2. BART

2.1. Background

BART states it is a local government agency that provides public transit services to approximately 310,000 San Francisco Bay Area residents each business day. The BART system is located entirely within applicant's service territory.

Legislation applicable only to BART specifies the terms and conditions under which BART purchases and receives the majority of its electricity. (See Public Utilities Code Section 701.8.¹) This legislation permits BART to access lower cost sources of power, such as federal preference power and power from local publicly owned utilities (collectively called "preference power"). It also requires PG&E to deliver this power over PG&E's transmission and distribution lines without discrimination or delay.

BART reports that since 1996 it has obtained federal preference power through firm long term power contracts with the Western Area Power Administration and Bonneville Power Administration. BART asserts that it has not purchased power from PG&E, except for very limited amounts of supplemental power necessary to balance deliveries of lower cost power with actual loads.

California's energy crisis of 2000-2001 resulted in PG&E filing for bankruptcy reorganization on April 6, 2001. On December 18, 2003, we adopted a modified settlement agreement (MSA) that formed the basis of a plan of reorganization later adopted by the Bankruptcy Court. (Decision (D.) 03-12-035.) The MSA included a regulatory asset of $2.21 billion to be charged to applicant's ratepayers over a period of nine years.

On February 26, 2004, we adopted a rate design settlement agreement (RDSA) to implement rates pursuant to the Bankruptcy Court's adopted plan of reorganization. (D.04-02-062.) These rates included charges necessary to recover the costs of the regulatory asset. PG&E's transmission rates and other charges related to BART's federal power deliveries, however, did not include these regulatory asset charges. As a result, PG&E did not bill, and BART did not pay, any costs of the regulatory asset for deliveries of federal preference power.

Subsequent legislation in 2004 permitted issuance of ERBs, secured by a dedicated rate component (DRC), to refinance the unamortized portion of the regulatory asset.² On July 22, 2004, PG&E applied for authority to refinance the regulatory asset. (Application (A.) 04-07-032.) A draft decision was filed on October 19, 2004. In late-filed comments on the draft decision, BART raised the issue of whether BART is exempt from ERB-related charges.

On November 19, 2004, we authorized PG&E to issue up to $3.0 billion in ERBs, with the principal, interest and related costs to be recovered via two surcharges: DRC and the Energy Recovery Bond Balancing Account charge (referred to collectively as "ERB Charges"). (D.04-11-015, also called the Financing Order.) We declined, however, to address the issue raised late by BART. We ordered that BART may raise the issue in this proceeding. (D.04-11-015, Ordering Paragraph 60.)

On November 29, 2004, PG&E filed an advice letter to implement a DRC consistent with our Financing Order. (Advice Letter (AL) 2596-E .³) The AL became effective January 8, 2005. Regarding BART, the AL stated that: (a) BART is subject to DRC charges pending the Commission's determination whether BART is exempt, (b) PG&E will retain these DRC charges in a separate BART memorandum account and will not remit these DRC charges to the Special Purpose Entity (SPE⁴), and (c) the DRC charge revenue requirement will be set based on the assumption that PG&E will not remit DRC charges collected from BART to the SPE.

On December 20, 2004, BART moved to intervene in this proceeding and add the issue of whether it is exempt from paying ERB Charges. By Ruling dated December 28, 2005, BART's unopposed motion was granted. Consistent with the adopted schedule, on March 7, 2005, BART served proposed testimony, and on April 26, 2005, PG&E served proposed rebuttal testimony.

On May 4, 2005, BART moved for issuance of an expedited interim decision affirming its position. No party identified any disputed material fact requiring evidentiary hearing. On May 12, 2005, BART's motion was granted. Opening briefs were filed and served on May 23, 2005. Reply briefs were filed and served on May 31, 2005. On June 3, 2005, cross-examination was waived on BART's proposed testimony and it was received as evidence. On June 9, 2005, cross-examination was waived on PG&E's proposed testimony, it was received as evidence, and the BART matter was submitted for Commission decision.

