Resolution E-3720 August 2, 2001

SDG&E AL-1262-E/Energy Division

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3720

AUGUST 2, 2001

RESOLUTION

Resolution E-3720. San Diego Gas & Electric Company (SDG&E) seeks approval to transfer the December 31, 2000 overcollected balance in Tree Trimming and Rewards & Penalties Balancing Accounts to the Energy Rate Ceiling Revenue Shortfall (ERCRS) sub-account of the transition Cost Balancing Account (TCBA) to offset the revenue shortfall resulting from the Interim Bill Stabilization Plan. Approved.

By Advice Letter 1262-E Filed on October 6, 2000.

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Summary

This Resolution approves SDG&E’s request to transfer overcollections from its Tree Trimming Balancing Account (TTBA) and its Rewards & Penalties Balancing Account (RPBA) to the ERCRS subaccount of its TCBA. SDG&E’s proposal will contribute to rate stabilization.

Protests were filed by ORA and Utility Consumer’s Action Network (UCAN).

In response to a protest by the Office of Ratepayers Advocates (ORA), SDG&E proposed a compromise offer to transfer 60% of the overcollections to customers paying rates established by Assemby Bill (AB) 265 that would be flowed through the ERCRS subaccount of the TCBA and 40% to customers whose demand is over 100 kilowatts that would be flowed through the TCBA. We do not approve SDG&E’s compromise offer.

Since this resolution has the impact of revising D.97-10-057, D.98-12-038, and D.99-06-058 we are circulating Res. E-3720 to all parties on the service lists of I.94-04-032, A.98-01-014, and A.98-07-006.

UCAN’s request to incorporate SDG&E’s request into Application (A.) 99-02-029 or I.00-08-002 is denied.

Background

Decision (D.) 97-10-057 originally authorized SDG&E to establish a RPBA:

“SDG&E is authorized to create …(an RPBA)[1] for the purpose of tracking PBR sharing, rewards and penalties which would be added to or subtracted from total billed revenues in calculating revenues available to offset uneconomic generation costs.” (slip opinion p. 27).

The disposition of the RPBA overcollections is addressed in SDG&E’s Preliminary Statement Section II.D.5., which states:

“At the end of each year, during the rate freeze transition period, the annual balance shall be transferred to the Transition Revenue Account (TRA). The TRA is used to determine the amount of billed Competition Transition Charge (CTC) revenues available to be transferred to the Transition Cost Balancing Account (TCBA). After the rate freeze ends, the utility shall file by October 1 of each year an advice letter requesting to apply the projected year-end balance as a twelve month amortization to the electric distribution rate effective January 1 of the following year. In conjunction with the end of the transition period, the utility will transfer the account balance to the TRA just prior to the end of the rate freeze, which is expected to occur in June of 1999.”

The TTBA was established pursuant to a Settlement Agreement approved in D.98-12-038 which provided that:

“…all tree trimming costs, less brush management and other non-tree trimming costs,…be subject to a one-way balancing account. To the extent SDG&E incurs less than the $30.2 million (in $1999), these amounts shall be credited to the Transition Cost Balancing Account (TCBA) on an annual basis. After recovery of the CTC costs through the TCBA has been completed, any under expenditures will be refunded to customers on an annual basis.” (slip opinion p 7)

In Advice Letter 1195-E SDG&E requested authority to return to ratepayers the 1999 TTBA overcollections, $8.69 million, through a reduction in distribution rates on January 1, 2000. Advice Letter 1195-E became effective January 1, 2000.

D. 00-08-037 adopted an Interim Bill Stabilization Plan ordering SDG&E to record any revenue shortfalls, resulting from capping customer bills, to the TCBA for future collection as of June 1, 2000. The June 18, 2001 Memorandum of Understanding entered into by SDG&E and the California Department of Water Resources (SDG&E/CDWR MOU) states that the balance in the ERCRS is approximately $750 million.

SDG&E filed Advice Letter 1249-E on August 28, 2000, to establish an ERCRS sub-account of the TCBA to record the revenue shortfalls and comply with D. 00-08-037. Advice Letter 1254-E superseded Advice Letter 1249-E and SDG&E implemented Advice Letter 1254-E on an emergency basis in response to AB 265.

Assembly Bill (AB) 265 added Section 331.1(b)[2] to the Public Utilities Code and mandated the Commission to establish a ceiling of 6.5 cents per kilowatt hour on the energy component of electric bills for residential, small commercial[3], and street lighting customers of SDG&E, through December 31, 2002, retroactive to June 1, 2000.

