7. Settlement

In the joint motion the settling parties provided this summary:¹⁰

TRAC - The settlement adopts the [Total Rate Adjustment Component] TRAC ratemaking mechanism proposed by SDG&E with some modification. The TRAC contains the cross-subsidies associated with the AB 1X rate cap and the revenue allocation cap in this settlement. TRAC will apply to all customers (including any customers who become Community Choice Aggregation (CCA) customers), except that existing Direct Access (DA) customers will not be subject to the TRAC mechanism. If additional customers become eligible for DA as a result of future changes in law or regulation, they will be subject to the TRAC mechanism.

Revenue Allocation - The settlement adopts the class revenue allocation proposed by ORA, which reflects a 2% cap on [the] residential class allocation increase, and is as follows:

However, because TRAC is not going to be applied to existing DA customers, the impacts on DA and non-DA customers in each class are somewhat different from each other than the percentage for each total class shown above. The changes for DA and non-DA customers in each class are shown in rate tables that are part of the settlement agreement.

Marginal Costs - Because the settlement adopts ORA's proposed class revenue allocation, the settlement does not and need not resolve any issues raised in the case about marginal cost methodologies.

Residential Rate Design - The settlement retains SDG&E's current five-tier residential rate structure. Total rates for usage within 130% of baseline allowances are not increased. Rates for [California Alternative Rates for Energy] CARE customers are not increased.

Small Commercial Rates - The settlement increases Basic Service Fees by 5%. SDG&E's proposal to align energy charges seasonally using [Equal Percentage of Marginal Cost] EPMC is adopted by the settlement.

Large Commercial and Industrial Rates - Transmission-level Basic Service Fees will be increased 15%. The non-coincident demand charge will continue to be based on the higher of the current month's maximum demand or 50% of the maximum demand in the prior 11 months. The non-coincident demand charge currently within the [Competition Transition Charge] CTC component of rates will be eliminated and the revenue shortfall collected in summer on-peak demand charges. The settlement does not resolve issues about whether SDG&E's electric transmission rate design should be revised, but recognizes that this issue may be raised in the [Critical Peak Pricing¹¹] CPP or other proceedings. Standby rates will be raised by 10%. Per SDG&E's unopposed recommendation, Schedule AL-TOU-CP will be closed and then cancelled twelve months later. SDG&E's unopposed proposal to eliminate unused rate options other than D and F in Rate Schedule PA-T-1 is adopted. SDG&E's unopposed proposal to cap the on-peak TOU commodity rate for residential and commercial/industrial rate schedules at 12 cents/kWh is adopted.

Agricultural Rates - The Basic Service Fee will increase by 5% (same as for Schedule A). SDG&E's proposal to align energy charges seasonally using EPMC is adopted by the settlement.

Street Lighting - SDG&E's unopposed proposals to use D.04-04-042 Streetlighting Rate Design Model, incorporate TRAC, and set commodity rates at EPMC rate level are adopted.

Tariff Language Changes/Clean-up - SDG&E's proposals intending to clarify existing tariff language changes on multiple meters on a single premises and combining rates on tariff sheets to show a single value for all time periods are not adopted in the settlement. SDG&E's proposal for a special condition on operation of a generator is adopted.

Future Study - SDG&E agrees to perform and file with its next Rate Design Window application a study of correlation of average and peak demand during peak hours. Exact parameters of the study are specified in the settlement.

Discussion

a) Standard for Approval of a Settlement

Rule 51.1(a) provides:

Parties to a Commission proceeding may stipulate to the resolution of any issue of law or fact material to the proceeding, or may settle on a mutually acceptable outcome to the proceeding, with or without resolving material issues. Resolution shall be limited to the issues in that proceeding and shall not extend to substantive issues which may come before the Commission in other or future proceedings.

Rule 51.1(e) has, as a further requirement:

The Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest. (Emphasis added.)

As already noted, Rule 51.1(e) requires a settlement to be "reasonable in light of the whole record, consistent with law, and in the public interest."

b) Reasonable in Light of the Whole Record

We have reviewed the evidence in the record, considered the scope and thoroughness of the review by all active parties, especially UCAN and ORA. In particular, UCAN conducted the most detailed examination by any of the parties, and it proposed significant changes to SDG&E's proposed cost allocation, marginal costs, and rate design. Having reviewed the prepared testimony of SDG&E and all other parties, we find that the proposed rate design included in the settlement is within the range of reasonable findings had the application been fully litigated.

c) Consistent with Law

Nothing in the settlement is inconsistent with the law, and the settlement process was consistent with Rule 51 et seq.

d) In the Public Interest

There was no guarantee that litigation of the issues raised by the parties would have resulted in an adjustment to SDG&E's rate design as significant as the settlement rate design which is acceptable to all parties. The settlement saved time and resources, and achieved a result within the range of reasonable litigation outcomes. However, as discussed in detail below, the inclusion of a TRAC mechanism in SDG&E's tariffs is not in the public interest. Therefore, consistent with Rule 51.7.3¹² we must reject this settlement unless parties agree to modify the settlement and delete the TRAC Mechanism.

e) Uncontested Settlement

A further standard is articulated in San Diego Gas & Electric, 46 CPUC 2d 538 (1992), and applies to all-party settlements. As a precondition to approving such a settlement, the Commission must be satisfied that:

1. The proposed all-party settlement commands the unanimous sponsorship of all active parties to the proceeding.

2. The sponsoring parties are fairly representative of the affected interests.

3. No settlement term contravenes statutory provisions or prior Commission decisions.

4. Settlement documentation provides the Commission with sufficient information to permit it to discharge its future regulatory obligations with respect to the parties and their interests.

In this instance we can only answer all four requirements in the affirmative if the settlement is modified: all active parties participated and agreed to the settlement; ORA is charged with representing the long term best interest of all ratepayers; UCAN affirmatively represented small commercial and residential customers, sponsoring the most detailed testimony besides SDG&E, and all other customer interests and the competing interests of direct access service providers and customers, and potential community choice aggregators and their constituents, were well represented too. The settlement does not contravene any statutes or prior decisions; and, the settlement, if modified to delete the TRAC mechanism, is sufficiently detailed for implementation and allows the Commission to discharge its future regulatory obligations.

¹⁰ Joint Motion, pp. 3 - 5.

¹¹ See Application (A.) 05-01-017, filed by SDG&E, consolidated with A.05-01-016 and A.05-01-018 by Pacific Gas and Electric Company and Southern California Edison Company, respectively. This footnote is not in the Joint Motion.

¹² "The Commission may reject a proposed stipulation or settlement without hearing whenever it determines that the stipulation or settlement is not in the public interest. Upon rejection of the settlement, the Commission may ... 3. Propose alternative terms to the parties to the settlement which are acceptable to the Commission and allow the parties reasonable time within which to elect to accept such terms or to request other relief."