V. Comments to the Rate Design Settlement

A. AReM

AReM filed comments focusing on three aspects of the Rate Design Settlement.¹² First, AReM argues that DA customers should receive a rate decrease, rather than an increase, at this time. However, as discussed above, this decision does not approve the increase for DA customers. Rather, we direct PG&E to modify the implementation of its advice letter as discussed above.

Second, AReM argues that the Commission should modify the Rate Design Settlement to credit the DA CRS undercollection with revenues from the 1-cent surcharge and residual CTC collected from DA customers by PG&E through December 2002.¹³ AReM argues that this provision would afford DA customers with regulatory relief on a deferred basis, and will address what it believes to be the discriminatory nature of the settlement toward DA customers.

In its reply, PG&E states that if the Commission adopts AReM's proposed modification, it will destroy the Rate Design Settlement because, among other things, it raises the volatile issue of whether DA, as well as other customer classes, overpaid or underpaid the CTC relative to each other in the past.¹⁴ PG&E explains that with respect to surcharges, the settling parties included language in Paragraph 7 to ensure future peace among the customer groups, as well as with PG&E.

Paragraph 7 of the Rate Design Settlement states that "past contributions by DA customers during 2001 and 2002 through payment of the 1-cent surcharge and residual CTC shall be deemed the full and final obligations of these customers to PG&E's headroom... ." It resolves the thorny and contentious issue of whether certain customer classes have overpaid or underpaid these amounts vis-a-vis other customer groups. Under the Rate Design Settlement, no customer class will have past payments credited back to it. Rather, the Rate Design Settlement's rate reduction is based on reduced revenue requirements going forward and leaves historic contributions to headroom by bundled and DA customers alone.

When balancing Paragraph 7's provisions against other aspects of the settlement, we find the settlement reasonable and in the public interest. We observe that other DA interests are represented among the settling parties, including the California Manufacturers and Technology Association and the California Large Energy Consumers Association, and this representation assures us that DA customer concerns were represented and that the settlement represents an equitable balance for all customer classes. Moreover, if DA customers are unhappy with their options, they have the further option of becoming PG&E's bundled customers. We therefore decline to modify the settlement as proposed by AReM on this issue.

Finally, AReM raises bill format issues, with which PG&E is in agreement. We addressed these issues in the bill format section above.

B. Modesto

Modesto also filed comments which it states support the settlement. Specifically, Modesto expresses its belief that the settlement, particularly Paragraph 8, excludes municipal departing load (MDL) from any responsibility for the revenue requirement associated with the Regulatory Asset.

In its reply comments, PG&E strongly disagrees with Modesto and states that Paragraph 9 addresses this issue.

We disagree with Modesto's interpretation of the settlement. Under Paragraph 9 of the Rate Design Settlement, the revenue requirement associated with the Regulatory Asset is nonbypassable, with one noted exception.

Paragraph 9's exception is specifically limited to Customer Generation Departing Load "that is not required by D.03-04-030 as modified by D.03-04-041 to pay the DWR Power Charge," as well as load excluded from the definition of Customer Generation Departing Load by footnote 1 and pages 2-3 of
D.03-04-030. According to the above decisions, municipal departing load does not fall within this excluded group. Therefore, municipal departing load is not within Paragraph 9's exception, and is consequently subject to the nonbypassable charge under the Rate Design Settlement.

This outcome is consistent with prior Commission decisions, specifically D.03-07-028 and D.03-08-076, review denied by the California Supreme Court on February 18, 2004. However, in D.03-08-076, we granted a limited rehearing of D.03-07-028 on the issue of the allocation of the exception for new municipal load for payment of the CRS. To the extent the Commission issues further determinations on the exceptions of certain new municipal load for payment of the CRS, it may be appropriate to reexamine certain new municipal load's cost responsibility for the Regulatory Asset. Therefore, to ensure that the settlement is consistent with Commission decisions, we require that the tariffs for municipal departing load's cost responsibility for the Regulatory Asset be set subject to adjustment, and permit municipal utilities to file a petition for modification of the instant decision once the Commission decides the pending rehearing on the exceptions of certain new municipal load for payment of the CRS.