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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3776

RESOLUTION

Resolution E-3776. Requires Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (SCE) to record beginning June 2002, the total revenues received from customers from the portion of the three cent per kilowatt-hour increase authorized in D.01-05-064 associated with amortization of unrecovered surcharge revenues over the period between the effective date of D.01-03-082 and implementation in June 2001 of D.01-05-064.

By Advice Letter 2227-E filed by PG&E on April 15, 2002.

By Advice Letter 1615-E filed by SCE on April 22, 2002.

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SUMMARY

This Resolution requires PG&E and SCE to establish a memorandum account to record with interest, the total revenues received by PG&E after May 31, 2002 and by SCE after June 2, 2002, associated with amortizing the revenue from applying the three-cent per kilowatt-hour (kWh) surcharge to all non-exempt energy sales from March 27, 2001 to the day the utilities began collecting the surcharge pursuant to Decision (D.)01-05-064. The Commission will determine the disposition and allocation of these revenues at a later date.

BACKGROUND

D.01-03-082 dated March 27, 2001 granted PG&E and SCE authority to increase rates by adding a three-cent per kWh surcharge in response to the emergency in the electric industry. D.01-05-064 adopted the allocation among PG&E's and SCE's customers of the surcharge, and approved customer-specific rates to implement the average rate increase adopted on March 27, 2001. The new rates established in D.01-05-064 became effective on June 1, 2001 for PG&E's customers, and on June 3, 2001 for customers of SCE.

Ordering Paragraph (OP) 2 of D.01-05-064 required PG&E and SCE to include in the new rates authorized by that decision, a component to recover over a period of one year, revenues associated with the three-cent per kWh surcharge not collected between March 27, 2001 when the Commission approved the surcharge and the date new rates established by D.01-05-064 became effective, i.e., June 1, 2001 for PG&E and June 3, 2001 for SCE. On a total system basis, the component equals approximately 0.52 cents per kWh for PG&E, and approximately 0.53 cents per kWh for SCE. These figures are derived by subtracting three cents per kWh from: the total system revenue increase, $2.883 billion for PG&E, and $2.961 billion for SCE, divided by the total system sales forecast, 81,991 Gigawatt-hours (GWh) for PG&E, and 83,780 GWh for SCE, shown in Appendices B and C of D.01-05-064. Resolution E-3765 dated January 23, 2002 addressing SCE's procurement related obligations account referred to this component of the three-cent per kWh surcharge as the "catch-up" surcharge. OP 17 of Resolution E-3765 required SCE to remove the "catch-up" surcharge from rates on June 3, 2002.

On April 15, 2002, PG&E filed Advice Letter (AL) 2227-E proposing to eliminate "the incremental system average surcharge of 0.52 cents/kWh authorized by D.01-05-064", and requesting authority to implement a reduction in annual surcharge revenues by approximately $423 million effective June 1, 2002. PG&E notes that as a result of certain exemptions from the surcharge, revenue allocation, rate design, and application of caps on rate changes authorized by D.01-05-064, not all customers pay the same surcharge. PG&E calculated the new surcharges proposed in AL 2227-E for each rate schedule by reducing each surcharge on an equal percentage basis of approximately 14.8% (i.e., the ratio of 0.52 cents per kWh to 3.52 cents per kWh).

SCE filed AL 1615-E on April 22, 2002 proposing to remove that portion of the three-cent per kWh rate increase authorized in D.01-05-064 associated with amortization of unrecovered surcharge revenues over the period from March 27, 2001 to June 3, 2001. SCE proposes to remove approximately $448 million in annual surcharge revenues from rates effective June 2, 2002, the date on which its summer rates take effect. SCE proposes to remove these revenues by reducing energy rates for those residential, commercial, and industrial rate groups "which originally absorbed the `catch-up' surcharge."

