IX. Comments on Proposed Decision
Section 311(d) generally requires proposed decisions (issued after hearing) to be circulated 30 days before the Commission vote. This delay allows for comment on the proposed decision. See Rules 77.1-77.6 of the Commission's Rules of Practice and Procedure. However, "the 30-day period may be reduced or waived by the commission in an unforeseen emergency situation" Section 311(d). Here, in order to ensure that PG&E and Edison can continue to procure and deliver electricity to their customers, we believe the utilities have raised sufficient concerns in their utilities' prima facie cases that allow us to determine that an unforeseen emergency situation exists. PG&E and Edison witnesses testified under oath that they have cash available to meet only three to seven weeks of obligations and that their ability to access commercial paper is impaired. We proceed in an abundance of caution to act expeditiously on January 4, accepting, subject to further hearings, that the utilities may not be able to meet their procurement obligations to bundled customers without such action.
Accordingly, in order to permit action on January 4, while still allowing for comment, the Commission is releasing this proposed decision on the morning of January 3, and will have oral argument on the proposed decision on the afternoon of January 3. While this is a very expedited schedule, it is in keeping with the generally expedited schedule of the past several weeks, and allows a meaningful opportunity for parties to comment on the proposed decision.
1. FERC's actions on December 8 and December 15, 2000 removed upper bounds on wholesale electricity prices and have caused average wholesale electricity prices to rise precipitously.
2. PG&E and Edison are charging rates for electricity frozen at 1996 levels, consistent with § 368, but must procure power at market-based rates that are not just and reasonable.
3. In testifying under oath, and subject to cross-examination regarding the utilities' claims of financial difficulties engendered by the steep and unanticipated increase in procuring wholesale electric energy, PG&E and Edison have raised sufficient concerns in their prima facie cases that the applicants may not be able to procure power at just and reasonable rates and consequently may not provide adequate electric service for their customers without some intervening action by this Commission.
4. Initial evidentiary hearings have focused narrowly on the applicants' prima facie cases that current rates do not yield revenues sufficient to meet current obligations, including power purchases, and that cash resources are being rapidly depleted.
5. The interim relief is on emergency basis.
6. The interim surcharge authorized today is subject to refund and the rate design for collection of these amounts is subject to adjustment.
7. The difference between frozen rates and the authorized costs of providing service (i.e., revenue requirements and Commission-approved costs and obligations) is referred to as headroom.
8. The Commission has established two major accounting mechanisms to track the costs and revenues associated with transition cost recovery: the Transition Cost Balancing Account (TCBA) and the Transition Revenue Account (TRA).
9. The utilities understood the risks AB 1890 and electric restructuring imposed. Nevertheless, in an abundance of caution, we take emergency action today because we believe that PG&E and Edison have raised sufficient concerns in their prima facie cases that each utility is in serious financial distress, at least in terms of cash flow and short-term access to capital markets.
10. While the cash on hand in the holding companies may be insufficient when compared with the going-forward costs of procuring power, we are convinced that other potential solutions should be explored. It is decidedly not business as usual and the utilities need to realize that ratepayers are not the only answer to their dilemma.
11. Rate design is a complicated endeavor and must be further considered in the next phases of these proceedings.
12. In the immediate term, we will simply increase rates by applying a surcharge of one cent per kWh, applied on an equal-cents-per-kWh basis. This surcharge applies to all customers other than those customers eligible for the CARE program.
13. In the next phases of these proceedings, we will consider such issues as: (1) TURN's proposal to net the TRA and the TCBA; (2) the necessary ratemaking to ensure that power produced from retained assets is dedicated to serve native load; (3) the utilities' cost-cutting efforts; (4) the utilities' efforts to pursue remedies at FERC or Courts reviewing FERC, and lawsuits against generators or marketers of electricity and natural gas; (5) whether and how holding company assets or guarantees should be applied to utility power procurement requirements; (6) conservation and rate design issues; (7) additional CARE discounts and program improvements; (8) how to approach consumer education; (9) condemnation efforts to ensure generation availability; and (10) whether the utilities should issue additional rate reduction bonds.
14. The facts and events surrounding D.00-12-067 and this proceeding constitute extraordinary circumstances requiring urgent Commission action.
1. We have a duty to ensure that the utilities are able to continue to procure and deliver power for their customers. Our basic obligation under the Public Utilities Act is to assure the people of California adequate electric service at reasonable rates.
2. It is reasonable to take interim action to establish a temporary surcharge, subject to refund and adjustment, to ensure that reliable, safe, and adequate service is provided to all Californians at just and reasonable rates, consistent with §§ 451, 728, 761, 330(g), and 391(a).
3. The Commission's authority to grant interim rate relief in an emergency situation is well established. In the instant case, we are presented with a prima facie showing of an impending inability to pay current bills that could interfere with the utilities' ability to procure electricity.
4. The purpose of granting an interim rate increase upon appropriate findings is to allow the Commission to further consider the propriety of the application before it.
5. The Commission has the authority to implement any necessary changes to the electric restructuring accounting provisions and cost recovery consistent with statutory requirements.
