III. Modification Regarding Carry-Forward of Negative Indifference Amounts
A. Parties' Positions
PG&E also requests modification of Ordering Paragraph (OP) 9 of D.06-07-030 relating to provisions for carry-forward of negative indifference charge values. PG&E proposes that OP 9 of D.06-07-030 be modified to clarify that it is qualified by OP 8. OP 8 states that "Negative [indifference] amounts will not be carried forward to a future year." OP 9 states that "however, any accumulated negative indifference amount shall continue to be tracked, and applied to any future positive indifference amounts that may accrue in later years of the applicability of the DA CRS." PG&E proposes that OP 9 be modified to clarify that the tracking of any negative indifference amount for a utility shall occur only until such time as the CRS undercollections for that utility is reduced to zero.
PG&E argues that this proposed modifications consistent with the joint recommendation of the "DA Agreement Parties" as set forth in the February 1, 2006, Final Report of the Working Group to Calculate CRS Obligations Associated with Municipal Departing Load and Direct Access, which states on p. 7:
The DA Agreement Parties agree that the [ongoing] CTC component of the CRS could be larger than the Indifference Rate, and that this will appropriately result in a negative PCIA component of the DA CRS. They also agree that there is some possibility of a negative Indifference Rate. For SCE non-exempt DA customers, given that SCE has a much larger DA CRS undercollection than the other utilities, the DA Agreement Parties agree that if a negative Indifference Rate should occur for SCE, it should be used as a credit against any existing DA CRS undercollections. This concept is consistent with D.05-12-045, which permits a negative [ongoing] CTC to offset a subsequent positive [ongoing] CTC. Because the DA Agreement parties agree that the CRS undercollection on the PG&E system will be paid off as of June 30, 2006, the DA Agreement Parties agree that the Indifference Rate for PG&E should not go below zero and that no negative balance will be carried forward for PG&E. This principle of a non-negative Indifference Rate for non-exempt DA customers will also apply to SCE after its DA CRS undercollection has been recovered. The principle of a non-negative indifference rate for non-exempt DA customers is applicable to SDG&E and is consistent with the historical undercollection for SDG&E being paid off in 2005.
Therefore, PG&E, with support by SDG&E and SCE, seeks modification of OP 9 to affirm that the tracking of any negative indifference amount for a utility shall occur only until such time as the CRS undercollection for that utility is reduced to zero, as is indicated in OP 8, and that no negative indifference amount should be tracked beyond that point in time. To accomplish this, PG&E proposes that that phrase "until such time as the CRS undercollection is reduced to zero" should be added to the end of the last sentence of OP 9.
For the same reason, PG&E proposes that Finding of Fact 27 be modified so that the second sentence begins, "However, until the existing CRS undercollection is eliminated, any accumulated negative indifference amount shall continue to be tracked ..." (Emphasis added.)
CMUA filed a response objecting to this modification. CMUA argues that the proper source of reference for clarification of OP 9 is D.05-12-045. CMUA notes that in each of the four paragraphs of the section in D.06-07-030 in which the Commission discussed the issue of a negative Indiffernce Charge, D.05-12-045 is the exclusive reference and source of authority. CMUA argues that OP 9 should be interpreted in light of the Commission's similar treatment of negative ongoing CTC in D.05-12-045.
CMUA argues that parallel treatment of ongoing CTC and the Indifference Rate is appropriate because both CRS elements measure costs over time. As discussed further below, bundled customer "indifference" cannot be measured or achieved over time if multi-year netting is not allowed. CMUA argues that disallowing multi-year netting, as proposed by PG&E, would condone cost-shifting, allowing within the ongoing Indifference calculation the inclusion of above-market costs in one year while disallowing the inclusion of below-market costs in another year. In addition to being contrary to D.05-12-045 and D.06-07-030, such an outcome would be inconsistent with the "indifference" calculation because it would "selectively focus only on certain components of cost shifting" (namely, one year's positive Indifference Charge) "while ignoring others" (namely, another year's negative Indifference Charge).
On August 4, 2006, PG&E filed Advice Letter 2871-E, which PG&E claimed was filed "in compliance with D.06-07-030 to meet the requirements of ordering paragraphs of that decision.7 In Advice Letter 2871-E, PG&E sets forth the following interpretation of OP 9:
"PG&E requests that the Commission approve a new memorandum account, . . . in compliance with OP 9 of the decision. The establishment of this memorandum account to record and track the negative indifference amounts that may accrue will allow PG&E to apply these accumulated negative indifference amounts to future positive indifference amounts consistent with the Commission directives in D.06-07-030. Effective September 1, 2006, negative indifference amounts recorded and tracked in the memorandum account will be eligible to be applied prospectively to offset future positive indifference amounts. The negative indifference amounts will only be eligible to offset future positive indifference and will not be eligible to be applied against other components of the CRS."8
CMUA argues that the interpretation of OP 9 that PG&E sets forth in Advice Letter 2871-E is correct, and properly addresses the key elements of the Commission's reasoning, both in D.06-07-030 and in D.05-12-045. Thus, CMUA supports the following principles namely (1) no net payment would be made to the customer; (2) after the CRS undercollection balance reaches zero (in PG&E's case, as of "September 1, 2006"), (a) a negative Indifference Charge in one year may offset a positive Indifference Charge in a successive year, and (b) a negative Indifference Charge may not offset other CRS elements.
