II. Modification of Appendix Tables

A. Parties' Position

PG&E requests modification to clarify the purpose and significance of Appendix Table 3C attached to D.06-07-030 entitled "MDL CRS Accrual Rates Recommended by Working Group." Among other things, the table sets forth "MDL Indifference Rates[s]" for PG&E for 2003, 2004, and 2005. From the Indifference Rate, the table derives "MDL Power Charge Rates[s]" for PG&E for 2003, 2004, and 2005, as well.

PG&E requests this modification to D.06-07-030 to address the protest by the Power and Water Resources Pooling Authority (PWRPA) filed on October 24, 2006, to PG&E's supplemental Advice Letter 2835-E-A (proposing Schedule E-NWDL). In its protest, PWRPA had objected to the Department of Water Resources (DWR) Power Charge proposed for "Additional Customer Load."¹ The Commission stated in D.06-05-018 (Ordering Paragraph 3, p. 20) that "Additional Customer Load" is responsible for corresponding CRS-related costs as had already been imposed on other departing load customers. Accordingly, PWRPA looked to the MDL CRS accrual amounts in Appendix Table 3C of D.06-07-030 as guidance concerning the charges applicable to Additional Customer Load.

PWRPA had protested the supplemental advice letter on the grounds that the DWR Power Charge that PG&E proposed for the period from January 1, 2005 through June 30, 2006 ("2005 Vintage Period") had not been authorized by D.06-07-030 and materially differed from the estimated costs associated with such charge, as reflected in D.06-07-030, Appendix Table 3C.

PG&E thus requests that D.06-07-030 be modified to affirm that the numbers presented in Appendix Table 3C for PG&E are not intended to retroactively modify the DWR Power Charge applicable to MDL or any other non-bundled customers for the period prior to June 30, 2006. PG&E states that Table 3C was developed for illustrative purposes, to ensure that the ratemaking adopted by the Commission in D.06-07-030 was consistent with the Commission's previously stated goals with regard to elimination of the "CRS undercollection." That table, as well as Table 3B, presents CRS accrual amounts from which estimates could be derived of when the CRS undercollection might reach zero based on application of the 2.7 cents per kilowatt hour (kWh) cap.

Table 3C is not mentioned in the body of the decision. PG&E thus proposes a modification merely adding a footnote on Table 3C stating:

No market benchmarks for PG&E were adopted for 2003 - 2005. For 2006, PG&E does not have any purpose for an "MDL Accrual Rate." Therefore, for PG&E, the calculations for 2003 - 2006 are illustrative only. The market price benchmarks for 2003 - 2005 were imputed from the adopted cost responsibility surcharge undercollection for PG&E as of December 31, 2005, in Decision 06-07-030. However, as described in Decision 06-07-030, no reported undercollections are applicable to MDL CRS obligations as of December 31, 2005, for PG&E.

A response in opposition to PG&E's Petition was filed by the California Municipal Utilities Association (CMUA).² CMUA argues that PG&E's Petition seeks approval to charge MDL customers based on a methodology that would substantially overcollect CRS funds. CMUA argues that instead of basing a DWR Power Charge upon actual costs, PG&E would determine the DWR Power Charge on a residual basis, as the difference between the $0.027 per kWh CRS and (a) the DWR Bond Charge, (b) the Energy Cost Recovery Amount, (c) the ongoing Competition Transition Charge (CTC). As a result of the use of this methodology, under PG&E's proposed Schedule E-NWDL, the DWR Power Charge for Additional Customer Load during the 2005 Vintage Period was $0.01347 per kWh (or 1.345 cents per kWh).³ By contrast, Table 3B of Appendix 6 in D.06-07-030 shows an illustrative DWR Power Charge accrual rate applicable for PG&E during 2005 of only $0.000264 per kWh.

CMUA thus argues based on this comparison, that application of the 2.7 cents per kWh CRS methodology to MDL, as proposed by PG&E, will result in significant sums being collected from MDL above what is needed to repay actual MDL CRS obligations. CMUA further argues that PG&E's proposal bears no relationship to past or present estimates of the DWR Power Charge obligations of MDL and thus results in significant cost shifting. CMUA claims that for the pre-July 2006 period, a reasonable estimate of the DWR Power Charge obligation of MDL is zero, or thereabouts.

