Implementation

To reduce the potential for confusion and uncertainty, we will describe the implementation process for the adopted revenue requirement allocation and for DWR's supplemental determination.²¹

A. Narrative Explanation of the
Revenue Requirement Allocation

Definitions

1. Variable Costs: Variable costs, as defined in D.02-09-053, are those that can be avoided by dispatch decision. Specifically, variable costs are the energy payments associated with the dispatchable contracts assigned to the IOUs by D.02-09-053.

2. Residual Fixed Costs: Residual fixed cost is calculated by subtracting variable costs from the adjusted DWR revenue requirement. Residual fixed costs would include fixed contract costs, ancillary services, administrative and general expenses, and operating balances.

Revenue Requirement Adjustments

1. The revenues required from ratepayers in 2003 by DWR ($4.224 Million) is the sum of Fixed and Variable Contract costs, A&G Expenses, Ancillary Services, and Operating Reserves, minus Off-System Sales Revenue and Interest Earnings.

Allocation of 2003 DWR Revenue Requirement

1. Calculate each IOU's portion of DWR supplied energy.

a. Determine amount of DWR supplied energy in each IOU resource portfolio.

b. Adjust the amount of DWR supplied energy for each IOU by adding DWR share of Pre-DA migration to DWR supplied energy.

c. Subtract DWR's portion of surplus energy from DWR's Pre-DA supplied energy.

2. Allocate adjusted DWR Rev Req. ($4.224 million) to each IOU according to their share of DWR supplied energy.

a. Calculate each IOU's DWR supplied energy allocation factor by dividing each IOU's portion of DWR supplied energy by the total of DWR supplied energy.

b. Determine each IOU's share of the DWR Rev Req. by multiplying the adjusted DWR RR by each IOU's DWR supplied energy allocation factor.

c. Calculate each IOU's residual fixed costs by subtracting variable costs, assigned by D.02-09-053, from each IOU's share of DWR Rev Req.

B. The DWR Supplemental Determination Process

There are four areas where a supplemental determination from DWR is necessary for us to optimally perform our allocation of DWR's 2003 revenue requirement. As described above, those areas are treatment of direct access migration, forecasted costs of ancillary services, opportunity for contribution to the modeling process, and treatment of revenues from sales of excess energy.

The direct access and sales revenue issues have been addressed in other Commission decisions, as described above, and we need to ensure that our allocation of DWR's revenue requirement here reflects the effects of those decisions, but we cannot do so without DWR's assistance. These are basically technical adjustments or updates that DWR is already aware of, and should be able to make without significant difficulty. If DWR (or anyone else) has questions or concerns on how these issues should be treated, they should contact the staff of the Commission's Energy Division for guidance.

Ancillary services appears to be an area where DWR can significantly reduce its revenue requirement by using more current assumptions, and by obtaining further input from the utilities.

The issues relating to the use of PROSYM 36 versus PROSYM 37 are procedural in nature. In order to ensure that similar difficulties are not presented by DWR's supplemental determination, we will set out a process for implementing that determination.

All utilities and other parties who wish to make suggestions to DWR relating to the input, assumptions and processes to be used in the modeling and preparation of its supplemental determination shall provide those suggestions no later than December 30, 2002. DWR can then incorporate those suggestions it deems appropriate, along with the direct access and sales revenues adjustments, and any other updates or corrections made by DWR. After it performs the ensuing model run and post-processing, DWR will submit its supplemental determination to the Commission.

The Commission will then use the supplemental determination to re-allocate DWR's 2003 revenue requirement on a highly expedited basis. In order to avoid unnecessary delay in implementing the revised allocation, the Commission will use the methodology approved today, with the exception of the allocation of ancillary services. Re-litigation of the allocation methodology will not be allowed (again with the exception of ancillary services), absent extraordinary circumstances. The Commission intends to hold a technical workshop, conducted by the Commission's Energy Division shortly after DWR submits its supplemental determination, to ensure that all parties have a common understanding of the supplemental determination. After the workshop will come an expedited paper-only proceeding, followed by a decision implementing a revised allocation for 2003.

Since the revised allocation should be fairer, and should also reflect a reduced revenue requirement, the sooner it can be implemented, the better. We accordingly urge DWR to prepare and submit its supplemental determination as quickly as possible, consistent with all legal and procedural requirements.