III. Discussion

By its initial ERRA application filed on June 2, 2003,³ SDG&E seeks approval of its 2003 and 2004 revenue requirement forecasts, a method for allocating any 2003 year-end ERRA balance, an ERRA trigger mechanism, and establishment of a Non-fuel Generation Balancing Account (NGBA).

A. Revenue Requirement Forecasts

SDG&E seeks approval of a 2003 ERRA revenue requirement forecast of $515.3 million. That forecast was based on four-months recorded and eight-months forecasted fuel costs data related to its generation resources. Those generation resources include long-term power purchase contracts, SONGS, contracts with renewable generators, and anticipated market purchases. Details of SDG&E's 2003 revenue requirement forecast are set forth in the testimony attached to its application and in testimony placed under seal.

SDG&E also seeks approval of a 2004 ERRA revenue requirement forecast of $282.6 million.⁴ SDG&E seeks approval of its 2004 forecast in this proceeding so that a new Schedule Electric Energy Commodity Cost (EECC) may be addressed at the beginning of 2004. Similar to its 2003 forecast, SDG&E's 2004 forecast was based on fuel cost related to its generation resources, the details of which were set forth in the testimony attached to its application and in the testimony placed under seal.

Although individual components of the revenue requirement forecasts are under seal, details of those components were made available to interested parties under a protective agreement.⁵ All information placed under seal should remain sealed for a period of two years from the date of a final order in this proceeding, and during that period should not be made accessible or disclosed to anyone other than Commission staff except on the execution of a mutually acceptable protective agreement.

The Office of Ratepayer Advocates (ORA) scrutinized SDG&E's testimony attached to the application. Based on that scrutiny, it does not take exception to SDG&E's forecast method or results. There is no opposition to SDG&E's ERRA forecasts. We concur and adopt SDG&E's ERRA revenue requirement forecasts of $515.3 million for 2003 and $282.6 million for 2004.

B. Year-End ERRA Allocation Method

SDG&E seeks authority to transfer 70% of any 2003 over-collected ERRA balance to its Transition Cost Balancing Account (TCBA), AB 265 under-collection, and retain the 30% balance in its ERRA, similar to the treatment of its 2002 year-end PECA over-collected balance.⁶ In the event there is a 2003 year-end under-collected balance, SDG&E seeks authority to carry forward that balance in its ERRA to 2004.

Currently, SDG&E estimates that its ERRA will have an $26.1 million over-collected balance at December 31, 2003, the details of which are set forth in Attachment B of its sealed testimony. Based on SDG&E's proposal and assuming that there is a $26.1 million over-collected balance by 2003 year-end, approximately $18 million (70%) would be transferred to its TCBA and the remaining $8.1 million (30%) would remain in its ERRA.

ORA has also scrutinized SDG&E's 2003 over- and under-collected balance proposal and calculations attached to the application. Based on that scrutiny, it does not take exception to SDG&E's proposal for treating its 2003 year-end ERRA balance. There is no opposition to SDG&E's ERRA balance allocation.

SDG&E should be authorized to allocate any 2003 year-end ERRA over-collected balance consistent with the treatment of its 2002 year-end PECA over-collected balance treatment and retain any under-collected balance in its ERRA account.

C. Trigger Mechanism

In D.02-10-062, the Commission required SDG&E to establish a trigger mechanism whereby over and under-collections would not surpass 5% of the prior year's generation revenue. This trigger mechanism is not to be used to refund over-collections until the ERRA has been in operation for a full year.

To implement timely rate adjustments when appropriate, SDG&E is required to file an expedited application for approval 60 days from the filing date when its ERRA balance reaches (triggers) 4% of the prior year's recorded generation revenues, excluding revenues collected for the DWR. SDG&E's trigger amount for 2003 is $21.419 million based on its 2002 recorded generation revenues of $535.463 million.

Expedited applications are required to include a projected account balance for a period of 60 days or more from the date of filing depending on when the balance will reach the 5% threshold. SDG&E's threshold amount for 2003 is $26.773 million, based on its 2002 recorded generation revenues.

There is no dispute on the 2003 trigger and threshold amounts calculated by SDG&E. SDG&E's 2003 trigger amount shall be set at $21.419 million and its threshold amount at $26.773 million.

SDG&E's ERRA tariff should be modified to incorporate the trigger and threshold amounts being adopted in this proceeding. Further, the trigger and threshold amounts identified in its tariff should be modified yearly through an Advice Letter filing. That yearly Advice Letter should be filed on February 1^st.⁷

The purpose of these recommendations is to standardize the ERRA process amongt the major utilities. However, these recommendations have not been addressed in this proceeding and SDG&E has not had an opportunity to provide comment. Rather than keeping this proceeding open to obtain SDG&E's comment on these recommendations and delaying approval of its 2004 ERRA revenue requirement forecast beyond January 1, 2004, SDG&E will not be required to undertake these actions at this time. However, we strongly encourage SDGE to adopt these recommendations on its own initiative.

D. Non-fuel Generation Balancing Account

SONGS fuel and non-fuel related costs⁸ are currently included in SDG&E's Incremental Cost Incentive Pricing (ICIP) mechanism, a component of its Schedule Electric Energy Commodity Charge (Schedule EECC). SDG&E included all SONGS costs in its 2003 ERRA forecast because those costs are includable components of the ICIP mechanism. However, the ICIP mechanism terminates on December 31, 2003 creating an uncertainty as to the recovery of 2004 SONGS costs through the ERRA.

SDG&E's SONGS fuel costs are not being litigated in a separate proceeding. It's SONGS non-fuel costs are currently being litigated in its cost of service (COS) A.02-12-028 and in SCE's general rate case (GRC) A.02-05-004. A decision in those applications is not scheduled to be issued until at least mid-2004. Absent a recovery mechanism beginning January 1, 2004, SDG&E will not have an opportunity to recover these costs until decisions are issued in A.02-12-028 and A.02-05-004.

SDG&E initially included all of its SONGS costs in its 2004 ERRA forecast. It included fuel costs on the basis that those costs meet the fuel and purchased power costs definition for inclusion in the ERRA. It included non-fuel costs on the basis that such costs are a type of power procurement-related costs.

ORA concurs with SDG&E that SONGS fuel costs should be included in the ERRA. However, ORA protests SDG&E's inclusion of SONGS non-fuel costs in its 2004 ERRA forecast, stating that only fuel costs should be included. Subsequent to that objection, SDG&E filed supplemental testimony on October 17, 2003 recommending that a NGBA be established for recovering its SONGS non-fuel costs beginning January 1, 2004 and continuing until a decision has been reached in both SDG&E's COS and SCE's GRC. SDG&E also withdrew its initial SONGS non-fuel costs proposal.

SDG&E proposes that the following procedure be used for its NGBA, the details of which are set forth in Attachment A of its supplemental testimony. On a monthly basis, SDG&E will record 1/12 of its SONGS non-fuel costs proposed in its COS and SCE's GRC beginning January 1, 2004 to its NGBA. In addition, each month SDG&E will apply an amount from the revenue generated from its Schedule EECC rate to recover the SONGS non-fuel costs recorded in the NGBA. SONGS non-fuel costs flowing to the NGBA in this interim period will be trued-up when a decision is reached in the SDG&E COS and SCE GRC.

ORA concurs with SDG&E's revised proposal and has withdrawn its protest. SDG&E's NGBA should be adopted so that it may have an opportunity to recover its SONGS non-fuel costs.