Discussion

DRA opposes PG&E's request on several grounds.

DRA states that since franchise fee factors are updated in GRCs, the Commission's general ratemaking approach is not to update GRC assumptions, forecasts and adopted values in between rate cases. The rationale is that utility shareholders benefit if costs turn out lower than authorized in GRCs and shareholders bear the burden if costs turn out higher than authorized.

DRA argues that what PG&E is requesting in this proceeding is to modify the authorized approach to recovering its franchise fees that was addressed and considered in its last GRC. Further, DRA argues that, PG&E has not shown a compelling need for the Commission to modify its practice of not updating specific cost items between GRCs. DRA points out that the amounts of money involved in PG&E's request are relatively small, approximately $2 million per year, and DRA believes that this amount is well within the level of risk that shareholders are exposed to under standard GRC rate setting.

PG&E responds that it is not seeking modification of the adopted GRC franchise fee approach. Under that approach, the GRC-adopted franchise fee factor is applied to all of PG&E's revenues, whether those revenues are adopted in PG&E's GRC or some other proceeding. PG&E points out that, for example, the franchise fee factor is applied to its: (1) Energy Resource Recovery Account (ERRA) and Modified Transition Cost Revenue Account (MTCBA) revenues; (2) Biennial Cost Allocation Proceeding (BCAP) - adopted revenues; and, (3) Energy Recovery Bond (ERB) revenues established in D.04-11-015 and associated advice letters, all matters outside of GRC proceedings.

We do not find DRA's argument persuasive. PG&E is not seeking to modify the Commission's GRC ratemaking approach to recovery of franchise fee costs. PG&E is simply asking that current ratemaking practice be followed whereby the GRC adopted franchise fee factor be applied to its RRB revenue related franchise fee payments to local governments, so that PG&E can be compensated for these costs on a prospective basis.

DRA argues that when PG&E signed the bankruptcy settlement agreement (Settlement Agreement), PG&E agreed that the " . . . Agreement and the Settlement Plan, upon becoming effective... shall be irrevocable and binding upon the Parties..." (D.03-12-035, Appendix C, Approved Settlement Agreement, Paragraph 21.) Therefore, DRA contends that even assuming PG&E could show that it has not recovered these franchise fee costs from its customers, it is too late to try to attempt to recover them now, since PG&E agreed in the Settlement Agreement to an amount that would settle "all unrecovered costs of utility service from retail electric ratepayers." DRA argues that PG&E is bound by the Settlement Agreement which precludes this attempt to increase the RRB costs to retail electric ratepayers.

PG&E responds that, while the bankruptcy Settlement Agreement resolves any disagreement over the recovery of electric costs incurred prior to the beginning of 2004, it does not set limits on PG&E's rates for electric costs incurred in 2004 and beyond. PG&E points out that the Settlement Agreement explicitly provides that "Nothing in this Agreement shall be construed to create a rate freeze or rate cap for PG&E's electric or gas business." (D.03-12-035, Appendix C, Approved Settlement Agreement.) And, as the Commission explained in approving the Settlement Agreement, "the PSA did not address the ratemaking treatment or amounts going forward for the other 95% of PG&E's electric revenue requirements [not including the revenue requirement associated with the "Regulatory Asset"] or what PG&E's overall retail electric rates should be during the next nine years [beginning in 2004]." (D.03-12-035, p. 28.)

We are not persuaded by DRA's argument that the bankruptcy Settlement Agreement precludes PG&E from recovering RRB revenue franchise fee costs for 2006 and beyond. PG&E has emerged from bankruptcy and is not seeking to recover franchise fee costs incurred during the bankruptcy. Furthermore, D.97-09-055 anticipated that several ratemaking adjustments may be needed to residential and small commercial customer rates after the end of the rate-freeze period due to the RRB transaction (p. 23).

