VII. CRS Vintaging

In the Phase 1 order, D.04-12-046, we stated our preference for "vintaging" the CRS. The term as we use it here refers to a policy under which the CRS is calculated separately for each generation of CCA thereby reflecting the specific liabilities associated with the customers of each CCA according to the date the utility ceases to procure power for CCA customers.

DWR informally presented a method for vintaging the CRS, which the parties appear to endorse. It would preclude cost-shifting by assuring that a CCA's customers pay for costs incurred on their behalf but not the costs of other CCA customers.

The utilities support the concept of vintaging and specifically propose the following:

(1) Calculating the CRS as proposed by DWR/Navigant, which determines the difference between the hourly average cost of power in the utility's procurement portfolio and the market price;

(2) The CRS should be calculated every year but only once a year and assigned to the CCA's customers according to the date of initial service by the CCA or according to the terms of the commitment the CCA makes to the utility;

(3) Phase-ins should be completed within the first year, or CCA customers should be responsible for utility power liabilities until the phase-in is complete;

(4) Each CRS should be calculated each year in the DWR revenue requirement proceeding;

(5) Each CRS should be trued-up according to actual costs incurred two years prior, as information becomes available;

(6) The CRS should include the costs of (a) "resource adequacy," even if those costs were incurred after the CCA's initiation of service because the utilities have a duty to serve; (b) the above-market costs of power contract obligations required by the state, such as qualifying facility (QF) contracts, even if they were incurred after the CCA initiates service; (c) a share of the costs of power purchase contracts incurred to maintain transmission system reliability that are not recoverable through rates adopted by the Federal Energy Regulatory Commission (FERC).

(7) CCAs must comply with Commission requirements as a condition of receiving a vintaged CRS.

ORA generally supports the utilities' vintaging proposals.

CCAs support vintaging but object to some of the utilities' related proposals. They strongly oppose the inclusion of any additional costs in the CRS, such as QF contract costs or resource adequacy costs. They also strongly oppose any limits on phase-ins, especially in cases where the phase-in would reduce costs for the utilities and/or the CCA. Finally, they oppose the inclusion of Renewable Portfolio Standard (RPS) contracts in the calculation of the CRS, arguing that they are already liable for RPS costs. TURN agrees with the CCAs that including RPS contracts in the CRS would result in an "inequitable commingling of utility and CCA RPS procurement."

Discussion. The purpose of CRS vintaging is to assure that a CCA's customers assume liability for stranded costs associated with power procured for them but not for those costs incurred on behalf of other CCA customers. The differing liabilities between CCAs would occur where CCAs initiate service of different dates or, more likely, commit to different in-service dates.

We adopt the DWR's method for calculating the CRS, which is based on the difference between the hourly average cost of power in the utility's procurement portfolio and the market price, and consistent with our decision in Phase 1 of this proceeding. No party objected to this methodology and many are now very familiar with it. We appreciate DWR's assistance with this effort. As the utilities propose, a forecast using the DWR method would be adopted once a year in the proceeding used to develop DWR's revenue requirement, and then trued-up for the period two years prior as information about actual costs becomes available.

We do not agree with TURN and the CCAs that utility RPS contract costs should be excluded from the CRS. TURN and the CCAs suggest that since CCAs will not get any credit for utility RPS liabilities when they turn out to be priced below market, CCA customers should not have to pay for those liabilities when they are priced above market. While we recognize that CCAs will not get the benefit of utility RPS costs that are below market, this circumstance does not distinguish RPS costs from any other costs included in the CRS. The statute requires that we set the CRS so as to make bundled customers indifferent to the CCA's offering of service. Excusing CCA customers from RPS liabilities incurred originally on their behalf would force utility customers to make up the difference in violation of AB 117. For these reasons, we direct the utilities to include stranded RPS costs in the CRS calculation.

The utilities also propose strict limitations on phase-in of CCA customers. We addressed the issue of phase-ins in D.04-12-049 where we stated,

the barrier to a pilot program or phase-in would not be the law but the possible additional costs of administering the cut-over of customers from the utilities to the CCAs that might occur, for example, as a result of differing load profiles and shifting procurement requirements, as ORA suggests. PG&E proposes a limited phase-in that might actually mitigate costs. We direct the utilities to propose tariffs that offer a phase-in at rates and charges that would recover such costs, consistent with other portions of this order addressing implementation and transaction costs. Their tariffs should permit the utilities to negotiate with the CCA to phase-in the CCA's program in ways that promote cost-savings, as PG&E suggests, and the associated cost savings should be reflected in the negotiated outcomes. (D.04-12-046).

The utilities appear to have ignored the spirit if not the letter of this language on the subject of phase-ins. Instead of proposing ways to minimize costs, their tariff proposal permits them to charge unspecified rates for phase-ins. The tariff proposal also fails to recognize our view that the statute does not restrict phase-ins because it requires that all customers be cut-over within a year. As we stated in D.04-12-046, the statute does not restrict phase-ins in any way, including those applicable to residential customers. Accordingly, the utilities' tariffs may not include any language limiting phase-ins. The tariffs should specify the reasonable costs of phase-ins and each utility's obligation to cooperate with CCAs to cut-over groups of customers in ways that minimize utility and CCA costs.

The utilities propose to take on the responsibility of assuring resource adequacy for CCA customers and to include related power purchase liabilities in the CRS. The utilities present no justification for taking on this role and imposing related costs on CCA customers. CCAs will be subject to annual resource adequacy requirements, as the utilities are aware, and will be subject to penalties for failure to meet those requirements. In addition, we have already determined that the CRS for CCA customers will not include any utility liabilities incurred after CCA initiates service to customers. The CRS should therefore include no costs related to resource adequacy other than those that may have been incurred on behalf of CCA customers before the date specified in a binding notice of intent, or the date customers are actually cut-over to CCA service. We decline to litigate these matters again in future proceedings and state our intent to disregard future attempts to relitigate the elements of the CRS.

We do not understand the significance of the utilities' proposal to make the CCA's compliance with Commission rules a condition of paying a CRS that reflects the CCA's liabilities. We interpret AB 117 to require us to develop a CRS for each CCA that avoids cost-shifting and we expect CCAs to comply with Commission rules. We find no reason to make the CCA's compliance with Commission rules a condition of paying a CRS that reflects CCA liabilities.