4. Settlement Agreements

Two settlements were filed, one addressing both PG&E and SCE, the other addressing only SDG&E. Each settlement will be addressed in turn. Many features of the initial proposals are elements of the settlements, so we do not separately describe the initial proposals of the utilities.

4.1. PG&E and SCE

The proposed settlement would establish a voluntary critical peak pricing tariff structure, rather than a default rate as anticipated in D.05-04-053. Bundled, firm service customers served on interval meters with peak demands equal to or greater than 200 kW would be eligible to select service under the voluntary critical peak pricing rate. Bundled customers who are participating in, or who elect to participate in, certain other demand response programs would not be eligible to enroll on the critical peak pricing rates as long as that participation continues. For PG&E, customers participating in the Demand Bidding Program (E-DBP), the Base Interruptible Program (E-BIP), the Business Energy Coalition program (E-BEC), the Non-Firm Program, and the California Power Authority Demand Reserves Partnership program would not be eligible for the critical peak pricing rates. For SCE, customers participating in Super Off-Peak Rates (SOP), Departing Load, Demand Bidding Program (DBP), Optional Binding Mandatory Curtailment (OBMC), I-6, Base Interruptible Program (BIP), Scheduled Load Reduction Program (SLRP), California Demand Reserves Program, and Real-Time Pricing (RTP) would not be eligible for the critical peak pricing rates. Direct access customers, and customers (such as BART) that receive electric power from third parties, will not be eligible for the critical peak pricing rates. Net metered customers, standby customers, customers on the Agricultural Internal Combustion Engine Conversion Incentive Rate (Ag-ICE), and customers without communication links are not eligible for the critical peak pricing rates.

The PG&E rate would become effective June 1, 2006, if approved before January 31, 2006 and would replace PG&E's existing voluntary critical peak pricing tariff special condition in current schedules. For PG&E, the rates applicable during critical peak pricing events would be based on PG&E's rate proposals for voluntary critical peak pricing presented in its August 1, 2005 testimony in this case (Exhibit 1000), and as revised in Attachment 2 to its October 19, 2005 rebuttal testimony (Exhibit 1004). For PG&E, the critical peak pricing event rate would be a rate rider of 75 cents per kWh for all Light and Power rate schedules and 37.5 cents per kWh for the AG 4 C and F, and AG 5 C and F rate schedules that would be added to the customer's normal TOU rate. The rate rider will be applied to the generation component of participating customer bills. Proposed tariffs are set forth in Exhibit 1019. The critical peak pricing tariff rates applicable during non- critical peak pricing event hours are subject to combined on-peak demand and energy charge reductions stated as a rate rider to the customer's normal TOU rate for the summer period from May 1 to October 31. PG&E will provide bill protection for new customers who select the settlement rate through the conclusion of the first complete summer of participation. The rationale behind bill protection is to allow customers additional exposure to the critical peak pricing tariff without risk, while they learn whether or not the tariff works for their operations.

The SCE rate would become effective the first Sunday in June 2007 and would replace the special condition in SCE's existing schedules TOU-GS-2, TOU-8, TOU-PA, and TOU-PA-5. SCE's existing critical peak pricing rates for large customers would be closed and customers on them would be converted to the new tariffs. SCE's methodology is generally similar to PG&E's, and the details are found in Exhibit 1005. Implementing tariffs were submitted as Exhibit 1026. SCE does not provide customer bill protection.

Neither utility will provide participation credits to participating customers or reflect hedging premiums for non-participating customers. Both utility rate designs are designed to be revenue neutral by customer class.

The maximum number of critical peak pricing events in the respective summer seasons for each utility is 15. PG&E's summer season runs from May 1 through October 31, while SCE's summer season runs from the first Sunday in June to the first Sunday in October. In their respective summer seasons, PG&E and SCE expect, but are not obligated, to call at least 12 events in a given summer season but they will not call an event on more than three consecutive weekdays within one work week. Critical peak pricing events will last four hours, from 2:00 p.m. to 6:00 p.m.

PG&E may call a critical peak pricing event depending on the day-ahead maximum temperature forecast for its service area, high demand, high day-ahead prices, or California Independent System Operator alerts. However, PG&E will retain discretion not to call an event even if one or more of these criteria are met. SCE may call a an event on a day-ahead basis if day-ahead forecast system demand is within 9% of SCE's forecast annual system peak demand, and forecasted generation heat rates indicate that power supplies are limited. PG&E and SCE will attempt to notify all critical peak pricing customers of the event by 3:00 p.m., the day before the event, using two methods: (1) a telephone call, page, fax, or e-mail depending on the choice of the customer; and (2) a dedicated website informational display that will be updated in real time with the critical peak pricing status.

