Decision DRAFT DECISION OF ALJ MINKIN (Mailed 7/21/00)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authority to Establish Post-Transition Period Electric Ratemaking Mechanisms. (U 39-E)	Application 99-01-016 (Filed January 15, 1999)
Application of San Diego Gas & Electric Company for Authority to Implement Post Rate Freeze Ratemaking Mechanics. (U 902-E) to Review and Recovery Transition Cost Balancing Account Entries from January 1, 1998 through June 30, 1998 and Various Generation-Related Memorandum Account Entries.	Application 99-01-019 (Filed January 15, 1999)
Application of Southern California Edison Company (U 338-E) to: (1) Propose a method to Determine and Implement the end of the Rate Freeze; and (2) Propose Ratemaking Mechanisms which would be in place after the end of the Rate Freeze Period.	Application 99-01-034 (Filed January 15, 1999)
Application of SAN DIEGO GAS & ELECTRIC COMPANY: (1) informing the Commission of the Probable Timing of the End of its Electric Rate Freeze, (2) for Authorization to Change Electric Rates Through Implementation of Interim Ratemaking Mechanisms Concurrent with Termination of the Electric Rate Freeze, and (3) for Authorization to Change Electric Rates by Adding New, and Revising or Terminating Existing, Rate and Revenue Mechanisms and Rate Designs. (U 902-E)	Application 99-02-029 (Filed February 19, 1999)

(See Decision 99-10-057 for Appearances.)

OPINION REGARDING EMERGENCY MOTION

FILED BY UTILITY CONSUMERS' ACTION NETWORK

Summary

On July 6, 2000, the Utility Consumers' Action Network (UCAN) filed and served an Emergency Petition to Modify Decision (D.) 99-05-051 (Petition). Consistent with the ruling of the assigned Administrative Law Judge (ALJ), parties filed and served responses on July 14.¹ In this decision, we grant UCAN's motion in part, deny it in part and implement several provisions designed to mitigate the summer rate spikes experienced by the customers of San Diego Gas & Electric Company (SDG&E).

UCAN's Petition

UCAN filed its Petition in response to considerably increased prices to SDG&E's customers in June and July. A combination of heat waves across the West, a drop in reserves, and significantly increased in demand have resulted in much higher wholesale energy costs. The Independent System Operator (ISO) has declared several emergencies this summer which have led to voluntary curtailments and rolling outages. The ISO Board of Governors recently voted to drop its price cap from $750 per megawatt to $500 per megawatt in an effort to control prices. Because ratepayers in SDG&E's service territory are no longer subject to a rate freeze, these consumers are subject to price volatility.

UCAN characterizes the high rates faced by consumers as "dire and unprecedented" and requests that the Commission impose a summer rate freeze for residential, small commercial, and lighting customers for August, September, and October 2000 and allow SDG&E to establish a balancing account to track uncollected revenue. UCAN also requests that a follow-up proceeding be initiated in November 2000 to assess the size and recovery of the undercollection; to reconsider D.00-06-034 and approve the settlement related to procurement proposed by SDG&E, UCAN, and ORA; to accelerate the process by which SDG&E can give residential and small commercial customers who so request special meters that allow them to receive price credits for not consuming electricity during peak periods; and to redirect more of the $350 million in annual expenditures on energy efficiency programs to the San Diego area. In addition, UCAN requests that the Commission direct the Energy Division to conduct an investigation as to the cause of the summer price increase, with any generators found to have engaged in price gouging to be required to pay for a portion of the rate increase.

In D.99-05-051, the Commission adopted a settlement regarding the end of SDG&E's rate freeze. The settlement allowed SDG&E to cap its residential, small commercial, and lighting customers rates at levels not to exceed 112.5% of frozen electric rate levels on an average monthly basis for the months of July, August, and September, 1999. The settlement also provided that SDG&E would not propose a similar rate cap for the year 2000 in this proceeding.

