4. Petition to Modify D.04-11-015

A. Background

To enable PG&E to emerge from bankruptcy, D.03-12-035 authorized PG&E to record a bankruptcy Regulatory Asset in the amount of $ 2.21 billion and to recover the Regulatory Asset over a nine-year period. The total costs to ratepayers for the Regulatory Asset, including rate of return, income taxes, etc., was expected to exceed $ 4.6 billion. In order to lower the costs borne by ratepayers, D.03-12-035 directed PG&E to seek to issue up to $ 3.0 billion of Energy Recovery Bonds (ERBs) to refinance the Regulatory Asset and associated income taxes.¹⁸ This action was expected to result in substantial savings because the interest rate on the ERBs would be much lower than the rate of return on PG&E's Regulatory Asset. Decision 03-12-035 also anticipated that PG&E would recover the cost of the ERBs via a new charge called the Dedicated Rate Component (DRC).

The issuance of the ERBs required enabling legislation. On June 7, 2004, the Governor signed into law Senate Bill (SB) 772, which authorized the issuance of ERBs.¹⁹ SB 772 also authorized the Commission to impose non-bypassable charges on all current and future customers in PG&E's service territory to recover the principal, interest, and other costs associated with the ERBs, with certain exceptions. The exceptions of particular importance to today's Decision are contained in §§ 848.1(b)(2), 848,1(c), and 848.1(d), which state as follows:

§ 848.1(b)(2): Customer Generation departing load that is exempt from [DWR] power charges pursuant to...Decision No. 03-04-030, as modified by Decision No. 03-04-041, and as clarified and affirmed by Decision No. 03-05-039, [is exempt from ERB Charges] except that the load shall pay the costs as a component of and in proportion to any purchase of electricity delivered by [PG&E} under standby or other service made following its departure.

§ 848.1(c): Except as provided in paragraphs (4) and (5) of subdivision (b), the commission shall determine the extent to which [ERB Charges] are recoverable from new municipal load, consistent with the... limited rehearing granted in [R.02-01-011]. The determination of the commission shall be made on the earlier of the date it adopts a financing order or December 31, 2004.

§ 848.1(d): Except as provided in paragraphs (4) and (5) of subdivision (b) and in subdivision (c), the obligation to pay [ERB Charges] cannot be avoided by the formation of a local publicly owned electric utility on or after December 19, 2003, or by annexation of any portion of the service territory of [PG&E] by an existing publicly owned utility.

On July 22, 2004, PG&E filed A.04-07-032 for authority under SB 772 and D.03-12-035 to refinance its bankruptcy Regulatory Asset by issuing up to $3.0 billion of ERBs through a legally separate Special Purpose Entity. The Commission granted A.04-07-032 in D.04-11-015. In addition, D.04-11-015 authorized PG&E to recover ERB principal, interest, and other ERB-related costs via the DRC and the ERB Balancing Account (ERBBA) Charge (referred to collectively hereafter as ERB Charges).²⁰ The ERB Charges replaced the RAC.²¹

The Commission held in D.04-11-015 that ERB Charges should be nonbypassable and recovered from all existing and future consumers in PG&E's service territory as of December 19, 2003, except as provided for in SB 772.²² As required by SB 772, § 848.1(c), the Commission determined in D.04-11-015 that ERB Charges should apply to new municipal load²³ to the same extent it was determined in R.02-01-011 that the CRS applies to new MDL.²⁴ In D.04-11-014, as modified and affirmed in D.04-12-059, issued in R.02-01-011, the Commission exempted certain new MDL (and transferred load) from the DWR Power Charge element of the CRS. The exemption is capped and subject to other restrictions.

B. Summary of the Petition

In D.04-11-015, Conclusion of Law 82, the Commission held that new MDL should be exempted from ERB Charges as set forth below:

Pursuant to § 848.1(c), Bond Charges should apply to new municipal departing load to the same extent it is determined in R.02-01-011 that the CRS applies to new municipal load. (Emphasis added.)

CMUA understands the phrase "to the same extent" to mean that new MDL is exempt from ERB Charges to the same extent that new MDL is exempted from the DWR Power Charge element of the CRS by the Commission in R.02-01-011. In its petition to modify D.04-11-015, CMUA asks the Commission to confirm this understanding.

CMUA also asks the Commission to modify D.04-11-015 to exempt transferred load from ERB Charges. CMUA argues that because CGDL has been exempted from ERB Charges, it would be unlawfully discriminatory to treat transferred load differently than CGDL.

C. Responses to the Petition

i. Merced, Modesto, and NCPA

Merced, Modesto, and NCPA support CMUA's petition to modify D.04-11-015. Merced represents that the parties have agreed that § 848.1(c) exempts new MDL from ERB Charges to the same extent that new MDL is exempted from the DWR Power Charge. Modesto adds that because D.04-11-014 and D.04-12-059 exempted transferred load from the DWR Power Charge, it is reasonable to exempt transferred load from the ERB Charges.

ii. PG&E

PG&E notes that D.04-11-015 exempts new MDL from ERB Charges "to the same extent" new MDL is exempted from the CRS in R.02-01-011. PG&E believes the phrase "to the same extent" is ambiguous, given the determination in R.02-01-011 that the new MDL exemption applies only to the DWR Power Charge element of the CRS, and not the entire CRS.²⁵ Accordingly, PG&E does not oppose supplementing D.04-11-015 to clarify that new MDL exempted from the DWR Power Charge is also exempted from ERB Charges.