2.2. Discussion

There is no dispute that BART must pay ERB Charges on supplemental power. The following discussion addresses the issue only with respect to BART's purchases of preference power.

2.2.1. Financing Order

Applicant argues the Financing Order makes BART subject to ERB Charges, and the Financing Order is irrevocable. We do not agree. The BART issue was specifically identified and preserved for decision here. (D.04-11-015, Ordering Paragraph 60.) Further, the extent to which the Financing Order is irrevocable is specified in § 848.1(g). As explained more fully below, nothing we do here conflicts with § 848.1(g).

2.2.2. Statutes

Applicant claims that SB 772 (adding § 848, et seq. effective June 7, 2004) specifically lists the entities not subject to ERB charges, and BART is not on that list. As a result, applicant concludes that BART must pay ERB Charges. BART argues that SB 1201 (amending § 701.8 effective September 21, 2004) recognizes an exemption for BART, and the statutes must be understood together.

Applicant is correct that BART is not one of the entities expressly listed as exempt from ERB Charges. (§ 848.1(b)(1)-(5).) Nonetheless, we agree with BART and conclude that BART is not subject to these charges based on the statutes, legislative history and legislative intent. In particular, when statutes are unclear or ambiguous, we apply rules of statutory construction to give effect to the legislative intent of each statute. As explained below, exempting BART from ERB Charges properly recognizes the history and intent of both §§ 701.8 and 848.1.

BART is unlike other PG&E customers in that the terms and conditions under which BART purchases nearly all of its electricity are governed by special legislation applicable only to BART. (§ 701.8.) The purpose of the original legislation, along with subsequent amendments, is to facilitate BART's access to lower cost electricity.

Specifically, § 701.8 was added in 1995 so that BART could reduce its electricity costs by independently procuring lower cost federal preference power. (SB 184.) The legislature at that time made several significant findings that bear on public interest considerations just as pertinent today as in 1995. In particular:

"The Legislature hereby finds that the use of the San Francisco Bay Area Rapid Transit District (BART District) systems should be encouraged as a means of reducing automobile use, energy use, air pollution, and road and highway congestion. The Legislature further finds and declares that the cost of electricity is a major portion of the cost of operating the BART District's systems, and that decreases in electricity costs can enable lower transit fares which can encourage use of the transit system, while increases in electricity costs can cause higher transit fares which can discourage use." (SB 184, Statutes 1995, Chapter 681, Section 1, cited in Exhibit 351, page 3.)

In 1998, the legislature amended § 701.8 to exempt BART's power purchases from Commission orders pertaining to direct access. (SB 1838, Chapter 206.) This further facilitated BART's purchases of federal preference power.

In 2004, further legislation amended § 701.8 (SB 1201, Chapter 613). This amendment allows BART to obtain lower cost power from local publicly owned utilities. Importantly, SB 1201 states:

"It is the intent of the Legislature in enacting this act, to authorize the BART District to receive electric service from another publicly owned supplier of electricity on the same terms authorized by Chapter 206 of the Statutes of 1998." (SB 1201, Section 1(d), cited in Exhibit 351 at page 5.)

The terms under which BART purchased federal preference power in 1998 (two years before the California energy crisis) did not include any costs arising from the energy crisis or PG&E's emergence from bankruptcy. SB 1201 was enacted during the same legislative session as, but slightly after, SB 772. As a result, it follows that SB 1201 recognizes an exemption for BART from ERB Charges created pursuant to SB 772. It does so by making explicit reference to the terms under which BART purchased power prior to the energy crisis and PG&E's bankruptcy, and extending the terms under which BART received federal preference power to power deliveries from local agencies. SB 1201 is specific to BART, and is the later legislation.

