8. Funding and Program Limits

We are convinced by parties that we must address funding. We are also convinced that we must establish limits so that the cost of interruptible programs and new curtailment priorities do not get outside just and reasonable bounds, potentially causing harm to public health, safety and welfare similar to that which is now caused by the dysfunctional wholesale market itself.

8.1 Funding

Much of what we authorize today can be accomplished within existing rates and sources of funds. For example, adopted improvements to existing tariffs require no new rates or funds. Similarly, no new rates or funds are needed for extending current programs to December 31, 2002, requiring a declaration regarding insurance, lifting penalties for non-compliance, and reopening SCE's existing air conditioner cycling program.

Moreover, customers electing to opt out of SCE's program will increase SCE's sources of funds. This will occur to the extent some customers return part or all of their interruptible load to firm service. This already occurred for PG&E when 124 MW (20%) of its interruptible customers left the program in November 2000.

Further, many other changes we make today do not require an overall increase in rates, or new funds from all customers. For example, no new rate design or new funds are required to include most transmission customers in rotating outages (e.g., individual customers will fund installation of automatic switching for non-compliance). Similarly, no new rates or funds are needed to require a declaration from essential customers before they may participate in an interruptible program; require utilities to coordinate outages where feasible for fossil fuel producers, pipelines and users; and exempt BART and underground MUNI operations from rotating outages.

Some programs, however, may require new sources of money. For example, new funds may be needed for the new BIP, VDRP, SCE's new air conditioner cycling program, and new meters. Additional funds not now available from existing rates may be needed for utility implementation of OBMC programs, required studies (e.g., reconfiguring circuits to narrow exempted load), and outbound calling programs for PG&E and SDG&E.

We consider three possible sources of funds proposed by parties, including the one recommended by Joint Parties. These are: ISO rate, respondent utility surcharge, and DWR procurement rate. We also consider a utility memorandum account.

First, some parties suggest that all program costs be included in ISO rates and charges. We decline to pursue this option. ISO rates are set by FERC, which may or may not allow such charges. ISO revenues are dependent upon funds from respondent utilities. Those funds, at least in the viewpoint of some parties, are currently uncertain. Further, ISO rates and charges may affect municipal utilities. We are told by the ISO that municipal utilities are likely to resist such funding.

Second, we may increase respondent utility rates by a surcharge. We will not do this given the current rate freeze. That is, as we recently said in D.01-03-073, we cannot raise electric utility rates until we have determined that the rate freeze is over, or unless the Legislature specifically authorizes us to impose an additional charge during the freeze to recover these costs. We recognize that SDG&E's rate freeze is over, although there is a rate cap on SDG&E's generation-related rate component. However, SDG&E is also subject to performance-based ratemaking (PBR) for its distribution revenue requirement. It would be inconsistent with the PBR framework to address the level of SDG&E's distribution revenue requirement and rates on a piecemeal basis. Instead, SDG&E may address the costs of these programs within the context of the PBR mechanism in its next PBR and cost-of-service proceeding, and, if reasonable, the Commission may consider the matter further there.

Moreover, we note that we recently raised rates for PG&E and SCE above currently controlled levels by approximately $2.5 billion annually. (D.01-03-082.) We decline to raise rates again here on a piecemeal basis until we have further opportunity to assess the effects and uses of those funds.

Third, Joint Parties recommend that program costs:

"be charged against amounts collected by the UDC [utility distribution company] on behalf of the Department of Water Resources for power supplied by that department to the customers of the electrical corporation." (February 14, 2001 Joint Proposal, page 5.)

We appreciate this creative recommendation. Under current circumstances, however, this option is not available.

At the request of the Administrative Law Judge, PG&E explained how this proposal would work. (February 22, 2001 Comments, page 2.) According to PG&E, if DWR's total revenues from customers for some period is $200 million, and interruptible program costs are $13 million, DWR's net revenue would be $187 million. Apparently, however, there are many details of this proposal that are unspecified and would have to be worked out.

Under current legislation, DWR establishes its own revenue requirement at what DWR determines to be just and reasonable levels.³¹ It is unlikely that DWR will accept a discount from total revenues to cover the cost of utility interruptible programs.³² Further, there are questions about DWR or Commission authority to reflect utility interruptible program costs in DWR's revenue requirement, or to impose a higher DWR revenue requirement on utilities.³³ These issues need further examination.

The fourth option is to authorize respondent utilities to track program costs in a memorandum account for future recovery. That recovery might be in ISO, DWR or utility rates, or some other source of funds. Legislation may soon authorize recovery of these funds from any number of sources. This is the option we will adopt.

The balance in each memorandum account may include all dollars each respondent utility believes it has spent or received above funds authorized in current rates to implement any decision in today's order. The accounting must separately identify the basis for each cost or revenue (e.g., separately track costs from the new BIP, VDRP, SCE's new air conditioner cycling program, each curtailment study; separately track revenues from penalties or other sources related to BIP, VDRP, OBMC; separately track incremental firm service revenues from customers who elect to opt our or change from service level). Utilities may include interest on the balance in each memorandum account.

