V. HPC Proposal

A. Calculation of HPC

SCE proposes to establish an HPC for use in determination of the DA credit, based on the starting PROACT balance as verified by the Commission's Energy Division. As described above, DA customers contributed to, the PROACT balance, but not in the same manner as or in equal proportion to bundled service customers. Currently (since June 3, 2001) only bundled service customers are making payments towards the recovery of PROACT balance. The proposed HPC will recover what SCE believes is the DA customers' share of SCE's procurement related obligations over a two-year period. This is consistent with the expected end of the recovery period for the balance of the PROACT from bundled service customers.

Under SCE's methodology, to calculate the HPC, the PROACT balance is first amortized, with interest, over two years. This annual revenue requirement for the HPC is then allocated to individual rate groups based on each group's contribution to SCE's procurement related liabilities. For most of the period from June 2000 to September of 2001, SCE's procurement costs, and the DA credit, exceeded revenues recovered through the generation component of retail rates. The net effects of this for both bundled service and DA customers were negative, although different, CTC contributions (as reflected in the negative Transition Revenue Account, or TRA, balance) and increased liabilities for SCE. The contribution of each rate group to these negative monthly TRA balances are summed over 2000 and 2001 for each of SCE's 13 rate groups. The ratio of each rate group's total to SCE's system total is used to allocate the annual revenue requirement of the amortized PROACT balance among rate groups. Each rate group's allocation of the total HPC revenue requirement is then divided by the 2002 sales forecast for that rate group to calculate the HPC. These allocation factors and resulting rates are shown in Table 1 below.

B. Modification to the Energy Credit

DA customers are currently credited the generation rate component of their OAT. This credit includes all surcharges adopted by the Commission since January 2001, in excess of 4¢/kWh. As a result, DA customers make no contribution to SCE's procurement related obligations, unlike bundled service customers. SCE proposes to modify the currently effective credit calculation by subtracting the HPC from the generation rate of the DA customers' OAT before it is credited to them. The HPC would have the effect of lowering the credit paid to DA customers and contributing to the recovery of the PROACT balance.⁵ This lower credit is consistent with SCE's current weighted average energy cost, as evidenced by the surplus being contributed by the bundled service customers toward the recovery of the PROACT balance and still represents a system average DA credit of about 8.5¢/kWh. Upon authorization, SCE would modify its tariffs to include the HPC, by rate schedule.

Given that SCE has actually paid $148 million of such credits and owes, by its own calculation, another $243 million (per Schedule 1.1 of the Settlement), ⁶CLECA submits that SCE should not be permitted to collect an average of 2.466¢ per kWh for 24 months from direct access load that is roughly 14% of SCE's total load. The charge, as proposed by SCE, is expected to generate more than $540 million over the 24-month period, $150 million more than SCE asserts it will provide in credits and $394 million more than it has paid to date. It appears to CLECA that direct access customers are being asked to pay more than their fair share.

Overall, the revenue retained by SCE from the HPC should equal the amount SCE paid and is obligated to pay for negative credits. This ensures that bundled customers are fully compensated by DA customers for PROACT obligations, consistent with our policy in D.02-03-055 (referring to DA cost responsibility surcharges for DWR purchases). The HPC we adopt should match actual revenues to undercollection costs associated with DA customers. This amount equals $391 million.

A 2-year charge of about 1.8¢/kWh would generate $391 million in revenue from DA customers, based on the record. ⁷ In practice, this charge (or, more accurately, credit reduction) will generate a certain amount of money depending upon actual usage. The amount should be tracked to ensure there is an overall collection of $391 million from DA customers, with a corresponding decrease of $391 million required to be collected from bundled customers.

We are mindful of the likelihood that DA customers will also be subject to cost responsibility surcharges relating to DWR power purchases and potentially other costs, in R.02-01-011. The "pancaking"⁸ of surcharges in that proceeding and this one may lead to DA contracts becoming uneconomic. While we are committed to ensuring that bundled customers do not pay more than their fair share of costs, we also do not wish to eliminate the DA market through injudicious imposition of charges. Therefore, we will use this opportunity to design charges that meet both objectives.

As stated above, DA customers should pay the full $391 million of undercollection responsibility through reductions in credits, thus relieving bundled customers of this obligation. However, we will design the charge to collect more money upfront while no surcharges from R. 02-01-011 are in place, and less from that point on. This will allow DA customers to face a lower overall surcharge burden during the period when both surcharges are in effect.

Until a cost responsibility surcharge from R.02-01-011 is in effect, the HPC shall be 2.7¢/kWh for all DA customers. From that date on, the charge shall be 1.0¢/kWh until the $391 million is fully collected. We will reserve the right to revisit this 1.0¢/kWh charge once a surcharge decision is issued in R.02-01-011, (or, as appropriate in that decision), as we will then be able to consider both questions together.

C. Total Surcharge Cap

We will take this opportunity to note that DA customers may be subject to other surcharges beyond the HPC, including the cost responsibility surcharge being considered in R.02-01-011, the bond charge being considered in A.00-11-038, et al., and the "tail CTC" associated with P.U. Code § 367. Further, the PX credit issues being considered in another phase of A.98-07-003 may have similar impact to imposition of a surcharge by potentially decreasing the PX credit to DA customers.

Therefore, we will state at this time that there should be a cap on the total surcharge levels imposed on DA customers (including the impact of any changes to the PX credits). We will not and cannot prejudge the outcome of any proceedings beyond the instant case. However, there is a need for such an overall surcharge cap because the greater the total surcharge amount, the more DA contracts that will become uneconomic. We have stated our policy in D.02-03-055 that there is value in maintaining DA; failure to consider an overall cap would be inconsistent with this policy.

At this time, we will not set a specific overall cap, in deference to ongoing proceedings. However, a cap of 2.7¢/kWh - the initial level of the HPC we set today - may be a reasonable level. We direct the Assigned Commissioners and ALJs in the other proceedings with surcharge implications (R.02-01-011, A.00-11-038, et al., and A.98-07-003) to solicit comments from parties in those proceedings on this question.