NOTICE

Notice of PG&E's AL 2227-E and SCE's AL 1615-E was made by publication in the Commission's Daily Calendar. PG&E and SCE mailed their advice letters to parties in accordance with Section III-G of General Order 96-A. PG&E and SCE also served copies of their advice letters on the service list for the Rate Stabilization proceeding in which D.01-03-082 and D.01-05-064 were issued, Application (A.)00-11-056 for PG&E, and A.00-11-038 for SCE.

PROTESTS

PG&E AL 2227-E

The California Large Energy Consumers Association (CLECA), and the Association of Bay Area Governments Publicly Owned Energy Resources (ABAG Power) filed protests to PG&E's AL 2227-E on April 25 and May 6, respectively. CLECA states that the appropriate way to implement the decrease in the surcharge is to simply reverse the process by which it was put in place. According to CLECA, PG&E should use a two step process by first determining the relative customer class percentage shares of the overall increase implemented in June 2001, in which the percentage for each class should be applied to the revenue requirement associated with the 0.52 cents per kWh decrease to determine the dollar amount of the decrease allocable to each class. CLECA explains that PG&E should then, using the decrease in revenues allocated to each class, reduce each of the energy rate elements by season, time-of-use period, and/or inverted rate element using the relative weighting of the increase to each rate element from June 2001. CLECA states that PG&E should combine the base energy element, the one -cent per kWh surcharge authorized by D.01-01-018 in January 2001, and the June 2001 surcharges for this purpose. If the Commission rejects its recommended approach, CLECA prefers the equal percentage method proposed by PG&E in AL 2227-E.

ABAG Power does not object to PG&E's proposal to reduce the surcharges. However, ABAG Power requests that the Commission condition approval of PG&E's advice letter on an express statement that such approval does not constitute resolution of any claims raised in ABAG Power's petition to modify D.01-05-064 regarding a refund of the surcharges assessed to its members.

PG&E responded to CLECA's protest on May 1. PG&E notes that D.01-05-064 does not specify the exact method by which the surcharge should be decreased. PG&E states that its proposed method for allocating the decrease "ensures that all customer groups benefit from the rate reduction in proportion to their respective contributions to the recovery of the undercollection, as CLECA advocates."

PG&E responded to ABAG Power's protest on May 13. In its response PG&E states that issues raised by ABAG Power in its petition to modify D.01-05-064 are not relevant to the rate change requested in AL 2227-E and should not affect approval of the advice letter.

On May 9 the California Manufacturers & Technology Association (CMTA) filed a response to PG&E's AL 2227-E. CMTA supports PG&E's proposal filed in AL 2227-E.

SCE AL 1615-E

The California Farm Bureau Federation (CFBF) filed a protest to SCE's advice letter on May 10. CFBF states that SCE provides no valid explanation for depriving agricultural customers of their share of the rate reduction, and the way SCE allocated the decrease does not comply with D.01-05-064. According to CFBF, SCE arbitrarily decided that agricultural customers did not pay for the "catch-up" surcharge, and that SCE presumed that agricultural rates "hit the caps" authorized in D.01-05-064 during the allocation of the three-cent per kWh increase. CFBF believes that agricultural customers were allocated and have been paying a portion of the three-cent per kWh surcharge, and the "catch-up" surcharge, and removal of the "catch-up" surcharge requires a proportional reduction in agricultural rates. CFBF states that PG&E correctly proposes in AL 2227-E to allocate the associated rate reduction among all customers whose rates increased as a result of D.01-05-064.

SCE responded to CFBF's protest on May 17. SCE states that as a result of the revenue allocation underlying the current effective rates, customers in its agricultural and pumping rate group have paid nothing toward recovery of "catch-up" surcharge revenues. SCE explains that in developing rates that became effective in June 2001, it allocated $2.513 billion to all rate groups based on bundled service sales, pursuant to D.01-05-064. SCE continues that it next allocated the revenue shortfall associated with surcharge exemptions (i.e., applicable to low-income customers, medical baseline customers, and 130% of baseline usage for residential customers), and the "catch-up" period one-third each to the residential, commercial, and industrial groups. According to SCE, none of the approximately $448 million associated with the "catch-up" period was allocated to agricultural and pumping rate groups. SCE states that the revenues it proposes to remove from rates are not currently included in charges paid by agricultural customers, and CFBF's protest should be denied.

