Discussion

We agree with the approach proposed by the assigned Commissioner in the ACR. It is, of course, reasonable to correct the inadvertent omission of the corresponding debit entry to the credit required by D.00-02-048. In that decision, we ordered PG&E and Edison to credit the TCBA for the aggregate net book value of remaining non-nuclear generating assets. It was not our intention to require PG&E and Edison to debit earnings. We are persuaded that the new account should be established as a balancing account in order to avoid problems associated with limits for short-term borrowing purposes. Therefore, we will adopt the GABA to record the corresponding debit to the credit ordered in D.00-02-048.

The GABA should earn the 90-day commercial paper rate. The TCBA itself earns this interest rate (on both over-and under-collections). We agree with Edison that applying the same interest rate to both accounts will ensure that shareholders and ratepayers are made whole, as we explain in further detail below. Using the short-term commercial interest rate is also consistent with our findings in D.00-03-058, which provided that any refunds stemming from collection of the competition transition charge (CTC) after the rate freeze ends should accrue interest equal to the short-term commercial paper interest rate. We decline to adopt PG&E's proposed weighted average interest rate approach. This methodology is unnecessarily complicated. We agree with Enron that both Edison and PG&E should apply the same interest rate to the GABA.

We agree with both Edison and PG&E that the balance remaining in the GABA should be zeroed out at the time of final market valuation. This approach is consistent with our determinations in D.99-10-057 that, if the rate freeze terminates prior to the statutory deadline, the rate freeze will end on the date when each utility has recovered authorized costs and obligations, as described in § 367. In establishing the GABA and the associated ratemaking treatment, we avoid large under- and over-collections in the TCBA and manage the netting procedure as directed by § 367(b).

This approach is consistent with § 367 and does not allow for additional, unauthorized stranded cost recovery. A few simple accounting examples (excluding any accrued interest, tax impacts, and amortization) will help to explain this concept.⁴

Scenario A:

1. Assume that net book value of the plant is $2 million and estimated market value (at aggregate net book value) is $10 million. The TCBA is credited for estimated market value less net book value, or $8 million and the GABA is debited for $8 million.


2. Next, assume that final market value is $15 million and assets are sold for cash. Because of accrued depreciation, the net book value is now $1.5 million. The net gain is $13.5 million. The GABA is credited for $13.5 million and the cash account is debited for $13.5 million. This leaves a $5.5 million credit balance in the GABA.


3. In order to zero out this account, the GABA is debited for $5.5 million and the TCBA is credited for $5.5 million.

Thus, ratepayers benefit because the aggregate net book value was credited to the TCBA in response to D.00-02-048. Ratepayers benefit further from final market valuation when the GABA is zeroed out and the difference between aggregate net book value and final market valuation is credited to the TCBA.

Scenario B:

1. Again, assume that net book value is $2 million estimated market value (at aggregate net book value) is $10 million. The TCBA is credited for $8 million and the GABA is debited for $8 million.


2. Now assume that final market valuation is $5 million (i.e., less than aggregate net book value) and assets are sold for cash. The net book value is $1.5 million. The GABA is credited for $3.5 million and the cash account is debited for $3.5 million. This leaves a $4.5 million debit balance in the GABA.


3. In order to zero out this account, the GABA is credited for $4.5 million and the TCBA is debited for $4.5 million.

Under this scenario, ratepayers received an early benefit because the aggregate net book value of the assets was credited to the TCBA in response to D.00-02-048. However, because final market value is, under this hypothetical, less than the amount credited to the TCBA (i.e., less than aggregate net book value), PG&E and Edison must be made whole. Under this approach, PG&E and Edison would not be at risk because the remaining debit in the GABA account is appropriately charged to the TCBA. Since the TCBA and GABA earn the same interest rate, both ratepayers and shareholders are made whole. We do not expect that "Scenario B" will be the outcome of final market valuation for either PG&E or Edison, but this approach allows for this possibility and ensures that both ratepayers and shareholders are protected. We will address the impact of this accounting on the end of the rate freeze at the appropriate time and in the appropriate proceeding.

The Executive Director appropriately granted Edison and PG&E extensions of time to comply with D.00-02-048. Now that the GABA is established, we direct Edison and PG&E to comply with our orders in that decision.

The draft decision of Administrative Law Judge Angela Minkin in this matter was mailed to the parties in accordance with § 311(g)(1) and Rule 77.7 of the Rules of Practice and Procedure.