DISCUSSION
Our evaluation of SDG&E's proposals for implementing the rate stabilization plan must begin with an examination of AB 265 and D. 00-09-040. Both guiding documents provide clear direction for SDG&E's bundled customers, but lack guidance pertinent to DA customers. Because SDG&E has already implemented most aspects of the energy rate ceiling and the retroactive credit for bundled customers, this discussion will primarily focus on the DA Plan proposed in AL 1264-E-A. Finally, we will also direct SDG&E to make certain modifications to the plan it has proposed for bundled customers.
AB 265 Provides No Directive about DA Customers
Existing law regarding Commission authority over ESPs clearly specifies in Section 394(f): "Nothing in this part authorizes the commission to regulate the rates or terms and conditions of service offered by electric service providers." Therefore, AB 265 and Section 332.1 need to be examined carefully to determine how or if they apply to DA customers.
TPC notes in its September 26 protest that AB 265 refers only to SDG&E customers. TPC argues that a DA customer is no longer a customer of SDG&E. But ARM notes in its October 2 letter that AB 265 does not distinguish between DA and bundled customers, and all DA customers are SDG&E transmission and distribution customers.6
Both TPC and ARM present plausible arguments that lead to opposite conclusions about the DA Plan. We must therefore examine the context of the bill. Section 1 (a) of AB 265 seems to include both bundled and DA customers in stating that SDG&E customers are no longer protected by a rate freeze and are "subject to severe economic hardship because of unprecedented bill volatility and extraordinarily high rate levels." DA customers have been impacted by soaring energy rates since June, along with bundled customers. ESP offers have in practice been largely based on the power exchange price paid by bundled customers. However, rate freeze protection specifically avoided making DA energy prices equal to the energy rate paid by bundled customers; it worked by restricting utility distribution company (UDC) rate components, which are under Commission authority.
The "unprecedented bill volatility and extraordinarily high rate levels" referenced in AB 265 are attributable to energy procurement, not distribution or other rate components. The AB 265 ceiling specifically applies to the energy component of SDG&E's bill.
Section 332.1(b) directs the Commission to establish the 6.5 cent/kWh ceiling, retroactive to June 1, 2000, on the "energy component" of residential, small commercial, and streetlighting customers' electric bills. The energy component applies to bundled, not DA customers. The energy component on DA customers' bills is their ESPs' charges.
Section 332.1(c) requires the Commission to establish an accounting procedure to track and recover reasonable and prudent costs of providing electric energy to retail customers not recovered through retail bills due to the application of the ceiling. "Retail customers" clearly refers to those customers for whom SDG&E provides electric energy, i.e., bundled customers. Section 332.1 (g) directs the Commission to institute a proceeding to examine the prudence and reasonableness of SDG&E's "procurement of wholesale energy on behalf of its customers". The reference to "its customers" clearly applies to bundled customers for whom SDG&E procures energy.
Section 332.1(g) also raises an awkward question if the rate ceiling is extended to DA customers. The section states that if the Commission finds that SDG&E acted imprudently or unreasonably, it shall issue orders that it determines to be appropriate affecting the retail rates of SDG&E's customers, including, but not limited to, refunds. Any such disallowances would apply only to bundled service customers for whom SDG&E procured that energy. Moreover, AB 265 does not direct the Commission to include DA customers.
Finally, Section 6 of the legislation includes language broad enough that it could refer to bundled and DA customers alike, due to wholesale energy market failures. "The facts constituting the necessity are: In order to provide timely relief to ratepayers in the service territory of the San Diego Gas and Electric Company suffering from a rapid increase in retail energy rates due to spiraling wholesale energy costs, thereby endangering the public peace, health, and safety, it is necessary that this act take immediate effect."
Therefore, we conclude that: (1) AB 265 did not extend Commission authority over ESP rates; (2) AB 265 stops short of directing the Commission to implement the rate stabilization plan for DA customers; and (3) nothing in the legislation precludes the Commission, by virtue of its authority over the regulated distribution rates of SDG&E, from allowing SDG&E to offer loans to its DA customers equivalent to the benefit they would receive as bundled customers. These conclusions are consistent with the entry in the Assembly Daily Journal (ADJ), dated September 1, 20007 (at page 9077). ARM, in its November 8 letter cites one sentence from the ADJ to argue legislative intent to include DA customers in the rate stabilization plan: "It is the intent of this Legislature in enacting AB 265, that direct access customers not be discriminated against in implementation of the rate formula as established in AB 265." (p. 2-3). However, the ADJ further states that if DA customers in SDG&E's service territory are excluded from the rate cap in implementation of AB 265, then "such customers should not be assessed for the balancing account, unless they are included in the capped rate by subsequent action."
