8. Settlement Provisions
SDG&E argues that its rates are not currently allocated correctly and do not send the right price signals. (Ex. 1, pp. 3-5.) In particular SDG&E believes that AB 1X has imposed a rate cap on residential rates for up to 130% of baseline usage, which leads to a reallocation of the full cost of service to above 130% of baseline and that this "distortion" extends to other customer classes' rates too. (Ex.-1, p. 5.) SDG&E proposes to address the effects of "rate capping" caused by AB 1X, "as well as a phased-in approach for reducing inter-class subsidies." (Ex-1, p. 6.) SDG&E's proposed solution is the Total Rate Adjustment Component (TRAC): "TRAC is designed to be revenue neutral in that it does not collect any additional revenue but merely shifts revenues to implement Commission-adopted subsidies and revenue allocation capping requirements." (Ex-1, p. 6.)
SDG&E proposes this elaborate mechanism to eliminate inter-class subsidies in three to four years if the annual total revenue reallocations are capped at two to three percent. (Ex. 1, pp. 10-11.) These reallocations would appear in SDG&E's tariffs but not on the unbundled descriptions of the customer's monthly bills. (Proposed settlement, 6.)
UCAN, the City of San Diego and AReM argued against the adoption of the TRAC in any form, while ORA was indifferent, focusing on the end-result of the adopted rate design and mitigation of the rate impact on residential customers if rates were to shift to a fully allocated cost of service. UCAN points out that TRAC is an unnecessary extra billing component, although the settlement would exclude TRAC from customers' bills but include TRAC in the tariffs. (Ex. 12, p. 28.) UCAN also points out that current proposals from both Pacific Gas and Electric Company and Southern California Edison Company, where those companies argue residential rates would have to change by 16% and 10%, respectively, to be cost based, did not propose a TRAC-like mechanism.
Inclusion of the TRAC in the settlement and its subsequent inclusion in SDG&E's tariffs may unintentionally imply that the Commission has given its imprimatur to the proposed ratemaking mechanism and such implication could lead parties in the next rate design proceeding to approach the issue as if the TRAC was a Commission-approved process. We do not intend this to happen.13
We find the inclusion of the TRAC in the proposed settlement is not in the public interest. As proposed by SDG&E, it is too sweeping a change with post-settlement implications and presumptions: SDG&E's testimony envisions utilizing TRAC for three to four years to shift rates to a fully allocated cost of service by rate class. The proposed settlement recognizes the non-precedential nature of settlements, but by incorporating the TRAC into the tariffs, and not the customers' bills, (Settlement, p. 6.) we are concerned that an implication is established that the TRAC is reasonable. A settlement should only establish an acceptable outcome, the final rate design, and as is often the case, the individual trade-offs to reach that settlement may not be apparent. There is no presumption that there will be subsequent TRAC adjustments because the settlement applies to this rate design only. In the absence of fully litigating the proposal and the opposition embodied in the prepared testimony of the parties, we cannot accept the TRAC as a necessary part of the settlement.
We therefore find that the inclusion of the TRAC in the proposed settlement, with the implied presumption that the TRAC is a reasonable starting point for the next rate design application, interferes with the Commission's ability to discharge its future regulatory obligations. We do not know what conditions will exist when SDG&E files its next application. We should not be burdened with the superfluous TRAC interfering with a reasonable determination of the appropriate marginal costs, cost allocation and rate design in subsequent years.
SDG&E proposed a separate TRAC component in the tariffs that would be excluded from a customer's detailed billing. This is unreasonable for two reasons: first we do not want an implication in the tariffs that the TRAC itself has been found reasonable; and secondly, there should be no discrepancies between the customer's bill and the applicable tariff. Therefore, we direct SDG&E to add the cost reallocation to the distribution rate component - which is paid by all customers whether they are full service, DA, or CCA - and delete the TRAC component from its tariffs.
a) Marginal Costs
SDG&E proposed marginal costs for customer costs, distribution, generation and energy. UCAN proposed the use of duct-firing in a combustion turbine to determine the marginal generation capacity costs. (Ex. 12, pp. 5 - 8.) The settlement does not resolve any of the marginal cost issues, and we agree with the settling parties that it is unnecessary. We find, however, that UCAN raised significant issues concerning the calculation of marginal costs and the use of different technology for the marginal cost of generation capacity. In order to expedite the discussion in the next rate design proceeding, we direct that SDG&E shall include in its application a complete analysis of UCAN's proposal to use duct-firing in a combustion turbine to determine marginal generation capacity costs, in addition to any other proposal SDG&E may prefer.
