Ratemaking and Remittance Issues

In D.02-03-062 we directed PG&E, SCE, and SDG&E to begin disbursement of proceeds to DWR, as required by their respective servicing agreements or Commission order, using the respective charges in cents-per-kilowatt-hour (kWh) of 9.211 for PG&E, 9.706 for SCE and 7.742 for SDG&E. These charges will change as a result of today's order, as described below. While the parties have made a number of proposed changes to current remittance practices, we adopt only those changes necessitated by policies we have adopted in related proceedings since D.02-02-052.

PG&E recommends that each utility remit variable costs under the contracts allocated to it to DWR on an actual incurred cost basis, in order to put D.02-09-053's variable-costs-follow-contracts requirement into effect. Second, each utility would remit ancillary services costs incurred on behalf of that utility, as well as DWR's share of surplus sales revenue, on an actual incurred cost basis. Finally, PG&E proposes that each utility remit the remaining fixed component of DWR's revenue requirement to DWR on a monthly basis. Under PG&E's approach, the amount to be remitted for the month would be remitted at the end of the following month in order to smooth the transition from the remittance methodology used for DWR's 2001-2002 revenue requirement to the remittance methodology used for the 2003 revenue requirement.

SCE proposes to continue its current process of remitting funds to DWR. SCE's practice is to transmit funds received from customers to DWR on a daily basis. SCE expresses concern that PG&E's proposal is not consistent with provisions of ABX1-1 because it results in commingling of payments by retail customers for DWR and URG power. SCE recommends that, in view of the uncertainties involved in PG&E's proposal, the Commission should allow SCE and DWR to determine their own appropriate remittance practices.

SDG&E recommends that the DWR remittance rate should be based on the forecast of DWR deliveries to bundled customers as a result of the pro rata allocation in D.02-09-053, and not on the deliveries utilized in the tables in DWR's August 16 Determination. According to SDG&E, the pro rata allocation will have the effect of increasing DWR deliveries to retail customers, so use of the forecast deliveries in DWR's August 16 Determination to set power charges would result in an overcollection by DWR.

ORA proposes that remittances to DWR consist of actual variable costs, plus the forecast residual revenue requirement, as adjusted for actual Direct Access Cost Responsibility Surcharge remittances. ORA asserts that its proposal is probably the easiest to implement since it results in a uniform "postage stamp" energy rate for all three utilities

TURN observes that PG&E has proposed some very significant changes to the current remittance procedures for transferring money to DWR, and that SCE has identified some potentially serious problems with PG&E's proposed approach. TURN urges the Commission not to change the remittance procedures unless DWR has explicitly agreed to any such changes.

In fact, DWR has not agreed to such changes. DWR agrees with SCE, and concurs in SCE's criticism of PG&E's proposal. We reject PG&E's proposal, namely that each utility remit to DWR, on a monthly basis, the fixed component of DWR's power cost revenue requirement after subtracting DWR's estimate of the variable costs of the contracts allocated to the utility. Absent agreement from DWR, and except as ordered here, utilities should maintain their current processes for remitting funds to DWR.

The changes to current remittance practices that we adopt today are limited to those necessitated by policies we have adopted in related proceedings subsequent to D.02-02-052.

First, we agree that each utility should remit DWR's share of surplus sales revenue directly to DWR on an actual receipts basis.

Second, although we agree that ideally each utility should remit to DWR the variable costs of the contracts allocated to it on an actual incurred-cost basis, we are bound by the Rate Agreement to include these costs in the calculation of power charges that we adopt for each utility's customers.

Third, while we would prefer that each utility remit ancillary services costs incurred on behalf of that utility directly to DWR on an actual incurred-cost basis, we cannot do so, as previously described. We again are bound by the Rate Agreement to include these costs in the revenue requirement that is collected through the power charge.

Fourth, the revenue requirement that is collected from bundled ratepayers should be reduced by actual Direct Access Cost Responsibility Surcharge remittances, as ordered in D.02-11-022. However, since we do not have accurate information on the record about the volume of direct access sales that will be subject to the surcharge, we do not include any estimate of the impact of this adjustment in the charges we calculate today.

Finally, in order to calculate the new total power charges that will collect the total ratepayer revenue requirement, we use DWR retail sales that have been adjusted to reflect the protocol for surplus sales that we adopted in D.02-09-053. As a result of this adjustment, retail sales are significantly higher than the level assumed in DWR's August 16 Determination. Accordingly, DWR's cash flows will not require the increase of $517 million in its Operating Fund balance anticipated in the August 16 Determination. This adjustment should not affect the level of funds that DWR has available when needed.

To the extent necessary, the respective servicing agreements or Commission order for each utility should be modified to be consistent with the approaches described above.

Table C summarizes the remittance procedures described above, and illustrates how DWR will be paid for the entirety of its revenue requirement.
Table C
Calculation of Adopted IOU Power Charges-Corrected November 22, 2002
2003 DWR Expenses
Power Costs				$4,119,902,243
Administrative and General Expenses				$28,400,000
Ancillary Services				$141,454,426
Increase in Operating Account Balance				$292,505,867
Total DWR Expenses				$4,582,262,536
Revenues Other Than Ratepayer Remittances
Revenues from Sale of Excess DWR Power				$35,483,282
Interest Earnings				$59,007,505
Total Revenues Before Ratepayer Remittances				$94,490,787
DWR Revenue Required from Ratepayers				$4,487,771,749
Cost Allocation Summary	PG&E	SCE	SDG&E	Total
DWR Revenue Required from Ratepayers				$4,487,771,749
Allocation of Total Revenue Requirement	$1,965,158,417	$1,879,525,727	$643,087,606	$4,487,771,749
less: Direct Access CRS Revenues	$0	$0	$0	$0
less: Revenue to maintain Operating Account above $1 billion	$127,695,832	$123,153,989	$41,656,047	$292,505,867
less: Allocation of Ancillary Services	$61,753,088	$59,556,675	$20,144,663	$141,454,426
less: Allocation of Variable Costs	$85,661,819	$65,501,750	$68,722,250	$219,885,819
Equals: Residual Fixed Costs	$1,690,047,678	$1,631,313,313	$512,564,645	$3,833,925,636
2003 DWR Delivered Energy (kWh)	19,205,963,516	18,459,409,403	6,398,534,999	44,063,907,918
Components of IOU Power Charge ($/kWh)
1. Ancillary Services Cost Component	$0.00322	$0.00323	$0.00315	$0.00321
2. Variable Power Cost Component	$0.00446	$0.00355	$0.01074	$0.00499
3. Fixed Power Cost Component	$0.08800	$0.08837	$0.08011	$0.08701
4. Charge Component to Fund Operating Account	$0.00902	$0.00902	$0.00902	$0.00902
Total IOU Power Charge ($/kWh)	$0.10469	$0.10417	$0.10302	$0.10423
Total Ratepayer Revenues	$1,965,158,417	$1,879,525,727	$643,087,606	$4,487,771,749
Note: multiplying the Power Charges shown above by delivered energy will not result in Ratepayer Revenues shown above, because DWR assumes a 45 day lag between delivery of energy and receipt of cash