PG&E opposes CMUA's request to modify D.04-11-015 to exempt transferred load from the ERB Charges. PG&E maintains that SB 772 and D.04-11-015 require all electricity consumers in PG&E's service territory to pay the ERB Charges except for those consumers that are exempted by SB 772. PG&E states that there is no exemption in SB 772 for transferred load.

PG&E disputes CMUA's claim that transferred load should be exempted from ERB Charges because the Commission has exempted CGDL from ERB Charges. PG&E states that SB 772 requires all PG&E customers to pay ERB Charges except for those exempted by the statute. PG&E argues that because SB 772 exempts CGDL, but not transferred load, transferred load is indisputably responsible for ERB Charges under the statute.

D. Discussion

We grant CMUA's unopposed request to clarify D.04-11-015 to mean that new MDL is exempt from ERB Charges to the same extent that new MDL is exempted from the DWR Power Charge element of the CRS pursuant to Commission decisions issued in R.02-01-011. New MDL's exemption from ERB Charges is subject to the same restrictions adopted in R.02-01-011 regarding new MDL's exemption from the DWR Power Charge. The adopted clarification supplements D.04-11-015, but does not modify D.04-11-015.²⁶

We decline to grant CMUA's request to modify D.04-11-015 to exempt transferred load from ERB Charges. As we explained in D.04-11-015, SB 772 requires all of PG&E's customers to pay ERB Charges except for those customers exempted by SB 772.²⁷ There is no statutory exemption for transferred load. Consequently, transferred load must pay the ERB Charges.²⁸

We are not persuaded by CMUA's argument that transferred load should be exempted from ERB Charges because CGDL has been exempted from ERB Charges. As mentioned previously, SB 772 requires all of PG&E's customers to pay ERB Charges except for those customers exempted by SB 772.²⁹ CGDL is exempt from ERB Charges to the extent set forth in § 848.1(b)(2), but there is no statutory exemption for transferred load.³⁰ Consequently, CGDL's exemption from ERB Charges has no bearing on whether transferred load should be exempted from ERB Charges.

¹⁸ D.03-12-035, mimeo., pp. 88-89 [Ordering Paragraph (OP) 9].

¹⁹ 2004 Stats., ch. 46.

²⁰ The purpose of the DRC is to recover ERB principal, interest, and certain other costs directly related to the ERBs. The purpose of the ERBBA Charge is to pass through to ratepayers all other ERB-related costs and benefits. (D.04-11-015, mimeo., pp. 33 and 38.)

²¹ D.04-11-015, mimeo., pp. 42, 90 [COL 61], and 103 [OP 15].

²² In D.05-07-041, the Commission held that (i) the Bay Area Rapid Transit District (BART) is exempt from ERB Charges pursuant to SB 1201 (D.05-07-041, mimeo., p. 17, 18 [COLs 4 and 6], and 19 [OP 1]), and (ii) Sierra Pine Ltd. is exempt from the ERB Charges pursuant to Pub. Util. Code § 367.3 (D.05-07-041, mimeo., p. 18 [COLs 8 - 10], and 19 [OP 2]). No party contended in the instant proceeding that the types of exemptions to ERB Charges granted by D.05-07-041 apply to new MDL or transferred load.

²³ The phases "new municipal load" and "new MDL" are synonymous and used interchangeably in this Decision.

²⁴ D.04-11-015, mimeo., p. 59, 93 [COL 82], and 111 [OPs 58 and 59].

²⁵ PG&E's approved tariffs for the DRC already exempt new MDL from the DRC to the same extent that new MDL is exempted from the DWR Power Charge.

²⁶ Although D.04-11-015 is largely irrevocable pursuant to § 848.1(g), the Commission may supplement D.04-11-015 as long as the supplement is not inconsistent with the terms and provisions of D.04-11-015. (D.04-11-015, mimeo., p. 98 [COL 111].) The clarification of D.04-11-015 adopted by today's Decision is consistent with the terms and provisions of D.04-11-015.

²⁷ D.04-11-015, mimeo., pp. 33, 44, and 62, 90 [COL 61], and 103 [OP 15].

²⁸ Today's Decision exempts new MDL associated with transferred load from the RAC and ERB Charges to the same extent this new MDL is exempted from the DWR Power Charge pursuant to decisions issued in R.02-01-011.

²⁹ D.03-12-035, mimeo., pp. 61-63, 90 [COL 61], and 103 [OP 15].

³⁰ Section 848.1(d) indicates that some or all of transferred load may not be exempt from the ERB Charges. CMUA did not attempt to show what portion of transferred load, if any, falls outside the scope of § 848.1(d).