VI. SDG&E's Post-Rate Freeze Rate Design and Cost Allocation

Since the submittal of this proceeding, the Commission issued an order in A.99-02-029 approving a settlement that would guide accounting and ratemaking after SDG&E's rate freeze period ends, on or about July 1, l999. In the process of reviewing the settlement, SDG&E informed the Commission and active parties of rate changes forecasted to occur with the end of the rate freeze period. SDG&E estimated that rates for industrial customers and large commercial customers are likely to decrease substantially but does not expect residential rates to fall. The circumstance concerns us and we wonder what underlying facts cause it. We add to this concern our view that SDG&E's rates and costs should be reviewed for the post-rate freeze period. This decision declines to modify cost allocations on the basis that AB 1890 precludes any modifications at this time. The law does not circumscribe our actions in this regard following the rate freeze, however. Accordingly, we direct SDG&E to file an application to revise its rates and cost allocations. This rate design application will include review of SDG&E's marginal costs and the allocation of various costs between customer classes, including costs associated with implementing direct access and the liabilities which will remain recoverable by way of the CTC.

Comments on Proposed Decision

The Assigned ALJ issued a proposed decision for comment pursuant to Section 311. Several parties filed comments on the proposed decision, including all three applicants, ORA, TURN, Enron, CMA/CLECA, DGS, and BART. This decision includes a number of minor changes and corrections to the proposed decision on the basis of the parties' comments. The decision also adopts a long run marginal cost method for calculations of the PX credit in future RAP applications.

Findings of Fact

1. Changing the allocation of one type of cost affects the relative burden of the CTC among customer groups, indirectly changing the cost allocation in effect June 10, 1996, which would be in contravention of § 367(e)(1) during the transition period.

2. The rates in effect on June 10, 1996 were allocated between customer groups using a total EPMC methodology, also known as system average percent methodology.

3. The utilities' proposed allocation of transmission and distribution costs is reasonable and consistent with § 367.

4. BART's proposal to exempt customers on schedule E-20T from assuming some distribution costs would require a functional allocation in contravention of § 367's requirement that the Commission retain allocation in effect June 10, 1996.

5. ORA and SDG&E filed a stipulation that resolves certain disputes regarding cost allocation and rate design matters. The components of the stipulation are reasonable and uncontested.

6. ORA and Edison filed a stipulation that resolves certain disputes regarding cost allocation and rate design matters. With the exception of the stipulation's treatment of Santa Catalina Island fuel cost recovery, the components of the stipulation are uncontested and reasonable.

7. Santa Catalina Island fuel costs are "going forward" costs of operating and maintaining fossil plants and therefore may not be recovered through the TRA mechanism pursuant to § 367(c).

8. ORA and PG&E filed a stipulation that resolves certain disputes regarding cost allocation and rate design. The stipulation's components are reasonable.

9. Enron and WPTF filed stipulations jointly with each of the applicants that resolve certain issues regarding the direct access zero minimum bill and the confidentiality of data used to calculate the PX credit. The stipulations are uncontested and reasonable.

10. Applicants do not include all costs in their PX credit calculations that may be avoidable when customers choose alternative energy providers or those marginal costs which they must incur in the long run. DGS, Enron, and ORA make reasonable arguments that the costs of customer account managers, customer service representatives, self-provision of ancillary services, and financing costs for purchasing power from the PX are avoidable and should therefore be included in the PX credit calculation. An accurate estimate of long run marginal costs would also include certain overhead costs.

11. Direct access would not have been possible without the creation of the PX, which facilitates the formation of direct access contracts, creates a transparent spot market for electric generation, and provides scheduling coordination and energy brokerage.

12. The PX initial charge represents costs that benefit all electric consumers.

13. PG&E's Advice Letter 1781-E-A proposes to modify tariff language to clarify treatment of post-real time or "ex-post" settlement costs billed by the PX. The tariffs of SDG&E and Edison already provide for treatment of such costs.

14. The stipulation of applicants and WPTF, filed March 11, 1999, to conduct an audit of its PX credit calculations is reasonable to the extent it does not delegate Commission regulatory authority to third-party auditors or abridge the rights of Commission staff or parties to review the calculations.

15. SDG&E's proposal to estimate ex-post market costs to avoid the effects of a time lag would improve the accuracy of the PX credit.

16. Applicants' respective proposals for calculating ex-post expenses based on time of use are reasonable at this time.

17. Edison requests to recover from distribution customers' costs associated with DPV2 and which have been disallowed by the FERC. Granting Edison's request would effectively defy a federal order with regard to costs that are within the FERC's exclusive jurisdiction.

18. Enron's proposal to create a new rate element for RMR costs may create customer confusion without providing offsetting benefits to customers.