6. Because we are considering modifying the transition cost accounting mechanisms by crediting the year-end excess revenues accrued in the generation memorandum accounts to the TRA rather than to the TCBA, it is reasonable to require the utilities to adjust those entries so that these funds are separately identified and segregated in the generation memorandum accounts.
7. It is reasonable to direct PG&E and Edison to establish a balancing account with customer class-specific sub-accounts to track the amounts provided by ratepayers. The balancing account will track the revenues accruing from the interim Emergency Procurement Surcharge and will apply these revenues to ongoing wholesale procurement costs.
8. It is reasonable to exempt those customers on the CARE program from this surcharge. Consumers at or near poverty level should not bear the burden of this interim rate relief. It is reasonable to require all other customers to be subject to this interim surcharge.
9. The rate relief granted is subject to further adjustments as we gather facts and obtain more evidence in additional hearings.
10. These proceedings must necessarily include further hearings and a thorough assessment, of the utilities' claims, the revenues and costs accrued by the utilities, their affiliates, and parent companies over the entire rate freeze period.
11. Section 311(d) generally requires proposed decisions (issued after hearing) to be circulated 30 days before the Commission vote, but the 30-day period may be reduced or waived by the Commission in an unforeseen emergency situation.
12. In order to ensure that PG&E and Edison can continue to procure and deliver electricity to their customers, we believe the utilities have raised sufficient concerns in their utilities' prima facie cases that allow us to determine that an unforeseen emergency situation exists.
13. In making these findings, we have determined that these are extraordinary circumstances that justify expedited contracting for consultant or advisory services, consistent with § 632.
14. It is reasonable to take official notice of the items listed in Appendix B as evidence that the wholesale electricity market is not workably competitive and is dysfunctional.
15. This order should be effective today, so that the interim rate increase may be implemented expeditiously.
IT IS ORDERED that:
1. Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (Edison) shall establish an interim surcharge, subject to refund and adjustment. The interim surcharge shall be established as the Emergency Procurement Surcharge (EPS) and shall be in place for 90 days from the effective date of this decision. The EPS shall be applied to electricity rates and shall be applied on an equal-cents-per-kWh basis of one cent per kWh. PG&E and Edison shall file compliance advice letters to implement this surcharge. The Energy Division has five working days to review filings for compliance. Once accepted by the Energy Division, the advice letters shall be effective on the date filed.
2. PG&E and Edison shall establish a balancing account with customer class-specific sub-accounts to track the revenues and to apply these revenues to ongoing procurement costs.
3. Customers eligible for the California Alternative Rates for Energy (CARE) program are exempt from this surcharge. All other customers, including direct access customers, are subject to this surcharge.
4. To the extent that PG&E and Edison have credited the net amounts in the generation memorandum accounts as of December 31, 2000 to the Transition Cost Balancing Account (TCBA), PG&E and Edison shall reverse and adjust all necessary accounting entries. These funds shall be separately identified and segregated within the generation memorandum accounts for potential later action by the Commission.
5. A prehearing conference shall be held on January 10, 2001, to begin to consider the issues outlined herein and to establish a timetable to consider the reports of the independent auditors.
This order is effective today.
Dated January 4, 2001, at San Francisco, California.
LORETTA M. LYNCH
President
HENRY M. DUQUE
RICHARD A. BILAS
CARL W. WOOD
JOHN R. STEVENS
Commissioners
I will file a concurring opinion with partial dissent.
/s/ HENRY M. DUQUE
Commissioner
APPENDIX A
List of Appearances
(See Acrobat version on the cpuc.ca.gov web site.)
APPENDIX B
Page 1
LIST OF ITEMS FOR OFFICIAL NOTICE
1. Orders of the FEDERAL ENERGY REGULATORY COMMISSION and materials, including Complaints, Comments, Attachments, Reports and Declarations filed in the respective dockets:
San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary services into Markets Operated by the California Independent System Operator and the California Power Exchange, Federal Energy Regulatory Commission Docket EL00-95-000;
Investigation of Practices of the California Independent System Operator and the California Power Exchange, Federal Energy Regulatory Commission Docket EL00-98-000
· Order Directing Remedies for California Wholesale Electric Markets, dated December 15, 2000. 2000 FERC LEXIS 2491
· Order Proposing Remedies for California Wholesale Electric Markets, dated November 1, 2000. 2000 FERC LEXIS 2168
California Electricity Oversight Board, FERC Docket EL00-104-000
Public Meeting in San Diego, California, FERC Docket EL00-107-000
California Power Exchange Corporation, FERC Docket ER00-3461-000,
California Municipal Utilities Association, FERC Docket EL01-001-000
California Independent System Operator Corporation, FERC Docket ER00-3673-000,
California Independent System Operator Corporation, FERC Docket ER01-607-000,
· Order Approving Independent System Operator Tariff Amendment 33, dated December 8, 2000
APPENDIX B
Page 2
2. California Independent System Operator (CAISO), Market Operations Report, Forecast and Actual Loads for January 1, 1999 through December 31, 2000, published on its web site at http://caiso.com/marketops/OASIS/moload
3. Edison International Inc. and its subsidiary Southern California Edison Company: filings with the Securities and Exchange Commission (SEC), including 8-K, 10-Q and 10- K reports, annual reports, proxy statements and securities prospectuses published on its web site at http://www.edisoninvestor.com/financialexc/index.htm
4. PG&E Corporation and its subsidiary Pacific Gas and Electric Company: filings with the Securities and Exchange Commission (SEC), including 8-K, 10-Q, 10-K reports, annual reports, proxy statements and securities prospectuses published on its web site at http://www.pgecorp.com/financial/reports/index.html
(END OF APPENDIX B)
Commissioner Duque, concurring in part and dissenting in part:
I am supporting the proposed decision because a rate increase is clearly needed if SCE and PG&E are to avoid bankruptcy. I file this concurrence and partial dissent because my analysis indicates that today's decision does not go far enough.
