ALJ/TJS/avs DRAFT Agenda ID #1149

Decision PROPOSED DECISION OF ALJ SULLIVAN (Mailed 9/24/2002)

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 METHODOLOGYFOR SETTING SURCHARGES 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 2

1. Summary 2 2

2. Background 5 5

3. Details of DWR's Proposed Bond Sale 9 9

A. Discussion: Major Changes in DWR's Testimony
Illustrate Need for Explanations of New Revenue
Requirement and Suggest Mathematical Errors 12 12

4. Issues in Proceeding 15 15

5. Should the Commission Exclude Specific Bundled Customers
or Electricity Consumption from the Bond Charge? 16 16

A. Positions of Parties 17 17

B. Discussion: Exempt Residential Sales Below 130%
of Baseline, Medical Baseline, and CARE-Eligible Customer
Usage from Bond Charges 19 19

6. What Methodology Should the Commission Use to Allocate and Collect
the Revenue Requirement for Bond-Related Costs? 22 22

A. PG&E, CLECA, SDG&E, ORA: Allocate & Recover
Bond Costs Based on kWhs 23 23

B. ORA: Adjust PG&E's Rates in Light of WAPA Contracts 24 24

C. TURN: Allocate Revenue Requirement Per D.02-02-052 25 25

D. PG&E: Adjust Bond Charge to Reflect Line Losses 25 25

E. EPUC, CLECA and Modesto: Adjust Bond Charge on
Departing Load Customers to Exclude Revenue Requirements 26 26

F. Discussion: Allocate and Collect Bond Charges Based on
All Non-Excluded kWh Consumption 26 26

7. Consequences of Other Commision Policies on the Bond Charge:
What are the Key Projected Bond Surcharge Scenarios Pending Policy Determinations in R.02-01-011? 29 29

8. How Should the Commission Implement the Methodology Adopted
to Allocate and Collect Bond-Related Costs? 36 36

A. Positions of Parties: Create Balancing Accounts 37 37

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

9. Comments 44 44

10. Assignment of Proceeding 44 44

11. Rehearing and Judicial Review 44 44

Title Page

Findings of Fact 45 45

Conclusions of Law 48 48

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 over $10 billion in debt in making these purchases

Shortly, DWR will issue between $11 and $12 billion dollars 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 for the repayment of these loans. 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 of the revenues it needs to repay 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 final 2003 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 PG&E, SDG&E, and SCE to initiate changes in their billing systems to enable them to set and collect bond charges within five days of DWR's submission of its final 2003 revenue requirement for bond-related costs to the Commission (pursuant to Water Code § 80110) or by November 15, 2002, whichever is later. Consistent with past decisions, PG&E, SDG&E and SCE shall add a line to the electric bill specifying bond charges. We grant, however, PG&E's request to 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 groups 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 classes for bond-related charges.⁵ 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. We therefore order SDG&E to track bond payments in a balancing account and provide information on whether and how rates should change to accommodate the bond charge 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 "final 2003 revenue requirement" means the notification to the Commission by DWR of the 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 this rulemaking. ⁵ We note that the establishment of this accounting mechanisms 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.