Requirement Proceedings 9
V. Results from Modeling and Forecasting of DA CRS Levels 14
VI. Determination of Cap Levels 18
A. Overview of Positions of Parties 18
B. Discussion 24
1. Cap Criteria for Assuring Bundled Customer Indifference 25
2. Evaluation of Forecast DA CRS Payback Period Scenarios 27
3. Determination of the 2001-2002 Undercollection 32
4. Disposition of DWR Operating Reserves 37
5. Analysis of Key Variables Underlying DA CRS Cap Evaluation 39
a) Natural Gas Prices 39
b) New Generation Capacity Additions 41
c) Levels of DA Load 42
d) Utility Retained Generation and CTC Costs 44
e) Off-System Sales (OSS) Prices 49
6. Interest Rate Assumed as a Source of Financing 52
7. Avoiding Making DA Uneconomic to Customers 67
8. Allocation of the DA CRS Undercollection to Bundled Customer Groups 76
VII. Order of Collection of DA CRS Elements 86
VIII. Tracking Mechanism to Ensure Proper Allocation of DA Default
Between Core and Noncore Classes 91
IX. Frequency of Subsequent Reviews and Readjustments of DA CRS 94
X. Rehearing and Judicial Review 96
XI. Comments on the Proposed Decision 96
XII. Assignment of Proceeding 97
Findings of Fact 97
Conclusions of Law 105
ORDER 108
APPENDIX A - Summary of Undercollection Balances and Payoff Times
Under CRS Scenarios
APPENDIX B - Direct Access Cost Responsibility Surcharge Tracking
Account Requirements
I. Introduction
In this decision, we determine the appropriate level of the Direct Access (DA) cost responsibility surcharge (CRS) cap effective for the period subsequent to July 1, 2003. In Decision (D.) 02-11-022, we adopted an interim DA CRS cap of 2.7 cents/kWh pending further proceedings that have led to the instant order. Based on further study as directed in that decision, we conclude that the existing 2.7 cents/kWh cap should continue in effect beyond July 1, 2003. We conclude that the dual goals of bundled customer indifference and DA viability are balanced by continuing the existing level of the cap subsequent to July 1, 2003, subject to provision for continued monitoring and periodic readjustment, as needed to assure bundled customers are made whole on a timely basis.
In D.02-11-022, we adopted policies and procedures to implement cost responsibility surcharges for DA load pursuant to the directives in D.02-03-055, as modified and affirmed in D.02-04-067, which maintained the effective date of September 21, 2001 for the suspension of DA that was adopted in D.01-09-060, as affirmed in D.01-10-036. We suspended DA pursuant to legislative directive, as set forth in Assembly Bill No. 1 from the First Extraordinary Session (AB 1X ). (See Stats. 2002, 1st Extraordinary Session, ch 4.) This emergency legislation was enacted and made effective on February 1, 2001 to respond to the serious situation in California when Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (SCE) became financially unable to continue purchasing power due to extraordinary and unforeseen increases in wholesale energy prices.
The Governor's Proclamation of January 17, 2001,1 and AB 1X required that DWR procure electricity on behalf of the customers of the California utilities. As part of its provisions to deal with California's energy crisis, AB 1X also called for the suspension of the right to acquire DA, as set forth in Section 80110 to the Water Code:
"After the passage or such period of time after the effective date of this section as shall be determined by the commission, the right of retail end use customers pursuant to Article 6 ... to acquire service from other providers shall be suspended until [DWR] no longer supplies power hereunder."
In compliance with the mandate to suspend DA, we considered the related implementation issues in A.98-07-003. The Commission issued D.01-09-060, suspending the right to acquire DA after September 20, 2001. In D.01-09-060, we placed parties on notice, however, "that we may modify this order to include the suspension of all direct access contracts executed or agreements entered into on or after July 1, 2001." (D.01-09-060, pp. 8-9.)
