6. Allocation of CARE Surcharge Costs

The CARE program provides discounted rates to low-income energy customers. The number of subscribers to the program has increased substantially in recent years as a result of the energy crisis, more aggressive utility marketing and easier enrollment procedures. The program cost for PG&E was $10.2 million in 2000 and is estimated to be $80 million in 2005. Adding to this an undercollection from 2004, the total revenue requirement for the gas CARE program is $99 million or about $.023 per therm if allocated equally to all customers. The Commission has traditionally allocated these costs to all customer classes on an equal-cents-per-therm basis.

PG&E proposes to change the allocation according to "equal-percent-of-transportation-revenue." Applying this methodology would allocate a much greater share of costs to residential customers - about $21 million -- increasing the average residential gas bill by $.74. Industrial and commercial customer bills would fall proportionately. PG&E advocates for this change on the basis that the Commission should implement rate changes to reduce business costs and make California more attractive to business. PG&E believes this approach is fair because all residential customers could potentially benefit from the rate discounts, whereas the rate is not available to larger customers.

CMA supports PG&E's proposal. It argues that the increased revenue requirement means that the CARE portion of the transmission rate has increased from about 9% of transmission rates in January 2001 to 55% of transmission rates in 2005 compared to 7% of the residential baseline rate. Because the rate is spread over many fewer transmission customers than residential customers, the proportional share allocated to transmission customers is much larger. The average transmission level customer would pay $76,800 in CARE costs in 2005 if the costs were to be allocated on an equal cents per therm basis.

TURN and ORA oppose any change in CARE cost allocation. TURN observes that the Commission has consistently found that the program should be supported by all customers and argues that "non-eligible, residential customers are no more responsible for the costs or enjoy the benefits of the CARE program than noncore customers...." ORA rejects PG&E and CMA's comparison of residential bills with transmission bills, observing that isolating transmission rates for the comparison skews the analysis. ORA points out that when the commodity cost of gas is included in the industrial customer equation - as it is for residential customers - the burden of the CARE program is not disproportionate. To provide perspective, ORA observes that transmission level customers have experienced as much as a $.17 per therm change in the monthly price for gas, compared to the total CARE rate component of $.023. ORA is not convinced that PG&E has demonstrated any connection between the CARE component in transmission rates and hardship by local businesses.

As a threshold matter, we are sympathetic to concerns over the costs incurred by California businesses especially during this difficult economic period. On the other hand, we are equally concerned with the plight of families and individuals, many of whom have seen their salaries fall while the cost of living increases. No party has presented any evidence to suggest that the CARE rate component has caused businesses to fail or relocate. To the contrary, TURN shows that California businesses failed prior to the increase in the CARE rate, when gas rates spiked and the economy slid into recession in 2001. We are not convinced by PG&E's claim that CARE program benefits inure entirely to residential customers. We believe that all businesses and individuals benefit from the economic welfare of the greater community. Moreover, we would not assume that all residential customers are potentially CARE customers any more than we would assume that all business customers may potentially fail in the near term.

The analysis CMA presents using transmission rates alone overstates the impact of CARE rates on large customers and is in fact deceptive. CMA improperly compares large customer transmission billings with total bills of residential customers. The CARE rate component is not 55% of a transmission customer's total bill, only the transmission portion, which is a small part of most industrial customer bills. Assuming a gas price of $.60 cents per therm, the average CARE rate component of a transmission-level industrial customer is 3.5% of the delivered cost of gas, while it is 2.2% of the delivered cost of gas for a residential customer.

Because no party has made a convincing case that the current CARE allocation represents poor public policy, we decline to change the CARE allocation at this time.