D. 00-09-040, responding to AB 265, adopted an expanded rate stabilization plan for SDG&E beginning June 1, 2000 and extending through December 31, 2002.

Advice Letter 1262-E, filed October 6, 2000 requests authority for SDG&E to transfer the overcollected balance in its TTBA and RPBA to the ERCRS sub-account of the TCBA.

SDG&E says its request is a response to Governor Davis’ and the Commission’s desire to manage the undercollection in the TCBA sub-account. SDG&E further says that their proposal is consistent with previous Commission authorization to transfer other various balancing account overcollections to the TCBA to help offset the customer’s transition cost obligation accruing during the AB 1890 rate freeze in that account.

SDG&E estimates that the year-end balances in the TTBA and RPBA, combined, will approximate $24 million.

Notice

Notice of AL 1262-E was made by publication in the Commission’s Daily Calendar. SDG&E states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.

Protests

ORA and UCAN filed protests.

ORA’s Protest

In its protest, filed October 25, 2000, ORA recommends that any TTBA overcollections be returned as a credit to distribution revenue requirement as soon as practical in 2001. ORA pointed to Advice Letter 1195-E, effective January 1, 2000, in which SDG&E sought and was granted approval to return to ratepayers the 1999 TTBA overcollections, $8.69 million, through a credit to distribution rates.

ORA states that SDG&E’s proposal inappropriately mixes generation and distribution costs and revenues creating inequity among customers. Such inequity limits the TTBA refunds to generation rates for the small customers impacted by AB 265. Under SDG&E’s proposal other customers entitled to the TTBA refund, who are also paying high commodity rates, are ignored.[4] ORA argues that all customers contributed to overcollections in the TTBA by overpaying distribution rates and all customers should benefit from the TTBA refunds.[5]

ORA acknowledges that the Commission authorized the transfer of miscellaneous balancing accounts to the TCBA in D.99-06-058, but distinguishes these transfers from SDG&E’s proposal. ORA says that D.99-06-058 dealt with a large number of balancing accounts, many of which had a de minimis amount, and transfer of those accounts to the TCBA, at that time, did not materially impact any particular group of customers since all customers were under the rate freeze. ORA points out that D.99-06-058 states:

“…SDG&E shall credit each customer group a share of overcollections using the same cost allocation method used to collect the revenues in rates…”(slip opinion p 48)

ORA believes a more appropriate example for liquidating this TTBA balance is the treatment of the excess rate reduction bonds, as authorized in D.00-06-034. ORA states that although the rate reduction bond proceeds were clearly generation related, the excess amounts were not transferred to the TCBA account to reduce the impact of this summer’s price spikes, but were returned to customers.

On July 27, 2001 ORA withdrew its protest.

SDG&E’s Response

SDG&E’s response to ORA, dated November 1, 2000, said that under its TTBA tariff, any year-end credit balance is to be transferred to the TCBA each year during the rate freeze. After transition cost recovery is complete, any year-end credit balance is to be returned to customers on an annual basis. Since SDG&E’s rate freeze ended on July 1, 1999, SDG&E sought to apply the 1999 TTBA overcollections to electric distribution rates. If the circumstances facing SDG&E were the same in 2000 as they were in 1999, SDG&E would be requesting similar treatment of the 2000 overcollections. However, AB 265 and D.00-09-040 have drastically changed those circumstances creating a significant revenue shortfall to be collected from customers in the future.

SDG&E’s response said that ORA’s proposal would result in needless rate variability for some of SDG&E’s customers. In view of the 6.5 cent/kwh energy rate ceiling, SDG&E says it would make no sense to further lower the rates of these customers at the same time these customers are accruing an undercollection that must be eventually recovered. SDG&E further argues that ORA’s proposal sends false signals (bills will be even lower at a time when actual prices are higher) at a time when customers are already seeing non-market-based prices on their bills. SDG&E said it received substantial customer expression of interest in diminishing/eliminating its balloon payment for energy purchases last summer.

In response to ORA’s cite of the return of the excess rate reduction bond proceeds to customers under D.00-06-034, SDG&E says the disposition of the excess bond proceeds occurred prior to the summer 2000 price spikes and should not be used as grounds for similar treatment.

