III. Position of Parties

A. Position of PG&E

PG&E was the only party to disagree with the use of the INC price as a proxy for TBS customers. PG&E instead offered a second proposal calling for the TBS price proxy to be based on the day-ahead short-term price indices published by the Intercontinental Exchange (ICE). The ICE 10x Day Ahead Power Price Report publishes short-term indices that represent prices paid for actual day-ahead transactions for standard products.

PG&E proposes that ICE indices be adopted for purposes of setting a TBS short-term power price for the commodity cost of power to be determined as follows. For PG&E, for on peak hours (as defined by ICE) the day ahead North-of-Path 15 weighted average (by transaction volume) index. For off peak hours, the day ahead North-Of-Path 15 off peak weighted average index. For SCE and for SDG&E, the analogous South-Of-Path 15 indices would be used.

PG&E claims that ICE indices provide a more accurate proxy than the ISO INC price for the markets in which the utilities are likely to procure power for anticipated load, including TBS load in the utility's day-ahead procurement process. PG&E claims there is no basis for believing that, as a general matter, TBS load is served by the ISO INC market. PG&E notes that broker prices, such as those provided by ICE, have been acknowledged by the Commission for use by the utilities in procurement.³ All three utilities have used ICE as a vehicle to facilitate day-ahead transactions.⁴

PG&E opposes the use of the ISO INC index for purposes of TBS pricing. PG&E argues that because the ISO INC market is where utilities' unanticipated energy needs are met, ISO INC prices do not reflect the cost to serve TBS loads that are anticipated by the utility in advance. As such, PG&E argues that TBS pricing should be incorporated into the utility's day ahead procurement process. Therefore, as indicated in Figure 2 on page 7 of the Status Report, PG&E asserts that the ISO INC price has not tracked loads at certain times, but instead has gone down as loads go up. PG&E, thus, argues that this also suggests that ISO INC prices may not serve as a reasonable proxy for the price actually paid.

PG&E argues that both the ICE indices and ISO INC prices are transparent and verifiable. As the Status Report indicates, day-ahead ICE prices can be viewed free of charge on their website.⁵ Published information includes delivery location, highest price, lowest price, weighted average price, change in price from previous trading session, volume in MWh, number of trades executed, and number of companies executing trades. Therefore, PG&E argues, the ICE price is easily accessible, and there is no basis for favoring the ISO INC price over the ICE indices on accessibility grounds.

B. Position of Joints Parties

The Joint Parties (i.e., all workshop participants other than PG&E) support use of the CAISO real-time INC price for TBS pricing purposes. Joint Parties contend that the INC price is the only transparent, verifiable market-clearing price index available in California. Thus, after the demise of the PX, the INC price is the best indicator of short-term market clearing prices. To the extent that the ISO implements day-ahead and/or hour-ahead energy markets as part of its pending market redesign, the Joint Parties argue that the INC price can be replaced by these new price indices if and when the Commission deems appropriate.

Since the utilities propose to calculate the safe harbor tariff rate in the same way as the former Schedule PX, the Joint Parties argue, the volatility and occasional spiking of real-time INC prices, especially in summer peak periods, will not harm safe harbor customers. By contrast, the Joint Parties assert that the graph on page 3 of the Status Report shows that in almost 70% of the hours, the ICE prices were significantly higher than the average INC prices for the same period based on a comparison of SP-15 hourly average INC prices to on-peak and off-peak ICE SP-15 day ahead prices (as proposed by PG&E) for the month of August 2003. As noted in the Status Report, the monthly unweighted daily average of ICE prices was more than $9.00 per MWH higher than unweighted hourly average of INC prices.

Joint Parties further argue that the California ISO real-time market is more well-known to DA customers than any other power spot market in California after the demise of the PX, and thus, use of a non-ISO market index would require more education of customers than would use of an ISO-based price.⁶

Joint Parties argue that use of the INC price will ensure that other bundled customers are not adversely affected by the return of DA customers to bundled service. It will also free the utilities of the burden of forecasting and procuring supplies to meet the load requirements of returning DA customers, and will eliminate the risk to the utility and other ratepayers of incurring new stranded costs to meet that load.

Joint Parties argue that using the INC price mirrors the approach being taken by an increasing number of other states for pricing default utility service that do not have the option of relying on traditional bundled utility service on a long-term basis. Specifically, "default" or "standard offer" service for such customers is increasingly based on the ISO's hourly market-clearing price, plus an adder to compensate for the utilities' administrative/brokerage costs to provide the default service.