SDG&E, in its November 9 response to TPC's protest, states that Assemblymember Davis presumes the rate cap mechanism implemented by AB 265 will apply to DA customers, and if it does not, she indicates that DA customers should not be assessed for the balancing account. SDG&E thus concludes that the Commission does have the flexibility to include DA customers under the rate stabilization plan. SDG&E also states in its November 9 response that PG&E and SCE DA customers benefit from the same frozen rate as bundled customers (i.e., through the CTC charge/credit). SDG&E concludes that consistency would dictate similar treatment for its bundled and DA customers. SDG&E ignores the fact that the end of its rate freeze meant removing this link between bundled and DA customers.
We agree with Utility.com that the Legislature left it up to the Commission to decide whether to include DA customers in the AB 265 provisions. We believe we have this discretion because, as noted above, AB 265 provides no directive concerning DA customers or ESP rates. Additionally, while Section 394(f) is explicit that we may not regulate the rates or terms and conditions offered by ESPs, the proposal we consider here amounts to a loan from SDG&E to its distribution customers. By its authority over SDG&E's distribution rates, the Commission may authorize SDG&E to offer a loan to its distribution customers. As long as the DA Plan allows customers to fully pay all electricity charges (not accept the loan), then the DA Plan does not dictate the rates, terms or conditions offered by ESPs. That is, as long as a DA customer receives a bill clearly specifying all charges and allowable benefits, SDG&E is not exercising undue control over ESP rates.
D. 00-09-040 Provides No Directives about DA Customers.
With this in mind, we next consider Commission guidance on this matter. In AL 1264-E-A, SDG&E states that the intent of the Commission for SDG&E to provide comparable rate stabilization benefits to DA customers is clear. We disagree. The words, "direct access" never appear in the decision. In summary, the decision states that, consistent with Assembly Bill (AB) 265, "the rate stabilization plan will ensure that SDG&E establishes a 6.5 cents/kWh for the energy component of electric bills for its residential, small commercial, and lighting customers." (D. 00-09-040 at p. 1). The language throughout the decision is no clearer than that.
We will limit the rate ceiling to SDG&E's bundled service customers. As discussed in the previous section, approving SDG&E's DA Plan amounts to authorizing SDG&E to offer loans to its distribution customers. The fact that the 6.5 cent/kWh rate ceiling applies to the "energy component" of customer's bills is an important factor in our decision to limit the ceiling to bundled service customers. Additionally, as discussed below, ESPs can offer deferral or loan programs or other options to help their customers manage energy costs. SDG&E should not implement such a plan on their behalf.
Granting the plan for small bundled customers and not small DA customers does have undesirable impacts. The Commission recognized this potential in the bill stabilization decision that preceded AB 265, D. 00-08-037 and expressed its intent to consider extending the bill stabilization adopted at that time to DA customers: "In addition, we are concerned about the impact of an SDG&E specific bill stabilization plan on retail competition. Therefore, we will consider in our ongoing investigation the appropriateness of extending the bill stabilization plan retroactively to direct access customers." (D. 00-08-037 at p. 8). The same decision states in Conclusion of Law 5, "The Commission should further study the bill stabilization plan as to direct access customers." If D. 00-09-040 was the product of that further study, the decision never mentioned it. SDG&E's AL 1264-E/E-A has brought this matter before us; the competitive electric industry needs clarity. ARM in its November 8 letter, and CREC in its December 14 letter express DA customers need to know now whether they are covered by the AB 265 rate stabilization plan and the risks involved in signing up for fixed price products. In the interest of retail competition, we consider the merits of extending the AB 265 rate ceiling and retroactive credit to DA customers.
Evaluation of SDG&E's DA Plan
By AL 1264-E-A, SDG&E proposes to extend its 6.5 cents/kWh energy rate ceiling on both a going-forward and retroactive basis, to all DA residential, small commercial and lighting customers in the same way it did in ALs 1254-E and 1260-E-A for bundled customers. In this section, we will weigh the factors that form the basis for denial of SDG&E's DA Plan.
Effects of the problematic wholesale electricity market are not limited to bundled customers. Utility.com in its October 2 letter, states that all residential and small commercial consumers in the San Diego region, whether they are bundled or DA customers, have been hurt by the high electricity prices this summer. Like SDG&E, ESPs have largely had to pass along the high costs of wholesale electricity to consumers, because ESPs serving small consumers (and their customers) are price takers. Utility.com also points out that procurement flexibility and increased efficiencies are not enough to offset wholesale electricity prices, and even with the discounts that some ESPs are able to offer, DA customers have paid significantly more for electric energy this year than they did last year.