The intent is clear, and is confirmed by legislative history. In particular, the author's published letter of intent expressly states:

"I introduce Senate Bill 1201 in order to enable the San Francisco Bay Area Rapid Transit District (BART) to take delivery of power from local publicly owned electric utilities on the same terms and conditions as BART currently takes delivery of power from federal power marketing agencies...As author, it is my intent that, since BART used federal preference power delivered under Section 701.8 of the Public Utilities Code to satisfy its electricity requirements throughout the energy crisis of 2000-2001, none of BART's power delivered pursuant to Section 701.8, as amended by SB 1201, would be subject to any charges or costs that arise from the energy crisis. These include, without limitation, charges...related to the emergence of Pacific Gas and Electric Company (PG&E) from bankruptcy." (California Legislature 2003-04 Regular Session, Senate Journal, September 10, 2004 at 5554; emphasis added.)

We also consider the circumstances surrounding SB 772. Except for some supplemental power, BART has not been part of PG&E's native load since 1996, and BART did not rely on PG&E for its primary power supplies during the California energy crisis. Accordingly, BART has neither been billed for, nor paid, any charges related to the regulatory asset for deliveries of preference power. The intent of SB 772 is to authorize "a means by which the Commission can reduce ratepayer costs..." (SB 772, Section 1.) That is, the ERB refinancing is intended to reduce, not increase, costs related to the regulatory asset. Requiring BART in its unique situation to pay ERB Charges on deliveries of preference power would increase BART's costs, in contrast with the intent of SB 772.

Further, assessing ERB Charges on BART shifts to BART costs "related to the emergence of PG&E from bankruptcy" (i.e., refinancing the regulatory asset). This is clearly inconsistent with the intent of SB 1201. On the other hand, exempting BART from ERB Charges for deliveries of preference power would not shift costs to other PG&E customers since BART was never responsible with respect to those deliveries for costs related to the regulatory asset. Accordingly, an exemption from ERB Charges for BART on deliveries of preference power is equitable and consistent with the intent of SB 1201 and SB 772.

Thus, BART is not subject to ERB Charges based on the statutes, legislative intent and legislative history.

2.2.3. Leakage

Applicant states that ERBs are a very specialized structured financing for which the highest "AAA" credit rating is sought. The highest credit rating maximizes ratepayer savings that result from refinancing the regulatory asset. PG&E says "credit rating agencies are strictly scrutinizing the ERB ratemaking structure to ensure there is no material `leakage' from the revenue stream required to support the ERBs." (Exhibit 9, page 1-25.) PG&E recommends the Commission find the BART exemption unique in order to provide assurance against leakage.

We agree with PG&E that the particular circumstances here are unique, and the BART exemption causes no leakage. BART's electricity purchases are subject to specific legislation, and the BART exemption issue was specifically preserved for decision in this proceeding. Pursuant to AL 2596-E, PG&E has retained DRC charges paid by BART in a separate BART memorandum account, and has not remitted these charges to the SPE. The DRC charge revenue requirement has been set based on the assumption that PG&E will not remit DRC charges collected from BART to the SPE. Moreover, we are required to adjust recovery amounts as necessary to ensure timely recovery of all recovery costs, and do so through the Energy Recovery Bond Balancing Account. (§ 848.1(g) and D.04-11-015.) Thus, exempting BART from ERB Charges is a unique situation and has no effect on the level of ERB Charges, other customers, or the SPE.

2.2.4. Value of Recovery Property

As specified in § 848.1(g), we are not permitted to amend the Financing Order to revise recovery costs or "in any way reduce or impair the value of recovery property." As described and explained above, we do nothing here that revises recovery costs, nor do we reduce or impair the value of recovery property.

2.2.5. Refund of BART Memorandum Account

Having determined BART is not subject to ERB Charges, we direct that PG&E return the balance in the BART memorandum account, with interest. We apply the same interest rate that we require on payment for late intervenor compensation awards since PG&E would have been able to earn the same interest rate on funds in the BART memorandum account as it could earn on intervenor compensation awards paid late.

2.2.6. Conclusion

BART is exempt from ERB Charges on deliveries of preference power. BART is not exempt from these charges for purchases of supplemental power.