1. Positions of the Parties

The Coalition requests that the Commission find that under the statutory framework establishing the PPP surcharges set forth for California electric utilities in §§ 381, 382, 399-399.9, 739.1, and 739.2, and for California natural gas utilities in §§ 739.1, 739.2, and 890-899, the Commission must direct all California electric utilities and all California natural gas utilities to collect the statutorily-mandated PPP surcharges from each of their distribution customers. The only exceptions are the exemptions set forth in the statutory provisions establishing the PPP surcharges. The Commission should find that it does not have authority to provide additional exemptions or approve individually negotiated discounts. The statutory mandates for the funding of the electric and natural gas PPPs preclude the Commission from authorizing the utilities to provide exemptions or negotiate discounts to the PPP surcharges for the EDR customers under § 740.4.

PG&E agrees with the Coalition that the G-PPPS should not be discounted for individual customers, but it is appropriate for the Commission to create a new customer class for the purpose of setting a lower, incentive G-PPPS rate. In regard to electric rate discounts, PG&E argues that the Commission was authorized to discount nonbypassable charges in D.05-09-018. However, PG&E states that the Commission should issue certain findings of fact and a conclusion of law conforming D.05-09-018 with the legal arrangements establishing the Department of Water Resources (DWR) recovery bonds.⁶ PG&E argues that ratepayers, not shareholders, are the true beneficiaries of the EDRs. Like SCE, PG&E is willing to commit to allocating revenues received under the EDRs first to the nonbypassable components of the rate, and then to the distribution portion of the rate.

SCE agrees with the Coalition that nonbypassable charges should not be discounted. In SCE's accounting for the incremental EDR revenues the nonbypassable charges are fully funded first, with the discounts reflected in reduced contributions to the generation and distribution components. SCE asserts that the Commission can establish the floor price anywhere above the sum of the nonbypassable charges, and if this overall rate were to fall below total marginal costs, agrees that other ratepayers would be paying a customer to continue buying its energy in California. However, SCE contends that any contribution to the nonbypassable charges made by a customer that would otherwise leave the state is essentially equivalent to a contribution to margin. SCE believes the Commission can resolve the issue of not discounting the nonbypassable charges by maintaining its existing floor definition, but requiring the nonbypassable charges to be paid first as is SCE's current practice. While this could result in some negative margin for some distribution and generation components, this is well within the Commission's discretion and results in an overall ratepayer benefit.

SoCalGas takes the position that the Commission is authorized under §§ 890 and 740.4 to establish a competitive G-PPPS rate. It argues that § 890(e) further directs the Commission to "annually establish a surcharge rate for each class of customer for the service territory of each public utility gas corporation." The fact that § 890(e) instructs the Commission to adopt surcharge rates for "each customer class" plainly contemplates that class-specific rates will exist. SoCalGas reasons that the Commission can form a customer class consisting of Guardian and similarly-situated customers and authorize low G-PPPS rates which would not violate § 890. In SoCalGas' opinion, it is clear that the discretion under § 890 to set the amount of the surcharge applicable to individual customer classes rests with the Commission.

The Irrigation Districts support the Coalition's position. The Districts argue that discounting of nonbypassable charges is allowed only when the Legislature grants such authority. The Commission should not allow revenue from nonbypassable charges to be treated as contribution to margin, nor should the Commission grandfather EDR contracts entered into after D.05-09-018 regardless of any changes made in this rehearing phase. Lastly, there are shareholder benefits to EDR programs. Section 740.4(h) does not forbid the Commission to require utility shareholders to bear part of the cost of an EDR program.

CMTA supports discounting the PPP. It recommends forming a separate class of customers comprised of customers such as Guardian Industries taking service under a long-term service agreement with approved rate discounts. For this class, the Commission could establish a lower surcharge rate that would accommodate most of the rate discount authorized by the Commission, but not below marginal costs. Furthermore, CMTA urges the Commission to deal with the problem itself - the allocation of PPP costs - rather than just the symptom. CMTA requests us to undertake a comprehensive reevaluation of how PPP costs are allocated with the goal of reducing the economic burden that the current allocation method places on large customers.

AReM argues on behalf of direct access customers. AReM supports the floor rate methodology adopted in D.05-09-018, but argues that if the Commission decides on rehearing to include nonbypassable charges in the floor rate as provided in the Joint Proposal, it will be necessary to discount some or all of the nonbypassable charges for direct access customers that participate in the EDR program (or exempt such customers from such charges) to ensure that they receive the same overall rate discounts as similarly situated bundled customers. If the Commission concludes that it can discount some but not all of the nonbypassable charges, or that it does not have the authority to allow any discounts (or exemptions), then some other method should be utilized to ensure equivalent discounts for direct access customers. AReM is concerned that the EDR program will be discriminatory against DA customers and the competitive balance between the utilities and direct access providers would be disturbed, as the utilities would be able to attract DA customers back to bundled service. Lastly, to the extent any cost shifting or revenue shortfalls may result from the participation of DA customers in the program the utilities' shareholders should bear some of the costs.

⁶ DWR issues bonds to purchase power to be sold to customers of electric utilities (Water Code § 80000, et seq.; Pub. Util. Code § 366.2(d)(1).) To protect the charges ratepayers pay to service bonds, Pub. Util. Code § 366.2(g)(2) provides: Charges imposed pursuant to [Pub. Util. Code § 366.2} subdivisions (d), (e), and (f) shall be nonbypassable.