The burden to demonstrate reasonableness for cost recovery will be on each respondent utility, but the bar will be low. That is, we are in a State of Emergency. We expect and believe that each utility will act reasonably and responsibly to assist the State weather this crisis. We will review the balance in each memorandum account for reasonableness before authorizing recovery but, absent incompetence, malfeasance, or other unreasonableness, we would expect to authorize full recovery of all dollars spent by utilities for these programs to get California through this crisis.

The balance in each memorandum account will be included in some funding source as soon as possible. In the interim, we direct utilities to implement programs authorized herein without delay. The Governor has declared a State of Emergency. The current conditions have been seriously jeopardizing the health, safety and welfare of every Californian for months, and may continue to do so for the foreseeable future. We require each respondent utility to implement today's orders without delay as part of their public utility obligation.

8.2 Program Limits

We cap program authorization to the following megawatt and dollar limits:

TABLE 3

INTERRUPTIBLE PROGRAM AND CURTAILMENT

PRIORTY LIMITS THROUGH DECEMBER 31, 2002

UTILITY	INTERRUPTIBLE PROGRAM LIMIT (MW)	TOTAL ANNUAL PROGRAM DOLLAR LIMIT ($ MILLION)
PG&E	2,000	$200
SCE	2,750	$275
SDG&E	250	$25
TOTAL	5,000	$500

We adopt these limits to prevent over-subscription or overspending if programs are not as necessary as they now appear to be. The megawatt limits apply to the total megawatts that may be subscribed to interruptible programs through December 31, 2002 without further Commission authorization. This includes the currently subscribed 2290 MW. (See Table 2.) If a currently subscribed megawatt transfers from an existing program to a new program (e.g., by exercising an opt-out option), however, that megawatt shall not be counted twice against the program total.

Similarly, the dollar limits apply to the total dollars to be spent by each respondent utility on an annual basis for total interruptible program costs, and new costs implementing changes to curtailment priorities, without further authorization. These limits shall apply separately for January 1, 2001 through December 31, 2001, and January 1, 2002 through December 31, 2002. These dollars include amounts funded in current rates, and those recorded in the memorandum account of each respondent utility.

We determine the megawatt limits by a combination of the success each utility has had to date with megawatts subscribed to interruptible programs, and the customer base of each utility. PG&E and SCE have approximately the same customer base, reflecting in some way the possible pool of potential interruptible megawatts and megawatt-hours, while SDG&E has a much smaller base. SCE has had the most program success (see Table 2). Even with a lower percentage of performance, SCE has a larger number of performing megawatts. On balance, we adopt the megawatt limits in Table 3 to reflect those variations.

Current program costs are about $100 per kW per year.³⁴ We apply this amount to the adopted megawatts to determine total funding authorization. The funding limits apply to all programs, including the VDRP (i.e., a pay-for-performance program, not a payment for capacity program).

These limits are reasonable under current conditions, but we must be flexible if conditions deteriorate and warrant further change. Our adopted regulatory system to permit change, however, must protect ratepayers while allowing reasonably quick response during this time of crisis.

Therefore, we authorize each respondent utility to file and serve an application, as needed, requesting a specific increase in megawatt or dollar limit. The application shall clearly state if respondent utility applies for an increase in the megawatt or dollar limit on an expedited basis, and cite any necessary authority for the Commission to act on an emergency basis.

We must have timely and accurate information about the success of the programs we order today, and the costs that are being incurred. To accomplish this objective, respondent utilities shall each file a monthly report with the Commission. The report shall be due 7 days after the end of each month, and report on all matters through the end of the immediately previous month.

The first report shall be filed in this docket on June 7, 2001, and shall report on matters through May 31, 2001. The report shall be served on the Presiding Officer (two copies), Energy Division (three copies), the Administrative Law Judge, and any party requesting a copy.

The report shall state megawatts subscribed, program operations, program costs, program revenues, customer-incurred penalties, and any other relevant information the Commission should know to be reasonably informed. Program costs and revenues shall include all incurred costs and revenues, even if not yet spent or received (e.g., capacity programs obligate payments throughout the year even if not paid by the time of a particular monthly report). Further, the report shall include the number of interval meters that have been provided, or are committed, to program participants without charge (e.g., for BIP, VDRP).

We may propose reducing the megawatt and dollar limits going forward if these reports, along with other information (e.g., forecast reserve margins) show that continuation of these relatively expensive programs is unnecessary. That is, we seek to prevent over-subscription or over-spending if conditions change, and these programs prove unnecessary. We welcome any party filing and serving a timely pleading (e.g., petition for modification) for Commission action if, in the party's judgment, program limit reductions become appropriate.

We authorize these megawatt and dollar amounts through December 31, 2002. This will permit sufficient flexibility and authority to allow reasonable program implementation through the near term crisis. It will also, however, permit timely reassessment before continuation of these relatively expensive programs based on the then-current need.

³³ Again using PG&E's example, it is unclear whether a $200 million DWR just and reasonable revenue requirement might be made $213 million by DWR or the Commission.