DRA argues that granting PG&E's request would be contrary to D.97-09-055 and would violate § 840 et. seq. of the Public Utilities Code. DRA notes that in September 1997, the Commission issued D.97-09-055 authorizing PG&E to finance a portion of the rate reduction mandated by Assembly Bill (AB) 1890 through RRBs. Specifically, D.97-09-055 authorized PG&E to:

...recover an aggregate total principal amount of three billion, five hundred million dollars ($3.5 billion) in transition costs, as defined by PU Code Section 840(f), which may be recovered through fixed transition amounts (FTA) as defined by PU Code Section 840(d), to the extent of the sum of the principal amount of (i) related rate reduction bonds, as defined by PU Code Section 840(e), issued by a financing entity, as defined by PU Code Section 840(b) and (ii) the transition property, as defined in PU Code Section 840(g), pledged as overcollateralization for the issuance of such rate reduction bonds. (D.97-09-055, Ordering Paragraph 2.)

DRA finds no justification for PG&E's claim, eight years after the fact, that the Commission intended that PG&E also recover the cost of franchise fees related to RRB revenues. In regard to PG&E's reference to various tables in Chapter 4 of testimony PG&E submitted with its 1997 RRB application, DRA points out that D.97-09-055 does not include these tables, nor does it include any reference to a right of PG&E to collect additional franchise fees. According to DRA, D.97-09-055 authorizes PG&E to recover transition costs from the proceeds of debt securities and rate reduction bonds in an aggregate principal amount of up to $3.5 billion, and no more. DRA argues that D.97-09-055 is, thus, a financing order within the meaning of Pub. Util. Code § 841(c), which states:

Notwithstanding Section 455.5, Section 1708, or any other provision of law, except as otherwise provided in this subdivision with respect to transition property that has been made the basis for the issuance of rate reduction bonds, the financing orders and the fixed transition amounts shall be irrevocable and the commission shall not have authority either by rescinding , altering, or amending the financing order or otherwise, to revalue or revise for ratemaking purposes, the transition costs, or the costs or providing, recovering, financing or refinancing the transition costs .... (§ 841(c), emphasis added.)

PG&E does not take issue with DRA's conclusion that D.97-09-055 is a financing order within the meaning of § 841(c). However, PG&E contends that § 841(c) does not bar PG&E's request to recover franchise fee costs associated with RRB revenues on a prospective basis. According to PG&E, it is not seeking any modification of D.97-09-055, but is seeking to modify its tariff ratemaking mechanisms to more closely align them with the dictates of D.97-09-055.

PG&E argues that, to determine whether D.97-09-055 contemplates that PG&E's customers or PG&E's shareholders are to bear the burden of the franchise fees associated with FTA revenues, one must examine the decision. PG&E notes that at p. 16, the decision discusses ratepayer benefits to be provided from the RRB transaction, and states that they will be based on a ". . . calculation in accordance with the bond sizing model described in PG&E's prepared testimony . . ." (Emphasis added.) In other words, according to PG&E, the burdens and benefits to be received by PG&E's customers are as presented in PG&E's bond sizing model presented in PG&E's prepared testimony in that proceeding. Also, Finding of Fact 3 of the decision similarly indicates that PG&E's customers should receive benefits associated with the RRBs consistent with PG&E's modeling of these benefits in its prepared testimony in the RRB proceeding. Finding of Fact 3 states, "Residential and small commercial customers will benefit from the issuance of RRBs and the reduction of rates provided that the net present value of fixed transition amounts and rate reduction is positive when calculated in accordance with the methodology set forth by PG&E in its application and related testimony." (Id. Finding of Fact 3 (emphasis added).) PG&E contends that thus, the clear intent of the RRB decision is that the burdens and benefits imposed on PG&E's customers in connection with RRBs are to be consistent with how these were modeled in PG&E's testimony.

We disagree with DRA. PG&E is not seeking a modification of its RRB financing order, D.97-09-055, in this proceeding. That decision anticipated that PG&E would recover costs as shown in its modeling of benefits and burdens of the RRBs, and included in the modeling are franchise fee amounts associated with RRB revenues. Furthermore, PG&E is not seeking modification of its RRB financing order D.97-09-055; therefore, § 841 of the Pub. Util. Code does not prohibit the Commission from granting the relief PG&E is requesting here.

Previous PageTop Of PageNext PageGo To First Page