ALJ/TRP/hkr DRAFT Item 1
2/7/2002
Decision PROPOSED DECISION OF ALJ PULSIFER (Mailed 1/8/2002)
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of Southern California Edison Company (E 3338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.
Application 00-11-038
(Filed November 16, 2000)
Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)
Application 00-11-056
(Filed November 22, 2000)
Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527.
Application 00-10-028
(Filed October 17, 2000)
(See Appendix D for List of Appearances.)
TABLE OF CONTENTS
Title Page
II. Regulatory and Statutory Mandates Relating to DWR Power Procurement 55
III. Joint Roles of CPUC and DWR in Implementation of DWR Requirements 99
IV. Procedural Summary of DWR Revenue Requirement Implementation 1111
C. October 19, 2001 Preliminary Update 1414
D. November 5, 2001 Final Update 1515
V. DWR's Representations Concerning the Reasonableness of Its Revenue Requirement 1515
VI. Elements Comprising the DWR Revenue Requirement 2020
A. Long Term and Short Term Power Purchases 2121
B. Ancillary Service Costs 2323
C. Administrative, General, and Overhead 2424
D. Conservation/Load Management Costs 2525
E. Allowance for Uncollectibles 2626
F. Lead (Lag) Accrual to Cash 2626
H. Deposits to Fund or Replenish Operating Reserves 2929
VII. Miscellaneous Considerations Relating to DWR Revenue Requirement 3030
A. Developments Subsequent to November 5 Submittal 3030
B. Responsibility for Payment of Franchise Fees 3131
C. Treatment of Direct Access Customers in Allocating DWR Revenues 3535
VIII. Allocation of Aggregate DWR Revenue Requirement
Among the Utility Service Areas 35352. Parties Supporting the Pro Rata Allocation Approach 4141
3. Parties Supporting Geographically Differentiated Cost Allocations 4343
1. Statutory Basis for Allocation Methodology 5252
2. Cost-Based Principles as a Basis for DWR Allocation Methodology 5353
3. Allocation of Administrative and Financing Costs 5555
4. Allocation of Power Procurement Commodity Costs 5555
a. Supply Portfolio Criterion 5656
b. Transmission Congestion Criterion 5757
c. Distinctions in the Allocation of Fixed Price Versus
Short Term Purchases 6565d. Allocation Based on Monthly Versus Hourly Cost Data 6767
IX. Implementing Annual DWR Update Proceedings 7575
A. Annual Revisions of DWR Revenue Requirement 7575
B. DWR's Tracking of Forecast Versus Actual Cost and Revenue Variances 7676
C. Utility Balancing Accounts and True Ups 7878
X. Implementation of DWR Revenue Remittance Procedures 8282
A. Establishment of a Separate Charge for DWR Electric Power 8282
B. Procedures for the Remittance of Funds to DWR 8383
C. Payment for Shortfalls in Prior Period DWR Remittances 8787
XI. DWR Revenue Requirement Implications for Utility Rate Needs 9090
XII. Comments on the Proposed Decision 9191
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
I. Overview
This decision implements cost recovery of the revenue requirements of the California Department of Water Resources' (DWR) relating to its power purchase program pursuant to Assembly Bill 1 of the First Extraordinary Session (Stats. 2001, Ch. 4), hereafter referred to as AB1X. On November 5, 2001 DWR submitted to the Commission its most recent revenue requirement of $10,003,461,000, representing the total to be collected from utility customers of the three major California utilities covering the period from January 17, 2001 through December 31, 2002.
In this decision, we determine how DWR revenue collections are to be allocated among the customers of the three major California electric utilities: Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E), and we establish procedures to implement the collection process. DWR will collect its revenue requirements through charges remitted from billings to retail customers of the three major electric utilities based on designated per-kWh charges as set forth in this decision. We allocate the total DWR revenue requirement among each of the three major utilities' service territories as follows:
($000's)
Utility Revenue Allocation % Allocation
PG&E
$ 4,765,407 47.6%
SCE
$ 3,674,066 37.7%
SDG&E
$ 1,563,989 15.6%
Total
$ 10,003,461 100%
As described below, we agree with the goal of allocating DWR costs in relation to the costs of providing service. We do not believe, however, that attempts to segregate disproportionately higher priced DWR power for allocation exclusively to northern California consumers is a proper or fair application of traditional cost-based ratemaking policies. The primary purpose of the Public Utilities Act is to insure the public adequate service at just and reasonable rates without discrimination. (Pub. Util. Code § 451 et seq., 761; see also United States Steel Corp. v. Public Utilities Com., 29 Cal. 3d 603, 610 (1981), quoting Pacific. Tel. & Tel. v. Public Utilities Com. 34 Cal.2d 822, 826 (1950).) The allocation proposed by SCE and SDG&E would unreasonably discriminate against customers served by PG&E by charging the latter a disproportionately high cost per kWh.
The allocation issue here, involving costs incurred by single entity (i.e., DWR) purchasing power on behalf of customers in three separate utility service territories is novel, and is not addressed by traditional cost-based ratemaking procedures as typically applied. Nonetheless, the allocation approach we adopt is consistent with the philosophy underlying traditional cost-based ratemaking. Our adopted approach allocates DWR costs in relation to the relevant cost driver, namely the net short position by utility.
Our statewide pro rata allocation recognizes the integrated nature of power procurement undertaken by DWR for California utility customers, but also adjusts for utility-specific differences, where applicable, as proposed by TURN. As a basis for the utilities to remit revenues to DWR in accordance with these allocations, we adopt a per-kWh charge for customers in the service territory of each utility of 10.047 cents/kWh for PG&E, 10.309 cents/kWh for SCE and 9.947 cents/kWh for SDG&E. These adopted DWR charges form the basis for the utilities to remit funds to DWR that they are currently collecting. We do not, however, change the overall level of retail rates for PG&E, SCE, or SDG&E in today's order. We will address the need for any change in rates for SDG&E customers in order to meet DWR's costs of serving SDG&E customers in a separate docket (Application (A.) 00-10-045 et al). 1 For SCE and PG&E customers, any need for a change in overall rates charged to customers as a result of this decision cannot be addressed until we after we issue our decision on utility retained generation (URG) issues.
We note that the high DWR contract prices now in effect in California reflect the exorbitant wholesale electricity costs caused by the crisis manufactured by wholesale electricity sellers and traders over the past year. These rates measure, in part, the terrible price California has had to pay to restore stability. Individual Commissioners and Governor Gray Davis have previously endorsed contract renegotiations to reduce prices that were set when market prices were at or near their peak. (Exhibit 160, Weil, p. 4.) DWR now forecasts that from October 1, 2001 through the end of 2002, average DWR contract prices will be 3.3 times average residual net short prices. (Reference Item C, DWR, November 5 revenue requirement document, p. 16, Table 6; compare DWR contract costs to residual net short costs for Q4 2001 and all of 2002.) DWR assumes that residual net short energy will be purchased in spot markets.
It is our hope that the actions of DWR and the utilities, as well as the efforts of public and private parties involved in cases at the Federal Energy Regulatory Commission (FERC) and in the courts to reduce costs will be successful, and that we will be able to revisit the DWR's revenue requirement to lower these charges in the future.
1 SDG&E has already been granted an interim rate increase in D. 01-09-059 to enable it to remit payments to DWR under AB 1X based on a DWR charge of 9.02 cents per kWh. The interim increase became effective on September 30, 2001.
