IX. Consequences of Other Commission Policies on the Bond Charge:
What are the Key Projected Bond Surcharge Scenarios
Pending Policy Determinations in R.02-01-011?

Through discussions at the PHC and the Workshop, it became clear that the issuance of the bonds would require that the Commission adopt a methodology for setting bond surcharges before the details of the bond financing could be completely determined. Moreover, key decisions concerning whether any bond charge should be imposed on DA customers are to be considered in R.02-01-011 and consequently fall outside the scope of this proceeding. As a consequence, this proceeding should calculate the bond-related charges associated with a range of plausible policy scenarios. The purpose of this analysis is to estimate bond charges in order to guide the Commission; the purpose is not to adopt specific bond charges. Setting the bond charge to recover bond-related costs can only be done after the details of the bond placement are clearer and DWR has determined its more precise 2003 bond revenue requirement.

In this proceeding, parties provided updated estimates of usage and revenue requirements that are key to setting bond charges. Exhibits 201 (of SCE) and 304 (of SDG&E) were received into evidence during the course of the hearings. Exhibit 101-Revised (of PG&E) was received into evidence as a late-filed exhibit via an ALJ Ruling on August 15, 2002. Exhibit 101 updates Exhibits 201 and 304 by including an estimate of PG&E's 2003 DL (which was unavailable in Exhibits 201 and 304) and revises PG&E's forecast of baseline load to reflect higher baseline amounts adopted in D.02-04-026. In all other major elements, the data in the exhibits is identical. These estimates of electric consumption provide the basis for setting the methodology to calculate the initial bond charges.

Table 1 below provides the estimates of the bond charges needed to cover a range of bond-related costs under a variety of policy related assumptions. We develop three different scenarios representing four different levels of bond-related costs. These assumptions do not prejudge our decision in R.02-01-011 whether to impose bond charges on DA and DL customers, but do illustrate the likely range of bond charges under four different cases. Pursuant to the Rate Agreement, bond charges may be imposed on DA customers only after a Commission order providing for such charges becomes final and unappealable under California law.⁴⁹

Case 1 models the 2003 revenue requirement contained in DWR's Exhibit 1. This exhibit projects that the annual bond-related revenue requirement will total $842 million in 2003. Case 1 includes a total of $11.1 billion of bonds.

Case 2 models the estimated 2003 revenue requirement for bond-related costs contained in DWR's Reference Exhibit 1-a. This reference exhibit increases the revenue requirement to $1,140, almost $300 million above Case 1. Under this proposal, DWR increases its reserves by $850 million and increases the total net bond proceeds to $11.95 billion. ⁵⁰

Case 3 models the 2004 revenue requirement contained in DWR's Exhibit 1. It is based on a revenue requirement for bond-related costs of $971 million and a total of $11.1 billion in bonds.

Case 4 models the estimated 2004 revenue requirement contained in DWR's Reference Exhibit 1-a. The revenue requirement is $784 million for bond-related costs.

As we are proposing to allocate the costs of these bonds over all non-excluded kWh, the exercise to calculate the bond-related surcharges is straightforward once we have estimates of electricity consumption. Each row in Table 1 corresponds to a different assumption of the number of gigawatt-hours (GWh) that will be responsible for paying bond-related costs.

Row C (Total Load Minus Excluded Residential) corresponds to the total California load, but follows the policy adopted in this decision, of excluding medical baseline, and CARE-eligible customer usage. Row C assumes that the bond charge would also be imposed on both DA and DL customers.⁵¹ Under this assumption, there would be an estimated load of 171,193 GWh over which to spread the bond related costs. As Table 1 indicates, such a policy would lead to bond charges ranging from 0.4580 cents/kWh (corresponding to Case 4) to 0.6659 cents/kWh (corresponding to Case 2).

Row B (Total Load Minus Excluded Residential and DL) corresponds to the total California load, but excludes medical baseline and CARE-eligible customer usage and excludes projected DL from the bond charge. Under this assumption, there would be an estimated load of 170,100 GWh over which to spread the bond related costs. As Table 1 indicates, such a policy would lead to bond charges ranging from 0.4609 cents per kWh (corresponding to Case 4) to 0.6702 cents per kWh (corresponding to Case 2). Thus, at least initially, policies to either exclude or include DL in paying for bond-related costs will impact bond-related charges of less than .005 cents per kWh.⁵²

Row A (Total Load Minus Excluded Residential, DA and DL) corresponds to the total California load, but excludes medical baseline and CARE-eligible customer usage from the bond charge. In addition, it does not apply the bond charge to DA and projected DL (policies under consideration in R.02-01-011). This leaves an estimated load of 145,257 GWh over which to spread the bond-related costs. Table 1 indicates that under this assumption bond charges will range from 0.5397 cents per kWh (corresponding to Case 4) to 0.7848 cents per kWh (corresponding to Case 2).

Row A is most representative of the initial bond charges. D.02-02-051 states, "absent such a decision that has become final and unappealable, ESP power will not be included in the determination of Bond Charges."⁵³ Since it may take at least a few months for such a determination concerning DA customers and their receipt of electricity from ESPs to become final and unappealable, it is most likely that the bond charge will start at levels close to those contained in Row A. Finally, we conclude this discussion by once again noting that the exhibits used to create Table 1 were incorporated into the record of R.02-01-011.

In summary, our analysis indicates that the methodology that we have adopted to set initial bond surcharges - a cents per kWh charge applying to all bundled customers with the exemption of medical baseline, CARE-eligible customer usage - will result in per kWh charges along the lines of entries in Row A of Table 1. This analysis is purely illustrative - the exact charges will be determined only after the details of the bond placement are clearer, DWR has determined and submitted its more precise 2003 bond revenue requirement, and the utilities have filed conforming advice letters.

Table 1: Bond Charge Scenarios

	Totala	Case 1b	Case 2c	Case 3d	Case 4e
	(GWh)	$842	$1,140	$971	$784
		Rev. Req. ($MM)	Rev. Req. ($MM)	Rev. Req. ($MM)	Rev. Req. ($MM)
		Bond Charge	Bond Charge	Bond Charge	Bond Charge
		(cents/kWh)	(cents/kWh)	(cents/kWh)	(cents/kWh)
A. Total Non-excluded Load Minus DA and DL	145,257	0.5795	0.7848	0.6685	0.5397
(includes all non-excluded bundled consumption)
B. Total Non-excluded Load Minus DL	170.100	0.4950	0.6702	0.5708	0.4609
(includes all non-excluded bundled and all DA)
C. Total Non-excluded Load	171,193	0.4918	0.6659	0.5672	0.4580
(includes all non-excluded bundled, all DL and all DA)

Case 1 corresponds to the 2003 revenue requirement request of DWR as described in Exhibit 1.

Case 2 corresponds to the 2003 revenue requirement request of DWR as described in Reference Exhibit 1-a

(based on a bond indenture of $11.95 billion).

Case 3 corresponds to the 2004 revenue requirement projected by DWR in Exhibit 1.

Case 4 corresponds to the 2004 revenue requirement projected by DWR in Exhibit Reference 1-a

(based on a bond indenture of $11.95 billion)

Row A best describes the likely range of initial changes, which will remain in effect until a decision in R.02-01-011 becomes final.