COM/SK1/cvm ALTERNATE DRAFT Agenda ID #4822

Alternate to Agenda ID #4818

Ratesetting

Decision Alternate Proposed Decision of Commissioner Susan P. Kennedy

(Mailed 7/26/2005)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338 E) for Approval of Economic Development Rates.	Application 04-04-008 (Filed April 5, 2004)
Application of Pacific Gas and Electric Company to Modify the Experimental Economic Development Rate (Schedule ED). (U 39 E)	Application 04-06-018 (Filed June 14, 2004)

(See ATTACHMENT B for Appearance List)

ALTERNATE OPINION OF COMMISSIONER KENNEDY ACCEPTING ECONOMIC DEVELOPMENT RATE TARIFFS

TABLE OF CONTENTS

TITLE PAGE

I. Summary 22

A. Southern California Edison (SCE) 22

B. Pacific Gas and Electric Company (PG&E) 44

C. Joint Utility Proposal 55

D. Position of Other Parties 77

II. The Need for Economic Development Rates 88

III. Discussion 1212

IV. Comments on Proposed Decision 2020

V. Assignment of Proposed Decision 2020

ORDER 2222

ATTACHMENT A AFFIDAVIT FOR ECONOMIC DEVELOPMENT INCENTIVE RATE

ATTACHMENT B Appearance Lists

OPINION ACCEPTING ECONOMIC DEVELOPMENT RATE TARIFFS

I. Summary

The economic development tariffs proposed in these two applications were designed to attract business to California, to expand business in California, or to retain business in California. On August 30, 2004, these two applications were consolidated in the Scoping Memo and Ruling of Assigned Commissioner. Hearings were held on October 18, 19, 20 and 21. This decision accepts the proposed economic development rates (EDR) on the ground that the utilities have demonstrated that the proposed rates have the potential to accomplish the established goals of attracting business to the state, and/or expanding or retaining business in the state. Furthermore, the utilities have proposed effective measures for preventing free-ridership by ineligible businesses, and, therefore, have ensured that the proposed EDR will be beneficial to ratepayers.

A. Southern California Edison (SCE)

In Application (A.) 04-04-008, SCE requests authority to offer three types of EDR agreements: (1) the EDR-Attraction; (2) the EDR - Expansion; and (3) the EDR - Retention. Each EDR agreement would provide participating customers a discount from the customer's otherwise applicable tariff (OAT) beginning at 25%, and declining by 5% each year over a five-year term. SCE proposes to make these options available to customers whose demands exceed 200 kilowatts (kW), provided the customer could demonstrate to SCE's satisfaction that "but-for" the incentive provided by the EDR agreement, the customer would not retain its load in SCE's service territory, or would not otherwise locate or expand its load in California.

SCE requests authority to make these options available to eligible customers until December 31, 2006, and to assess whether their availability should be extended beyond that date in Phase 2 of SCE's 2006 General Rate Case (GRC). The underlying premise of its application is the need to promote economic development in its service territory by offering an incentive to customers who would otherwise not retain or locate their load in California. SCE contends that this would benefit its ratepayers in a number of ways, including the reduction of rates by spreading SCE's and the Department of Water Resources (DWR) fixed costs over a larger base of retained sales.

SCE believes that its proposal ensures that participating customers will provide benefits to other ratepayers by producing a positive contribution to margin (CTM)¹ over the term of the EDR agreements. Under its proposal, the amount of the discount for bundled-service customers would be calculated based on their total bill on their OAT.² For ratemaking purposes, SCE would first apply revenue received from EDR customers to make a full contribution to nonbypassable charges and the DWR power charge, and then apply the remaining revenue to distribution and generation charges.

For direct-access (DA) customers, SCE initially proposed to calculate the discount using the same percentage reduction it applies to the bills of bundled-service customers; however, since DA customers do not purchase generation service from SCE or DWR power, the amount of their discount would be smaller. SCE would once again first apply revenue received from DA customers to nonbypassable charges, excluding the DWR bond charge, with the remaining revenue applied to SCE's delivery charges and to the CRS paid by DA customers.³

In order to provide an incentive for customers to remain on the EDR agreement, thereby ensuring that ratepayers receive the expected benefits over the term of the EDR agreement, SCE proposes a liquidated damage provision. The liquidated damages would recover the discount provided to EDR customers whose agreements were terminated prematurely, unless termination was due to shut down of the facility. SCE's proposal also includes measures intended to prevent the use of these agreements by free-riders, i.e., those customers that would have retained or located the load in California in any event without receiving the discount provided by the EDR agreement.

B. Pacific Gas and Electric Company (PG&E)

In A.04-06-008, PG&E proposes enhancements to its existing Schedule ED rate:

· Expand the availability of the rate option to PG&E's entire electric service territory;

· Increase the percentage and length of time over which non-generation tariff rates would be adjusted;

· Expand the eligibility to include business retention in addition to business attraction and expansion, and include the State in making the determination as to which businesses qualify for the rate;

· Remove the caps on the number of possible customer participants and amount of load; and

· Remove the disincentive to PG&E's application of the rate in the form of shareholder financial participation.