PG&E's cost for its existing program is $243,000 annually for administrative costs, and $150,000 annually for measurement costs. These costs include the costs to prepare bill analyses for customers based on their actual usage. To implement the rates set forth in the settlement, PG&E estimates incremental costs at $1,648,480, $388,586, and $370,167 in the first through third years of operation, respectively. If measurement and evaluation is handled on a statewide basis, then the annual cost should be reduced by $150,000. Thus, the total cost of implementing a critical peak pricing tariff for PG&E, assuming a statewide evaluation, is $1,991,480, $631,587, and $613,167 in years one through three, respectively. SCE's estimates its first year (2007) implementation cost at $1,816,800, although this estimate was developed for a default rate rather than a voluntary opt-in rate. In Application (A.) 05-06-006 et al., the parties reached a settlement on the proper level of funding for 2006-2008 demand response programs. Table 2 of the settlement exhibit in A.05-06-006 et al. filed on December 2, 2005, identifies the agreed upon funding level for SCE's existing critical peak pricing program at $53,000 annually.

The settlement proposes that PG&E be authorized to flow the authorized revenue requirement approved for its critical peak pricing program, authorized either in this proceeding or A.05-06-006 et al., through its Utility Generation Balancing Account (UGBA), for recovery from its bundled customers only. To the extent that critical peak pricing participation produces lower total billed revenue than would have been billed under the participants' standard tariffs, any such revenue reductions (together with any fuel and purchased power cost savings that result from reduced usage during critical peak pricing events) would be reflected in PG&E's Energy Resource Recovery Account (ERRA) and UGBA through the normal operations of these accounts.

The settlement recommends that all billing and customer communication system infrastructure modifications, administrative, and customer education expenses for SCE be recorded in SCE's Advanced Metering and Demand Response Memorandum Account (AMDRMA) and then transferred upon approval into SCE's ERRA for recovery as prescribed by D.05-01-056. SCE proposes though that the costs be recovered from bundled customers only. To the extent that critical peak pricing participation produces lower total billed revenue than would have been billed under the participants' standard tariffs, any such revenue reductions (together with any fuel and purchased power cost savings that result from reduced usage during critical peak pricing events) would be reflected in SCE's ERRA through the normal operations of that account.

4.2. SDG&E

Unlike the SCE/PG&E settlement, the proposed SDG&E settlement contains a default critical peak pricing tariff applicable to all commercial and industrial customers with loads greater than or equal to 200 kW. This eligibility includes about 1,800 meters. As part of the settlement, SDG&E will make good faith efforts to establish two-way, confirmable contact with each eligible customer before enrolling the customer on the default rate. During its customer contact, SDG&E will provide, to the extent possible, bill impact information as well as information on demand response programs for which the customer is eligible. In the event that SDG&E is unable to establish contact with the customer, the settlement provides that SDG&E shall not place that customer on the default critical peak pricing tariff. The burden is on SDG&E to demonstrate that contact occurred in the event of dispute.

Customers enrolled on the critical peak pricing tariff will receive bill protection for the first 12 months of service but are required to remain on the tariff for a full 12 months. Under SDG&E's settlement, customers will also have the option of reserving capacity, and paying a capacity fee; the portion of the customer's demand for which capacity is reserved will not be subject to critical peak pricing tariffs. The maximum number of critical peak pricing events shall not exceed 15, while the minimum number shall not fall below four.

Customers enrolled on SDG&E's existing Schedule EECC-CPP (voluntary critical peak pricing) prior to a Commission decision in this proceeding will remain under that program until their contracts expire. Upon contract expiration, those customers will default to the critical peak pricing tariff or may opt out. After the Commission renders a decision approving the Settlement Agreement, Schedule EECC-CPP will be closed to new customers eligible for the default critical peak pricing tariff, but Schedule EECC-CPP-E will remain available.

SDG&E's cost for its existing critical peak pricing program is $253,897 for operations and maintenance costs, $42,422 for capital, and $82,158 for measurement costs in 2006. (Exhibit 1022.) These costs do not include the costs to prepare bill analyses for customers based on their actual usage. Exhibit 1009 identified that SDG&E expected the cost to implement a default critical peak pricing tariff to be a total of $1,256,000. The settlement does not address program costs, thus it is unclear whether the total identified in Exhibit 1009 is incremental to the existing program or inclusive of those costs.

For ratemaking purposes, any critical peak pricing revenue over- or under-collections are proposed to flow through the SDG&E ERRA, administrative costs will be recovered through the AMDRMA, and the resource adequacy requirements value of the program will be allocated in accord with the final decision regarding resource adequacy in Commission proceeding Rulemaking 04-04-003.