D0212082 Brown's Order Granting Rehearing of D0211074

III. Summary

During the months following the Governor's Proclamation of January 17, 2001, declaring a crisis because exorbitant electricity prices affected the solvency of California's utilities, the Department of Water Resources (DWR) purchased electricity on behalf of the customers in the service territories of Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric Company (SDG&E) and Southern California Edison Company (SCE). DWR incurred debt totaling over $10 billion in order to make these purchases

Shortly, DWR will issue between $11 and $11.95 billion in bonds to refinance an interim loan taken out to cover electricity costs, to repay advances from the State's General Fund and to create financial reserves in connection with the bonds. Sections 80110 and 80134 of the Water Code entitle DWR to recover the revenues needed to repay bond-related costs and require that this Commission impose charges on electric customers to effectuate cost recovery. We call this charge the bond charge.

This decision anticipates that DWR will shortly advise the Commission more precisely of the revenues it needs to repay bond-related costs and adopts a methodology for establishing a charge to repay these bonds. We adopt a simple methodology that applies a per kilowatt-hour (kWh) charge on all consumption that is not specifically excluded from this surcharge. The bond charge is set by dividing the annual revenue requirement for bond-related costs by an estimate of the annual consumption not excluded from this charge.

We adopt a policy that excludes a major block of bundled³ residential consumption from the bond charge. In particular, based on a consideration of applicable law, past Commission precedent and legislative intent, we exclude all medical baseline and California Alternate Rates for Energy (CARE) eligible customer usage from the bond charges.

On the basis of the evidentiary record in this proceeding, we estimate that this policy will result in a per kWh surcharge between 0.4918 and 0.7848 cents in 2003, and between 0.4402 and 0.6381 in 2004, depending on the level of the bond placement and terms of repayment.⁴ For 2003, until a decision in Rulemaking (R.) 02-01-011 becomes final and unappealable, the most probable initial bond charge imposed on the non-excluded consumption of bundled electric service from the local utility will range between 0.5797 and 0.7848 cents per kWh.

Consistent with the terms of the "Rate Agreement By and Between State of California Department of Water Resources and State of California Public Utilities Commission" (Rate Agreement), we establish an advice letter process that, following DWR's determination of a more precise 2003 bond revenue requirement⁵ and a compliance filing by PG&E, SCE and SDG&E, sets a bond charge that applies a per kilowatt hour (kWh) surcharge to the non-excluded consumption of all customers receiving bundled electric service from these utilities.⁶ To implement our policies, we order DWR to provide the Energy Division with a more precise 2003 bond revenue requirement by November 8, 2002. We order PG&E, SDG&E, and SCE to make changes in their billing systems to enable them to set and collect bond charges and to file advice letters complying with this decision within five days of the effective date of this order. The advice letters shall be immediately effective, and will impose a bond charge on all non-excluded electricity delivered from the date of the advice letters. Consistent with past decisions, PG&E, SDG&E and SCE shall add a line item to the electric bill specifying bond charges. Utilities that are unable to show a separate line item immediately may defer the implementation of a line item until February 2003.

In addition, we establish balancing accounts to track over and under payments of bond-charges, with subaccounts to track the payments and obligations of specific customer categories as may be subsequently specified in a decision issued in R.02-01-011. That decision may establish subaccounts, as necessary, applying to unbundled (i.e., direct access) customers, where we can track the payments and responsibilities of specific customer categories for bond-related charges.⁷ If and when a decision on the applicability of a bond charge to direct access (DA) customers becomes final and unappealable, we will amortize under and over payments in each subaccount, as necessary. If we determine to impose the bond charge on DA customers, the surcharge on bundled customers will decrease.⁸

Finally, we note that it is possible for the customers of PG&E and SCE to pay the bond charge within current rate levels, i.e. with no rate increase. For the customers of SDG&E, the record in this proceeding is unclear whether current rates will cover these bond charges in addition to other costs. We therefore order SDG&E establish a balancing account to track the amount it remits to DWR and thus allow SDG&E to seek a rate change to the extent necessary to permit recovery of its own authorized costs independent of these increased remittances to DWR. This account should enable SDG&E to show whether and how charges should change to accommodate both the bond charge and other costs in the DWR Revenue Requirement Phase of this proceeding.

³ Bundled electric service consists of electric power, transmission, distribution, and billing services sold together to residential, commercial and industrial customers. ⁴ See Table 1, below, for the details of how the charge varies with different borrowing and repayment scenarios. ⁵ A "more precise 2003 bond revenue requirement" means the notification to the Commission by DWR, as described in this decision, of the portion of its 2003 revenue requirement that will be needed to pay bond costs. ⁶ We also note that pending further determinations under consideration in R.02-01-011, bond charges may be imposed on direct access (DA) customers receiving service from Electric Service Providers (ESP). Also, pending further determination in R.02-01-011, the Commission may also impose bond charges on departing load (DL) customers. This decision should not be interpreted as resolving or prejudging any of the issues in that rulemaking. ⁷ We note that the establishment of this accounting mechanism does not prejudge determinations that the Commission may make in R.02-01-011. ⁸ This may also include a bond charge imposed on DL customers as may be subsequently determined in a decision, separate from the one involving DA customers.