The most convincing reason to adopt some form of SDG&E's DA Plan is to avoid having ESPs and their customers bear the brunt of wholesale electricity market problems. ARM argues in its October 2 letter that ratepayers may not have to pay back the entire balancing account undercollection. For example, the State could appropriate general funds through legislation to reduce the burden on San Diegans. Alternatively, FERC may refund costs of wholesale power under its current investigation. If either of these events come to pass, then it would be equitable for DA customers to share in the benefits of these events. We agree. If the bundled and DA Plan were subsidies, whether from taxes or FERC approved refunds, then ARM's concern for equality would be convincing. But no such subsidy has materialized.
The Commission might eventually disallow some of SDG&E's procurement costs as a result of reasonableness review. But if so, the disallowed costs would apply to customers for whom SDG&E has procured electricity, i.e., bundled customers. Moreover, the plan adopted by AB 265 is not a subsidy, but a deferral. The relevant consideration for a deferral program is evenhanded recovery of deferred charges. As discussed above regarding the legislative intent of AB 265 noted in the ADJ, if DA customers are not included in the rate stabilization plan, then they should not be required to pay for it. ESPs are free to offer similar deferral options, fixed price plans, and/or any other price offer.
ESPs and their customers are divided on the question of applying the rate stabilization plan to DA customers. The DA Plan proposed by SDG&E has sparked notable public interest. ESPs and customers either argue for the same treatment as that applied to bundled customers, or object that DA customers will be burdened with future recovery.
SDG&E states in AL 1264-E-A that it believes it is acting in the best interests of all of its customers by structuring a plan that would neither favor nor disadvantage DA or bundled customers. However, DA customers may not believe that SDG&E is in the best position to act in their interests. In its November 9 protest, Scripps states that it began DA in 1998 and was not subject to the large fluctuations in electrical energy costs this past summer. It believes that receiving a credit for the difference between the 6.5 cent/kWh ceiling and the actual energy rate charges it would have incurred as a bundled customer makes no sense. Scripps did not pay excessive costs so it should not receive a credit, and be required to repay SDG&E a share of the revenue shortfall account with interest.
For DA small commercial, hospital, or school district customers which are satisfied with the energy price they pay to their ESP, the DA Plan may create a hardship. Institutions that budget annually for such expenses as electricity would be at a disadvantage when SDG&E goes to collect the potentially large recoverable amounts plus carrying charges. Such customers might actually be in a better position paying their ESP their manageable contract price with no future and unknown repercussions.
The protest of Mr. Cornett, a residential DA customer opposed to SDG&E's DA Plan may reflect other similar customers' opinions. He does not want to be forced to accept a "loan agreement" he did not want. Mr. Cornett explains that prior to the summer of 2000, he decided to maintain bundled service because alternative energy prices seemed to be the same as what SDG&E charged. However, around August 2000, he accepted an offer from TPC to lock in a reasonable energy price of 8 cents/kWh, guaranteed for one year commencing on October 1st, 2000. Applying the rate stabilization plan to bundled and DA customers alike would eliminate obvious perverse incentives, but would not help customers like Mr. Cornett.
Gaming is Not Sufficient Reason to Adopt the DA Plan but Necessitates Modifications. In its October 2 letter, ARM suggests some issues to consider in excluding DA customers from the rate stabilization plan; they relate to how to deal with customers that leave or return to bundled service when the energy rate ceiling is in effect. These include 1) whether SDG&E would have to track each individual customer's benefit from the ceiling, and the cost of implementing this tracking; 2) whether customers would have to pay a lump sum amount for their share of the balancing account undercollection when leaving bundled service; and if so, whether that would create a significant market barrier to choosing DA service; if not could customers pay the lump sum amount over time and what time period that would be; and 3) how to treat DA customers returning to bundled service regarding their share of the balancing account undercollection. ARM states that these problems need not be addressed if SDG&E's proposal is approved.
TPC also describes this potential for gaming in its November 3 protest. In AL 1264-E SDG&E cites this gaming potential to justify the DA Plan as a solution that would provide appropriate incentives to DA and bundled customers. SDG&E points out that if DA customers are excluded from the rate stabilization plan, customers in the SDG&E service territory could select bundled service during the term of the rate ceiling and then choose DA prior to the expiration of the plan to attempt to avoid paying their share of any undercollection in the revenue shortfall account. That would clearly be unfair to the remaining bundled service customers that will pay the undercollection, and who might even have to pay a larger amount because of customer gaming of the rate ceiling provisions.
We recognize the perverse incentives described by these parties. However, the potential for gaming is not sufficient justification to adopt SDG&E's DA Plan. Instead of adopting the DA Plan to discourage the incentive to bypass payment of the balancing account undercollection in the future, we will direct SDG&E to reflect deferred amounts on bundled customers' bills. As TPC aptly concludes, the only opportunity for customer gaming can exist if SDG&E accounts for undercollected revenues in the TCBA sub-account in a "pooled" rather than on an individual customer-by-customer month-by-month basis.
