8. How Should the Commission Implement the Methodology Adopted to Allocate and Collect Bond-Related Costs?

This decision has adopted a methodology of allocating and collecting bond-related costs from all kWh except from those customers and usage not held responsible for this charge. At this time, several uncertainties remain. In particular, we do not have a more precise figure specifying the exact level of bond-related costs since the bonds have not yet been issued and DWR has not yet submitted its more precise 2003 bond revenue requirement. Moreover, we have not reached a final determination on which kWh we will include in recovering bond-related charges.

We do, however, know that we have excluded all residential sales below 130% of baseline, medical baseline usage, and CARE-eligible customer usage from the bond surcharge, consistent with previous Commission decisions and permitted by our statutory authority. The latest estimate of the non-excluded bundled consumption is 106,222 GWh.

Because R.02-01-011 is still examining whether the DA and/or DL customers will be made responsible for bond charges in whole or in part, the total electric usage and/or customer base that will bear the bond charge is currently uncertain. In addition, as we noted previously, under the terms of the Rate Agreement, the electric consumption by ESP customers will not be included in the determination of the bond charges until a decision ordering such a charge "has become final and unappealable."⁵⁰

To ensure smooth implementation of the bond surcharges consistent with this provision of the Rate Agreement, an ALJ Ruling of August 8, 2002 solicited parties' ideas on: 1) whether the bond-related costs allocated to non-bundled customers in R.02-01-011 should depend on when the decision becomes final and unappealable; 2) if the answer to 1 was no, then what ratemaking treatment would best ensure this outcome; and 3) which regulatory accounting treatments and amortization of balances the Commission should use?

Thus, an implementation process must accomplish several things. To finance the bonds, the Commission must adopt a bond charge that will produce revenues sufficient to cover DWR's bond-related costs. Moreover, the implementation process must permit the investor owned utilities to file tariffs and modify their billing systems to implement the adopted bond charge methodologies. Finally, we must adopt a process that permits the modification of bond surcharges and balancing accounts to reflect the determinations reached in R.02-01-011, while recognizing that collection of these charges will not begin until that decision has become final and unappealable.

A. Positions of Parties: Create Balancing Accounts

In reply briefs, Alliance for Retail Energy Markets (AReM), PG&E, TURN, SCE and SDG&E all agreed that responsibility for bond-related costs should not depend upon the date when a decision in R.02-01-011 becomes final and unappealable. No party argued otherwise.

Concerning which process would best meet the goal of holdingcategories of customers responsible for bond-related costs consistent with the policy determinations of this Commission, parties made different proposals. SCE proposed a balancing account structure that refrains from charging non-bundled customers until a final and unappealable decision is reached, but tracks bond-cost responsibilities in sub-accounts. Following a final decision in R.02-01-011, the sub-accounts in surplus are distributed and sub-accounts in deficit are recovered through modifications of bond charge amounts.

PG&E recommends a similar approach, but asks that DWR have responsibility for tracking under and over payments. PG&E also recommends amortization of surpluses/deficits on a 1 to 6 basis - i.e., that a one-month surplus or deficit be either amortized or made up over the subsequent 6 months. SDG&E supports avoidance of under or over payments, but sees no unusual ratemaking needed to reach this result. AReM similarly recommends tracking through regulatory accounts.

TURN also favors tracking, but recommends the initial imposition of a charge on DA customers with rebates to follow when the decision on non-exemption, if made, becomes final and unappealable, unless the Commission believes the Rate Agreement prevents this policy. In the case that the Commission finds that the Rate Agreement prevents the immediate collection from DA customers, TURN recommends policies similar to those proposed by other commenting parties.

Concerning the billing system implementation of billing changes, SDG&E states that it can implement a system with no exemptions in 30 days, but it will require 45 days to make billing changes that make "simple exemptions." More complicated exemptions will take longer. PG&E states that it could implement changes in time to permit the transmission of funds to DWR in a timely fashion, but will need more time to add a line item on customer bills. SCE states that it can implement a bond-charges line on customer bills by January 1, 2003.

Finally, we note that SDG&E proposed adopting a surcharge that averaged 2003 and 2004 projected revenue requirement.