CMUA thus opposes PG&E's Petition, and proposes that PG&E be required to resubmit CRS accrual amounts "along the lines previously directed in D.06-07-030, as has been done by [Southern California Edison Company] SCE and [San Diego Gas & Electric Company] SDG&E through the Working Group Petition."⁴

PG&E characterizes CMUA's and PWRPA's position as arguing that D.06-07-030 was intended to retrospectively modify the 2.7 cents per kWh cap applicable during 2005 to non-bundled customers responsible for the DWR Power Charge. PG&E therefore seeks the modification to D.06-07-030 to refute the objection of PWRPA in its protest regarding the applicable DWR Power Charge.

PG&E filed a third-round reply to CMUA, maintaining its previous position. PG&E also argues that CMUA's response relates only to the applicable DWR power charges for the period prior to June 30, 2006, and that there should be no question as to what the adopted PCIA is for all non-bundled customers beginning on June 30, 2006. PG&E further argues that there should be no further litigation as to what adopted Power Charge Indifference Adjustment (PCIA) will apply for all non-bundled customers beginning on January 1, 2007.

B. Discussion

In order to place PG&E's Petition in its proper context, it is useful to clarify what departing load categories would be affected by disposition of the Petition. PWRPA's protest of supplemental Advice Letter 2835-E-A specifically focuses on Additional Customer Load to be served under Tariff Schedule E-NWDL. While PG&E's Petition was in response to PWRPA's protest, PG&E seeks modification of an appendix table of D.06-07-030 labeled as applying to "MDL customers," to clarify that the numbers presented for PG&E were not intended to retrospectively modify the DWR Power Charge applicable to any non-bundled customers, including MDL. In its response to PG&E's Petition, CMUA frames its remarks within the general context of "MDL" customers without specific reference to Schedule E-NWDL.

Yet, in view of the exceptions applicable to MDL customers, D.06-07-030 "affirmed that no DWR Power Charge undercollections applied to MDL customers as of December 31, 2005." (D.06-07-030 at 30.) Therefore, although the parties' pleadings appear to implicate MDL, PG&E does not seek to modify MDL customers' exception from DWR Power charges for periods up to June 30, 2006. We clarify that the only departing load customers affected by PG&E's Petition are those that are not exempt from a DWR Power Charge. While CRS obligations applicable to Additional Customer Load were based upon provisions applicable to other departing load customers, they were not generally granted exceptions from DWR Power Charges. This is also true for Split-Wheeling Departing Load Customers who were responsible for CRS-related changes pursuant to D.03-09-052.⁵ Accordingly, we shall address PG&E's Petition recognizing that the issues raised therein relate, at most, to those categories of departing load customers that are not already exempt from the DWR Power Charge.

There is no apparent disagreement concerning PG&E's limited assertion that the Appendix table figures in D.06-07-030 are illustrative and do not depict actual DWR Power Charges. CMUA objects to PG&E's Petition, however, based on PG&E's interpretation of D.06-07-030 in defense of its derivation of DWR Power Charges. CMUA does not, however, dispute the actual language in PG&E's proposed footnote modification. CMUA concedes that the Appendix table figures are illustrative, but argues that they still provide the "best estimate of the actual obligation" of MDL for the DWR Power Charge.

To the extent that PG&E's proposed modification merely affirms that the Appendix table figures are illustrative, the footnote modification to Table 3C of D.06-07-030 as proposed, is reasonable. Within that limited context, we grant the Petition for Modification and incorporate the footnote language as requested. Nonetheless, our adoption of the modification is not an endorsement of PG&E's proposal for deriving a DWR Power Charge for 2005 for non-exempt departing load customers, including those to be served on Schedule E-NWDL without taking into account the effects of overcollections.

PG&E seeks the proposed modification to support its argument that Table 3C of D.06-07-030 "does not retrospectively adjust the [amounts] applicable to non-bundled customers prior to June 30, 2006," and that "it does not modify the historical levels of the DWR Power Charge that pre-dated the PCIA charge." (PG&E, p. 4.) PG&E thus believes that "historical levels" for the 2005 Power Charge apply residually, equal to the difference between the 2.7 cents/kWh cap and the other applicable nonbypassable charges.