B. Discussion
We reject PG&E's proposed modification of OPs 8 and 9 regarding its interpretation of Commission's intent as to the provisions for carrying forward of negative indifference amounts into future years. We agree with CMUA that the appropriate reconciliation of D.06-07-030 is that negative indifference amounts will be eligible to offset future positive indifference amounts after September 1, 2006, if any, but will not be eligible to be applied against any other components of the CRS. This clarification, as reflected previously in the proposed language referenced above from PG&E's Advice Letter 2871-E, is the proper treatment consistent with the principle that bundled customers be kept indifferent with respect to DWR Power costs applicable to DA or DL customers. By allowing for negative indifference amounts to be netted against future positive amounts, the goal of bundled customer indifference is preserved.
By contrast, PG&E's proposed modification would not result in bundled customer indifference. By recognizing only positive indifference amounts, but not tracking offsetting effects attributable to negative indifference, PG&E's proposed method could result in a permanent net positive indifference amount charged to DA/DL customers. The indifference charge is intended to capture the applicable above-market procurement costs. Indifference is achieved when there is neither an under-or-over recovery of such indifference charges from DA/DL customers.
The requirement for bundled ratepayer indifference is linked to DA/DL responsibility for DWR costs which accrue under multi-year contractual power commitments. These multi-year DWR costs did not end when the CRS undercollection balance reached zero for PG&E on June 30, 2006. Likewise, the indifference requirement did not end once a zero CRS undercollection was reached, but continues for the life of the DWR contracts. Under Pub. Util. Code § 366(d), all retail customers must bear a "fair share" of DWR costs with the intent "to prevent any shifting of recoverable costs between customers."
Therefore, in order to maintain indifference, both positive and negative indifference effects must still be tracked, with the negative amounts offsetting positive amounts. Accordingly, our adoption of the Working Group proposal for the prospective treatment of indifference charges is qualified by this clarification, requiring the treatment of negative indifference amounts as we have explained above.
D.06-07-030, however, did not intend for negative indifference amounts to be "carried forward" in a manner that would produce a credit on customers' bill for such negative amounts. It was in this context of avoiding a credit balance on customers' bills that OP 8 stated that "no negative balance shall be carried forward." Nonetheless, the requirement to maintain bundled customer indifference did not end on June 30, 2006 merely because PG&E's CRS undercollection at that point was deemed to be zero. The indifference requirements continues until the DWR contracts expire. D.06-07-030 recognized that in future years after June 30, 2006, the possibility existed that market conditions could change such that DWR power costs could once again result in additional net positive adjustments applicable to DA or DL customers necessary to preserve bundled customer indifference.
In that event, the requirement for bundled customer indifference would continue to apply. In order to maintain bundled customer indifference on a cumulative basis, it would be appropriate in such a situation to offset such positive amounts with any previously accumulated negative indifference amounts from prior years. Any such negative indifference amount would only be eligible to offset future positive indifference charges and would not be eligible to reduce any other components of the CRS. It was with this view towards future periods beyond September 30, 2006, and continuing until expiration of the DWR contracts, that D.06-07-030 stated:
However any accumulated negative indifference amount shall continue to be tracked and applied to any future positive indifference amounts that may accrue in later years of the applicability of the DA CRS. This approach is consistent with D.05-12-045, which permits a negative ongoing CTC to offset a subsequent positive ongoing CTC." (D.06-07-030, p. 17.)
At the expiration of the DWR contract term, the applicability of the indifference requirement would also expire. In the event that there is any net cumulative negative indifference balance at the time the DWR contracts expire, that balance will not be credited to DA/DL customers. It will simply expire.
To be consistent with this clarification concerning the continuing requirement to track and offset negative indifference amounts, the language on page 17 of D.06-07-030 also requires modification. The sentence at the bottom of that page reads:
"Given the parties agreement on the end of year 2005 undercollection balance, with the balance reaching zero by June 2006, PG&E will not be required to track the undercollection balance thereafter."
This sentence is hereby modified to read as follows:
"Given the parties agreement on the end of year 2005 undercollection balance, with the balance reaching zero by June 2006, PG&E will no longer have an undercollection balance to be drawn down."
7 PG&E Advice Letter 2871-E at 1.
8 Id. at 4.