DISCUSSION

OP 2 of D.01-05-064 required PG&E and SCE to amortize the revenue associated with applying the three-cent per kWh surcharge to all non-exempt energy sales from March 27, 2001, to the day the utilities begin collecting the surcharge over a 12-month period beginning the date the utilities begin collecting the surcharge. OP 17 of Resolution E-3765 required SCE to remove the "catch-up" surcharge from rates upon its expiration on June 3, 2002.

By this Resolution we modify these requirements from our prior orders, and the surcharges authorized in D.01-05-064 for PG&E and SCE shall remain unchanged on June 1 and June 3, 2002, respectively. Substantive issues have been raised in protests on PG&E's AL 2227-E and SCE's AL 1615-E regarding how a decrease in the surcharge should be allocated to customers. PG&E correctly notes in its response to CLECA's protest to AL 2227-E that D.01-05-064 did not set forth a specific method for allocating a decrease in the surcharge.

We will not address the issues raised by protestants on PG&E's AL 2227-E and SCE's AL 1615-E at this time. Before we decide how a decrease in the surcharge should allocated to customers, adequate time must be allowed for analysis of the utilities' proposals, and public review and comment on the approach we plan to adopt. Given the timing of the advice letters, such review and analysis is not possible prior to the beginning of June 2002.

We will require PG&E to keep track of the total revenues it receives after May 31, 2002, associated with amortizing in rates the surcharge revenues it did not receive from March 27, 2001 until the rates established in D.01-05-064 became effective. Similarly, we will require that SCE keep track of the total revenues it receives after June 2, 2002, associated with amortizing in rates the revenues it did not receive from March 27, 2001 until the rates established in D.01-05-064 became effective. We will determine the proper disposition and allocation of these revenues when we decide on the matters addressed in PG&E's AL 2227-E and SCE's AL 1615-E. PG&E and SCE shall establish memorandum accounts to track these revenues on a monthly basis with interest at the 3 month commercial paper rate.

COMMENTS

Public necessity requires that the 30-day comment period of Public Utilities Code Section 311(g) be reduced so that PG&E and SCE can begin tracking the revenues as set forth in this Resolution as soon as possible. We have balanced the public interest in avoiding harm to the public welfare resulting from delay in considering this Resolution against the public interest in having the full 30-day period for review and comment required by Rule 77.7(f)(9). We conclude that the former outweighs the latter and that failure to adopt a resolution before the expiration of the 30-day review and comment period would cause significant harm to the public welfare. Accordingly we reduce the comment period for this Resolution.

The draft Resolution was mailed for public review and comment on May 22, 2002. Comments were filed by the California Industrial Users (CIU) on May 29, 2002. ABAG Power, CMTA, CLECA, and PG&E filed comments on May 30.

CIU requests that the draft Resolution be revised to comport with prior orders in which the Commission stated that the "catch-up" surcharge would be in effect for one year. CIU endorses the allocation methods proposed by PG&E and SCE in their advice letters, and states that resolution of the issues raised in protests does not require indefinite suspension of the removal of that surcharge. CIU asserts that it would be unjust and in violation of PU Code 451 for the Commission to take any approach other than removing the "catch-up" surcharge after one year.

CLECA urges the Commission to reject the draft Resolution stating that PG&E's and SCE's rates exceed their cost of service and should be reduced immediately pursuant to D.01-05-064 and Resolution E-3765. According to CLECA the issues raised in protests on PG&E's and SCE's advice letters are not complex and do not require an extended period for analysis and determination. CLECA states that it would withdraw its protest on PG&E AL 2227-E if that is delaying a rate decrease in June 2002. CLECA suspects that it is the Commission's desire to maintain PG&E and SCE rates at excessive levels to facilitate recovery of asserted procurement undercollections on an expedited basis.