We affirm that previous Commission decisions issued through D.06-07-030 authorized PG&E to apply the 2.7 cents/kWh CRS cap on a residual basis to non-bundled customers responsible for paying the DWR Power Charge for the period through June 30, 2006. We also affirm that D.06-07-030 did not establish a specific revised DWR Power Charge for non-bundled customers applicable to the period ending June 30, 2006. Accordingly, PG&E's authorization to accrue a DWR Power Charge applicable to non-bundled customers subject to that charge based on residual application of the 2.7 cents/kWh CRS continued through June 30, 2006.

Our adoption of the 2.7 cents/kWh cap, however, was never intended to constitute a final cost determination of DWR Power Charges applicable to MDL through June 30, 2006. PG&E argues that the 2.7 cents/kWh cap made applicable to MDL in D.03-07-028 was not implemented "subject to refund," but only "on an interim basis" until the Commission decided whether to apply it "for a longer period." (PG&E, p. 3.) While we did not explicitly use the expression "subject to refund" in authorizing the 2.7 cents cap, we never intended for the 2.7 cents cap to produce permanent overcollections. Rather, the 2.7 cents cap merely served as a placeholder ceiling on the maximum level of charges to MDL customers within a given year until undercollections were paid down to zero. The cap was not to measure final "historical levels" of cost responsibility for DWR Power Charge for MDL customers (any more than for other non-bundled customers).

We thus conclude that PG&E is incorrect in implying that actual "historical levels" of the DWR Power Charge had been finalized for MDL based upon the 2.7 cents/kWh cap without a true-up. PG&E identifies no Commission decision, either in D.06-07-030 or elsewhere, in which we affirmed that the 2.7 cents/kWh cap provided the basis to derive final "historical levels" of DWR Power Charges applicable to MDL customers (and by extension, to other departing load customers) for periods prior to June 30, 2006.

Instead, the 2.7 cents/kWh cap was applied to MDL with the explicit provision for subsequent consideration and adjustment. As stated in D.03-07-028, Conclusion of Law (COL) 14: "the issue of whether or to what extent to cap the MDL CRS should be deferred pending further developments with respect to the DA CRS cap and the quantification of MDL CRS obligation." By ruling on March 28, 2005, the assigned Administrative Law Judge (ALJ) directed the Working Group to "produce the calculations required for the Commission to adopt the MDL CRS obligations to date." If the actual historical figures for DWR Power Charges had already been finalized by applying the 2.7 cents cap, there would have been no point in directing the Working Group to calculate further figures.

By contrast to the 2.7 cents/kWh cap which functioned as a placeholder, the actual DWR Power Charge obligation was to be finalized through the Total Portfolio Indifference calculation designed to avoid cost shifting between bundled and non-bundled customers. The difference between the residual collections under the 2.7 cents CRS cap and the actual DWR Power Charge represents the accrued under-or-overcollection in the CRS obligation. Thus, in order to avoid cost shifting, the ultimate goal is to reach the point where the CRS under-or-overcollection equals zero.

In D.02-11-022, we explained that the 2.7 cents cap was not intended to represent a specific quantification of DWR Power Charges but rather serve as a placeholder limiting annual charges until undercollections were paid down:

"Although the total DA CRS requirements are expected to exceed 2.7 cents/kWh in the early years, these DA CRS requirements are forecast to decline over time. ... In addition, based on the long-term forecasts presented in this proceeding, the DWR Power Charge applicable to DA CRS is expected to decline over subsequent years such that the overall DA CRS elements will drop well below the 2.7 cents cap. Thereafter, DA CRS collections are expected to yield a surplus to pay down prior undercollections." (D.02-11-022, mimeo., pp. 118-119.)

