Other Issues

PG&E recommends that the Commission retain the one-half cent per kWh "Catch-Up" surcharge originally adopted in D. 01-05-064 to partially offset DWR's requested increase in its revenue requirement. We grant PG&E's request.

SCE, on the other hand, recommends that the Commission defer a potential rate increase by authorizing SCE to use the Catch-Up surcharge revenues to offset the increase in DWR's revenue requirement. (See, Resolution E-3776, issued June 6, 2002.) SCE; in its prepared testimony, brief, and reply brief; strongly recommends that it be authorized to use the "Catch-Up" surcharge revenues to offset the increase in DWR revenue requirements. SCE notes that if the Commission does not adopt its recommendation, then SCE is authorized to increase its retail rates on January 1, 2003 in accordance with the provision of the SCE/PUC settlement agreement approved in federal district court on October 5, 2001. The Commission is bound by the settlement. If the Commission were to ignore SCE's recommendation, retail rates would increase by approximately $800 million, and the Commission would continue to collect the "Catch-Up" surcharge. SCE's proposal is reasonable. By adopting SCE's recommendation, rates will not increase on January 1, 2003; and revenues previously collected as part of the surcharge would be used to offset the increase due to the DWR revenue requirement. It is also reasonable to treat SCE and PG&E differently since they are in significantly different situations. The Commission is bound by its settlement with SCE under federal court order. There is not a like circumstance with PG&E. There was no opposition to SCE's recommendation. We will modify our prior decisions regarding the Catch-Up surcharge here. In its prepared testimony, SCE recommends the following procedure which we adopt herein:

Beginning in January 2003, on a monthly basis, SCE will determine through the operation of the Rate Change Tracking Account ¹⁹ the actual amount of reduced Surplus being caused by increased procurement costs (both DWR and SCE-related). The Surplus impact calculated in the Rate Change Tracking Account will determine the amount of Catch-Up surcharge revenues to be transferred from the Catch-Up Surcharge Revenue Memorandum Account ²⁰ to the PROACT. The transfer from the Catch-up Surcharge Revenue Memorandum Account to the PROACT will ensure that the Surplus contribution to PROACT is not affected by the increased procurement costs.

PG&E recommends that the Commission make clear to DWR that the Commission expects DWR to act immediately to lower its revenue requirement should DWR's costs become significantly lower. (PG&E Opening Brief, pp.31-32.) TURN agrees with PG&E. (TURN Reply Brief, p.8.) While we would hope this would go without saying, it bears repeating: every dollar of DWR's revenue requirement is a dollar that must be paid by California ratepayers, so every dollar by which that revenue requirement can be reduced is another dollar that can remain in the pocket of a California ratepayer. We encourage DWR to do all it can to reduce its costs, and to promptly lower its revenue requirement accordingly. We believe that DWR's supplemental determination may reflect a reduced revenue requirement, and we expect that DWR will make every effort to further minimize its revenue requirement.

SDG&E argues that no part of any DWR revenue requirement pertaining to power contracts entered into by DWR between August 22, 2002 and January 1, 2003 (pursuant to D.02-08-071) be allocated to SDG&E. According to SDG&E, any such contracts would be for the sole benefit of the customers of SCE and PG&E, and SDG&E customers should not have to bear their costs. SDG&E acknowledges that DWR's revenue requirement does not currently contain any such costs, but SDG&E expects that DWR may incur costs as provided for in D.02-08-071, and it would be appropriate for ratemaking mechanisms to be put in place in anticipation.

In D.02-08-071, we authorized PG&E and SCE to enter into power contracts using the credit backing of DWR. We did not extend that authority to SDG&E, as we found that there was no need for DWR to "backstop" purchases by SDG&E. Since the contracts potentially at issue would be entered into by the individual utilities on behalf of their own customers (as opposed to the earlier contracts negotiated by DWR on behalf of the whole state) it is reasonable to assign the costs of those contracts to the utility that entered into them. Consistent with SDG&E's request, to the extent that DWR's revenue requirement includes costs associated with this category of contracts, those costs will be directly assigned to the utility that entered into any such contract or contracts.