CMTA requests that the draft Resolution be revised to implement PG&E's AL 2227-E as quickly as possible, or that a schedule be developed such that the allocation issues may be resolved and a new resolution on the utilities' advice letters be taken up at the June 27 Commission meeting. CMTA states that the issues raised in the protests were discrete, and no further examination of the advice letters is necessary. CMTA states that timing is critical as the summer season approaches and that rates should be decreased as close as possible to June 1 to provide some modest relief to customers.

ABAG Power states that the draft Resolution effectively prolongs the collection of a charge that should never have been imposed on its members. ABAG Power requests that the draft Resolution be modified to specifically provide that it does not resolve any claims that ABAG Power may have with regard to a refund of surcharges to its members.

PG&E states that it has two concerns with the draft Resolution. First, PG&E is concerned about the delay in the rate change it requested in AL 2227-E. PG&E believes the Commission has the information it needs to make an expedited decision. Second, PG&E believes that the requirement to establish a memorandum account is unnecessary because it has already filed an advice letter to track surcharge revenues. PG&E notes that it filed AL 2240-E on May 6 pursuant to D.02-04-016 relating to utility retained generation memorandum and balancing accounts. According to PG&E, the procurement surcharge balancing account (PSBA) which it proposes in AL 2240-E would track procurement surcharges, including the "catch-up" portion of surcharge. PG&E recommends that the Commission approve AL 2240-E rather than requiring that another account be established if its proposal in AL 2227-E is not granted.

We have not revised the requirements set forth in the draft Resolution based on comments received. The comments have not raised any errors in the approach that the draft Resolution establishes to track the revenues associated with the "catch-up" portion of the surcharge, or the modification of our prior Orders which leave the surcharge in place at this time. We have clarified the Ordering Paragraphs based on PG&E's comments.

CIU's assertion that the draft Resolution would violate PU Code Section 451 is unfounded. The fact that we are modifying prior Orders to leave in place a portion of a surcharge beyond a specific date does not imply that rates are unjust or unreasonable in violation of Section 451. We shall track the revenues received through that portion of the surcharge and address the disposition and allocation of those revenues in a separate Order.

We cannot grant PG&E's proposal to expeditiously approve AL 2240-E in lieu of establishing the memorandum account required by the draft Resolution. In AL 2240-E PG&E has proposed a new accounting structure by superseding certain effective accounts, and certain proposed accounts, including the PSBA. The PSBA proposed by PG&E includes a revenue subaccount which has credit and debit entries associated with the "three cents per kWh rate increase", but does not specifically track revenues associated with the "catch-up" portion of the three cents per kWh surcharge as required by the draft Resolution. Additionally, compliance of AL 2240-E with D.02-04-016 has been called into question in a protest on AL 2240-E filed on May 24, and issues raised by that protest still require resolution. In the meantime, PG&E must begin tracking revenues associated with the "catch-up" portion of the surcharge.

FINDINGS

1. PG&E filed Advice Letter 2227-E on April 15, 2002 proposing to eliminate "the incremental system average surcharge of 0.52 cents/kWh authorized by D.01-05-064" and requesting authority to implement a reduction in annual surcharge revenues by approximately $423 million effective June 1, 2002.

2. SCE filed Advice Letter 1615-E on April 22, 2002 proposing to remove, effective June 2, 2002, the portion of the three-cent per kWh rate increase authorized in D.01-05-064 associated with amortization of unrecovered surcharge revenues over the period from March 27, 2001 to June 3, 2001.

3. D.01-05-064 authorized PG&E to implement in rates effective June 1, 2001, and SCE to implement in rates effective June 3, 2001, the three-cent per kWh surcharged approved in D.01-03-082.

4. OP 2 of D.01-05-064 required PG&E and SCE to amortize the revenue associated with applying the three-cent per kWh surcharge to all non-exempt energy sales from March 27, 2001, to the day the utilities begin collecting the surcharge over a 12-month period beginning the date the utilities begin collecting the surcharge.