UCAN also raised a significant concern regarding the use of nominal dollar costs without adjustment. (Ex. 12, pp. 11 - 12.) We can observe that whenever costs are compared over time that nominal dollars should be adjusted to a constant or present value basis. Therefore, we will direct that SDG&E shall include the use of constant dollars or present value, in all of its analysis in support of the next rate design application in addition to any other proposal it may prefer.
b) Revenue Allocation
SDG&E proposed the use of the equal percentage of marginal cost methodology in developing revenue allocation for DWR above market costs. (Ex. 2, p. 1 and Ex. 7, p. 17.) ORA and UCAN proposed to use equal cents per kWh. (ORA Ex. 11, pp. 2-1 and 3-2, and UCAN Ex. 12, p. 20.) The proposed settlement does not resolve the allocation and notes the allocations had similar results. We agree these details need not be decided in order to adopt the settlement's rate design.
Similarly, SDG&E proposed the use of the equal percentage of marginal cost methodology in developing revenue allocation for utility-retained generation and the DWR revenue allocation of bond charges, and it proposed the use of the equal percentage of marginal cost methodology in developing revenue allocation for utility-retained generation and the DWR revenue allocation of all other generation costs. In both cases, UCAN proposed different allocations and the settlement did not resolve the dispute, citing similar results. We agree these details need not be decided in order to adopt the settlement's rate design.
c) Capping of Revenue Allocation
SDG&E proposed a 2% limit to the increase in rates to any customer class as a result of otherwise adjusting rates to fully reflect the cost of service. (Ex. 2, p. 3.) All parties agreed in testimony to a 2% limit except FEA who proposed a 3% limit.
We find a 2% limit is reasonable because it allows the rates to move towards full cost of service while providing some rate-shock insulation.
After consolidation of the TRAC rate component with the distribution rate component, we will adopt the rates for all customer classes as proposed in the settlement. These rates are the result of give-and-take in negotiation, they achieve a movement towards full cost of service, and they a limited by the settlement's 2% increase limitation.
SDG&E argues that the TRAC would prevent direct access or community choice aggregation customers bypassing what it identifies as an AB1X subsidy. Direct Access and community choice aggregation customers cannot bypass the cost reallocation because this decision adopts the settlement's final rate design inclusive of the proposed TRAC adjustment amounts as a part of the distribution cost component of rates.
The settlement includes various negotiated changes to the tariff language and to the extent those changes are described in the settlement and do not implement TRAC in tariffs, they should be included in the compliance advice letter filed by SDG&E to implement this decision. No other changes are authorized by this decision or for inclusion in the compliance filing.
UCAN proposed that the Commission "require SDG&E to submit a statistical analysis regarding the correlation of the customer's average and peak demand during peak hours with peak and other high load hours on the system." (Ex. 12, p. 2.) The proposed settlement includes SDG&E's agreement to prepare a specific study in the next rate design application. It is reasonable that parties should agree on additional information or studies that will be included in subsequent proceedings and, therefore, we will direct SDG&E to include the proposed study as a part of the next application. Additionally, SDG&E should provide UCAN with the detailed work papers supporting the study at the time the application is filed.
13 (Rule 51.8) Adoption Binding, Not Precedential
Commission adoption of a stipulation or settlement is binding on all parties to the proceeding in which the stipulation or settlement is proposed. Unless the Commission expressly provides otherwise, such adoption does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding. (Note: Authority and reference cited: Section 1701, Public Utilities Code.)
