VI. Other Ratemaking Issues

A. Recovery of Purchased Electric Commodity Account (PECA) Costs

D.99-10-057 adopted a PECA forEdison, SDG&E, and PG&E to track their purchased energy costs. PECA results in an energy rate that is designed to balance procurement costs and revenues in a given month. However, D.99-10-057 stated that we would address in Phase 2 whether dollar-for-dollar recovery of such costs is appropriate as well as related ratemaking issues resulting from our decisions on UDC procurement practices. We also clarified that the purpose of the PECA account was to track the costs of purchased electricity, not the costs of operating power plants.

Although the Commission adopted a PECA account for Edison in D.99-10-057, Edison recommends in its brief that the Commission not address post-transition pricing of energy procurement services in this proceeding or in the 1999 RAP. Instead, Edison recommends that this issue be addressed in its rate design proceeding. PG&E proposes specific ratemaking mechanisms for procurement costs that can accommodate adoption of rate capping, procurement incentive mechanisms, both, or neither. SDG&E also proposes a PECA account, like PG&E, but notes that the accounts are not identical in their set up because of different sub-accounts.

As proposed by PG&E, a monthly PECA rate would be set to recover the expected costs of providing procurement service and amortize any prior month under- or over-collection. The amortization component would be set monthly. Any under- or over-collection would earn interest at the short-term commercial paper rate. If the Commission adopts PG&E's proposed procurement incentive mechanism, the incentive or penalty would be recorded in the PECA and be either returned to or recovered from ratepayers over one year. If the Commission adopts PG&E's proposed rate capping mechanism then PG&E would also implement a DPRA to allow recovery of deferred revenue at a later date. If the rate cap were triggered, the difference between actual costs and collected revenues would be debited to the DPRA and recovered the next month (subject to the rate cap). In that month, the total procurement rate would be the sum of the PECA rate and the DPRA rate.

Weil notes that the utilities did not submit proposed tariffs to implement PECA in this proceeding. Weil takes issue with the fact that PG&E does not include a forecast of procurement costs in setting the PECA rate but instead charges a PECA rate based on the past month's costs. Weil argues that the monthly commodity rate should include a forecast element, an amortization element based on the difference between forecast and recorded costs, and an amortization element for PBR rewards/penalties, if adopted. In addition, Weil notes that the proper commodity rate needs to reflect a sales forecast for each month. Weil recommends the use of the prior month sales, adjusted to reflect long-term trends of month-to-month sales variations.

The CEC does not address the ratemaking aspects of PECA but instead focuses on the proper definition of procurement costs, for purposes of booking actual or recorded costs into the PECA account. The CEC argues that PECA should include not just the wholesale cost of energy, but also all of the supporting activities associated with procurement, plus overheads.

ARM argues that the Commission should make clear that the methodology developed in the 1999 RAP for calculating PX credits during the rate freeze will be the methodology used for calculating generation rates for the post-freeze period and will be applied immediately to SDG&E. Like the CEC, ARM believes that the proper generation rate includes much more than simply wholesale energy costs. New West and Commonwealth echo these positions.

The PECA account raises two primary issues: how to set the procurement rate, from an accounting and ratemaking standpoint, and what cost elements are properly included in the PECA rate. We address the second issue in the section "Interaction with Other Proceedings."

Regarding the accounting and ratemaking issues, we agree with Weil that PG&E's proposal does not contain enough detail for us to adopt it outright. In addition, we agree that the monthly PECA rate should be based on procurement costs incurred to serve customers to whom the rate applies, including a forecast of any procurement costs for which the utility has not received a final bill when the rate is developed for the given month, an amortization component to account for prior month over- or under-collections, and a trended sales forecast. The amortization component will allow for true up between actual and recorded costs and revenues. Revenues should be recorded to PECA less franchise fees and uncollectibles and under- or over-collections should earn interest at the short-term commercial paper rate as proposed by PG&E. Because we do not adopt a procurement PBR or rate capping, we need not include the other elements of PECA as proposed by PG&E.

As required by D.99-10-057, SDG&E was ordered to file an advice letter with tariff modifications that implemented the provisions of that decision. Similarly, PG&E and Edison were ordered to file advice letters three months prior to the earliest forecasted date that the rate freeze will end or September 2001 if the rate freeze does not end early. The advice letter is to propose tariff modifications and provide calculations of proposed post rate freeze rates. Therefore, each utility has been ordered to implement the PECA at the appropriate time. SDG&E, PG&E, and Edison shall incorporate the findings of this decision and the 1999 RAP decision in implementing the PECA accounts. Within ten days of the effective date of this decision, SDG&E shall update any tariffs necessary to be modified as a result of this decision.

UCAN proposes that the line items on SDG&E's bills related to Direct Access Franchise Fees be combined into a single line. SDG&E supports this proposal. To implement this, SDG&E proposes that reneration-related franchise fees be unbundled from distribution rates and collected through the PECA account. This approach contributes to simplicity and should be adopted.

