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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3707

RESOLUTION

Resolution E-3707. Southern California Edison Company (SCE) requests modification to its Economic Development Rate Agreements to reduce the minimum charge provision. Rejected.

By Advice Letter 1461-E, filed on July 3, 2000.

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SUMMARY

This Resolution rejects the request by SCE to revise its Economic Development Rate (EDR) agreements, Schedule REDR- Retention Economic Development Rate, Schedule AEDR - Attraction Economic Development Rate, and Schedule EEDR - Expansion Economic Development Rate. It also closes the EDR tariffs to new customers and revises the EDR tariffs to base the minimum charge on the lower of Short Run Avoided Cost (SRAC) or the PX price.

The Office of Ratepayer Advocates of the Public Utilities Commission (ORA) protested Advice Letter 1461-E.

BACKGROUND

Commission Decision (D.) 96-08-025 authorized SCE's flexible pricing options,

including EDR agreements. The purpose of the EDRs was to encourage business to locate, remain, and expand within SCE's service area, in order to increase the number of customers and the electric load supporting SCE's distribution revenue requirement. EDRs provide eligible customers with a discount off the otherwise available tariff (OAT) rate. The discount decreases over the term of the agreements. These optional rates, established after June 1996, are not subject to the rate freeze1.

While the EDR agreements provide for a specified percentage discount from the OAT rate, they also contain a minimum charge provision. The minimum charge is the hourly cost of procuring energy from the PX plus the marginal cost for transmission and distribution facilities plus loss factors.

By Advice Letter 1461-E, SCE claims that the recent high PX prices for energy have caused the minimum charge for EDR customers to exceed the OAT rates, eliminating the original discounts. SCE believes this situation is unfair to EDR customers who made investment decisions based on a discount, but who could end up paying higher rates than customers without the discount. SCE has, therefore, interpreted the minimum charge provision as requiring SCE to charge customers no more than the OAT and has billed EDR customers accordingly. SCE requests Commission approval of SCE's interpretation and authorization to revise the EDR agreements accordingly. Advice Letter 1461-E does not explain who will bear the cost of the loss in revenue caused by the tariff change.

SCE requested that the proposed tariff sheets have an effective date of August 2, 2000.

By letter dated August 1, 2000, Paul Clanon, Energy Division Director, suspended the tariff sheets for up to 120 days to allow for further review.

On August 11, 2000, SCE responded to Mr. Clanon's suspension of the tariff sheets. SCE claims the Director of the Energy Division has no authority to take such an action on behalf of the Commission.

NOTICE

Notice of AL 1461-E was made by publication in the Commission's Daily Calendar. SCE states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.

PROTESTS

Advice Letter 1461-E was protested by ORA on July 21, 2000. ORA claims SCE has violated Commission procedures by unilaterally reducing EDR customer rates and asking for retroactive approval. ORA believes that EDR customers signed a contract and should be held to that contract. ORA is concerned that if the proposed change is made other customers will be forced to make up the lost revenues.

ORA recommends, in order of preference that we:

1. Deny the advice letter and defer EDR issues to the Post Transition Rate Design Application (A.) 00-01-009.

2. Enforce the current minimum charge, by placing the difference between the higher EDR rate and the OAT in a memorandum account subject to refund pending a decision in A. 00-01-009.

3. Order rates capped at the OAT rate for those SCE bundled service customers who apply for the Hourly PX Pricing Option.

SCE responded to the protest of ORA on July 28, 2000. SCE believes ORA's recommendations are flawed and do not address the inequity to the EDR customers. SCE is concerned that waiting for a decision in A.00-01-009 will involve months of delay while customers need relief now, or a least a ruling, so they can decide whether or not to terminate the EDR agreements. SCE also does not support ORA's recommendation for the Hourly PX Price option. SCE believes that customers should not be forced to accept it, that the tariff would need revision, that customers would need to purchase hourly meters, and that the Hourly PX Price Option will not create demand responsiveness.

DISCUSSION

The Commission decision authorizing EDR programs, D.96-08-025, was clear that shareholders and ratepayers would split the benefits derived from the EDR programs, but that ratepayers would be protected from any costs2. The decision specifically states that if the EDR agreements do not generate enough revenues to cover costs and the Competition Transition Charge (CTC), the allocated CTC would come from SCE shareholders3.

