SCE

SCE reprises its request for authorization to use the Catch-Up Surcharge revenues to offset increases in procurement costs. SCE provides significant elaboration of the need for and propriety of that authorization. SCE explains the relationship between the Catch-Up Surcharge and the settlement of the filed rate doctrine litigation between SCE and the Commission. Furthermore, SCE describes how and why a rate increase would be required absent Commission approval of its use of Catch-Up Surcharge revenues. PG&E supports SCE's request (and seeks similar authorization itself); SDG&E, ORA and DWR take no position on this request. SCE has persuaded us of the merits of its request, and we have modified the decision to reflect our granting of the requested authorization for SCE.²⁴

SCE attempts to reargue the merits of its "costs follows contracts" methodology, claiming that the Proposed Decision failed to recognize its virtues of logical consistency, finality and financial certainty, and simplicity. SCE's criticism is not well founded. The Proposed Decision considered all of these claims, and acknowledged the consistency and simplicity of SCE's proposal, as well as SCE's claim of procedural finality. SCE did not show, and probably could not show, that its proposed methodology would actually provide a fair result, or even a knowable result, given the current status of contract renegotiation. Secondly, while SCE is correct that its methodology may provide greater finality in regards to proceedings before this Commission, SCE is incorrect that its proposal would provide greater "financial certainty." While the fact of contract renegotiation causes some financial uncertainty under all of the proposals, that uncertainty is maximized under SCE's proposal, as the full impact of each contract renegotiation (or the lack of successful renegotiation) would hit one utility, rather than being distributed among all three utilities. PG&E opposes SCE's proposal, calling it arbitrary and unfair. We agree, and will not change the fundamental allocation method from that adopted in the Proposed Decision.

SCE argues that a more defined true-up mechanism is necessary to ensure that the costs and benefits of utility dispatch decisions flow to the customers of the utility making those decisions. We agree that the costs and benefits of utility dispatch decisions should flow to the appropriate customers, but we disagree that a pre-defined true-up mechanism and balancing accounts are necessary to track the relevant costs and revenues. The utilities may keep whatever records they need in order to track the costs and revenues.²⁵ A uniform system of tracking costs and revenues would be useful, and we will address that idea later in this proceeding, as there is no specific proposal for such a system presented here.

SCE expresses concern with the level of DWR's revenue requirement, and calls on DWR to take corrective action in its supplemental determination. Specifically, SCE recommends that DWR immediately address the need for $1 billion in reserves in light of the Commission's order that utilities resume procurement responsibilities as of January 1, 2003. We share this concern, and concur in SCE's recommendation that DWR promptly examine the possibility of reducing its level of reserves.

SCE argues that the Proposed Decision's treatment of surplus sales revenues is inconsistent with the proposed treatment of those revenues in R.01-10-024. We disagree. In the language from the Draft Decision of ALJ Halligan cited by SCE, an exception from the standard treatment is made for Ancillary Services and ISO Instructed Energy, on the grounds that less utility discretion is involved in scheduling these resources. By contrast, in this proceeding SCE is proposing an exception for transactions it claims were not contemplated by D.02-09-053, particularly off-system sales from resources located outside the ISO control area. The fact that an exception was proposed in R.01-02-024 does not provide a basis for creating a very different exception in this proceeding.

SCE recommends that the Commission not allocate the $170 million of the revenue requirement for ancillary services "until DWR provides additional information on the appropriateness of these charges." [SCE Comments, p. 13.] DWR does not agree, and states that it does not intend to reduce its revenue requirement for ancillary services "until the utilities are actually paying for ancillary services costs in 2003 and can continue to do so." [DWR Reply Memorandum, p. 3.] Accordingly, we must reject SCE's recommendation.

SCE recommends a clarification in language addressing the treatment of tolling charges. SCE points out that in one place the Proposed Decision states that "tolling charges associated with DWR must-take contracts" should be treated as fixed costs, while in another place it states "we will treat charges associated with tolling contracts as fixed costs." These two statements are not consistent, and the second one is incorrect. We will clarify the identified language, consistent with SCE's recommendation that tolling charges associated with must-take contracts are to be treated as fixed costs, but tolling charges that can be avoided by dispatch decisions be treated as variable costs.