III. Rate Design and Revenue Requirement Increases

We must determine the revenue requirement increase before we can design rates. On May 2, 2001, after the record closed in this proceeding, CDWR provided the Commission with a revenue requirement in summary which the parties were asked to consider in their testimony (see Exhibit B, received May 4, 2001). CDWR estimates its revenue requirements to be $9.2 billion through June 2002 to purchase less than 40% of the electricity to be consumed. Given the summary nature and the timing of the revenue requirement data we received from CDWR, we could not use CDWR's numbers to establish a forecast. We therefore adopt the delivers forecasts presented by the utilities by the understanding that they have been subjected to limited scrutiny because of time constraints. We then develop a rate design for all revenue requirements.

We also must determine whether to include the one-cent per kilowatt hour surcharge (adopted January 4, 2001 and made permanent on March 27, 2001) in the rate designs we adopt in this order. On February 1, 2001, the California Legislature enacted and the Governor signed AB1X, which exempted residential usage below 130% of baseline from future rate increases during the period that CDWR recovers its costs for its purchases of electricity. Because the legislation passed after we adopted the 1¢/kWh surcharge on January 4, usage below 130% is not exempt from the 1¢/kWh surcharge, although it is exempt from the 3¢/kWh surcharge. Thus, the two surcharges are subject to different exemptions.

While there may be administrative ease in folding the two surcharges into one, the differing statutory exemptions preclude this simplification. Moreover, in D.01-03-082, we specifically identified the 3¢/kWh surcharge as subject to a new rate design approach. The 1¢/kWh surcharge is already reflected in the rates that are used as the starting point for the rate design considered in this proceeding. Therefore, the revenue allocation and rate design we discuss here apply only to the 3¢/per kWh increase. Applying the 3¢/kWh to Edison's forecast system-wide deliveries for 2001 of 83.78 billion kWh results in an annual revenue increase of $2.513 billion. Multiplying the 3¢/kWh increase with PG&E's forecast system-wide deliveries for 2001 results in an annual incremental revenue increase of $ 2.46 billion.

In adopting the 3¢/kWh surcharge in D.01-03-082, we did not allocate the amount of the surcharge that would have accrued to the exempted residential customers. In the context of calculating a revenue requirement, we simply applied the rate increase "to power costs incurred after the effective date of this decision."

Pursuant to AB1X, our March 27^th decision clearly ordered that CDWR will receive the full amount the utilities, as agents, collect on behalf of CDWR from all customers for each kWh of power provided by CDWR. Each power purchaser must recover the costs of each kilowatt-hour of power purchased, regardless of whether the recipient of the power is exempt from the rate surcharge authorized on March 27^th. Thus, it is reasonable to base the revenue requirement underlying this rate design on applying the surcharge to all forecast sales. Therefore, while we reiterate our commitment to ensuring that the residential customers exempted from rate increases by AB1X do not pay the 3¢/kWh surcharge, for purposes of determining the overall revenue requirement to be collected, all sales should be included.