Clearly, there is much uncertainty that this Commission faces in the request of SCE and PG&E for rate increases. The hearings that I have attended over the last several days have presented a complex picture of asset transfers between the utilities and their holding companies. Moreover, there has been scant evidence that the utilities have taken steps to confront the revenue shortfalls and the potential for bankruptcy that they clearly face.
Although it is clear that the utilities do not bear responsibility for the high wholesale rates, PG&E and SCE bear full responsibility for the rate freeze pact that they made with the Legislature, for it is this ironclad pact of AB 1890 that, combined with dramatic price increases, has led to the current predicament. On the other hand, it is very clear that ratepayers have absolutely no responsibility for the high rates in wholesale markets. A complete bailout of SCE and PG&E by the ratepayers for all their costs - the current position of PG&E and SCE - is not a just outcome. Thus, the issues before the Commission are complex, uncertain, and full of consequences for all Californians.
In the last several days, my staff has investigated utility failures throughout the United States. In the past, utilities faced trouble from overbuilding - building unneeded capacity, and particularly nuclear generation facilities. From our review of these matters, it is clear that we are in uncharted territory - our current problems arise not from overcapacity, but from a lack of capacity. It is particularly difficult to predict from past experiences what are the consequences of a financial failure.
One point, however, stands out - in the most difficult situations of industrial trouble - Chrysler Corporation, Long Island Lighting Company - the involvement of either federal or state legislature was essential. To my mind, it is critical that the Legislature take action to correct the following problems that our current regulation has failed to address:
1. Move to permit utilities to enter into bilateral contracts that avoid the volatile short-term markets for power. We need some certainty of where prices are headed, in order to determine a reasonable rate structure going forward. Yesterday, PX prices averaged 28 cents. Despite the Commission's decisions to encourage bilateral contracts, we have failed to adopt any implementing advice letters, and have only just opened a rulemaking, with guidance months away. Thus, we have failed to take this simple step to permit the utilities to avoid such high prices. Despite all our votes and stated intentions, we have made insufficient progress on this matter.
2. Ensure that the utilities' native generation is used to serve its native load. Although the FERC has given this Commission full authority to take this step and an item has appeared on our agenda several times, it has been held. Thus, it disturbs me that we have failed to take any steps to alleviate the crisis, despite our stated intentions.
3. Ensure that the generation needs of California are met. In my view, we currently trust that the market will provide the power that we need, with no single company or state agency responsible for ensuring the adequacy of supply. Moreover, California Energy Commission findings and legal arguments that there is adequate power and that high prices result from market manipulation are unconvincing. Any businessman knows that a tight market facilitates manipulation and no one can plausibly argue that California is awash in power. In my view, only the Legislature can assign the responsibility of ensuring adequate electric supply. Unless this step is taken rapidly, California will remain subject to the vicissitudes of volatile and fluctuating prices.
4. Order an infrastructure investment program to install time of use meters. Californians cannot and will not cut back on electric usage unless Californians know what their power costs. Clear price signals will empower Californians to avoid exorbitant electric rates. This, in addition, will provide the basis for making energy efficiency and conservation programs work.
On another point, today's order wisely defers resolution of accounting issues until such time as the Commission we can evaluate the effects of these changes. Reviewing power costs, net of revenues, is critical for evaluating financial hardship. On the other hand, adopting measures, accounting or otherwise, that could be misused to unnecessarily extend the rate freeze. On this matter, today's decision will permit the Commission act judiciously to determine the date of the end of the rate freeze.
In summary, I concur with today's order because it is clear to me that today's action is a first step towards addressing California's energy problems. I fully expect that our decision today will be made more forceful by our actions within the next 90 days. I also look forward to working with legislators who are currently crafting additional measures for solving the problems of revenue shortfalls and capacity shortages.
However, I dissent in part because today's order takes only timid steps towards resolving the electricity crisis now before this Commission. Simple steps such as facilitating the purchase of power on bilateral markets and ensuring that each utility's power plants are dedicated to serving their own load are long overdue.
_/s/____HENRY M DUQUE___________
Henry M. Duque
January 4, 2001
San Francisco, California