Once the prior DA CRS undercollections were paid down to zero, we did not continue to apply the 2.7 cents cap. This principle applies for MDL customers just as it does for DA customers. Accordingly, in D.06-07-030, in implementing the transition from a tops-down residual methodology to a bottoms-up methodology for calculating CRS indifference, we expressly provided for billing adjustments to DA customers to refund previous CRS overcollections due to the 2.7 cents/kWh cap. Although PG&E was deemed to have reached a zero undercollection as of June 30, 2006, D.06-07-030 did not take effect until September 2006. Thus, because "DA customers responsible for the DWR Power Charge will have paid the full 2.7 cents /kWh CRS amounts for ... two months longer than necessary to complete repayment of the DA CRS undercollection for PG&E," we authorized a bill adjustment for these DA customers equal to "the differences between the CRS as it exists once it is lowered pursuant to the instant Commission decision and the CRS these non-exempt DA customers paid during July and August" of 2006. (Id. at 25-26.) Consistency thus requires that a similar principle apply to MDL customers with respect to avoiding any overcollections of CRS.

Therefore, the 2.7 cents cap was to apply during the period that CRS undercollections were being paid down to zero, pending true-up so as to avoid cost shifting. D.06-07-030 provides no basis for PG&E to overcollect DWR Power Charges from MDL, or any other departing load customers covering the period up to June 30, 2006, by applying a 2.7 cents/kWh cap on a residual basis, with no provision for true-up. Yet, PG&E's proposal for applying the 2.7 cents/kWh cap with no true-up could significantly overcollect CRS funds based on estimates of future DWR Power Charge obligations.

To the extent that a DWR Power Charge applies to departing load customers such as Additional Customer Load on Schedule E-NWDL, the ultimate basis for such charge would be the actual Total Portfolio Indifference amount attributable to that category of customers.

Therefore, contrary to PG&E's argument, the residual amounts of the 2.7 cents CRS attributable to DWR Power Charges for MDL customers was subject to further review and adjustment in D.06-07-030 to the extent necessary to bring any remaining undercollection to a zero balance. For DA customers, the Working Group reached agreement that CRS undercollections reached zero as of June 30, 2006. The Working Group, however, did not reach agreement that CRS collections under the 2.7 cents cap would result in a zero undercollection attributable to MDL customers as of June 30, 2006. Likewise, the Working Group did not reach agreement on any single specific benchmark figure to produce a final DWR Power Charge obligation for MDL. In response to the ALJ's directive to finalize the CRS calculations, the Working Group Report stated instead that the MDL CRS cap "does not appear to remain an issue" (see Footnote 2 on p. 4 of the Report). Additionally, the Working Group Report stated:

"based on the data provided by the utilities to the Energy Division as part of this working group process, it appears that for the period 2001-2004 all MDL was exempt from the DWR Power Charge component of the DL CRS. ... No specific information has been provided for 2005, though [it] appears that no MDL will be responsible for the DWR Power Charge component of the CRS for this period, either."⁶

The Commission thus "affirmed that no DWR Power Charge undercollections applied to MDL customers as of December 31, 2005." (D.06-07-030 at 30.) Based on the Working Group consensus, we thus concluded that no further need existed to quantify a specific benchmark, or DWR Power Charge for the 2001-2005 period. Therefore, we made no findings as to when MDL CRS would reach a zero-point undercollection. Likewise, no specific DWR Power Charges for MDL were adopted in D.06-07-030 in view of representations in the Working Group Report. The MDL CRS accrual charges shown in Tables 3A through 3C were illustrative, not because we had already adopted final figures, but rather, because there appeared no necessity to determine specific figures.

D.06-07-030 thus terminated the 2.7 cents/kWh effective after June 30, 2006 for DA/Departing Load customers in the PG&E service territory, and replaced it with a bottoms-up process for deriving indifference charges prospectively based upon the premise that the DA CRS undercollection balance for PG&E reached zero as of June 30, 2006. In other words, we concluded that as of June 30, 2006, the cumulative stream of revenues applied to the DWR Power Charge through the 2.7 cents/kWh cap would finally equal the actual DWR Power Charge costs accrued under the Total Portfolio Indifference method. It was based on this premise that we discontinued the 2.7 cents cap after June 30, 2006, with no further true-up of past CRS revenue collections under the 2.7 cents/kWh cap. Conversely, however, to the extent that the CRS undercollection for a particular non-bundled customer category had not been paid down to zero as of June 30, 2006, a further true-up CRS revenues would be necessary in order to avoid cost shifting.