On January 14, 2002, the instant rulemaking (R.) 02-01-011 was initiated to consider among other things, whether a suspension date earlier than September 20, 2001 should be applied to direct access.2 On March 27, 2002, we issued D.02-03-055, determining that the DA suspension date should remain as "after September 20, 2001." DA contracts executed on or prior to September 20, 2001, were not suspended, but were made subject to the restrictions imposed by D.02-03-055. We emphasized in D.02-03-055 that bundled service customers should not be burdened with any additional costs due to the migration of customers from bundled service to direct access between July 1, 2001 and September 21, 2001.
We stated that, in lieu of an earlier suspension date of July 1,2001, DA surcharges must be adopted as a means of preventing cost shifting to bundled customers. We later clarified that prevention of cost shifting meant that "bundled service customers are indifferent."3 In order to maintain bundled customer indifference, DA customers must thus bear cost responsibility for stranded costs due to the migration of customers from bundled to DA service on and between July 1 and September 20, 2001.
In D.02-11-022, we adopted a methodology for achieving bundled customer indifference through a Direct Access Cost Responsibility Surcharge (DA CRS). In adopting the DA CRS mechanism, we noted our concern that had been previously expressed in D.02-07-032 that the "pancaking" of cumulative surcharges on DA customers may lead to DA contracts becoming uneconomic. To address this concern, we stated in D. 02-07-032 that "there should be a cap on the total surcharge levels imposed on DA customers (including the impact of any changes to PX credits)."
Consistent with these concerns expressed in D.02-07-032, we did not immediately pass through the full DA CRS obligation, including cumulative undercollections, to DA customers. To avoid undermining the economic viability of DA, we adopted an interim cap of 2.7 cents/kWh on the current DA CRS amounts billable to DA customers to remain in effect through July 1, 2003 pending further study.
The DA CRS includes the DWR Bond and Ongoing Power Charge applicable to DA load that took bundled service on February 1, 2001, and a charge on all DA load for above-market Utility Retained Generation (URG) costs.4 For SCE, the amount collected under the DA CRS cap also includes the Historical Procurement Charge (HPC) to recover a part of the Procurement Related Obligation Account (PROACT) balance from DA customers pursuant to D.02-07-032.5
The DA CRS cap is intended to preserve bundled customer indifference while avoiding economic harm to customers. By imposing a cap on the initial payment obligation, the burden of the DA customer is mitigated. DA customers remain responsible for the deferred DA CRS obligation in excess of the cap, but the collection is spread over future periods. Bundled service customer charges fund CRS undercollections due to the cap on an interim basis pending reimbursement from DA customers.
The DA CRS undercollection shall be paid off in subsequent years as revenues collected under the capped DA CRS begin to exceed then-current DA revenue requirements. The resulting surplus in DA CRS recovery in later years will be credited to bundled customers, with interest, to pay down the undercollections that they funded in the initial years. In D.02-11-022, we ordered further proceedings to assess whether or to what extent the interim 2.7 cents cap was sufficient, or should be revised as of July 1, 2003, in order to assure proper balancing of the goals of bundled customer indifference and DA economic viability. This phase of the proceeding is addressing whether the 2.7 cents cap should be revised subsequent to July 1, 2003.
2 The administrative record relating to these specific issues in A.98-07-003 et al. was incorporated into this rulemaking. Judicial notice was also taken of specific information in the DWR Revenue Allocation Proceeding A.00-11-038 et al. (See Letter of January 25, 2002, to the parties that accompanied the Draft Decision of ALJ Barnett).
3 D.02-04-067, pp. 4-5 (slip op.).
4 The Bond Charge became "billable" when D.02-11-022 became final and unappealable when the California Supreme Court summarily denied the petition for writ of review in Strategic Energy, LLC v. Public Utilities Commission of the State of California, Case No. S112802S, on April 30, 2003. The Bond Charge component of the DA CRS had been tracked in a memorandum account.- In addition to the nonbypassable charges that were part of R.02-01-011, DA customers are still responsible for other charges, including Public Purpose Program Charge, Nuclear Decommissioning Charge and Trust Transfer Amount (TTA) for DA customers under 20 kW.
