III. Revenue Requirement Increase

Determining the revenue requirement increase is the first step in allocating costs and revenue and designing rates. On May 2, 2001, after the record closed in this proceeding, CDWR provided the Commission with a revenue requirement in summary which the parties were made to consider in their testimony (see Exhibit B, attached). Given the summary nature and timing of the revenue requirements received from CDWR, we could not use CDWR's numbers to establish a forecast. We adopt the sales forecasts presented by the utilities with the understanding that they have been subjected to limited scrutiny because of time constraints. We proceed to develop a rate design for all revenue requirements, including the 1¢/kWh increased authorized in D.01-01-018 and the 3¢/kWh increase authorized in D.01-03-082.

We also must determine whether to include the one-cent surcharge adopted January 4, 2001 and made permanent on March 27, 2001. On February 1, 2001, the California Legislature enacted and the Governor signed AB1X, which exempted residential usage below 130% of baseline from rate increases. Because the legislation passed after we adopted the one-cent surcharge on January 4, usage below 130% is not exempt from the 1¢ surcharge, although it is exempt from the 3¢ surcharge. Thus, the two surcharges are subject to different exemptions.

While there may be some administrative ease in folding the two surcharges into one, the differing statutory exemptions preclude this seeming simplification. Moreover, in D.01-03-082, we clearly identified the 3¢/kWh as subject to a new rate design approach. The 1¢/kWh surcharge is already reflected in the rates that are used as the starting point for the rate design being considered in this proceeding. Therefore, the revenue allocation and rate design we discuss here applies only to the three-cent increase. Multiplying 3¢/kWh times SCE's forecast system-wide sales for 2001 of 83.78 billion kWh results in an annual revenue increase of $2.513 billion. Multiplying the 3¢/kWh increase to PG&E's forecast sales for 2001 results in an annual incremental revenue requirement of $ 2.46 billion. In adopting the three-cent surcharge in D.01-03-082, we did not specifically address the issue of allocating the collection of the surcharge that would have accrued to the exempted residential customers. In the context of calculating a revenue requirement, we simply applied the rate increase "to all power costs incurred after the effective date of this decision."

Pursuant to AB1X, we have clearly ordered that CDWR will receive the full amount the utilities, as agents, collect on behalf of CDWR from all customers for each kWh of power provided by CDWR. PG&E and Edison are required to remit to CDWR the proceeds it owns for energy purchases on behalf of all retail customers, without providing any exemptions for CARE-eligible usage or residential usage below 130% of baseline. Thus, is reasonable to base the revenue requirement on applying the surcharge to forecast system-wide sales. Therefore, while we reiterate out commitment to ensuring that the residential customers exempted from rate increases by AB1X do not pay the surcharge, for purposes of determining the overall revenue requirement, all sales should be included.