Since SDG&E is crediting individual bundled customer bills, SDG&E's billing system is capable of recording the amount of each customer's electric energy rate and retroactive rate ceiling credit adjustments (EERA and RRCA) on a monthly basis. Also, in its January 2 response to TPC's protest of AL 1264-E-A, SDG&E expresses support for individually tracking the benefits for future recovery. Requiring SDG&E to track the total credits for potential recovery on an individual basis and show such totals on customer bills is reasonable.
Besides eliminating gaming incentives, individual accounting has other advantages, the major one being customer disclosure. Customers need accurate information about their potential future obligations to repay SDG&E's reasonable procurement costs. For this reason, we will direct SDG&E to display on customer bills, the monthly EERA, and a separate line item showing net deferred amounts (i.e., a running total of the RRCA previously credited and total monthly EERA amounts credited in past months, net of any optional customer payments).8
We previously concluded that the Commission has the authority to offer loans to DA customers based on benefits offered to bundled customer's. ORA suggests that the DA Plan is desirable because it renders customers indifferent to switching to alternative providers. The DA Plan, while not a subsidy, has appeal to customers strapped for cash. This is because as ORA notes, it will provide immediate rate relief under the energy rate ceiling to customers who would otherwise be subject to high electric bills when the market energy rate is above the level of the rate ceiling.
But SDG&E is to be allowed recovery of all reasonable procurement costs, and by extension, all amounts loaned to DA customers with carrying charges. The amount of those carrying charges is not known, or how they compare with other loans. The recovery amounts could become prohibitive if electric energy rates continue to soar.
No Prohibition Exists for an ESP to Offer its Own Deferral program or other Pricing options.
In its November 3 protest, TPC makes another point that we can not ignore. That is, mandating the provisions of AB 265 for DA customers fosters an anticompetitive business environment within the SDG&E service territory, by attempting to fix the competitive retail price. TPC also states that it has no objection if other ESPs wish to join with SDG&E and offer "loans" to their customers. According to TPC, such arrangements between SDG&E and any customer of an ESP must be absolutely voluntary in nature. Otherwise this could potentially be anticompetitive and adverse to the intent of AB 1890 in promoting choice for California electric customers. TPC's argument on this matter supports our decision to deny SDG&E's DA Plan.
In its November 29 protest, ORA notes that when SDG&E proposed to convey information to its customers describing its Summer 1999 Rate Ceiling, Commission staff took an active role in reviewing the messages prior to their issuance. In this instance, ORA recommends the same level of Commission involvement. Specifically, ORA recommends that SDG&E be required to submit the text of the informational letter to the Commission and that the Energy Division, ORA and the Public Advisor review it to ensure that the message appropriately explains the EERA and RRCA and tells customers how credits may be handled. Although ORA's recommendation applies to SDG&E's DA Plan filed in AL 1264-E-A which we deny, we believe that recommendation applies to the plan we adopt for bundled customers.
Utility.com's suggested billing language changes as stated in its November 3 comments on AL 1264-E would apply to DA customers which receive the EERA. Since we deny SDG&E's request in AL 1264-E-A to apply the expanded rate stabilization plan to DA customers, the changes suggested by Utility.com are denied as being moot.
SDG&E shall file an advice letter showing customer bills with the information required by this Resolution. That advice letter shall also include a draft informational letter to be issued to all customers whose bills will be affected by this Resolution explaining the new information provided on bills. The informational letter shall be reviewed in the manner that ORA recommends (i.e., by Energy Division, ORA, and the Public Advisor).
Conclusion
DA customers by choice have elected to remove themselves from the jurisdiction of SDG&E with respect to procurement of electrical energy and therefore, from the explicit mandate of AB 265. Accordingly, SDG&E is incorrect to interpret AB 265 and D. 00-09-040 as being applicable on a mandatory basis to DA customers of an ESP.
6 Section 332.1 (f) requires the Commission to establish a voluntary 6.5 cent/kWh energy rate ceiling for large commercial, agricultural, and industrial customers who buy energy from SDG&E, with a true-up after a year. D.00-12-033 implementing Section 331.2(f), specifically excludes from the voluntary program, DA customers with loads greater than or equal to 100 kW.
7 Note that the bill passed the assembly two days earlier on August 30 and passed the Senate August 29. 2000
8 TPC believes from its reading of SDG&E's DA Plan, that SDG&E proposes to compute the EERA and the RRCA on a customer-by-customer, month-by-month basis for DA customers, and to record a customer's balance on the same basis We direct SDG&E to perform this accounting monthly for each bundled and DA customer and to display this information on customers' bills.
