V. Positions of Parties With Respect to Methodology for Calculating the CPA

In its initial proposal, Edison proposes to calculate the CPA on a monthly basis by subtracting recorded generation-related costs from generation-related revenues. Edison will send the amount by which revenues exceed costs to DWR only if no deficits exist from prior months. If revenues are less than costs, Edison proposes to create and record this deficit in a CPA Balancing Account.

Edison contends that DWR's proposal to receive a portion of Edison's generation revenues is inconsistent with Public Utilities Code Section 360.5 and should be rejected. However, Edison believes that DWR's proposed calculation of the CPA has merit if the Commission makes some adjustments. In any case, Edison argues that a rate increase is needed to ensure that Edison, Qualifying Facilities (QFs) and DWR have sufficient funds to provide power. Edison asserts that the Commission should immediately declare an end to the rate freeze and raise retail rates. Edison's March 21, 2001 filing, in response to the DWR letter, calculates that the CPA is negative, using DWR's methodology (Appendix A). Edison calculates that a 60.84% increase in the total rate level is needed if DWR's methodology is used (Appendix B).

Edison also contends that AB 1X provides that Edison must be made whole for the generation it provides through existing contracts and retained generation. Edison proposes that the Commission accomplish the goal of making both it and DWR whole for the costs they each incur in procuring power for Edison's customers by adopting three separate, dedicated rate components with associated balancing accounts. These three rate components would be Edison Retained Generation, Edison Contracts, and DWR Contracts.

An initial amount would be established for these components based on an estimate of costs for each component for the next 12 months. The revenues collected from those components along with their associated costs would be tracked in a balancing account. At regular intervals, based on the extent of the amounts over- or under-collected, rate components would be adjusted. In addition, the annual forecasts would be reviewed and adjusted where necessary in the Annual Revenue Adjustment Proceeding (RAP).

PG&E proposes to calculate the CPA in a two-step process. First, PG&E would subtract its costs and other adjustments from its gross generation revenues to determine the generation-related component of its revenues. Second, PG&E would subtract its generation-related costs to determine the CPA. PG&E proposes to provide the CPA to DWR, if revenues exceed costs.

PG&E believes that DWR reads more into AB 1X than the plain language of the statute allows, by claiming an unlawful entitlement to a portion of the revenues recoverable by PG&E for utility service, which would result in an unconstitutional taking. In addition, PG&E asserts that DWR's proposal would build into PG&E's current rates a continuing shortfall, leaving it without sufficient revenues from the generation component of rates to pay the generation-related costs specified by AB 1X. This would cause PG&E's power suppliers to refuse to sell to it. Like Edison, PG&E proposes that the Commission declare an end to the rate freeze and increase rates.

SDG&E similarly proposes to subtract costs from generation-related revenue to calculate the CPA. SDG&E also proposes to carry over negative amounts to future months for future collection.

SDG&E believes that the Commission cannot implement DWR's CPA proposal because DWR's methodology is based on misunderstandings of fundamental ratemaking concepts (e.g., confusing adopted rates and actual costs). Further, SDG&E asserts that DWR has misread the law and reached erroneous conclusions, such as its belief that the CPA can never be negative, that the CPA should be calculated as a rate instead of a dollar amount, and that the CPA cannot change. SDG&E asks the Commission to carefully review DWR's proposal and to adopt a CPA calculation which is consistent with the law and ratemaking practices, is logical, and is capable of being implemented quickly.

Various parties including Aglet, TURN and ORA disputed the numerous specifics of the utilities claims. In sum, pleadings indicate that the utilities' proposal must be closely scrutinized.