SDG&E proposes a compromise to ORA’s protest: the TTBA balance would be allocated between customers paying AB 265 rates and those customers over 100 kilowatts who are not subject to AB 265. Such an allocation would be 60% and 40% of the overcollected funds respectively.[6] Customers under AB 265 should have their share of the TTBA balance transferred to the ERCRS subaccount, as proposed by SDG&E. The remainder of the allocation could be allocated to the remaining (non-AB 265) customers by flowing through the TCBA as opposed to the ERCRS subaccount of the TCBA. SDG&E argues that this allocation provides an equitable distribution between residential and small commercial customers under the rate ceiling, and large customers (over 100kw) not under the rate ceiling. SDG&E states that this proposal meets the goal of the Commission, Governor Davis, SDG&E, and ORA to reduce the amount to be collected from customers in the future.

SDG&E says that this allocation proposal is similar to the treatment of generation revenues proposed by SDG&E in A.00-10-045.[7] If the Commission in A.00-10-045 adopts SDG&E's allocation proposal, SDG&E will supplement Advice Letter 1262-E prior to its effective date.

UCAN’s Protest

UCAN filed a protest on October 31, 2000.

UCAN offers two reasons for rejecting SDG&E’s proposal:

1.  It raises policy matters that extend beyond the scope of an advice letter.

2.  It creates needless accounting confusion, as it creates a precedent for every overcollected account to be applied to the TCBA.

UCAN argues that the Commission will never have a clear sense of the actual size of procurement-related undercollections when operational accounts begin to be merged with the TCBA. Moreover, SDG&E’s proposal “…creates the potential for perverse consequences, as operational activities will be short-changed so that SDG&E can create residuals that can be used to reduce its exposure in the TCBA.” UCAN says that Advice Letter 1262-E does not explain the benefit and propriety of applying operational overcollections to this procurement account. UCAN does not object to the transfer of the RMR refund, since it is procurement related.

UCAN recommends that SDG&E incorporate its proposal into A.99-02-029 or I.00-08-002.

SDG&E’s Response to UCAN

SDG&E’s response to UCAN, dated November 6, 2000, points to other proceedings in which UCAN found the transfer of overcollections in the TTBA and other balancing accounts to the TCBA to be acceptable. SDG&E asks that UCAN’s protest be denied since it is inconsistent with UCAN’s previous positions.

Discussion

SDG&E’s tariff provides that TTBA and RPBA overcollections should be returned to its distribution customers once transition cost recovery is complete. Since transition cost recovery is complete, any year-end balance would be returned to customers on an annual basis under SDG&E’s tariff. However, SDG&E requests that it transfer its TTBA and RPBA overcollections to its ERCRS of its TCBA.

SDG&E is concerned with the impact of AB 265 legislation. Transferring the TTBA/RPBA balances to the ERCRS will have a discernable impact on rate stability.

ORA points to the inappropriate mixing of distribution and generation costs in the TCBA. This mixing would result in a reduction of the accumulated undercollections in the TCBA. We have not yet determined how to treat the generation-related costs accumulating in the ERCRS subaccount. However, we desire to minimize the impact of the generation-related undercollections.

In its response SDG&E said that 1) ORA’s proposal would result in needless rate variability for some of SDG&E’s customers. 2) The impact of the 6.5 cent/kwh energy rate ceiling would further lower the rates of these customers at the same time these customers are accruing an undercollection that must be eventually recovered. 3) ORA’s proposal sends false signals (bills will be even lower at a time when actual prices are higher) at a time when customers are already seeing non-market-based prices on their bills. 4) SDG&E said it received substantial customer expression of interest in diminishing/eliminating its balloon payment for energy purchases last summer.

In response to ORA's protest SDG&E offered a compromise proposal allocationg 60% of the TTBA balance to customers paying AB 265 rates and 40% to those not subject to AB 265. Essentially, SDG&E's compromise proposal only provides for an allocation of the TTBA/RPBA overcollection within the TCBA, and allocates most of the amount to the ERCRS. This compromise is not reasonable and is not to be adopted.

We do not agree with UCAN that transferring the TTBA/RPBA overcollections to the ERCRS would tend to confuse the purpose of the ERCRS and create an undesirable precedent. We are addressing the unprecedented spiking of energy costs in California by allowing SDG&E transfer TTBA and RPBA overcollections to its TCBA.

Neither do we agree that Advice Letter 1262-E raises policy matters that extend beyond the scope of an advice letter. We will dispose of this Advice Letter in this resolution and deny UCAN’s proposal to incorporate SDG&E’s proposal into another proceeding. We deny UCAN’s protest on this issue.

Rate stability, timely price signals, and customer support for diminishing SDG&E’s balloon payment for energy purchases offer sound support for adopting SDG&E's proposal.