The Commission recently adopted D.00-06-034 in these proceedings. PG&E proposed that price caps be adopted in order to mitigate the volatility in energy prices once the rate freeze ends. Southern California Edison Company (Edison) and SDG&E did not make similar proposals. With the exception of Cal-SLA, all parties opposed price caps, stating that such devices would dilute market prices and distort market signals. In D.00-06-034, we determined that consumers must be aware of the price signals provided by the market and rejected PG&E's rate capping proposal:

We prefer that customers understand the impact of the market and the accompanying price signals. We call for the utilities and ESPs to provide the necessary customer education and information and recommend that hourly interval meters be installed whenever feasible. We also continue the balanced payment plan for residential and small commercial customers. We do not require that such plans be expanded to street lighting customers, but instead see this as an opportunity for the marketplace to offer solutions. (Id., mimeo. at p. 4.)

UCAN did not address whether its proposal required a modification to D.00-06-034. The ALJ's ruling specifically asked parties to comment on the need to modify that decision.

SDG&E's Responses

In general, parties do not support UCAN's proposal for price caps, but support other aspects of UCAN's Petition. SDG&E proposes a series of short-term and longer-term measures to address the impacts of rising rates on customers. SDG&E maintains that, as provided in D.00-06-034, residential and small commercial customers will receive refunds for the unrealized bond savings that resulted from the early end to the rate freeze. Customers will receive these refund checks in August and the typical residential customer will receive a refund of $260. The net effect of high summer bills and receipt of the refund check results in projected benefit of $90 to customers compared to last summer. SDG&E also proposes to develop installment plans for paying the summer bills, defer payment of half the electric bill until customers receive refund checks from the unrealized bond savings, and to expand marketing of balanced (or levelized) payment plans. SDG&E offers to act as an aggregator for customers to enable them to bid their load to the lowest-priced energy service provider (ESP) and joins UCAN in its call for an investigation of energy markets. SDG&E agrees that the Commission should expedite the deployment of real time meters and recommends that permitting and siting authority for new generators be streamlined and accelerated.

SDG&E states that the rate freeze proposed by UCAN does not provide a solution to high electric prices - or to high customer utility bills, for that matter. SDG&E's levelized payment plan (LPP) already allows consumers to smooth monthly bill fluctuations, with a true-up paid at the end of each calendar year. In contrast, SDG&E believes that UCAN's proposal will encourage customers to consume more electricity during peak demand, rather than less, because regulation will insulate customers from the market. In addition, UCAN's proposal could lead to higher winter bills, because ratepayers will be paying for the rate deferral at a time when natural gas usage and bills are high. SDG&E states that adopting UCAN's proposal requires a modification of D.00-06-034 and that cannot be done without providing parties "notice and an opportunity to be heard as provided in the case of complaints," as is required by Pub. Util. Code § 1708.² SDG&E specifically calls for evidentiary hearings to determine the total amount of energy costs to be deferred, how the shortfall would be paid for and amortized, and the impacts on customers.

In its supplemental response, SDG&E proposes an immediate summer bill credit for all customers in addition to the bond refund that residential and small commercial customers receive. SDG&E proposes that the overcollection resulting from recovery of its ongoing transition costs be credited to customers over August and September. Transition costs and related revenues are tracked in the Transition Cost Balancing Account (TCBA). As of July 13, SDG&E calculates that its TCBA is overcollected by $90 million. As of August 1, SDG&E expects the overcollection to equal $100 million. Normally, this overcollection would be amortized into rates in 2001.

Because the commodity prices exceed the fixed prices for energy of SDG&E's portion of the San Onofre Nuclear Generating Station (SONGS) (determined to be approximately 4.3 cents per kilowatt-hour (kWh), SONGS energy has generated higher revenues than anticipated.³ Similarly, expenses (or above-market costs) and revenues are calculated for SDG&E's Qualifying Facilities (QF) contracts and its long-term contracts with Portland General Electric and Public Service of New Mexico. The Competition Transition Charge (CTC) rate component was set for 2000 using certain PX forecasts that have turned out to be lower than the actual PX prices. There are no above market costs for these power purchase contracts for this time frame and this results in accrued revenue to offset transition cost recovery.⁴ As of May 31, SDG&E reports that the overcollected balanced in the TCBA was $38.4 million; when SDG&E closed its books for June, the balance was approximately $90 million. Thus, the commodity price spikes have caused this account to more than double in a matter of weeks. SDG&E projects that with current PX prices, the TCBA overcollection will equal approximately $100 million on July 31.