B. Discussion: Use Advice Letter Process with Balancing Accounts to Implement Policies Adopted

One of our main goals is to adopt regulatory procedures that set an initial charge and provide revenues to DWR starting by January 1, 2003. In addition, our goal is to adopt regulatory procedures that will hold consumers responsible for the bond-related costs from the moment the Commission assigns responsibility. We note that all parties agree that this is the appropriate course of action for the Commission to take.

Because the Rate Agreement prevents the imposition of a charge for bond-related costs based on electric power provided to customers by ESPs until a decision to do so becomes final and unappealable, our implementation will initially assess a charge on all non-excluded consumption of bundled customers sufficient to raises all the revenues needed to repay the bond costs. We will set this initial charge by dividing DWR's more precise 2003 revenue requirement for bond-related costs by 106,222 GWh, the consensus forecast of non-excluded bundled consumption for 2003.

In addition, we will create a balancing account to track all payments to DWR so that we can subsequently adjust total under or over payments by customer categories. We therefore order SCE, SDG&E, and PG&E to create Bond-Charge Balancing Accounts (BCBA) and to share data on total non-excluded consumption and remittances to DWR. Although each utility is creating its own balancing account, over and under payments are determined on a common, statewide basis.

If the Commission decides to assess bond-related costs on additional customer categories in R.02-01-011, each utility should create relevant subaccounts in its BCBA effective on the date when the bond charge is first implemented or when a decision is first adopted deciding this matter in R.02-01-011, whichever is latest. For each customer category held responsible for bond charges, there will be a subaccount tracking the category's cost responsibility, consumption, billed charges, and under or over payments.

If at the time of the initiation of the bond charges (as discussed below), the Commission has decided to hold both bundled and DA customers equally responsible for bond-related costs, then the BCBA would operate as follows:

Table 2: Proposed Operation of BCBA

Operation of the BCBA:

Note: subaccounts will include interest.

When a Commission decision that determines whether and which ESP customers are responsible for bond costs becomes final and unappealable, the actual billed bond charge will be revised. In the example above, the new billed charge applying to both bundled and DA customers would be $.01/kWh. The balance in the Bundled Service Customer Subaccount would be refunded to bundled service customers through a surcredit. Similarly, the underpayments in the Direct Access Customer Subaccount would be made up through a surcharge. PG&E's suggestion that surcharges and surcredits be made up in a one to six ratio (the undercollection arise from one month of no charges be made up over the 6 ensuing months) seems reasonable, but we will not decide this matter now. Instead, parties should make amortization proposals in the advice letter filing, discussed below, which shall be made 10 days after a Commission decision that assigns responsibility to DA customers becomes final and unappealable. At that time, the Commission will have information concerning the size of the under and overpayments and can directly consider the consequences of different amortization programs on electric charges.

To implement this decision, DWR should file its more precise 2003 bond revenue requirement for bond-related costs with the Energy Division once the bonds have been placed and DWR has determined its bond-related charges. If the bonds have not yet been placed, then DWR should submit its best determination of the more precise 2003 bond revenue requirement to the Energy Division by November 8, 2002, using information gained from its placement of bonds and estimating the bond-related costs for the bonds awaiting placement. This submission should be based on DWR's final debt service projections (including an assumed all-in interest rate for its variable rate bonds) consistent with the terms of the bond indenture.

The three investor-owned utilities should make changes in their billing systems immediately so as to facilitate the implementation of this decision by November 15, 2002. The Commission long ago required the IOUs to create these customer categories, and we cannot delay until January 1, 2003. The modifications to the billing systems should enable the printing of the bond charge on a separate line on the customer's bill.⁵¹ We note that SDG&E stated that it could implement simple changes within 30 days of a Commission order, and should do so. In any event, SDG&E should comply with Ordering Paragraph 5, which gives any utility additional time to implement the line item on the customer's bill, if needed.

