2. Allocation of the Revised 2010 Revenue Requirement Determination

2.1. Background

The revised 2010 revenue requirement determination updated the information contained in the August 6, 2009 submission by incorporating DWR's preliminary actual operating results through September 30, 2009 and projected operating results through the end of 2009. In addition, the revised determination used an updated natural gas price forecast and related assumptions, updated the modeling assumptions and operational considerations that are incorporated in the PROMOD IV market simulation model, updated the interest rate on all unhedged variable rate bonds based on data through September 30, 2009, updated the projections of interest earnings on all account balances, and increased the projection of administrative and general expenses. The revised determination also updated the projection of Power Charges for 2010.

According to DWR, the revised 2010 revenue requirement determination results in a total decrease of $162 million as compared to the original determination that was submitted on August 6, 2009. This decrease is made up of two components. The first component is a $122 million decrease in DWR's Power Charge Revenue Requirement. This $122 million decrease is due primarily to a decrease in contract costs as a result of a decrease in the gas price forecast for 2009. The second component of the total decrease is due to a $40 million decrease in the Bond Charge Revenue Requirement because of the net effect of a decrease in the projected interest rates for the unhedged variable rate portion of DWR's bond portfolio, and a higher than projected beginning 2010 balance in the Bond Charge account.

DWR's revised 2010 revenue requirement determination contains the information needed to recover the revenue requirement from the utilities' customers for calendar year 2010. The revised 2010 revenue requirement determination is based on the assumptions contained in Section D of DWR's revised determination. These assumptions include retail customer electric load, demand side management and conservation, power supply, natural gas prices, administrative and general expenses, and other considerations that affect DWR's revenues and expenses.

The Commission's obligation is to calculate, revise, and impose the Bond Charge and Power Charges on the customers of the three electric utilities. This obligation is contained in the Rate Agreement that was adopted by the Commission in D.02-02-051, and Water Code §§ 80110 and 80134. We perform these calculations using the allocation methodology that we adopted in D.05-06-060, as modified by D.08-11-056, the results of which appear in Appendix A of this decision.

2.2. Bond Charge

DWR requests that the Commission calculate, revise, and impose the Bond Charge on the three utilities so as to satisfy the Rate Covenant in Article V of the Rate Agreement between DWR and the Commission. The Bond Charge is designed to recover DWR's costs associated with its bond financing activities from the utilities' customers.

DWR's revised 2010 revenue requirement determination states that its 2010 revenue requirement for bond-related costs is $896 million. DWR's modeling in support of its revised determination indicates that it will receive the required $896 million if the Commission sets the Bond Charge at $0.00515 per kilowatt hour (kWh). We adopt DWR's requested 2010 Bond Charge, and the Bond Charge rate of $0.00515 per kWh shall be allocated to the electric customers of Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE).

2.3. Power Charges

DWR requests that the Commission calculate, revise, and impose Power Charges on the three utilities. The Power Charges are designed to provide the funds necessary to satisfy DWR's revised 2010 revenue requirement determination for the cost of electric power sold to the utilities' customers.

DWR's revised determination states that its 2010 revenue requirement for the Power Charges is $2.126 billion. We adopt DWR's requested 2010 Power Charges, and the Power Charges shall be calculated and allocated to the customers of PG&E, SDG&E, and SCE as shown in Appendix A of this decision. The Power Charges allocated to the customers of PG&E, SDG&E, and SCE are $0.23139, $0.06112, and $0.03763 per kWh, respectively.