Other Parties' Positions

FEA and CMTA do not oppose UCAN's rate cap so long as large customers do not have to bear any costs associated with the recovery of such a rate deferral. CMTA, however, believes that the LLP provide the same benefits without impacting market signals.

ORA agrees that without a significant disallowance of any shortfall or amortization over a lengthy period, UCAN's proposal will only forestall, rather than eliminate, high bills for SDG&E customers. ORA agrees with SDG&E's analysis that increased prices for gas and normal increased natural gas consumption in the winter, along with amortization of an electric price undercollection will lead to significantly higher combined electric and gas bills and associated customer complaints. ORA believes that the refund of unrealized rate reduction bond savings will help to mitigate the rate shock to small customers. ORA agrees with SDG&E's assessment that the average SDG&E residential customer will end up about $90 ahead of last summer, in terms of cash flow.

While ORA agrees that a rate cap is contrary to D.00-06-034 and that consumers should have the opportunity to respond to price signals, ORA is also concerned that the market is not workably competitive. Thus, ORA supports both UCAN and SDG&E's call for an investigation into the commodity price increase. ORA, however, recommends that the Attorney General's office is better suited to conduct such an investigation, because the Commission does not have jurisdiction over the merchant generators. ORA points out that PG&E and Edison have the incentive to maximize headroom under the rate freeze rather than to drive up prices. ORA is also hesitant regarding SDG&E's proposal for universal installation of real-time meters, because both cost-effectiveness and impact on competition should be considered. ORA supports expanded or redirected energy efficiency funds but will respond to the utilities' proposals in Application (A.) 99-09-049 et al., as called for in D.00-07-017. ORA counsels against SDG&E acting as an aggregator for small customers, since this may again impact competition in a negative fashion.

ORA recommends that the Commission open a quasi-legislative investigation or rulemaking into facilitating more stable rate options to customers and rate design for default service.

PG&E maintains that instituting a rate cap for SDG&E requires a specific fact-finding inquiry, but states that the rate capping proposal made in the post-transition ratemaking proceeding is not designed to address the issues at hand.

Both ARM and the CalPX suggest that hedging (i.e., allowing participants to manage risk through purchases and sales of electricity and energy-related products on a forward basis) will help to solve this problem. Both parties note that SDG&E has filed Advice Letter (AL) 1234-E for expanded authority to purchase in the PX's Block Forward Market. ARM also notes that the recent price spikes occurred during late spring and early summer when many generating units were out of service for maintenance in anticipation of hotter weather in the later summer months.

Cal-SLA states supports UCAN's petition regarding rate caps and redirecting energy efficiency funds. Cal-SLA also supports SDG&E's LPP and requests that D.00-06-034 be modified to expand the LPP to small commercial and street-lighting customers for SDG&E, PG&E, and Edison.

Edison points out that the problem, when properly viewed, is one of a statewide concern. Edison also states that UCAN's immediate rate cap offers a temporary respite from high bills, at potentially greater cost later and therefore, opposes the proposal. Edison expresses concern with a Commission investigation into causes of high summer prices, if it does not investigate all facts and remedies of all market participants. Anything less than this will be an incomplete and potentially ineffectual approach to solving the problem. Edison believes that it is important to coordinate with FERC and the EOB and that the Commission should request that FERC initiate an investigation.

Edison also concurs with SDG&E's July 11 response that suggests that the Commission should continue and accelerate the June 29th load profiling workshops and increase its emphasis on energy efficiency and load profiling. The Commission should direct the use of the public goods charge funds into those programs which it determines have the most quantifiable and immediate impact on price volatility. The Commission should order a study to determine which customers will benefit from hourly metering. The Commission should act quickly on SDG&E's advice letter regarding the installation of more hourly meters.