19. SDG&E requests the elimination of rate schedules after the transition period, a matter which is more appropriately considered in A.99-01-019, SDG&E's application for post-transition period ratemaking mechanisms.

20. SDG&E implicitly requests that the Commission find reasonable certain costs in DSM, RD&D and CARE accounts. This application is not the appropriate forum for determining the reasonableness of such account balances.

21. Transferring overcollections from the DSM, RD&D and CARE accounts to the TCBA results in limited risk to ratepayers.

22. PG&E's proposal to create an incremental tax memorandum account is contrary to Commission policy and otherwise unsupported.

23. The applicants' methods for calculating residual revenues to be transferred to the TCBA have been reviewed and found reasonable as a result of advice letter filings.

24. The utilities make various proposals which are within the scope of the proceeding and uncontested. This proceeding is not the forum in which the Commission has reviewed or will find reasonable amounts entered into balancing accounts for such items as nuclear decommissioning costs, CEMA costs or CARE costs.

Conclusions of Law

1. During the transition period, § 367(e)(1) bars changes to the allocation of transition costs and restructuring implementation costs between customer groups from the allocation in effect June 10, 1996.

2. Section 367(c) provides that all "going forward" costs associated with fossil plant operation and maintenance be recovered solely from the ISO or PX. The statute does not make exceptions for geographic areas in which competition is not expected to develop or for any other circumstances. The recovery of Santa Catalina Island fuel costs through the TRA mechanism is contrary to § 367(c) and therefore unlawful.

3. Applicants should be required to identify in their l999 RAP Proceedings the long run marginal costs of customer account managers, customer service representatives that result from customers choosing direct access, the costs of self-provision of ancillary services, the financing costs for purchasing power from the PX, and a methodology for the inclusion of these costs into their respective Schedule PX. The PX credit calculation should also include an estimate of other expected long run marginal costs.

4. All customers should bear the costs of creating the PX. Those costs should therefore not be reflected in the PX credit.

5. The Commission should adopt the proposals outlined by PG&E in Advice Letter 1781-E-A and included in the record of this proceeding.

6. The Commission should adopt the stipulation of PG&E and ORA regarding rate design and revenue allocation.

7. The Commission should adopt the stipulation among PG&E, Enron, and WPTF regarding the direct access zero minimum bill and the confidentiality of data used to calculate the PX credit.

8. The Commission should adopt the stipulation of applicants and WPTF to conduct independent audits of PX credit calculations.

9. In determining the PX credit, applicants should be required to calculate ex-post market costs using estimated volumes and actual unit prices.

10. The Commission should deny Edison's request for recovery of DPV2 costs which the FERC has disallowed and should require Edison to credit the TCBA $6.604 million to reflect that denial and the fact that the FERC has included $3.352 million of the total cost in transmission rates.

11. SDG&E's request for the elimination of certain rate schedules following the transition period should be denied and SDG&E should be permitted to revisit the request in A.99-01-019.

12. SDG&E's request to transfer various balancing account overcollections to the TCBA should be granted. SDG&E should not be permitted to close the DSM, RD&D, and CARE accounts until the balances have been determined to be reasonable.

13. The Commission should deny PG&E's request to create an incremental tax memorandum account.

14. The Commission should approve the uncontested proposals of the applicants as set forth herein with the exception that such approval does not imply a finding of reasonableness of any costs which are or should be the subject of other proceedings and all entries to balancing accounts recognized in rates herein are subject to the Commission's findings with regard to audits conducted by the Commission staff or decisions issued in other proceedings.

ORDER

IT IS ORDERED that:

1. The application of Pacific Gas and Electric Company (PG&E) is granted to the extent set forth herein and with the following exceptions and conditions: (a) PG&E shall conduct an independent audit of Power Exchange (PX) credit calculations as set forth herein; (b) PG&E shall continue to calculate the PX credit by incorporating ex-post expenses based on time of use; (c) PG&E's request to create an incremental tax memorandum account is denied; (d) approval of PG&E's uncontested proposals does not imply a finding of reasonableness of any costs which are or should be the subject of other proceedings, and all entries to balancing accounts recognized in rates herein are subject to the Commission's findings with regard to audits conducted by the Commission staff or decisions issued in other proceedings. PG&E shall file tariffs to carry out this order within 15 days of the effective date of the Commission's order in PG&E's pending l999 test year general rate case. The tariffs shall implement the provisions of this order and shall not include any proposals that are not authorized by this order. The tariffs shall become effective after Energy Division determines that they are in compliance with this decision.

