IV. Positions of the Parties - Briefs

In this proceeding, the sole issue is whether the utilities may recover costs or refund overcollections that they incurred while the rate freeze was pending. The Office of Ratepayer Advocates (ORA), and Aglet Consumer Alliance (Aglet), opposed the applications. As discussed below, we reject their arguments and find that PG&E and Edison should have had the opportunity to recover these costs or refund overcollections (subject to reasonableness review) in their retail rates.

A. PG&E and Edison

PG&E and Edison asserted in their applications and briefs that recovery was entirely consistent with AB 1890. While they disagreed with the Commission's conclusion in D.99-10-057 that post-freeze recovery of such costs was unlawful, that issue was not presented in this proceeding. The utilities claimed that the Commission did not preclude them from recovering transition costs incurred during the rate freeze before the end of the freeze. The utilities therefore contended that these applications were necessary in order to allow them to use revenues from frozen rates to recover these costs. Indeed, the utilities claimed we authorized the recovery they sought in D.99-10-057. There, we quoted with approval a prior decision holding that, "Consistent with AB 1890, costs incurred during the rate freeze period must be recovered during that period by changing the `headroom' available to draw down transition costs."⁹

As proposed by both PG&E and Edison, the utilities should have been allowed, during the rate freeze period only, to transfer reasonable recorded costs and revenues in the various balancing and memorandum accounts at issue to the TRA or TCBA for rate recovery purposes. After the initial transfer, incremental transfers would continue on a monthly basis. Upon the termination of the companies' respective rate freezes, these transfers were to end. All amounts in the TRA and TCBA-including the transferred account balances-were to undergo reasonableness reviews, verification or Commission audit in the companies' Revenue Allocation Proceeding and ATCP proceedings.¹⁰ Any costs found unreasonable were to be returned to ratepayers with interest.

In addition, Edison proposed that we authorize similar transfers of accounts created subsequent to its application or this decision.¹¹

B. ORA

ORA protested both applications. ORA asserted that the utilities' proposal would lengthen the rate freeze by offsetting against headroom the net undercollection from the memorandum and balancing accounts at issue. If the headroom available to recover transition costs was reduced in this way, it would take longer to recover those costs. The longer it takes to recover transition costs, the longer the rate freeze would last. ORA claimed that lengthening the rate freeze in this way was no different philosophically from allowing applicants to recover costs after the freeze, which D.99-10-057 had precluded.

Superseding developments have overtaken the theory of ORA's and Aglet's arguments, and subsequently, neither company ended their rate freeze by fully recovering eligible transition costs. In fact, the precise date the rate freeze ended was the subject of rehearing, as provided by D.02-01-001. Ratepayer representatives had once sought to hasten the end of the rate freeze on the assumption rates would go down thereafter. Subsequent steep increases in generation costs caused post-freeze rates to rise for the one large investor owned utility-SDG&E-that had already ended its rate freeze in July 1999.¹² After the parties filed their briefs, PG&E filed for reorganization in federal bankruptcy court¹³ and Edison narrowly averted bankruptcy and settled a federal lawsuit¹⁴ with the Commission.

At the time parties were filing their briefs, however, ORA took a middle ground approach on the appropriateness of potentially extending the rate freeze and argued:

· ORA takes no position here as to whether the Commission is empowered to extend the rate freeze (by granting the applications) as a Commission policy goal . . . . In theory, a lengthening of the rate freeze period may give the Commission additional time to develop measures to eliminate or reduce the problem.

· In this instance, no evidence exists to show the increased length of the rate freeze if the applications are granted. For that reason, no evidence exists to demonstrate whether the increased time to deal with high rate issues would be material or useful.

· Also, random bad luck in timing might extend the rate freeze to the peak electric period, and thus possibly increase the high post rate-freeze problem. Again, it is now impossible to judge whether this will occur.

· In summary, there may be valid policy reasons to grant the applications and thus extend the rate freeze. However, no evidence exists to demonstrate whether an extension of the rate freeze will be material or useful.¹⁵

ORA also asserted that the Commission should not allow PG&E and Edison to reflect the account balances in rates before a reasonableness review occurs. The Commission has never passed final judgment on the recoverability of the amounts held in many of the accounts.¹⁶ ORA opposed allowing applicants to transfer the balances to the TRA and TCBA (the applicants' proposal in March 2000) subject only to a post-freeze reasonableness review. Rather, ORA asserted at the time, the Commission should first determine the appropriateness of the accounts' establishment and then the reasonableness of individual account entries.

ORA did not take a position on individual accounts included in the applications. It focused instead on the larger legal and policy question of whether applicants may recover certain costs during the rate freeze. The assigned administrative law judge (ALJ) granted ORA's request to perform a spot audit of some of the accounts at issue. In its audit report, ORA concluded, "audit issues which must be addressed before a decision are minimal, and may be addressed fully during later reasonableness review."¹⁷

C. Aglet Consumer Alliance

Aglet asserted that applicants' interpretation of D.99-10-057 was incorrect. While the utilities believe that D.99-10-057 allowed any "during-the-freeze" recovery of costs, Aglet took a narrower view:

The portion of the decision on which applicants rely about "costs incurred during the rate freeze" related to "costs entered into the TRA and the TCBA that would have been recoverable if the rate freeze had not ended." [Citation omitted.] . . . . The amounts booked into the many balancing and memorandum accounts cited by PG&E and Edison do not qualify as costs that "would have been recoverable" if the rate freeze had not ended. Instead, the amounts are recorded into ratemaking accounts to preserve utility opportunities to recover costs if the Commission eventually determines that rate recovery is appropriate.¹⁸

Thus, Aglet asserted that the kinds of costs recovered during the rate freeze differ from those at issue in this proceeding. While PG&E and Edison would have had the accounts at issue transferred to the TRA and TCBA in order to fit within D.99-10-057's rubric, the accounts did not - and should not according to Aglet - reside there. Only accounts and amounts that undergo rigorous prior Commission review should be allowed recovery during the freeze period. Since under the utilities' proposal the Commission would not conduct a reasonableness review of the accounts at issue until after the transfer, the accounts are not among those eligible for "during-the-freeze" recovery. "The proposals of Edison and PG&E to review the costs for recoverability after the end of the rate freeze amounts to circumvention of the prohibition against post-freeze recovery of costs incurred during the freeze."¹⁹

Aglet, like ORA, disputed the applicants' assertion that AB 1890 permitted an extension of the rate freeze by offsetting the accounts against headroom. The only basis for postponing the end of the rate freeze, Aglet asserted, was set forth in D.99-10-057: "on the date the utility has recovered `commission-authorized costs for utility generation-related assets and obligations,' as set forth in § 368."²⁰

Finally, Aglet questioned applicants' motives for seeking the account balance transfer:

Edison argues that consumers will not be negatively impacted by the requested relief. (Edison opening brief, p. 7.) This position is ludicrous. Allowing Edison to circumvent cost recovery risks at the end of the rate freeze would favor shareholders at ratepayer expense. Why would the utilities file the instant applications if not to protect shareholders? There is a zero sum element to this proceeding. Shareholder gains will equal ratepayer losses. Under current ratemaking, the utilities might lose the opportunity to recover certain account balances before the end of the rate freeze. Customers will benefit. Under the utility proposals, utilities will recover their account balances before they are tested for reasonableness. The rate freeze will be extended, and customers will pay. Relative to current ratemaking, customers will be harmed.

Aglet did not take issue with the individual accounts included in the application. It focused solely on legal and policy issues germane to the applications, rather than on the utilities' factual basis for including specific accounts.