5. Incremental Funding Requirements, Requested
Ratemaking Treatment and Projected Rate/Bill Impacts

Tables 4-7 presents the incremental funding requirements associated with the utilities' proposed 2006-2008 energy efficiency budgets (with and without EM&V), broken down by natural gas funding requirements and electric revenue requirements. The incremental funding requirement for natural gas programs is derived directly from program expense budgets since, per D.04-08-010, the Commission ruled that adjustments for franchise fees and uncollectibles (FF&U) should not be made in calculating the natural gas public purpose surcharge. The incremental electric revenue requirement, on the other hand, includes an adjustment for FF&U.

The costs associated with natural gas energy efficiency programs are currently recovered through the utility's annual gas public purpose surcharge advice letter filings. Per Assembly Bill 1002, which added Article 10, §§ 890 et seq. to the Public Utilities Code, revenues from the surcharge are collected by each natural gas utility and remitted to the State Board of Equalization, and ultimately appropriated back from the State Treasurer to fund the utility programs. In their applications, the utilities acknowledge that the gas energy efficiency funding requirements will continue to be recovered in this manner, as long as the statute remains in effect. They propose that such amounts be recovered through the gas public purpose program surcharge rates effective January 1 of each program year.

Costs for electric energy efficiency program expenses are currently recovered as a non-bypassable charge through public purpose program and procurement rate components authorized by the Commission.³⁸ The portion of the electric revenue requirement collected through electric public goods charge rate components is constant except for an annual addition equal to the lesser of sales growth or inflation. These collections are tracked via the Energy Efficiency Program Adjustment Mechanism (EEPAM). PG&E, SCE and SDG&E would continue to file advice letters by March 31 of each year to establish and recover the authorized electric public goods charge, including the annual addition.

Remaining electric energy efficiency revenue requirements are currently collected via the Procurement Energy Efficiency Balancing Account (PEEBA), established for this purpose in D.03-12-062. This account tracks the difference between the authorized procurement energy efficiency revenue requirement with actually incurred procurement energy efficiency expenses to determine the monthly over-or-under collection recorded in the PEEBA. Due to the one-way nature of the EEPAM and PEEBA, any undercollections (i.e., excess expenditures) existing at the end of the authorized program cycle are not be eligible for recovery from customers.

PG&E, SCE and SDG&E propose that all of the incremental electric revenue requirement resulting from approval of the proposed energy efficiency budgets continue to be recovered through procurement rates in this manner. They recommend that these incremental revenue requirements be consolidated in the annual Energy Resource Recovery Account (ERRA) Forecast proceeding, or other proceedings authorized by the Commission for inclusion in their respective non-bypassable public purpose and procurement rate components effective January 1 of each program year, or as soon thereafter as possible.

Attachment 7 summarizes the rate and bill impacts associated with the 2006-2008 proposed funding requirements, including the EM&V placeholder amounts, by utility. To allocate costs among customer classes, SDG&E and SoCalGas propose modifications to current cost formulas in order to better match the forecasted spending of program funds by each customer class. PG&E and SCE make no changes to their current allocation methodology for public goods charge revenue.

It is important to clarify that these projected rate and bill impacts reflect the immediate impacts associated with increasing funding requirements for the authorized programs, and do not reflect the net impact on rates and bills over time. The overall impact of the programs is that customer bills will decrease relative to the level without the energy efficiency programs. This is evident in the more than $2.5 billion in net benefits that the programs will provide, which translates into reduced utility revenue requirements and lower bills for customers. We direct the utilities to submit estimates of the overall bill impacts expected from the portfolios in their compliance filings, working with PRG members in the meantime to develop a consistent estimating methodology.

In terms of the rate impacts associated with recovering the initial program costs, SCE estimates that funding its proposed energy efficiency portfolio will increase average rates and customer bills by approximately 0.48% over today's levels. For the residential customer class, SCE projects that the average monthly electric bills will increase approximately 35 cents, or equal to the system percentage average change. Most of the other customer classes will experience rate and bill changes close to the system average of 0.48%, in the range of 0.47% (street and area lighting) to 0.52% (agricultural and pumping).

PG&E projects that funding the costs of its proposed portfolio of energy efficiency programs will increase system average rates and bills by approximately 0.6% over current levels.³⁹ This projection does not, as discussed above, reflect the overall decrease in rates and bills that result from these cost-effective energy efficiency programs--it only indicates the rate changes necessary to recover the initial investment costs. For the residential class, electric bills are projected to increase by $1.18 per month (1.6%), and bundled core gas bills are projected to increase by 13 cents per month (0.3%). Projected increases in average bill and rate impacts range from 0.2% for core/bundled small commercial customers to 2.9% for direct access customers (medium).

SDG&E's proposed portfolio plans and associated funding levels are estimated to result in average electric rate increases between 0.1 to 0.4 cents/kwh, depending on the customer class. For residential customers, average bills are projected to increase by $1.23 (1.7%) relative to current levels.

On the natural gas side, the cost reallocation recommended by SDG&E would result in a small decrease in current residential rates of approximately 1 cent/therm and an increase of 2-3 cents/therm in non-core commercial and industrial rates and bills. SoCalGas' cost allocation proposal is projected to increase non-core commercial and industrial average rates and bills by approximately 4.5%, while keeping residential bills and rates essentially constant relative to today's levels.

In presenting these bill and rate impact results, SDG&E and SoCalGas argue that the resulting increases to the commercial and industrial customer classes more appropriately reflect the share of energy efficiency funding targeted to these sectors than the current allocation formulas. In particular, SDG&E points out that costs associated with natural gas energy efficiency were historically included in gas base margin revenue requirements and therefore allocated based on the "equal percentage of marginal cost" method used to recover the cost of on-going utility operations. If this allocation method were to continue, SDG&E argues that these customer groups would be assigned a disproportionate share of the program benefits relative to the costs paid by those classes.

³⁸ SCE's costs for electric energy efficiency program expenses are recovered through the Public Purpose Programs Charge, consistent with D.97-08-056 and D.03-12-062. For SDG&E, these expenses are currently recovered through the Public Purpose Programs and Procurement Energy Efficiency Surcharge component of rates, consistent with these decisions. For PG&E, these expenses are recovered through Energy Efficiency and Procurement Energy Efficiency rate subcomponents of the Public Purpose Programs Revenue Adjustment Mechanism.