5. OP 17 of Resolution E-3765 required SCE to remove the "catch-up" surcharge from rates upon its expiration on June 3, 2002.

6. CLECA protested PG&E's AL 2227-E on April 25, 2002 regarding how the decrease in surcharge should be allocated to customers. PG&E responded to CLECA's protest on May 1, 2002.

7. ABAG Power protested PG&E's AL 2227-E on May 6, 2002, requesting that Commission approval of PG&E's advice letter be conditioned on a statement that such approval does not constitute resolution of any claims made in ABAG Power's petition to modify D.01-05-064. PG&E responded to ABAG Power's protest on May 13, 2002.

8. CMTA responded in support of PG&E's AL 2227-E on May 9, 2002.

9. CFBF protested SCE's AL 1615-E on May 10, 2002 on how SCE proposes to allocate the surcharge decrease to customers. SCE responded to CFBF's protest on May 17, 2002.

10. There is not adequate time to resolve the issues raised by PG&E's AL 2227-E and SCE's AL 1615-E prior to the beginning of June 2002.

11. The requirements of OP 2 of D.01-05-064 and OP 17 of Resolution E-3765 should be modified such that the surcharges authorized by D.01-05-064 for PG&E and SCE do not change on June 1, 2002, and June 3, 2002, respectively.

12. It is appropriate to require PG&E to track the total revenues it receives after May 31, 2002 associated with amortizing in rates the surcharge revenues it did not receive from March 27, 2001 until the rates established in D.01-05-064 became effective.

13. It is appropriate to require SCE to track the total revenues it receives after June 2, 2002 associated with amortizing in rates the surcharge revenues it did not receive from March 27, 2001 until the rates established in D.01-05-064 became effective.

14. Resolution of the protests on PG&E's AL 2227-E and SCE's AL 1615-E can be addressed in a separate Order at a later date.

15. We have balanced the public interest in avoiding harm to the public welfare resulting from delay in considering this Resolution against the public interest in having the full 30-day period for review and comment required by Rule 77.7(f)(9). We conclude that the former outweighs the latter and that failure to adopt a resolution before the expiration of the 30-day review and comment period would cause significant harm to the public welfare. Accordingly we reduce the comment period for this Resolution.

THEREFORE IT IS ORDERED THAT:

1. Within five days of today's date, PG&E shall file an advice letter to establish a separate memorandum account to track on a monthly basis, the total revenue it receives after May 31, 2002 associated with amortizing in rates the three-cent per kWh surcharge revenues it did not collect between March 27, 2001 and the date rates authorized in D.01-05-064 became effective. Revenues tracked in this account shall accrue interest at the 3 month commercial paper rate. Disposition of revenues tracked in this account will be determined by the Commission at a later date by a separate Order. This advice letter shall be effective today, subject to Energy Division determining that it is in compliance with this Order.

2. Within five days of today's date, SCE shall file an advice letter to establish a separate memorandum account to track on a monthly basis, the total revenue it receives after June 2, 2002 associated with amortizing in rates the three-cent per kWh surcharge revenues it did not collect between March 27, 2001 and the date rates authorized in D.01-05-064 became effective. Revenues tracked in this account shall accrue interest at the 3 month commercial paper rate. Disposition of revenues tracked in this account will be determined by the Commission at a later date by a separate Order. This advice letter shall be effective today, subject to Energy Division determining that it is in compliance with this Order.

3. The surcharge rates adopted in D.01-05-064 for PG&E shall remain in effect after May 31, 2002. The Commission shall address PG&E's proposal filed in Advice Letter 2227-E, and protests on that advice letter in a separate Order at a later date.

4. The surcharge rates adopted in D.01-05-064 for SCE shall remain in effect after June 2, 2002. The Commission shall address SCE's proposal filed in Advice Letter 1615-E, and protests on that advice letter in a separate Order at a later date.

This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on June 6, 2002; the following Commissioners voting favorably thereon:

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