In view of PG&E's Petition, it is now apparent that CRS undercollections were not at zero as of June 30, 2006 for all non-bundled customer categories subject to a DWR Power Charge. In particular, Additional Customer Load" subject to Schedule E-NWDL and Split-Wheeling Departing Load subject to Schedule E-SDL were not taken into account as part of the Working Group consensus that the June 30, 2006 CRS undercollection balances were deemed to be zero.

Given that charges under Schedule E-NWDL and Schedule E-SDL were not covered by D.06-07-030 findings that DA CRS undercollections were deemed to be zero as of June 30, 2006, then, CRS collections applicable to Schedule E-NWDL and Schedule E-SDL are yet to be brought to zero. In D.06-07-030, we did not consider the effects of customers for whom CRS undercollections still remained as of June 30, 2006 pending billing and collection implementation. Thus, the premise underlying D.06-07-030, namely that no further true-up was needed of revenues collected through the 2.7 cents CRS, does not apply to those non-bundled customers whose CRS undercollection was other than zero as of June 30, 2006. Without a true-up, there would be no way to reconcile the CRS amounts collected and the corresponding actual indifference costs attributable to such customers. Without such a reconciliation, there could be cost shifting in violation of statutory requirements and Commission policy. Accordingly, PG&E's proposed derivation of the DWR Power Charge for Schedule E-NWDL and Schedule E-SDL is overstated to the extent that it results in overcollections. Indeed, a comparison of the illustrative calculations in the Appendix Tables of D.06-07-030 versus the residual application of the 2.7 cents/kWh cap, indicates that the potential overcollection could be substantial. Yet, by focusing only on the DWR Power Charge accruals authorized through June 30, 2006 under the 2.7 cents/kWh cap, without a subsequent true-up, PG&E offers no vehicle to avoid overcollections from such customers. We disagree with PG&E, therefore, in its claim that no further true-up is warranted for the period subsequent to June 30, 2006, for customers from whom PG&E is seeking additional CRS revenues based on the 2.7 cents cap.

Therefore, in order to avoid cost-shifting or overcollections, an additional true-up is required to determine the applicable DWR Power Charge for customers for whom CRS undercollections were not at zero as of June 30, 2006. The appropriate basis for a true-up of such DWR Power Charges is the Total Portfolio Indifference methodology. As PG&E correctly notes, the Appendix tables of D.06-07-030 depicted only illustrative figures. Therefore, a further process is needed to determine specific DWR Power Charge figures applicable to Additional Customer Load and Split-Wheeling Departing Load customers.

Accordingly, we direct that PG&E meet and confer with the legal representatives of the customers subject to Schedule E-NWDL and Schedule E-SDL to seek agreement concerning the necessary adjustments to the DWR Power Charge to recover applicable obligations accrued prior to 2007. The calculations shall be conducted in accordance with the findings of this order, namely, that the 2.7 cents/kWh cap is intended only as a placeholder, and that the DWR Power Charge is to be determined utilizing the Total Portfolio Indifference methodology.

We direct PG&E and representatives of the Additional Customer Load and Split-Wheeling Departing Load to file and serve a joint statement in the proceeding within 20 business days of the effective date of this decision on the results of its meet and confer session to seek agreement on the calculations required to the DWR Power Charge to result in a pay-down of any undercollections to zero for these customers. In the event that the parties have failed to reach agreement, each party shall set forth in its statement its position as to the applicable figures to be applied.

¹ "Additional Customer Load" is the load to be served under Tariff Schedule E-NWDL.

² CMUA makes similar arguments to those asserted by PWRPA in its protest to PG&E's supplemental Advice Letter 2835-E-A. PWRPA, however, did not file any response to PG&E's Petition.

³ The calculation used to arrive at this figure is as follows: $0.027 - $.00485 [DWR Bond Charge], $.00437 [Energy Cost Recovery Amount], $.00431 [Ongoing Competition Transition Charge].

⁴ See D.07-01-030 which adopted Joint Parties' Petition for Modification of D.06-07-030, which incorporated specific DWR Power Charge accruals for SCE and SDG&E.

⁵ Split-Wheeling Departing Load Customers are served under tariff Schedule E-SDL which was effective March 2, 2006.

⁶ Working Group Report, p. 47.