The City of San Diego requests that the Commission to take the leadership in developing solutions to solve the short term and the long-term problems. City of San Diego does not support the UCAN proposal as currently structured, but it does support the following suggestions: 1) improving the availability of time of use meters for residential and small commercial customers; 2) encouraging SDG&E to aggressively pursue development of new energy efficient programs in the San Diego area; and 3) investigating the root causes of the high and volatile prices in California. City of San Diego expresses concern with the repercussions of an investigative approach, in that this may have the unintended effect of thwarting investment.

Discussion

As UCAN and SDG&E demonstrate, SDG&E's procurement costs and rates to bundled customers have skyrocketed in recent months, resulting in typical residential bills that have increased over 70% since last summer's. Natural gas prices are also also increasing at a record rate. The price of natural gas during the winter of 1999-2000 was approximately 22 cents per therm. Currently the price of natural gas is 45 cents per therm, approximately double last winter's price. It is tempting to try and find instant solutions, but UCAN's proposal to re-institute the rate freeze (more aptly termed a rate deferral) is not prudent on a policy basis, nor is it in the best interest of the consumer. As both ORA and SDG&E have demonstrated, such a rate deferral has every indication of leading to high winter bills. We are not convinced that UCAN's proposal, while obviously well intentioned, will result in ratepayer savings.

On a procedural basis, granting UCAN's proposal would require a modification of both D.99-05-051 and D.00-06-034. Section 1708 requires that parties be given notice and opportunity to be heard in the manner of a complaint. SDG&E and ARM have stated that evidentiary hearings are required and have demonstrated that there are material issues of disputed fact. We agree with SDG&E and others that establishing a balancing account and determining the amount that will be deferred, how the shortfall will be amortized and potential impact on customers are factual matters that require evidentiary hearings. In addition, SDG&E raises legal hurdles associated with the filed rate doctrine that must be considered.

A better approach is to consider these wholesale market problems in a full investigation. Thus, we intend to implement short-term approaches that will provide bill stability over August, September, and October, while we begin to address failures in current wholesale markets. First, we will grant SDG&E's request to amortize the overcollection in the TCBA over a two-month period to all customers. This approach, combined with the refund of the rate reduction bond unrealized savings, will mitigate the immediate impact of the summer rate spikes. We will approve Advice Letter (AL) 1237-E as part of this decision. The TCBA overcollection shall be amortized over August and September 2000. We will also authorize SDG&E to expand the LPP to streetlighting customers. We believe the record supports this modification to D.00-06-034 without evidentiary hearings. SDG&E's LPP is available to both residential and non-residential customers and in hearings on the underlying issues, SDG&E offered to expand these programs to lighting customers. Because we have held hearings on these underlying issues, it is reasonable to modify D.00-06-034 to expand these programs to streetlighting customers.

SDG&E has acknowledged that it has discretion to work with customers who need to pay their bills in installments. SDG&E has also stated that it has modified its collection procedures to ensure that no customer will have his or her service disconnected pending receipt of the lump-sum bond refund check. We will hold SDG&E to these promises and further order that no customer have service disconnected as a result of the summer price spikes.

Second, we will grant SDG&E expanded authority to participate in the CalPX Block Forward Market. SDG&E requested this authority in AL 1234-E. We granted PG&E and Edison similar authority in Resolutions E-3658, E-3666, and E-36667, and SDG&E should also be able to fully participate in hedging opportunities. It is reasonable to grant this authority by this decision rather than in a separate resolution.