This Summer's high energy prices have made the EDR agreements, as written, untenable. The discounts originally envisioned for these agreements have been replaced by tariff rates that may have exceeded the EDR customer's OAT rate. This occurs because the OAT rates are protected by the rate freeze, with SCE being at risk for any unrecovered expenses. EDR agreements are not covered by the rate freeze, and EDR customers must pay at least the cost of their service regardless of the OAT rates.

SCE believes that it is unfair that EDR customers could pay more than non-discounted customers. Therefore, they propose to cap the minimum charge and shift the unrecovered costs to other parties. This is unacceptable. The EDR minimum charge provision was established to ensure EDR customers were charged the cost of the service they receive. D.96-08-025 specifically considered the eventuality of costs exceeding the OAT rate and created the minimum charge to protect ratepayers from a potential cost shift. While it may be unfair that energy prices have dramatically increased, it would surely be unfair to shift the costs EDR customers incur to other SCE customers.

In a real sense, the EDR rates are no longer appropriate for today's markets. At the time the EDR Tariffs were adopted, their original purpose, to increase load, was reasonable in a time of excess capacity. The shortage of generation experienced this Summer and projected for next Summer undercuts the justification for EDR tariffs. With the summer initiative encouraging load management and the ISO seeking demand responsiveness, it is inappropriate to offer discounts in order to increase the load in California without demand responsive components. Therefore, the EDR tariffs should be closed to new customers.

SCE has interpreted the EDR tariff's minimum charge provision as requiring SCE to charge customers no more than the OAT and has billed EDR customers accordingly. SCE requests Commission approval of SCE's interpretation and authorization to revise the EDR agreements accordingly. The plain language of the EDR tariff sheets do not support SCE's interpretation. The rate sections of the EDR tariff are clear and contain no provision that would limit customer charges to the OAT rate.

However, our re-examination of the tariff language concerning minimum charges reveals that the filed tariff is not in compliance with D.96-08-025. That decision adopted the energy portion of the minimum charge as the lower of the PX price or SRAC. The tariff relies solely on the PX price. Therefore, the tariff is not in compliance with the decision. EDR customers should only be required to pay the rates adopted by the Commission, and should not be charged a filed rate that does not comply with the Commission's adopted program.

We will not cap EDR customers' rates at the OAT, but we will insist that they pay no more than the rate established in D.96-08-025. EDR customers signed an agreement that specifically required participants to pay the cost of service through a minimum charge provision. Since the calculation of the minimum charge contained in the EDR agreements is not in compliance with the Commission's adopted program, we will adjust the agreements. We will require SCE to file revised tariffs in compliance with the floor price discussion in D.96-08-025, and collect the amounts due under those tariffs. In addition, SCE should review all EDR customers' past bills and credit customers for periods when they were billed the minimum charge and that charge was based on a PX price higher than SRAC.

As explained above, SCE must not shift EDR customer costs to other ratepayers. However, SCE has expressed concern for the situation of EDR customers and has been billing them at the OAT rate for a period of time. We will require SCE to use a minimum charge based on the lower of SRAC or the PX price when billing EDR customers for all service rendered after the effective date of today's resolution. However, we will give SCE an additional option with regard to service rendered before the effective date of today's resolution. Where the SRAC-based rate for that period would exceed the OAT rate, SCE may, if it wishes, depart from its previously authorized rates and charge these EDR customers at the OAT rate for that past period. However, if SCE chooses this option, the uncollected amount (the difference between the billed amount and the amount due under the authorizing decision) must be absorbed by SCE (at shareholder expense) and that rate reduction must be extended to all of SCE's EDR customers. This option only applies to uncollected amounts and does not apply to any overcollections due to EDR customers. Overcollections must be credited as discussed above. We will require SCE to file an advice letter informing us whether or not it has chosen to exercise this option.

By letter dated August 1, 2000, the Energy Division Director suspended the revised tariff sheets, included as part of Advice Letter 1461-E, for up to 120 days. SCE claims the Director of the Energy Division has no authority to take such an action. We hereby ratify the Energy Division Director's suspension of the tariff sheets attached to Advice Letter 1461-E and determine that the advice letter and attached tariff sheets, as originally filed, never went into effect.

COMMENTS

The draft alternate Resolution was mailed to parties in accordance with Public Utilities Code Section 311(g) on October 6, 2000. Comments were received from SCE. SCE comments that since the draft alternative provides acceptable relief, SCE agrees that the draft alternative, with minor modifications, should be adopted. As a result of these comments a number of changes, corrections, and clarifications have been made in the draft alternate resolution.