2. The application of Southern California Edison Company (Edison) is granted to the extent set forth herein and with the following exceptions and conditions: (a) Edison shall not recover Santa Catalina Island fuel costs through the transmission revenue account mechanism; (b) Edison shall credit the Transition Cost on Balancing Account $6.704 million to reflect a denial of Edison's request to recover costs associated with Devers Palo Verde 2 costs disallowed by the Federal Energy Regulatory (FERC) and to recognize that the FERC has included $3.352 million of the total cost in transmission rates; (c) Edison shall conduct an independent audit of PX credit calculations; (d)  approval of Edison's uncontested proposals does not imply a finding of reasonableness of any costs which are or should be the subject of other proceedings, and all entries to balancing accounts recognized in rates herein are subject to the Commission's findings with regard to audits conducted by the Commission staff or decisions issued in other proceedings. Edison shall file tariffs to carry out this order within 15 days of the effective date of this order. The tariffs shall implement the provisions of this order and shall not include any proposals that are not authorized by this order. The tariffs shall become effective after August 2, l999 or after Energy Division determines that they are in compliance with this decision, whichever is later.

3. The application of San Diego Gas and Electric Company (SDG&E) is granted to the extent set forth herein and with the following exceptions and conditions: (a) SDG&E's request for the elimination of certain rate schedules following the transition period is denied; (b) SDG&E's proposal to aggregate various balancing accounts for purposes of ratemaking is denied but SDG&E's alternative proposal to transfer overcollections to the Transition Cost Balancing Account (TCBA) is granted with the conditions that (1) the balancing accounts not be closed and remain subject to review, audit, and potential disallowance and, (2) SDG&E shall credit each customer group a share of overcollections using the same cost allocation method used to collect the revenues in rates; (c) SDG&E shall conduct an independent audit of PX credit calculations; (d) approval of SDG&E's uncontested proposals does not imply a finding of reasonableness of any costs which are or should be the subject of other proceedings and all entries to balancing accounts recognized in rates herein are subject to the Commission's findings with regard to audits conducted by the Commission staff or decisions issued in other proceedings. SDG&E shall file tariffs to carry out this order within 15 days of the effective date of this order. If SDG&E's rate freeze ends on or before July 1, 1999, the rate impacts of this order shall be consolidated with the rate changes resulting from Application (A.) 99-02-029. SDG&E shall file an advice letter consistent with the provisions of the decision in A.99-02-029 to reflect the rate changes resulting from this order. If SDG&E expects that the rate freeze will end after July 1, 1999, within 5 days of that determination but not later than June 30, 1999, SDG&E shall file an advice letter consolidating the rate impacts of this order with the rate changes resulting from the decision in A.98-05-019. These tariffs will be effective 30 days after filing subject to Energy Division determining that they are in compliance with this decision. SDG&E shall include in this advice letter filing workpapers clearly delineating rate changes due to this order and the decision in A.98-05-019.

4. PG&E, SDG&E, and Edison shall include in their respective 1999 revenue allocation proceeding (RAP) applications a PX credit calculation that reflects the long run marginal costs of customer account managers, customer service representatives, self-provision of ancillary services and financing costs for purchasing power from the PX. The PX credit calculation should also include an estimate of other expected long run marginal costs as set forth herein.

5. On or before December 31, 1999, PG&E, Edison, and SDG&E shall file tariffs applicable to the PX credit calculation which calculate ex-post market costs using estimated volumes and actual unit prices and which incorporate ex-post expenses based on time of use. The tariffs shall become effective after Energy Division determines that they are in compliance with this decision.

6. The stipulation filed March 11, 1999, by PG&E, Edison, SDG&E and Western Power Trading Forum regarding audits of utility PX calculations is adopted.

7. Consistent with the stipulation between Edison, SDG&E, Western Power Trading Forum and PG&E, the Commission's Energy Division staff shall, within 30 days of the effective date of this order, select three energy service providers to coordinate with the utilities to provide to the Commission a list of auditors from which to choose the auditor that will perform the PX Credit Auditing Procedure.

8. The stipulation filed December 18, l998 by PGE& and ORA regarding cost allocation and rate design is adopted.

9. Each Applicant shall file its 1999 revenue adjustment proceeding application no later than 60 days from the effective date of this order.

10. SDG&E shall file, no later than 45 days from the effective date of this order, an application proposing changes to rate design and cost allocation, as set forth herein.

11. Application (A.) 98-07-003, A.98-07-006, and A.98-07-026 are closed.

This order is effective today.

Dated June 10, 1999, at San Francisco, California.

I abstain.

/s/ LORETTA M. LYNCH

I abstain.

/s/ JOEL Z. HYATT

TABLE OF CONTENTS

OPINION 2

Summary 2

Comments on Proposed Decision 42

Findings of Fact 42

Conclusions of Law 45

ORDER 47

Previous PageTop Of PageGo To First Page