3. Discussion

We are persuaded to modify the memorandum account method of recovery for the incremental costs of programs, activities, studies and reports authorized in D.01-03-073. We provide a more specific method for current recovery.

As we discussed in D.01-03-072, the costs required to implement the adopted programs are recoverable as distribution revenue requirements. This approach is consistent with AB 970. However, we modify D.01-03-073 to authorize a balancing account to ensure that over- or under-collections will be amortized in rates.

PG&E is authorized to establish a Demand Responsiveness and Self-Generation Program Incremental Cost Balancing Account (DRSGPIC) in their Preliminary Statement. This account shall record the amounts that were previously authorized for the memorandum account.³ That is, PG&E shall record monthly costs above the funds authorized in current rates (i.e., incremental costs) of administering any program, activity, study, or report (e.g., separately track costs and revenues from the new demand responsiveness programs, self-generation program, and each report).

This account balance would normally be reviewed and the reasonable costs amortized in rates in a subsequent period. We will direct PG&E to transfer the balances in the DRSGPIC to their Transition Revenue Account (TRA) monthly. These costs are recoverable now as current costs, and we are persuaded that the companies cannot defer recovery. It is in the TRA that PG&E should recover their authorized revenue requirements for non-energy items before determining the residual available for stranded cost recovery in their Transitional Cost Balancing Account (TCBA). PG&E shall reflect this modification in their TRA tariff. This treatment assures current recovery of these costs ahead of stranded costs.

The adopted balancing account approach provides current cost recovery. Just as with any balancing account, however, entries are subject to later reasonableness review. For consistency, we intend that this balancing account approved be applicable to all respondent utilities to this rulemaking, and not just to PG&E that filed the petition for modification. Thus, we authorize all utilities to establish a DRSGPIC in the manner specified in this decision, and as applicable.

We decline to add a surcharge since those rates are currently subject to the electric industry restructuring rate freeze. Just as we concluded in D.01-03-073, we cannot raise electric utility rates for the utilities until we have determined that the rate freeze is over. Moreover, we recently instituted a surcharge for PG&E and SCE that bring in revenues of approximately $2.5 billion annually, or $5.0 billion combined. (D.01-03-082; D.01-05-064, mimeo, page 16.) We did so under emergency circumstances.⁴ We must consider the effect of these increases in a more comprehensive way on each utility, its customers, and the California economy.

We also decline to adopt PG&E's alternative recommendation to authorize utilities to withhold funding for these programs from revenues collected on behalf of DWR. PG&E's proposed language to implement this suggestion is that the Commission "instruct utilities to work with DWR to develop the details of this proposal as an alternative to a surcharge." This proposal is not sufficiently developed to adopt. Rather, the method we adopt herein provides assurance of current cost recovery, and needs no further development.