A revised draft alternative Resolution was mailed to all parties on October 23, 2000. Comments were received from SCE on November 8, 2000. SCE requests three modifications to the draft alternative Resolution. First, SCE believes the draft alternate resolution inappropriately deletes EDR customer's opportunity to opt-out of their agreements without paying liquidated damages and requests that requests that the deleted language be restored. Second, concerning the closure of EDRs to new customers, SCE requests the draft alternate provide that SCE may propose revised EDRs that incorporate elements of demand responsiveness. Third, SCE renews its objection to the draft alternate resolution's ratification of the Energy Division Director's suspension of the advice letter.

FINDINGS

1. D. 96-08-025 authorized SCE's EDR Tariffs and agreements, but does not permit the shifting of costs from EDR customers to non-EDR customers.

2. EDR tariffs provide discounts off customers' OATs to attract new customers, retain existing customers, or to encourage existing customers to expand in SCE's territory.

3. It is currently not desirable to increase California's electric load without demand responsive components.

4. The EDR tariffs should be closed to new customers.

5. Current EDR agreements require EDR customers to pay a minimum charge, based on the cost of providing the service, even if that minimum charge is more than the customers' OAT.

6. The current high cost of electricity may have caused some EDR agreements' minimum charges to exceed the customers' OAT.

7. SCE has billed EDR customers a rate capped at the OAT rather than the minimum charge required by its filed tariff, because it interpreted the minimum charge provision as being capped by the OAT.

8. SCE filed Advice Letter 1461-E on July 3, 2000, requesting approval of SCE's interpretation that the minimum charge provision of its EDR Tariffs and agreements should not result in rate higher than the EDR customer's OAT, and requesting authorization to revise the EDR Tariffs and agreements to support this interpretation.

9. ORA protested Advice Letter 1461-E claiming SCE's proposal would shift costs from EDR customers to non-EDR customers.

10. SCE's interpretation of the tariff is not supported and should be rejected.

11. SCE's filed EDR tariffs are not in compliance with the floor price provision adopted in D.96-08-025.

12. SCE's EDR customers should be required to pay the rates adopted by the Commission rather than the rates improperly filed in SCE's tariffs.

13. It is unreasonable to shift costs incurred by EDR customers to other SCE customers.

14. SCE must collect the filed tariff rate unless given specific Commission Authorization to collect a different rate.

15. SCE should be permitted to have its shareholders fund the under-collection of EDR customer's rates, to the extent described in the discussion section of this resolution.

THEREFORE IT IS ORDERED THAT:

1. Southern California Edison Company's Advice Letter 1461-E is rejected.

2. The protest of the Office of Ratepayer Advocates is supported.

3. Southern California Edison Company shall, within 30 days, provide written notice to all Economic Development Rate customers that SCE billed customers a minimum charge different than the rate approved by Decision 96-08-025, that EDR customers are responsible for the charges that were approved by Decision 96-08-025, that EDR customers shall be credited for any over-collections by SCE, and that in the future EDR rates shall not be capped at the OAT. SCE should indicate in this notice if it intends to have its shareholders absorb the EDR customers costs, to the extent described in the discussion section of this resolution.

4. Southern California Edison Company shall, within 10 days, file revised tariff sheets. The revised tariff sheets shall: 1) close the Economic Development Rate tariffs to new customers; and 2) revise the minimum charge provisions to comply with Decision 96-08-025. The tariff sheets shall become effective upon filing, provided the Energy Division staff determines they are consistent with this Resolution. In addition, Southern California Edison Company shall indicate in this filing whether or not it has chosen the option to have its shareholders absorb the EDR customers costs, to the extent described in the discussion section of this resolution.

5. Southern California Edison Company shall review all bills of EDR customers and credit customers for periods when they were billed the minimum charge and that charge was based on a PX price higher than SRAC.

6. The Director of the Energy Division's suspension of the tariff sheets attached to Advice Letter 1461-E is ratified; the tariff sheets attached to Advice Letter 1461-E as originally filed never went into effect.

7. This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on December 7, 2000; the following Commissioners voting favorably thereon:

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I dissent.

/s/ CARL W. WOOD

Commissioner

1 See Public Utilities Code Section 368.

2 "If discount sales gross revenues fail to exceed costs, which is highly unlikely, ratepayers will therefore not share in any expenses." 67 CPUC 2d, p.324.

3 Conclusion of Law No. 19: Customers participating in Edison's flexible pricing options should assume responsibility for any future CTC assignments, and shareholders should guarantee that no such CTC will be shifted to non-discount customers. Ibid., p.338.

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