PG&E requests that the Commission authorize a delay in the implementation of a new line on the customer's bill until the completion of its installation of a new billing system. PG&E states that it will offer consumers an explanation via a bill insert that a bond charge has been imposed, and will implement a separate line on the bill as soon as possible. PG&E's approach seems reasonable, and we authorize it to postpone implementation of the billing line until February 1, 2003, at the latest. In the interim, PG&E (and all other utilities not adding a specific line item on the bill) must include with its bills either a bill insert or bill message informing each customer that a bond charge for DWR (based on non-exempt bundled consumption from and after November 15) is included in the bill.

A utility that is unable to show a separate line item for the bond charge on customers' bills when the first bills for electricity consumed on or after November 15, 2002 are prepared, must still impose and collect the bond charge and remit bond charge collections to DWR. After DWR submits its more precise 2003 bond revenue requirement (on or before November 8, 2003), the utilities shall make a compliance advice letter filing within 5 days.. SDG&E, SCE and PG&E shall file compliance advice letters that impose a per kWh hour charge on non-exempt bundled consumption delivered on and after November 15, 2002. SDGE, SCE, and PG&E shall calculate a uniform per kWh charge by dividing the more precise 2003 bond revenue requirement by 106222 GWh. The advice letters will be effective on filing, subject to post-filing review by the Energy Division. Remittances to DWR pursuant to the Servicing Agreements and Orders should commence with the receipt of bond charges.

As mentioned above, the filing should also establish a Bond Charge Balancing account for each utility to track bond-related charges and cost responsibilities as described above. In addition, if it is ultimately determined that cost responsibility for bond-related costs will be imposed on ESP power, the utilities should immediately create subaccounts for each customer category held responsible for bond-related costs. These subaccounts will track costs and payments until a decision imposing cost responsibility on DA customers, becomes final and unappealable.

Within 10 days of a decision assigning cost responsibilities on DA customers becoming final and unappealable, the utilities should make a new advice letter filing to impose payments on those held responsible for bond-related costs and to amortize over and under payments in BCBA sub-accounts. These changes will go into effect when adopted by the Commission. This amortization will not adjust previously billed DWR bond charges, rather it will assign future cost responsibility for DWR's overall bond charges in an equitable fashion.

In subsequent years, consideration of the bond charge will be part of the annual proceeding to set a charge to recover DWR's retail revenue requirements. Further, we note that the bond charge may change at other times, pursuant to Article V of the Rate Agreement.

Concerning the implications of this decision for charges to customers, we note that PG&E has stated "incorporating the DWR bond charge will not affect bundled customers' overall rates."⁵² Thus, this bond charge should not raise the rates paid by PG&E's bundled customers, at least initially.

SCE notes that it "operates under the Settlement Rates adopted in D.01-05-064."⁵³ This indicates that this bond charge should not affect the rates paid by SCE's bundled customers, at least initially.

SDG&E's testimony does not directly address this point, but seems to presume that the bond charge will be a separate levy, with no offsetting reductions in charges elsewhere.⁵⁴ It is also unclear to us whether there is sufficient room in SDG&E's current charges to recover all of SDG&E's authorized costs and the bond charge without affecting the overall rate levels. For this reason, we will order SDG&E to establish a balancing account to track the amount of its remittances to DWR and to seek a rate change to recover any resulting shortfall in its own collections due to these remittances in the DWR Revenue Requirement Phase of this proceeding. In that Phase, we will simultaneously consider whether any changes are needed to accommodate DWR bond charges on an ongoing basis.

Further, when imposing the bond charge, SCE, SDG&E and PG&E shall also impose offsetting decreases for electricity costs as part of this initial filing to insure that overall charges are not raised at the time of the initial imposition of bond charges. As noted previously, the advice letters implementing those charges will be effective upon filing, subject to review by the Energy Division for compliance with this order. To facilitate the Energy Division's review, within ten days of the date of this decision, SCE, SDG&E and PG&E shall each submit to the Commission's Energy Division drafts of the advice letters that they intend to submit to comply with this decision. These drafts, of necessity, will omit any numerical data that is not yet available.

Finally, we decline SDG&E's suggestion to create an average charge to cover the revenue requirements for 2003 and 2004. Properly calculated, DWR's revenue requirement shows both how much money DWR needs and when it needs it. If DWR needs more money in 2003 than in 2004 to pay bond-related costs, we cannot delay recovery to a date after the money is needed.