ALJ/TJS/avs * DRAFT Item 6

10/24/2002

Agenda ID #1149

Decision _________________________

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.

Application 00-11-038

(Filed November 16, 2000)

Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)

Application 00-11-056

(Filed November 22, 2000)

Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527.

Application 00-10-028

(Filed October 17, 2000

Bond Charge Phase

(For a list of appearances, see Attachment A)

DECISION ADOPTING METHODOLOGY FOR SETTING CHARGES TO RECOVER BOND-RELATED COSTS INCURRED BY
THE DEPARTMENT OF WATER RESOURCES

TABLE OF CONTENTS

Title Page

Decision Adopting Methodology for Setting Charges to
Recover Bond-Related Costs Incurred by the Department
of Water Resources 2

1. Summary 2

2. Background 5

3. Details of DWR's Proposed Bond Sale 10

A. Discussion: Major Changes between Exhibit 1 and
Reference Exhibit 1-a 12

4. Issues in Proceeding 14

5. Should the Commission Exclude Specific Bundled Customers or
Electricity Consumption from the Bond Charge? 14

A. Positions of Parties 16

B. Discussion: Exempt Residential Sales Below 130% of Baseline,
Medical Baseline, and CARE-Eligible Customer Usage from
Bond Charges 18

6. What Methodology Should the Commission Use to Allocate and
Collect the Revenue Requirement for Bond-Related Costs? 21

A. PG&E, CLECA, SDG&E, ORA: Allocate andCollect Recover Bond
Costs Based on kWhs 21

B. ORA: Adjust PG&E's Rates in Light of WAPA Contracts 23

C. TURN: Allocate Revenue Requirement Per D.02-02-052 24

D. PG&E: Adjust Bond Charge to Reflect Line Losses 24

E. EPUC, CLECA and Modesto: Adjust Bond Charge on Departing
Load Customers to Exclude Revenue Requirements 25

F. Discussion: Allocate and Collect Bond Charges Based on All
Non-Excluded kWh Consumption 25

7. Consequences of Other Commission Policies on the Bond Charge:
What are the Key Projected Bond Surcharge Scenarios Pending
Policy Determinations in R.02-01-011? 28

8. How Should the Commission Implement the Methodology Adopted
to Allocate and Collect Bond-Related Costs? 35

A. Positions of Parties: Create Balancing Accounts 36

B. Discussion: Use Advice Letter Process with Balancing
Accounts to Implement Policies Adopted 38

9. Comments 44

A. Summary of Comments and Replies 45

B. Discussion of Comments 47

10. Assignment of Proceeding 50

11. Rehearing and Judicial Review 50

Findings of Fact 51

Conclusions of Law 56

ORDER........................................................................................................55

Attachment A

DECISION ADOPTING METHODOLOGY FOR SETTING
CHARGES TO RECOVER BOND-RELATED
COSTS INCURRED BY THE DEPARTMENT OF WATER RESOURCES

1. Summary

During the months following the Governor's Proclamation of January 17, 2001, declaring a crisis because exorbitant electricity prices affected the solvency of California's utilities, the Department of Water Resources (DWR) purchased electricity on behalf of the customers in the service territories of Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric Company (SDG&E) and Southern California Edison Company (SCE). DWR incurred debt totaling over $10 billion in order to make these purchases

Shortly, DWR will issue between $11 and $11.95 billion in bonds to refinance an interim loan taken out to cover electricity costs, to repay advances from the State's General Fund and to create financial reserves in connection with the bonds. Sections 80110 and 80134 of the Water Code entitle DWR to recover the revenues needed to repay bond-related costs and require that this Commission impose charges on electric customers to effectuate cost recovery. We call this charge the bond charge.

This decision anticipates that DWR will shortly advise the Commission more precisely of the revenues it needs to pay bond-related costs and adopts a methodology for establishing a charge to repay these bonds. We adopt a simple methodology that applies a per kilowatt-hour (kWh) charge on all consumption that is not specifically excluded from this surcharge. The bond charge is set by dividing the annual revenue requirement for bond-related costs by an estimate of the annual consumption not excluded from this charge.

