VI. Transition Period

PacifiCorp established its Transition Cost Balancing Account (TCBA) in May 1998. It says that it sold power under frozen rates that exceeded revenues in May and June 1998, and March 1999. The amount that revenues exceeded market price levels was $846,574 for those three months. In every other month, PacifiCorp has sold power at less than market prices. The balance in the TCBA was an undercollection of $72,146,444 as of February 2001. PacifiCorp does not expect to collect any additional transition costs by March 31, 2002. It says that it has collected all of the transition costs it is going to collect. Therefore, it believes that the transition period is over.

ORA interprets Pub. Util. Code § 368(a) to mean that the transition period cannot end until the TCBA rises to zero, or a positive number. ORA contends that this is unlikely, therefore, PacifiCorp must wait until April 1, 2002 for the freeze to end. Roseburg also believes that the transition period cannot end until the TCBA rises to zero or a positive number. In addition, it says that the freeze should not end until PacifiCorp has no transition costs that will be carried over, or March 31, 2002.

Section 368 of the Public Utilities Code established a rate freeze that set retail rates equal to those in effect on June 10, 1996, less 10% for residential and small commercial customers. These rate levels were to remain in effect until "the earlier of March 31, 2002, or the date on which the Commission-authorized costs for utility generation-related assets and obligations have been fully recovered."

PacifiCorp asserted that the rate freeze for it has ended because it has recovered all of the transition costs, the uneconomic portion of its investment in generation-related assets, that it is going to recover. Furthermore, PacifiCorp is not seeking recovery of the negative TCBA balance in this proceeding.

"'Transition costs' means the costs, and categories of costs, of an electrical corporation for generation-related regulatory assets, nuclear settlements, and power purchase contracts, ... , that were being collected in commission-approved rates on December 20, 1995 and that may become uneconomic as a result of a competitive generation market in that those costs may not be recoverable in market prices in a competitive market, ..." Section 840(f), Public Utilities Code.

To constitute "transition costs," a utility's generation-related assets and obligations must have been a component of Commission-approved rates on December 20, 1995, and must be an asset or obligation that may become uneconomic or unrecoverable in a competitive market.

Section 367(b) of the Public Utilities Code provides that transition costs are based on a calculation that nets the negative value of "above market utility-owned generation related assets against the positive value of all below market utility-owned generation assets", for those assets subject to such valuation. Valuation was to occur no later than December 31, 2001 and was to be based on appraisal, sale, or other divestiture.

PacifiCorp has not recovered transition costs. Its position is that, under the circumstances reflected in this proceeding, the market value of its generation assets is their net book value, consistent with traditional cost of service ratemaking. ORA does not dispute this valuation. We agree that this approach is consistent with ABX 16 (Stats. 2001, First Extraordinary Session, Ch.II).

When this proceeding began, to obtain rate relief, PacifiCorp had to show that its rate freeze had ended. To this purpose, it produced evidence that it had no transition costs to recover and, therefore, the rate freeze was over. However, we need not resolve this issue because the March 31, 2002 date for termination of the rate freeze has passed, and the transition period has ended.