SDG&E also proposes that various accounts be eliminated after the freeze. We adopt this proposal in the interest of streamlining ratemaking to the extent possible. The accounts listed in Exhibit 11, page IV-4 should be eliminated. The new ratemaking mechanisms listed on pages IV-3 to IV-4 of that exhibit are largely uncontested and will be adopted, to the extent they comply with this decision.

B. Load Retention Discounts

In this proceeding, SDG&E requests a two-year extension of its load retention discount, Schedule 4.D, which was to expire on December 31, 1999. SDG&E also filed a Petition for Modification of D.96-06-033 in its Rate Design Window proceeding (A.91-11-024) on October 5, 1999 to extent the discount for two years. SDG&E argues that no party has opposed the extension in this proceeding.

UCAN and ARM contend that this issue has not received enough consideration in this proceeding and should be fully litigated in the SDG&E's Rate Design Window proceeding. They argue that market structure and competition issues should be considered before extending the discount.

Consistent with our stated policy in this proceeding, until the Commission more fully addresses the role of the UDC and underlying market structure issues, we prefer that the utilities not implement or extend rates or discounts that could be competitive. In our view, this is a "plain vanilla" approach, which, of course, may be modified as a result of our staff study and further considerations of key market structure issues.

However, we recognize that we have taken actions in other decisions that impact this finding. In addition, the Legislature has required that certain rate schedules and optional service be offered. For example, § 743.1(b) requires that optional interruptible or curtailable service continue at least until March 31, 2002 and that the level of the pricing incentive shall not be altered from the levels in effect on June 10, 1996 until March 31, 2002. This section also states that this Commission is to direct the utilities to continue efforts to reduce rates charged to industrial customers without shifting cost recovery to other customer classes.

We extended SDG&E's ability to offer load retention discounts in D.00-01-007, in which we stated that load retention discounts would be extended until a determination was made in either this proceeding or A.91-11-024, which ever came first. We also stated that "ARM's position should be raised in the hearing process where the issue can be joined in the context of a full record." (Id., mimeo. at p. 2.) A full record has not been developed on this issue; therefore, this issue should be more fully considered in A.91-11-024.

Similarly, in D.99-09-065, we extended Edison's self-generation deferral rate, expansion, attraction and retention economic development rates, environmental pricing credit and the agricultural bypass deferral rate until March 31, 2000. If Edison does not request any extension of these flexible pricing options in its post-rate freeze rate design application (A.00-01-009), their availability to new customers will sunset on that date. We also stated that the incremental sales rate, spot-pricing amendment and real-time pricing rate schedules must be extended until the end of the rate freeze. We recognized that parties may propose modifying or closing such schedules and that this record should be developed in A.00-01-009.

Therefore, while we prefer that the utilities not implement or extend rates or discounts that could be competitive, we cannot fully implement such objectives at this time. Instead, a full record should be developed for our consideration in both A.91-11-024 and A.00-01-009 for SDG&E and Edison, respectively. For PG&E, we expect that issues related to load retention and special rates will be brought forward for our consideration in A.99-03-014.

C. Use of Hourly Interval Meters

When rates are frozen, customers have little incentive to adjust energy usage patterns and remain unmotivated to shift consumption to the low demand times when energy prices are lowest. This is because under the rate freeze customers will pay the same price for energy whether they consume during peak hours when prices are higher due to high demand, or if they consume in the off peak hours when prices are lowest. In addition, since customers are charged for the average energy cost, those customers with better than average load profiles in effect subsidize those that have worse than average load profiles. A fundamental objective of electric restructuring has been to increase the customer's ability to respond to market signals, which will foster greater market efficiency, the expectation being that greater efficiencies would serve to prompt lower overall market prices. Several parties in this proceeding propose to change the current averaging methodology to increase customer response to market signals, allowing for greater efficiency in meeting energy demand.

ORA and CEC contend that, once the rate freeze ends, the hourly PX prices should be passed through to those customers with interval meters. ORA and CEC argue that allowing customers to experience PX price variations will foster the Commission's objective of increasing responsiveness to price signals and increasing market efficiency by providing an incentive for customer to shift load to non-peak periods.

PG&E originally opposed ORA's and CEC's proposal, but conceded in its brief that customers with hourly meters should be billed using hourly data. PG&E agrees with ORA's proposal with three qualifications: the hourly meter must be of revenue quality; the proposed treatment should not be discriminatory; and customers that have hourly meters at the time the transition period ends should be given the one time opportunity to elect to remain with class average profiling.

TURN and UCAN express concern that the use of advanced meters could distort the load profile for those customers that continue having energy prices averaged among the class. The CEC believes that if the use of accurate meters results in inequities for some customers, the approach should be to correct the inequities, not ignore the more accurate meters.

We will adopt the ORA and CEC proposal that all customers with hourly interval meters be billed using hourly data once the rate freeze ends.³⁴ This approach is consistent with our long-established policy of increasing customer price responsiveness, advancing market efficiency, and prompting lower energy prices³⁵. We will not approve PG&E's proposal to allow customers with interval meters a one-time opportunity to remain on averaged prices once the transition period ends. Such an approach would be inconsistent with the objective of removing intra-class subsidies by having customers charged for the power they actually consume and would undermine our goal of increasing customer response to price signals.