We adopt a policy that excludes a major block of bundled¹ residential consumption from the bond charge. In particular, based on a consideration of applicable law, past Commission precedent and legislative intent, we exclude residential sales up to 130% of baseline, medical baseline, and California Alternate Rates for Energy (CARE) eligible customer usage from the bond charges.

On the basis of the evidentiary record in this proceeding, we estimate that this policy will result in a per kWh surcharge between 0.6371 and 1.07323 cents in 2003, and between 0.5932 and 0.9141 in 2004, depending on the level of the bond placement and terms of repayment.² For 2003, until a decision in Rulemaking (R.) 02-01-011 becomes final and unappealable, the most probable initial bond charge imposed on the non-excluded consumption of bundled electric service from the local utility will range between 0.7927 and 1.0732 cents per kWh.

Consistent with the terms of the "Rate Agreement By and Between State of California Department of Water Resources and State of California Public Utilities Commission" (Rate Agreement), we establish an advice letter process that, following DWR's determination of a more precise 2003 bond revenue requirement³ and a compliance filing by PG&E, SCE and SDG&E, sets a bond charge that applies a per kilowatt hour (kWh) surcharge to the non-excluded consumption of all customers receiving bundled electric service from these utilities.⁴ To implement our policies, we order DWR to provide the Energy Division with a more precise 2003 bond revenue requirement by November 8, 2002. We order PG&E, SDG&E, and SCE to make changes in their billing systems to enable them to set and collect bond charges and to file advice letters complying with this decision five days after DWR's submission. The advice letters shall be immediately effective, and will impose a bond charge on all non-excluded electricity delivered from and after November 15, 2002. Consistent with past decisions, PG&E, SDG&E and SCE shall add a line item to the electric bill specifying bond charges. Utilities that are unable to show a separate line item immediately may defer the implementation of a line item until February 2003.

In addition, we establish balancing accounts to track over and under payments of bond-charges, with subaccounts to track the payments and obligations of specific customer categories as may be subsequently specified in a decision issued in R.02-01-011. That decision may establish subaccounts, as necessary, applying to unbundled (i.e., direct access) customers, where we can track the payments and responsibilities of specific customer categories for bond-related charges.⁵ If and when a decision on the applicability of a bond charge to direct access (DA) customers becomes final and unappealable, we will amortize under and over payments in each subaccount, as necessary. If we determine to impose the bond charge on DA customers, the surcharge on bundled customers will decrease.⁶

Finally, we note that it is possible for the customers of PG&E and SCE to pay the bond charge within current rate levels, i.e. with no rate increase. For the customers of SDG&E, the record in this proceeding is unclear whether current rates will cover these bond charges in addition to other costs. We therefore order SDG&E to establish a balancing account to track the amount it remits to DWR. This will allow SDG&E to seek a rate change to the extent necessary to permit recovery of its own authorized costs independent of these increased remittances to DWR. This balancing account should enable SDG&E to show whether and how charges should change to accommodate both the bond charge and other costs in the DWR Revenue Requirement Phase of this proceeding.

¹ Bundled electric service consists of electric power, transmission, distribution, and billing services sold together to residential, commercial and industrial customers. ² See Table 1, below, for the details of how the charge varies with different borrowing and repayment scenarios. ³ A "more precise 2003 bond revenue requirement" means the notification to the Commission by DWR, as described in this decision, of the portion of its 2003 revenue requirement that will be needed to pay bond costs. ⁴ We also note that pending further determinations under consideration in R.02-01-011, bond charges may be imposed on direct access (DA) customers receiving service from Electric Service Providers (ESP). Also, pending further determination in R.02-01-011, the Commission may also impose bond charges on departing load (DL) customers. This decision should not be interpreted as resolving or prejudging any of the issues in that rulemaking. ⁵ We note that the establishment of this accounting mechanism does not prejudge determinations that the Commission may make in R.02-01-011. ⁶ This may also include a bond charge imposed on DL customers as may be subsequently determined in a decision, separate from the one involving DA customers.