3. Discussion

We are persuaded to modify the memorandum account method of recovery for the incremental costs of programs, activities, studies and reports authorized in D.01-04-006. We provide a more specific method for current recovery.

We do this by confirming that the expenditures required to implement programs adopted in D.01-04-006 are part of each utility's cost of service revenue requirement. For PG&E and SCE, they are recoverable costs prior to calculating the California Procurement Adjustment (CPA), and recovery is before any fixed DWR set-aside. (Public Utilities Code Section 360.5.) For SDG&E, they are recoverable as part of the Purchased Electric Commodity Account (PECA), as explained below.

We adopt SCE's recommendation, and modify D.01-04-006 to authorize a balancing account. This ensures that over- or under-collections will be amortized in rates. We decline to adopt SCE's recommendation to amortize these balances annually. Rather, to provide prompt treatment, we authorize amortization monthly.

Respondent utilities are authorized to establish an Interruptible Load Program Incremental Cost Balancing Account (ILPIC) in their Preliminary Statements. This account shall record the amounts that were previously authorized for the memorandum account.² That is, it shall record monthly costs above funds authorized in current rates (i.e., incremental costs) of administering any program, activity, study or report authorized, or ordered, in D.01-04-006. The accounting shall separately identify the cost and revenue associated with each program, activity, study or report (e.g., separately track costs and revenues from the new Base Interruptible Program, Voluntary Demand Response Program, each curtailment study, each report).

This account balance would normally be recovered by a specific surcharge (which would balance costs against a specific revenue stream). Alternatively, the balance would be reviewed and the reasonable costs amortized in rates in a subsequent period. We will direct PG&E and SCE to transfer the balances in the ILPIC to their Transition Revenue Account (TRA) monthly because we want to emphasize that these costs are recoverable now as current costs, and we are persuaded that the companies cannot defer recovery. It is in the TRA that PG&E and SCE recover their authorized revenue requirements for non-energy items before determining the residual revenue available first for energy costs and then any further residual available for stranded cost recovery in their Transition Cost Balancing Account. PG&E and SCE shall reflect this modification in each utility's TRA tariff. This treatment assures current recovery of these costs ahead of energy procurement and stranded costs.

SDG&E shall also establish an ILPIC, and on a monthly basis transfer the balance to its post-rate freeze PECA. The PECA allows for prompt amortization of charges to energy costs. In this way, SDG&E will not have cost recovery risk for the ILPIC.

We decline to add a surcharge to PG&E and SCE rates, since those rates are currently subject to the electric industry restructuring rate freeze. Just as we concluded in D.01-04-006, we cannot raise electric utility rates for these utilities until we have determined that the rate freeze is over.

Moreover, we recently raised each utility's rates approximately $2.5 billion annually, or $5.0 billion combined. (D.01-03-082; D.01-05-064, mimeo, page 16.) We decline to further raise rates until we have an opportunity to consider the effect of these increases in a more comprehensive way on each utility, its customers, and the California economy.

Further, SCE does not request a surcharge at this time. Such surcharge, if contemplated, however, would be small. It would be approximately $0.001/kWh for SCE, and $0.0004 for PG&E.³ We normally do not separately include small surcharges absent extraordinary justification. The approach adopted here accomplishes the desired and necessary cost recovery.

SDG&E estimates a surcharge would not exceed $0.001/kWh.⁴ For the same reasons, we decline to adopt an additional surcharge for SDG&E.

We also decline to adopt PG&E's alternative recommendation to authorize utilities to withhold funding for these programs from revenues collected on behalf of DWR. PG&E's proposed language to implement this suggestion is that the Commission "instruct utilities to work with DWR to develop the details of this proposal as an alternative to a surcharge." This proposal is not sufficiently developed to merit adoption. Rather, the method we adopt herein provides assurance of current cost recovery, and needs no further development.

The adopted balancing account approach provides current cost recovery. Just as with any balancing account, however, entries are subject to later reasonableness review.