Third, as requested by UCAN and endorsed by SDG&E and ORA, we will issue an Order Instituting Investigation (OII) to investigate these problems and to determine what must be done to protect small customers in the future. The OII will be categorized as quasi-legislative, as ORA recommends and, at a minimum, will focus on the following issues to consider the impact of wholesale market problems on retail rates:

a. What default rate design options should be provided to residential and small commercial customers? Should levelized payment plans be the default option, with an "opt-out" plan for those customers that so desire? If SDG&E continues to accrue overcollections in the TCBA, should a surcredit approach be implemented?

b. Should SDG&E be authorized to participate in bilateral contracts outside the CalPX day-ahead, day-of, and block forward markets and the Independent System Operator (ISO) real-time market?⁵

c. Should SDG&E be released from its default provider obligation? What impact will this have on consumers?⁶

d. Should SDG&E be allowed to act as an aggregator for small customers to bid their load to the lowest energy service provider, including SDG&E's unregulated affiliate, Sempra Energy Trading? What affiliate transaction rules are applicable?

e. Should this OII be expanded to apply to PG&E and Edison? Should particular rate option proposals be addressed in A.99-03-014 and A.00-01-009 for PG&E and Edison, respectively?

Fourth, we endorse SDG&E's proposals to expand outreach and education efforts, particularly the LPP, to its customers. SDG&E should ensure that this plan is as "user friendly" as possible and should ensure that customers can sign up with little formality. We approve of the summer energy-assistance fund for low-income customers that will be funded by shareholders. We will investigate whether an expansion of such a plan is required. Energy efficiency and conservation efforts will become increasingly important. As discussed in D.00-07-017, we will review proposals for energy efficiency funds and the Summer Initiative on an expedited basis. In that decision, we ordered the utilities to propose programs to achieve demand and energy usage reductions and to use energy efficiency funds that are not currently budgeted for these efforts. These proposals will be filed at the Commission by July 21 and SDG&E has $12 million in additional funds available. We will consider SDG&E's application for the deployment of real time meters when it is filed and at that time will address the many issues associated with this proposal. We will also consider SDG&E's application for a Certificate of Public Convenience and Necessity (CPCN) for the Valley-Rainbow transmission line as expeditiously as possible, in a manner that is consistent with the law and public interest.

Finally, we join UCAN, SDG&E, and ORA in their call for an investigation into market irregularities. UCAN recommends an investigation by the Energy Division. SDG&E recommends that the PX, ISO, this Commission, and the Federal Energy Regulatory Commission (FERC) conduct the investigation. ORA recommends that this Commission join together with the Attorney General to investigate high electricity prices, with prosecution for any unlawful market abuses. As part of the OII discussed above, we will take comments on the agency best suited to conduct such an investigation. We also call for the cooperation of the Energy Oversight Board in investigating the functioning of the PX and ISO markets.

It is important to begin to resolve these issues now. No later than March 2002, the rate freeze will be over for PG&E and Edison. If the ISO and PX markets continue to exhibit signs of manipulation or design flaws, we will have failed to serve Californians. While we must act to assist San Diego ratepayers by reducing the monthly bills they now face, the larger challenge is to preserve long-term ratepayer protections and to achieve long-term benefits in an appropriately-functioning marketplace.

Comments on Draft Decision

Rule 77.7 of the Commission's Rules of Practice and Procedure provides for public review and comment for draft decisions, consistent with the provisions of § 311(g). Normally, draft decisions are subject to a 30-day "sunshine" period and the same public review and comment period that is required for proposed decisions. Rule 77.7(f) allows the Commission to reduce or waive the period for public review and comment for draft decisions under various circumstances.⁷ Rule 77.7(f)(9) specifically provides for an exemption:

For a decision where the Commission determines, on the motion of a party or on its own motion, that public necessity requires reduction or waiver of the 30-day period for public review and comment. For purposes of this subsection, "public necessity" refers to circumstances in which the public interest of the Commission adopting a decision before expiration of the 30-day review and comment period clearly outweighs the public interest in having the full 30-day period for review and comment. "Public necessity" includes, without limitation, circumstances where failure to adopt a decision before expiration of the 30-day review and comment period would place the Commission or a Commission regulatee in violation of applicable law, or where such failure would cause significant harm to public health or welfare. When acting pursuant to this subsection, the Commission will provide such reduced period for public review and comment as is consistent with the public necessity requiring reduction or waiver.

