XVI. Regulatory Balancing Accounts
ORA recommends that all balancing accounts be updated effective January 1, 2000, to coincide with the implementation of new BCAP rates. For its presentation in this proceeding, ORA has generally used the balancing account estimates presented by the company. Two exceptions are the ITCS account and the PITCO/POPCO transition cost account. For the ITCS account ORA used an estimate of $72.4 million on the assumption the 1996 rehearing proceeding would result in a reallocation of surcharges to the noncore. SoCalGas used an estimate of $24.5 million for this account. For the PITCO/POPCO account, ORA assumed a zero balance since the costs should be fully amortized by the end of the year.
In D.99-11-021, we ordered the reallocation of $88.1 million in El Paso and Transwestern surcharges. The surcharges at issue in D.99-11-021 resulted from settlements approved by the FERC in the pipelines' last general rate cases.14 In our final decision in the SoCalGas 1996 BCAP, D.97-04-082, we allocated the pipeline surcharges between SoCalGas' core and noncore customer classes in proportion to the amount of pipeline capacity reserved for the core and the amount of excess capacity formerly reserved for the noncore, the cost of which is now recovered through ITCS. On rehearing of D.97-04-082, we ordered the reallocation of $88.1 million in surcharges, the majority of which are to be reallocated to the noncore through a special ITCS subaccount. (D.99-11-021, mimeo, at 61 (Ordering Paragraph 1).) We deferred to this proceeding the determination of the appropriate period for amortization of the regulatory account balances affected by the reallocation. (Id. Ordering Paragraph 2.)
As shown in Exhibit 208, approximately $14 million of the $88.1 million in reallocated surcharges have yet to be billed to SoCalGas. The amortization period for that $14 million is not at issue here since those costs will be allocated to the regular ITCS account and amortized the same as the other transition costs allocated to the ITCS. The remaining $74.1 million in surcharges reallocated to the noncore are the subject of this decision. That $74.1 million is reduced by $3.2 million in El Paso credits, leaving the net reallocation to the noncore at $70.9 million, plus interest. The total shift to the noncore is $79.9 million to be recovered through the special ITCS subaccount. The appropriate amortization period for that $79.9 million is in issue. For the reasons discussed below, the $79.9 million in surcharges and interest costs allocated to the special ITCS subaccount will be amortized over a one-year period ending December 31, 2000.
SoCalGas recommends a one-year amortization period. SoCalGas' recommendation is supported by SDG&E, ORA, TURN, EGA, and SCGC. A four-year period is recommended by SCE, Watson, and CIG/CMA.
At this time the noncore ITCS account is overcollected by $50 million plus. The current noncore ITCS surcharge is $0.01527/th. A one-year amortization of the $79.9 million, after offset of the overcollection, will reduce the surcharge to $0.00793/th. The parties most affected by the surcharge -- SoCalGas and SCGC -- support one year, as do ORA and TURN.
SCGC's members, which are among SoCalGas' largest customers, have a greater interest than other noncore customers in the length of the amortization period as they will pay more of the reallocated surcharges than any other individual customers. SoCalGas has a significant interest in the length of the amortization period because the longer the surcharge reallocation impacts noncore rates, the longer SoCalGas will face an increased risk of uneconomic bypass. SoCalGas wants the recovery of the surcharges from noncore customers to be over as quickly as possible so as to minimize its exposure to potential bypass. This, of course, will benefit the core.
SCGC asserts the longer the amortization period, the more interest costs that the noncore will be required to pay on the reallocated surcharges. Moreover, the longer the reallocated surcharges impact noncore rates, the longer that southern California electric generators will be at a competitive disadvantage vis a vis generators located outside of SoCalGas' service territory.
SCGC argues that SCE, which advocates a longer amortization period, will indirectly benefit from artificially prolonging the amortization period. The longer the period over which the surcharges are amortized, the less impact the surcharge reallocation will have on current noncore rates, including the rates paid by SoCalGas' EG customers. SCE stands to benefit from minimizing the reallocation's impact on EG rates to the extent that lower EG rates translate into lower market-clearing prices for electricity during the legislative freeze on electric rates. The less that SCE pays for electricity, the more head room it has for the recovery of Competition Transition Costs (CTCs) during the rate freeze period. The more CTCs that SCE recovers now, the less exposure SCE will have for liabilities after the rate freeze ends. In any case, because SCE has no gas-fired generation it will not be paying the surcharge.
CIG/CMA recommends a four-year surcharge amortization period, supported by Watson. Their argument is that the longer the amortization period the lower the overall noncore rates. Further, a one-year period will cause a sharp drop in ITCS at its end; a four-year period will cause a relatively stable charge for four years. These parties want the current $50 million plus overcollection refunded promptly, in one year, and the surcharge spread over four years. Watson frankly admits the four-year period will give it a source of cheap money.
In our opinion a one-year amortization period is much preferable than four years. It promptly recovers an extraordinary charge, it shortens the wait for a more competitive rate, and it lessens the interest costs to ratepayers. ORA should audit SoCalGas' regulatory balancing accounts during the BCAP period.
