VI. Preliminary Matters in Rate Design

In developing these methodologies for the rate increase, we have focused on promoting equity and encouraging conservation. We have designed rates for Edison and PG&E customers that will meet CDWR's revenue requirements, while promoting conservation to keep the cost of CDWR-procured power down. Despite a number of attempts on the part of the Commission, we were unable to craft this decision with the benefit of detailed cost estimates from CDWR, and therefore, in many instances we have resorted to utilizing historical information to set peak periods. This decision will advance the equity and conservation goals for this proceeding, but lacks the fine-tuning that could have been possible if CDWR had supported our ratemaking needs.

A. Rate Freeze Constraints

As a preliminary matter, we address the question of whether the continuing rate freeze precludes us from requiring certain customers who are not currently on time-of-use schedules to shift to such schedules. Many parties assume, without much explanation, that such a mandatory shift is barred by the rate freeze. A few specifically cite to the provisions of Pub. Util. Code §§ 367 and 368. As we explain below, we conclude that the continuation of the rate freeze does not preclude us from responding to the current energy emergency by requiring certain customers to shift to time-of-use meters, thereby shifting use away from periods of peak demand. This approach achieves our goals of conservation and equity. Such a shift away from periods of peak demand can be expected to both help avoid blackouts and decrease the total cost of procuring electricity.

Section 367 deals with the utilities' recovery of certain uneconomic or transition costs. The rate freeze is mentioned in two portions of § 367. Section 367(a) provides for recovery of such uneconomic/transition costs "consistent with not increasing rates for any rate schedule, contract, or tariff option above the levels in effect on June 10, 1996." Similarly, § 367(e)(2) states that "[i]ndividual customers shall not experience rate increases as a result of the allocation of transition costs."

Section 368 deals with the utilities' cost recovery plans for the recovery of uneconomic costs. More specifically, § 368 sets certain conditions on the Commission's approval of transition cost recovery plans. In that regard, § 368(a) provides that the rate levels required in the cost recovery plan "for each customer class, rate schedule, contract, or tariff option shall 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."

Thus, under § 368, the rate freeze is a required condition of the plan for recovery of transition costs. Similarly, under § 367, the recovery of transition costs is not allowed to result in a rate increase. In short, these provisions are designed to control the recovery of transition costs. We do not view them as a limitation on our authority to respond to the current energy crisis (which was not foreseen at the time those sections were enacted) by requiring certain customers to use TOU meters, thereby shifting load away from periods of peak demand. (Similarly, in D.01-01-018, we concluded that the rate freeze was not a limitation on our authority to grant emergency, interim rate relief.)

We will also require the utilities to establish certain tracking accounts to further ensure that our requirement that certain customers shift to TOU schedules does not violate the principle that only the frozen rates are available for transition cost recovery. More specifically, each utility shall track the actual billings of all customers who are required to shift to time-of-use schedules by today's order. Each utility shall also track what these customers would have been billed if they had remained on their former schedules. If comparison of these two figures shows that there has been any net increase in billings as a result of requiring these customers to shift to time-of-use schedules, we will require that this net increase in revenues be devoted only to those purposes to which we have previously dedicated the once-cent and three-cent surcharges. In this way, if there is a net increase in revenues as a result of shifting these customers to time-of-use schedules, it will not be available for transition cost recovery.

In short, nothing in this decision alters Ordering Paragraph 9 of D.01-03-082, in which we concluded that the rate freeze has not ended for either PG&E or Edison under AB 1890. Rather, we conclude that, even while the rate freeze continues under AB 1890, we may require customers to shift to time-of-use schedules to encourage those customers to shift-load off-peak and thereby ameliorate the current energy emergency, so long as any resulting increase in revenues cannot be used to recover transition costs.

B. Agricultural Definition

Several parties, including the California League of Food Processors, the Farm Bureau, and the Wine Institute, urge us to adopt the recommendation of § 740.11 (added by SB 5X) and change the definition of customers eligible to be served under agricultural tariffs to include agricultural commodity processing customers. Section 740.11 provides, in relevant part:

In recognition of the fact that agricultural and water supplier customers necessarily have high electricity usage during peak summer demand periods, the Legislature strongly urges the commission to consider providing the option to all agricultural commodity processing customers to be included in the definition of customers eligible to be served under agricultural tariffs, consistent with its other constitutional and statutory objectives, and to the extent it does not result in cost shifting to other customer classes.

We acknowledge the uniqueness of California's agriculture industry, and their heavy dependence upon summer on-peak usage. However, we will not expand the definition of the agricultural class at this time. The potential of migration for industrial customers tied to the agricultural industry deserves further exploration.

We decline to make this change at this time, for the reason that our record is insufficient to conclude that such a change will not result in cost shifting. We do not believe the Wine Institute's recommendation -- that we adopt this expanded category, along with a requirement that the utilities track the revenue changes resulting from customers moving to agricultural tariffs, in order to keep revenue shortfalls within each customer class and to prevent cost shifting to other classes - would sufficiently satisfy the terms of the statute. Moreover, making such a change would also require that we craft a definition of "agricultural commodity food processors." While we have received some suggestions on how to do this, we would need to explore further on the record the ramifications of different alternatives.

PG&E and Edison maintain that it is not feasible to adopt the proposed customer migration before summer's end. Customers who qualify for the rate migration need to be identified and the difference in usage from other industrial customers understood. We will further examine this proposal to determine its feasibility and explicitly specify the type of customer eligible to migrate, and examine the impact of cost shifting upon other customer groups before adopting this measure.

C. Bill Limiters

ORA proposes using bill limiters to protect energy consumers from large increases. Some parties have suggested special schedules to protect their unique industries. In the short term, we prefer bill limiters to address the concerns of a particular group while the effects of migration are considered. Customers who currently reside within the industrial rate schedules should be protected by bill limiters, which can help limit the hardship created by equal cents per kWh surcharge. We believe that bill limiters are preferable to the creation of new schedules to reflect the diverse needs of customers. It is not feasible for Edison and PG&E to change the rate schedules to reflect the special constraints of each industry before June 1. Therefore, in order to mitigate rate shocks, we adopt the use of bill limiters of 300% for all rate classes other than agriculture and 250% for the agricultural class, relative to the class average rate. These bill limiters will serve as adequate protection from unique circumstances resulting in extraordinary bill impacts and can serve as a more general aid to all consumers in the way they mitigate rate increases.

We acknowledge that implementing bill limiters for all customers may result in a revenue shortfall. We expect this shortfall to be small since bill limiters cap bills of "outlying" customers, i.e., those with extremely high bills. However, the utilities should be able to recover these shortfalls from all customers, except those we exempt from the rate increase, i.e., CARE, residential sales below 130% of baseline, and medical baseline customers. In their compliance advice letters, PG&E and Edison should reflect in rates an allocation of shortfalls from bill limiters to all customers subject to the rate increase. The utilities should also establish a balancing account to track the amount by which these rates over- or undercollect the shortfall due to bill limiters. We will review the balance in this account in the utilities' next rate design proceeding.