COM/LYN/abw DRAFT 1a

5/14/01

Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER LYNCH (Mailed 5/9/2001)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (E 3338-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)

(See Appendix A for List of Appearances.)

INTERIM OPINION REGARDING RATE DESIGN

I. Summary

This decision adopts rates for various types of customers and applies this rate design to existing electric energy revenue needs for the provision of electricity by the California Department of Water Resources and the utilities to customers of Pacific Gas & Electric (PG&E) and Southern California Edison Company (Edison) namely, the three cent per kilowatt hour average rate increase adopted March 27, 2001. This decision responds to the energy crisis that has burdened California's consumers and economy for the past 12 months and that shows no signs of improving in the near future. California consumers are facing an unbounded, unjust, unreasonable and wholly unlawful wholesale price regime for a fundamental economic necessity which has no substitute-electricity.

We continue to look to the federal government to moderate wholesale prices. The Federal Energy Regulatory Commission (FERC) has refused to perform its legal duty to assure just and reasonable wholesale energy rates. Its failure to restrain wholesale electricity price gouging is directly responsible for the severe pain that will be faced by the families, the farms and the businesses of California as a result of today's order. In the face of federal indifference we are working within the framework established by the Governor and the Legislature to sustain, as best we can, the energy economy of California. Every consumer in California is justified in feeling outrage at the rates we approve today and the bills they will have to pay tomorrow. We share the sense of outrage.

Because of prices in the state's wholesale markets, California electricity rates will be higher than those in any industrialized economy. The rate schedules we approve today will severely affect the electricity bills of every Californian, excepting only the poorest and most vulnerable customers. In moving forward today with revenue allocation and rate design, we do not in any manner concede that the wholesale electricity costs which are the basis for these rates are just or reasonable or in any way lawful under the Federal Power Act, 16 USC section 824 et seq.

Today's decision adopts a revenue allocation between customers for the three -cent per kilowatt-hour (kWh) average rate increase authorized to be charged to the customers of Edison and Pacific Gas and Electric Company (PG&E) in Decision (D.) 01-03-082. We recognize that these utilities are not now serving all their customers' needs and that some electricity is being sold by DWR. We adopted the three cent per kWh surcharge on March 27, 2001 in order to enable the utilities to comply with their statutory obligation to serve, and to allow the California Department of Water Resources (CDWR) to provide and pay for wholesale electricity sufficient to serve customers. The estimated revenue increment totals approximately $2.5 billion annually for the customers of each utility.¹

As mandated by Assembly Bill (AB) 1X, this order exempts residential use below 130% of baseline and medical baseline customers from any increase. In addition, we exempt all customers who qualify for the California Alternative Rates for Energy (CARE) program from paying the surcharge, as we stated in our March 27, 2001 order.² Finally, in response to the Governor's wishes to spare agricultural customers the full measure of pain and recognizing the unique role agriculture plays in California and the nation's economy, we cap agricultural rate increases at a range of 20-50 percent.

After accounting for these four adjustments - permitting recovery of the rate increases effective March 27, exempting residential usage below 130% of baseline as required by statute, exempting CARE-eligible customers from rate increases and capping rate increases for agricultural customers - the rate increases we implement in today's order average 4.54 cents per kWh.

The average increases we approve today across all non-exempt customer classes range from 20 to 50 percent, except for customers eligible for the CARE program and for agricultural customers. Some customers may experience higher or lower bill increases depending on their usage. Through the device of a bill limiter, we will attempt to address customers who experience the most extreme bill increases. The new average rates - including distribution, transmission and energy - range from 11 cents per kWh for large businesses to 19 cents per kWh for small businesses served by Edison's service territory. These average rates reflect the fact that the real cost of energy provided by DWR is being financed over time through the issuance of long term bonds, to be repaid by ratepayers. If the rates were set at the actual costs of energy customers consumed, substantially higher increases. Unless and until Federal Energy Regulatory Commission (FERC) decides to enforce the law, even these astronomical average rates may prove inadequate.

Our decision today promotes several objectives. We intend to pursue a fundamentally fair allocation of the costs of the energy consumed by customers of the utilities and CDWR which it estimates to be $9.2 billion through June 2002. While retaining the rate structures in effect prior to the increases, we will apply the new increases in a manner that moves the energy cost component of customer bills closer to equality, recognizing that the wholesale energy consumed by each customer is fungible and is priced in a manner that bears no relation to its cost under the current FERC regime.

Under the conditions we face in California today, equitably allocating rate increases among California businesses, farms, and families involves inevitable burdens. For a quarter century California has been committed to the principle that electric energy is a necessity of modern life and that a basic quantity of energy usage should remain affordable.³ At the same time, California has been committed to assuring that business energy costs enable companies to remain competitive in the worldwide marketplace. C.f., Public Utilities Code section 743, 743.1 and 744.⁴ The unconscionable and unlawful wholesale prices Californians currently face make achieving either of these goals extraordinarily difficult. We have called upon our institutional expertise and experience as well as our understanding of law and policy to make hard choices based on the record before us that will please no one, least of all ourselves.

In addition to the equity goal, we intend to promote conservation, in order to fundamentally reducing energy demand and energy usage. Wholesale price gouging occurs in all hours, and under all load conditions. Reducing total consumption in all hours is an appropriate response. Reducing energy consumption in peak hours additionally may achieve enhanced system reliability when California is projected to face the severest shortages. Another goal of the rates we adopt today is to provide customers and this Commission with information and technical tools to respond to the wholesale costs and conditions we will face this summer. Hence we are proposing a real time pricing pilot program and are encouraging large commercial customers to migrate to energy meters to better control electrical use at times of greatest price or demand we also propose a separate rate for federal facilities that reflects federal policy statements in support of customer paying the cost of wholesale power as they are incurred. The rates adopted in this order become effective June 1, 2001. We intend to fine-tune them through additional proceedings in July. Specifically, we seek additional information and analysis of some rate design options. We also intend to monitor the effects of certain rate design and allocation methods adopted today.