VII. Ratemaking Changes
The parties suggest several ratemaking changes. They involve 1) the interest rate on funds collected from the CPT, 2) credit to ratepayers for any tax benefits created by the retirement of GHG reductions, and 3) allocation of A&M costs to non-participating ratepayers on an equal cents per unit of energy basis.31 We adopt the first two proposed changes.
DRA, TURN and Aglet propose that CPT premiums collected but not yet spent earn interest not at the three-month commercial paper rate, as is Commission practice for balancing accounts, but at PG&E's cost of capital, a higher rate. The reasoning for this proposal is that the "Climate Protection Balancing Account" (CPBA) in which PG&E proposes to hold CPT revenues collected but not yet spent will be overcollected for most of its life, at a projected balance of approximately $20 million.
PG&E opposes cost of capital treatment because PG&E does not receive that same, higher, interest rate in accounts that are undercollected.32 PG&E believes this lack of reciprocity renders the proposal unfair.
This program is unique in that revenues collected may be spent far into the future on long-term contractual commitments. Under this scenario, millions of dollars collected today might not be spent for 10 or 20 years, as long-term contractual obligations come due. Using a short-term (3 month) interest rate for such funds undercompensates ratepayers for PG&E's use of money in the interim period. Thus, we agree that it is more appropriate to use a long-term interest rate such as the cost of capital as a means of reimbursing ratepayers for PG&E's of the funds between the time they are collected and they time they are used to meet contractual commitments.
TURN surmises that GHG reductions could be treated as a deductible expense on PG&E's returns under federal and state tax rules. PG&E's witness was unsure whether the reductions would generate deductions, but agreed that it would be appropriate for PG&E to credit ratepayers with any tax benefits.33 PG&E agrees in its brief with TURN's recommendation, as long as ratepayers are paying for the A&M costs of the program:
PG&E recommends that the Commission also:
Include an ordering paragraph that if there are any tax benefits to PG&E as a result of the CPT's retired certified emissions or other benefits, that the value of these will be allocated to all customers if all customers are funding the CPT's administrative and marketing costs[.]34
We agree that because ratepayers are bearing the A&M costs of the program, they should receive the tax benefits, if any, that PG&E claims on its tax returns for GHG reductions.
TURN, DRA and Aglet propose that to the extent ratepayers as a whole pay A&M costs, these costs be charged to ratepayers on an equal cents per unit of energy basis (rather than billing the costs to ratepayers based on the percentages of PG&E's revenues they pay). PG&E objects, explaining that how costs are allocated across ratepayer groups is a complicated formula litigated in GRCs. PG&E notes that "equal cents allocation" is not used for energy efficiency, the California Solar Initiative, or demand response and asserts it should not be used here either. PG&E also anticipates that 90% of CPT customers will be residential, but will bear only 48% of A&M costs based on a revenue allocation formula drawn from PG&E's GRC. TURN challenges PG&E's claim, stating that equal cents allocation is used in several public purpose program contexts.
PG&E is correct in its assertion that the cost allocation methodology used in the context of public purpose programs is determined within each utilities' respective GRC. It is not our intent to use this proceeding as a venue to institute piecemeal changes to the policies adopted therein. Instead we will defer to that process and apply the same cost allocation methodology to this program as that used for programs that are most analogous to the Climate Protection Tariff. While examples of public purpose programs that allocate costs on an equal cents per kilowatt hour basis exist, there are also examples where the costs are allocated on a percentage of revenue basis. TURN specifically observes that the costs of the CARE program, nuclear decommissioning, and DWR bond charges are allocated on an equal cents per kWh basis. TURN uses this as the basis for arguing that a similar allocation methodology should be applied in this case. By the same token, as PG&E notes, it is also true that energy efficiency programs, the California Solar Initiative, and demand response programs are funded on a percentage of revenue basis. We believe that the CPT is more akin to these latter public purpose programs than those identified by TURN. All of these programs seek to reduce barriers to voluntary actions by ratepayers that offer substantial environmental and therefore public benefits. Again, we are not seeking to delve into the specific rationale for why the approach adopted in PG&E's GRC for cost allocation in the context of these types of programs is appropriate. Rather we are deferring to that process and simply seeking to apply the same approach that based on what we know of this program would have been applied had the CPT existed when the GRC was being litigated.
31 We reject certain ratemaking adjustments proposed by the parties because PG&E never proposed the ratemaking steps the parties oppose. See, e.g., PG&E reply brief at 33 (PG&E does not propose debt equivalence for GHG contracts, so TURN's concern is unfounded); see id. at 35 (PG&E commits that it will not seek attrition adjustments during the 2007 GRC test years, as Aglet has suggested). We therefore adopt these commitments by PG&E in this decision.
32 See, e.g., D.05-09-007, mimeo., p. 15 (Overcollections owed to ratepayers for multiple years should have interest at the three-month commercial paper rate).
33 RT Vol. 3, page 481, Luboff.
34 PG&E reply brief at vii.