(Exhibit 7, PG&E Direct Testimony, p. 1-1.) PG&E's original proposal has been modified over the course of the proceeding to incorporate the following elements:

· A liquidated damages clause applicable to customers who sign an enhanced ED contract based on fraud or misrepresentation. (Exhibit 9, PG&E Rebuttal Testimony, p. 1-15.) For such instances, PG&E is willing to support liquidated damages that would require the customer to pay twice the difference between the otherwise applicable tariff (OAT) and the amounts paid by the customer under the enhanced Schedule ED rate. (Exhibit 29, Joint Proposal, p. 1.)

· Affirmation that bundled service customers on the Schedule ED rate should be able to opt for procurement service from another provider (e.g., direct access or community choice aggregation), assuming the customer is otherwise eligible for such service. (Exhibit 9, PG&E Rebuttal Testimony, p. 1-7.)

· Clarification that PG&E would not use the enhanced Schedule ED in combination with PG&E's Distribution Bypass Deferral Rate (i.e., Schedule E-31). (Exhibit 9, PG&E Rebuttal Testimony, p. 1-6.)

C. Joint Utility Proposal

At the request of the presiding Administrative Law Judge (ALJ), a Joint Proposal was developed by Edison and PG&E, with each utility compromising on various aspects of its independent proposals. The ALJ had commented that if he were to recommend that the Commission authorize SCE and PG&E to offer the EDRs, that whatever proposal he recommended would apply equally to both utilities, i.e., the terms of the agreements would be consistent, that he would include a liquidated damage provision in his recommendation, and that the agreement could only be offered to a customer whose relocation choice was outside California. Pursuant to the ALJ's request, SCE and PG&E submitted a common proposal that eliminates all prior differences between SCE and PG&E in terms of their respective EDR proposals. The Joint Proposal (Exhibit 29) provides the following:

Issue	Joint Proposal
Eligibility Test	"But-for" test, as proposed by SCE and described in Exhibit 2, p. 3.
Sunset Date	December 31, 2009.
Program Cap	100 MW as proposed by SCE, clarifying that the cap would apply at any point in time for active contracts, based on contract demand.
Liquidated Damages	For misrepresentation or fraud, liquidated damages equal to 200% of the cumulative differences between (i) the bills calculated under the ED rate to the date of termination and (ii) bills calculated under the OAT. For other cases of early termination (excepting business closure or reduction of load without relocation), liquidated damages equal to the cumulative differences between (i) the bills calculated under the ED rate to the date of termination and (ii) bills calculated under the OAT less 15%, plus interest on that difference at the 90-day commercial paper rate. (The OAT less 15% figure was chosen because it reflects the average incentive expected over the life of the contract.)
Form of Affidavit	Separate from contract as proposed by PG&E, except that it would be modified to reflect the "but for" test and would include the following statement: "On an annual basis, the cost of electricity for [Company Name] at this facility represents approximately [Number] % of operating costs."
3rd Party Review	Office of California Business Investment Services (CalBIS) to perform preliminary review, with the utility performing final review and determination. Approval by CalBIS is "necessary but not sufficient" for eligibility.
Eligible Customers	All customers above 200 kW, except state and local government and residential customers. Offer of rate at utility discretion.
Calculation of Incentives for Bundled Customers	Incentive calculated on total OAT and, for ratemaking purposes, reflected in the utility-retained generation and distribution revenues only.
Calculation of Incentives for Direct Access (DA) Customers	Equivalent incentive for DA customers, based on using bundled-service customer's generation cost as a proxy.
Floor Pricing and Marginal Costs	Limit the discount to ensure revenue does not fall below floor price, which consists of transmission charges, public purpose program (PPP) charges, nuclear decommissioning (ND) charges, DWR Bond charges, Competition Transition Charge (CTC), marginal costs for distribution, and, if a bundled-service customer, marginal costs for generation. Floor price to be based on customer-specific marginal costs, up to the OAT. Unit marginal costs to be established at beginning of customer contract.
Shareholder Contributions	None

SCE and PG&E recommend that the Commission adopt the provisions of the Joint Proposal as a comprehensive package that would apply to both SCE and PG&E, without shareholder financial participation.

D. Position of Other Parties

The Alliance for Retail Energy Markets and the Western Power Trading Forum (AReM/WPTF) state that the Joint Proposal "offers a compromise that is worthy of serious consideration by the Commission," that AReM/WPTF support the Joint Proposal, and that the Commission should adopt it "as a reasonable means of resolving the issues extant in this proceeding."⁴

Modesto Irrigation District (Modesto ID) supports the Joint Proposal provided that the Commission imposes shareholder participation in the discount, precludes the discounting of nonbypassable charges, and prohibits the combination of the EDR agreements with other similar discounts.⁵ Merced Irrigation District (Merced ID) reluctantly supports the Joint Proposal with a proposed modification to the language and form of the customer affidavit, and a proposal for a third-party reviewer of eligibility other than CalBIS.

The Office of Ratepayer Advocates (ORA) supports a slightly-modified version of SCE's position prior to the Joint Proposal with 25% shareholder participation in the funding of the discount.⁶ Aglet opposes EDR, but states that if the Commission approves the applications, it should modify the Joint Proposal to impose further restrictions.⁷