Pursuant to Rule 77.7(f)(9), we determine that public necessity requires a reduced period for public review and comment. Comments on the draft decision must be filed and served by July 27, 2000. No reply comments will be allowed.

Findings of Fact

1. UCAN's motion to re-institute the rate freeze for SDG&E for the months of August, September, and October could lead to unintended consequences and higher winter bills.

2. It is reasonable to grant SDG&E's request to amortize the overcollection in the TCBA over a two-month period to all customers. This approach, combined with the refund of the rate reduction bond unrealized savings, will mitigate the immediate impact of the summer rate spikes.

3. SDG&E's LPP is available to both residential and non-residential customers.

4. It is reasonable to grant SDG&E the same expanded authority to participate in the CalPX Block Forward Market that is available to PG&E and Edison.

5. As soon as is practicable, we intend to issue an OII to investigate these market problems and to determine what must be done to protect small customers in the future. We call for cooperation from FERC, the Electricity Oversight Board, the ISO, and the PX in investigating market irregularities.

6. We endorse SDG&E's proposals for expanded outreach and customer assistance, as described in this decision.

Conclusions of Law

1. Granting UCAN's proposal would require a modification of both D.99-05-051 and D.00-06-034 that is not consistent with the requirements of § 1708. Section 1708 requires that parties be given notice and opportunity to be heard in the manner of a complaint.

2. It is reasonable to modify D.00-06-034 to expand LPPs to lighting customers.

3. Advice Letters 1234-E and 1237-E should be approved in this decision.

4. Pursuant to Rule 77.7(f)(9), we determine that public necessity requires a reduced period for public review and comment.

5. This order should be effective today, so that these provisions may be implemented expeditiously.

FINAL ORDER

IT IS ORDERED that:

1. The Emergency Petition to Modify Decision (D.) 99-05-051 Filed by The Utility Consumers' Action Network (UCAN) is granted in part and denied in part, as described in this decision.

2. San Diego Gas & Electric Company's (SDG&E) request to amortize the overcollection in its Transition Cost Balancing Account (TCBA) is granted. Advice Letter 1237-E is approved.

3. SDG&E shall not disconnect service from any customer as a result of the summer price spikes. This requirement shall be in effect for August, September, and October, at a minimum. If necessary, SDG&E shall file an advice letter to implement these tariff changes, no later than five days after the effective date of this decision.

4. SDG&E is granted expanded authority to participate in the California Power Exchange's Block Forward Market. This authority is consistent with that granted to Pacific Gas and Electric Company and Southern California Edison Company. Advice Letter 1234-E is approved.

5. SDG&E shall expand its levelized payment plan program to lighting customers and shall ensure that all customers can easily enroll in such a plan.

6. Simultaneously with this decision, we intend to issue an Order Instituting Investigation (OII) to investigate problems associated with the market and to determine what must be done to protect small customers in the future. The OII shall be categorized as quasi-legislative and, at a minimum, shall focus on the following issues:

a. What default rate design options should be provided to residential and small commercial customers? Should levelized payment plans be the default option, with an "opt-out" plan for those customers that so desire? What default rate design options should be provided to residential and small commercial customers? Should levelized payment plans be the default option, with an "opt-out" plan for those customers that so desire? If SDG&E continues to accrue overcollections in the TCBA, should a surcredit approach be implemented?

b. Should SDG&E be authorized to participate in bilateral contracts outside the CalPX day-ahead, day-of, and block forward markets and the Independent System Operator real-time market?

c. Should SDG&E be released from its default provider obligation? What impact will this have on consumers?

d. Should SDG&E be allowed to act as an aggregator for small customers to bid their load to the lowest energy service provider, including SDG&E's unregulated affiliate, Sempra Energy Trading? What affiliate transaction rules are applicable?

e. Should this OII be expanded to apply to PG&E and Edison? Should particular rate option proposals be addressed in A.99-03-014 and A.00-01-009 for PG&E and Edison, respectively?

This order is effective today.

Dated _____________________, at San Francisco, California.