7. Large Customer Issues

7.1 Rate Design

As noted earlier, § 332.1(f) requires that we consider adjustments to the initial frozen rate of 6.5 cents per kWh applicable to large customers based on consideration of comparable energy components of rates for comparable customer classes served by PG&E and Edison. We have done so here, primarily by giving consideration to overall rate levels, and to revenue allocation and rate design principles adopted in D.01-05-064. We have also considered how SDG&E's circumstances differ from those of the other utilities.

Pursuant to § 332.1(f), we are authorized to increase large customer rates retroactive "to the date that rate increases took effect for customers of Pacific Gas and Electric Company and Southern California Edison Company pursuant to the commission's March 27, 2001, decision." Because we are increasing SDG&E's rates to collect the DWR revenue requirement on a going forward basis, we decline to exercise this retroactive authority in this decision.

In response to speakers' comments made at the public participation hearings concerning equitable treatment of large customers, we note that the legislature, by enacting ABX1X 43, which established a frozen energy rate component, recognized the undue burden placed on large customers who were exposed to high wholesale electricity prices. Therefore, we believe that consideration has been accorded to large customers and that the allocation of the DWR revenue requirement that we adopt herein is equitable.

7.2 Accounting Mechanism

Under SDG&E's proposed assignment of URG to small customers and related assumption that DWR will supply the full requirements of large customers, SDG&E assumed there would be no shortfall or undercollections with respect to large customers. In connection with its URG proposal, SDG&E therefore did not propose any accounting mechanism to track the costs associated with the large customer frozen rate.

SDG&E did propose an accounting mechanism that would be applicable in the event its URG approach is not approved. SDG&E witness Swanson assumes that whenever its commodity costs exceed 6.5 cents per kWh, it would incur a shortfall. These commodity costs include SDG&E's URG and ancillary services and ISO-related costs. SDG&E believes that under these assumptions, it would be necessary to establish an accounting mechanism to record the shortfall and related revenues.

SDG&E currently records the small customer revenue shortfall resulting from the 6.5 cents per kWh cap in the Energy Rate Ceiling Revenue Shortfall Account (ERCRSA). This is a subaccount of the Transition Cost Balancing Account (TCBA). SDG&E proposes to rename the ERCRSA the Energy Revenue Shortfall Account (ERSA) and to record the large customer shortfall in the ERSA. The large customer shortfall will be recorded separately from the small customer shortfall in the ERSA. SDG&E believes this will maintain consistency with current tariffs and facilitate the transfer of any applicable TCBA overcollections to the ERSA to offset the required retroactive credits to February 7, 2001. SDG&E proposes that any large customer revenues received for URG costs and ancillary services and ISO-related costs received under any approved surcharge be recorded in the large customer portion of the ERSA to reduce the shortfall.

Based on the assumption that URG and ancillary services and ISO costs exceed the large customer frozen rate, SDG&E states that it would propose a new rate surcharge to recover the DWR revenue requirement, and its own URG costs and ancillary and ISO related costs. On a monthly basis, the surcharge revenues related to the URG, ancillary and ISO costs would be recorded to the large customer portion of the ERSA.

No party has stated opposition to SDG&E's proposed accounting mechanisms for large customers. We concur that it is necessary to establish and maintain separate accounting for small and large customers since they are subject to different statutory requirements, and the rate ceiling and rate freeze became effective at different times. We will authorize SDG&E to rename the ERCRSA as the ERSA and to establish separate accounting treatment for small and large customers within the ERSA. We emphasize that the primary purpose of the mechanism is to record SDG&E's costs for URG, ancillary services and ISO costs, and related revenues, refunds, authorized balancing account transfers, and that DWR-related revenues collected by SDG&E on behalf of DWR are to be segregated and held in trust for DWR in accordance with D.01-03-081.

As noted earlier, this decision does not approve URG costs or ISO costs except for the sole purpose of determining rate increases necessary to collect the DWR revenue requirement. While SDG&E has made certain assumptions that undercollections will occur, it has not provided this record with a complete proposal for disposition of overcollections that might occur with a frozen rate for large customers. We intend to revisit the accounting mechanism in the next phase of this proceeding. We note that we will address accounting issues related to small customers at the same time. While it is necessary to maintain separate accounting for large and small customers, it is procedurally efficient to review balances and proposals for amortization of both overcollections and undercollections on a common hearing schedule.

In D.01-05-060, we authorized SDG&E to establish a memorandum account to record the revenues and revenue shortfall associated with the initial frozen rate established by that decision. We authorize SDG&E to transfer any undercollection or overcollection from the memorandum account to the large customer portion of the ERSA, and to terminate the memorandum account.

7.3 The Voluntary Bill Stabilization Program

Pursuant to former § 332.1(f), as first enacted by AB 265, D.00-12-033 established a voluntary bill stabilization program for large customers. In effect, the program was a bill deferral program that allowed creditworthy customers to elect to have the energy component of their bills set at 6.5 cents per kWh, subject to true-up after a year.

The amendments to § 332.1(f) enacted by ABX1 43 removed the requirement for the voluntary program and replaced it with the initial frozen rate requirement. However, the amendment did not specifically address the disposition of the program. Accordingly, the April 30 ACR asked SDG&E and other parties to offer proposals on whether the voluntary program should be modified or discontinued.

In response, SDG&E offered testimony proposing that the program be terminated as of the effective date of the decision in this proceeding. SDG&E bases its recommendation on the grounds that the provision for the frozen rate makes the voluntary program unnecessary, the program does not work as intended due to DWR procurement of power and SDG&E's inability to true-up accounts to reflect DWR costs, and no customer is currently enrolled in the program.

SDG&E's proposal to eliminate this program is unopposed. It is clear that the implementation of the frozen rate component under ABX1 43 removes the potential benefit of this program, and the fact that no customer is currently enrolled in it provides confirmation that no customer will be harmed by elimination of the program. SDG&E's proposal is therefore approved.

7.4 Federal Generation Based Tariff

In D.01-05-064, we directed Edison and PG&E to propose tariffs for federal agencies that would reflect wholesale costs. There are currently no proposals before us that would provide for similar tariffs for federal agencies served by SDG&E, and FEA takes the position that such tariffs are discriminatory and should not be adopted. Because of our obligation under § 332.1(f) to consider how SDG&E's large customer rates compare with those of Edison and PG&E, we may give further consideration to this question in the next phase of this proceeding.