VIII. Crediting Unspent Funds
Section 368 (e)(2) specifies the treatment of funds not spent on system safety and reliability:
To the extent the revenues are not expended for system safety and reliability, they shall be credited against subsequent safety and reliability base revenue requirements. Any excess revenues carried over shall not be used to pay any monetary sanctions imposed by the commission.
PG&E proposed (in 1999 when the application was filed) to return excess revenues that were authorized for transmission and distribution system safety and reliability activities to ratepayers as a credit to the distribution component of its TRA. The credit balance in the TRA would be transferred to the Revenue Section of the Transition Cost Balancing Account. It stated that this would result in a reduction of the Competition Transition Charge responsibility for PG&E's ratepayers.
ORA argues (as it did in 1999) that PG&E's approach skips an important step. It states that for the unspent base revenues to end up in the distribution revenue requirement, they must be credited directly to the base revenue requirement. ORA's primary recommendation is that underspending in 1997 should be credited directly against the 1998 revenue requirement, and that underspending in 1998 should be credited against the 1999 revenue requirement.
PG&E was particularly concerned about any credit against the 1999 revenue requirement being effectively an ongoing penalty. This concern appears to come from PG&E's proposed use of the 1999 revenue requirement as the starting point for future ratemaking under its performance-based ratemaking (PBR) application (A.98-11-023). PG&E was concerned that any credit against the 1999 revenue requirement of under spent funds here will be locked in place over the years its PBR mechanism is in effect. It also states that by proposing a downward adjustment to the 1999 GRC revenue requirement for unspent § 368(e) revenues, ORA is proposing that PG&E's revenue requirement should be determined to some extent in this proceeding. That position, PG&E argues, should be rejected.
ORA described how to implement its recommendation. (See Ex. 4, Audit Report of § 368(e) Expenditures, 1997, and Ex. 5, Audit Report of § 368(e) Expenditures, 1998, and Opening Brief, pp. 34-35.) First, the Commission should determine the reasonable level of 1997 § 368(e) spending and compare it to the $164.231 million maximum increase allowed in D.96-12-077. Second, the amount of underspending would be credited against the subsequent year's revenue requirement - the 1998 revenue requirement for system safety and reliability. The same steps would be taken for crediting unspent 1998 revenues.
ORA's recommendation directly complies with the direction in the statute to credit unspent revenues to subsequent base revenue requirements. PG&E makes no argument to explain how crediting the distribution component of its TRA, instead of the base revenue requirement, accomplishes what the statute directs. Considering that 1999 is now in the past, this adjustment will no longer provide the necessary relief.
During the pendency of this proceeding, PG&E filed a petition to withdraw A.98-11-023 that was granted. (See D.00-06-058.) As directed in that decision, PG&E filed an application for a much more circumscribed PBR on September 1, 2000. PG&E filed a new application for a PBR, A.00-09-002, but it has since been closed by D.03-09-029. Therefore, there is no conflict with any potential PBR mechanism.
PG&E's related concern about crediting the 1999 revenue requirement with unspent revenues has also been addressed. In D.00-02-046, the Commission determined PG&E's 1999 revenue requirement. The crediting of the 1999 revenue requirement with unspent § 368(e) revenues is in compliance with the explicit directive of § 368(e). PG&E should close its SSREFBA17 and transfer the balance to another balancing account. In order to expeditiously process the rate recovery of the net effect of these adjustments, we direct PG&E to record the cumulative effect as a one-time adjustment to its Distribution Revenue Adjustment Mechanism (DRAM) account adopted on April 1, 2004 in Resolution E-3862.18
17 The SSREFBA was established in D.96-12-077. 18 In its April 12, 2004 Comments, PG&E proposed the use of this account instead of the Energy Resource Recovery Account. At the time the proposed decision was circulated for comment, the DRAM did not exist.
