In April 1994, we initiated R.94-04-031/I.94-04-032, a comprehensive rulemaking and investigation into restructuring California’s electric services industry and reforming regulation. After months of extensive public comments and participation, we issued our Preferred Policy Decision, which requested and authorized the investor-owned utilities (IOUs) to make the filings necessary at the Federal Energy Regulatory Commission (FERC) to establish an Independent System Operator (ISO) and Power Exchange which would facilitate a competitive generation framework to begin no later than January 1, 1998. In that decision, we also required the IOUs to unbundle the electric service currently provided to retail customers so that customers’ direct access to energy service providers could begin simultaneously with the new market structure.
We also recognized that in the transition to the new industry structure, certain utility generation-related capital and operating costs would prove to be uneconomic and would not be recovered through market revenues. We called these uneconomic or stranded assets "transition costs," and stated that those assets that proved to be economic would be netted against those that proved to be uneconomic in the new market structure. As defined in the Preferred Policy Decision, transition costs arise from generation assets, nuclear power plant settlements, power purchase agreements, qualifying facilities (QFs) contracts, and the reasonable capital costs of early retirement or retraining programs for employees. We defined uneconomic capital costs as those occurring when the market value at the time of divestiture, spin off, or appraisal was less than the net book value of the asset, and for ongoing costs, we defined uneconomic costs as those greater than the clearing price provided by the Power Exchange.
The Preferred Policy Decision stated that these costs would be collected through a nonbypassable competition transition charge (CTC), applied to all retail customers, whether they continue to take bundled service from the IOUs or not. We further stated that valuation of transition costs would rely on market mechanisms to the extent possible and would be designed to minimize transition costs. The Preferred Policy Decision called for the utilities to file applications by September 2, 1996 to establish the level of transition costs as of January 1, 1998. The utilities were also directed to file applications to identify and value the "sunk costs" of their non-nuclear generation assets by April 15, 1996. These principles were affirmed in D.96-03-022, the Roadmap Decision, which called for a scoping workshop to determine issues and procedural forums to address various issues, including transition costs. The Roadmap Decision also changed the filing date for the applications addressing the valuation of non-nuclear generation assets to August 1, 1996 and the September 2 transition cost application filing date was changed to August 30, 1996.
On May 17, 1996, Commissioner Conlon, as lead assigned Commissioner in this issue area, convened a scoping workshop to consider issues related to establishing the transition cost balancing accounts, establishing the initial transition cost estimates, calculating ongoing transition costs, adopting the methodology for market valuation, establishing the level of transition costs for allocation and ratesetting purposes, setting the QF buyout incentive, and approving terms and conditions and collection of CTC for departing customers.
As a result of that workshop, Commissioner Conlon issued a ruling on June 28, which established that: 1) terms and conditions for exemptions and departing load would be addressed early in these proceedings; 2) QF buyout incentive issues would be addressed in a separate track in electric restructuring; 3) the details of developing the methodology for valuing utility assets that are retained (rather than being divested or spun off) should be developed in a later phase of the transition cost proceedings; and 4) the details of cost allocation and ratesetting related to transition cost recovery should be developed in the unbundling and ratesetting issue area. The ruling also approved the continuing efforts of the transition cost working group to work informally to develop a master data format for each utility to use in identifying costs for which they seek transition cost recovery, and asked that parties consider whether an audit to establish the starting point for transition cost recovery would be useful.
On August 1, 1996, Commissioner Duque, as co-assigned Commissioner in this issue area, issued a ruling endorsing an independent audit, with consultants to be hired by the Energy Division (formerly the Commission Advisory and Compliance Division), and establishing December 30, 1996 as the submission date for the final audit report. [ The date of the audit report has necessarily been extended to March 21, 1997, due to various procedural matters that delayed selection and contract execution with the selected consultants.] A prehearing conference (PHC) was held on September 13 to identify Phase 1 issues and establish a schedule for evidentiary hearings. On September 23, Assembly Bill (AB) 1890 was signed into law by Governor Wilson. AB 1890, in many respects, built on our Preferred Policy Decision and confirmed that the transition period for electric restructuring would begin on January 1, 1998. In light on the anticipated legislation and at the direction of the assigned administrative law judge (ALJ), interested parties attended a meet-and-confer session on September 27. Three joint case management statements were filed by: 1) PG&E, Edison, SDG&E, and the Coalition of Utility Employees (CUE); 2) the Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), the Utility Consumers’ Action Network (UCAN), and the California Energy Commission (CEC); and 3) California Industrial Users (CIU), California Large Energy Consumers Association (CLECA), California Department of General Services (DGS), California Farm Bureau Federation (Farm Bureau), the Energy Producers and Users Coalition (EPUC), and Cogeneration Association of California (CAC).
These case management statements and the various procedural recommendations were addressed by ruling issued October 11, 1996. This ruling established a schedule for Phase 1 and Phase 2 and reorganized the importance of Phase 1A policy briefs. The purpose of Phase 1A was to delineate the major issues and policy determinations that must be resolved in these proceedings. On October 21, the utilities filed amended applications to reflect the impact of and revisions required by AB 1890, specifically the requirements of newly added PU Code §§ 367, 368, 369, 372, 373, 374, 375, and 376. [ All statutory references are to PU Code sections, unless otherwise noted.] Because terms and conditions for exemptions were addressed in detail in §§ 372-374, the utilities were directed to provide proposed tariff language to comply with those provisions and to file tariff language for establishing the CTC balancing account. The Energy Division held workshops on the tariff language on January 13 and 14, 1997, and issued a workshop report on January 24. Comments on the workshop report were filed on February 5 by PG&E, Edison, SDG&E, and ORA.
Phase 1 testimony was served by ORA, jointly by TURN, DGS, and UCAN, (collectively, TURN et al.), jointly by CIU, CLECA, and CMA (collectively, CIU et al.), by the Federal Executive Agencies (FEA), by Sonoma County Water Agency (Sonoma County), and jointly by the EPUC and CAC (EPUC/CAC). [ We also address the points raised in Merced Irrigation District’s (MID) Phase 1A brief, which PG&E rebutted in Exhibit 4.] Evidentiary hearings were held from December 3 through December 10. Concurrent opening briefs were filed by PG&E, Edison, SDG&E, ORA, TURN et al. (together with the University of California/California State University, CIU et al., FEA, Sonoma County, and EPUC/CAC. On January 28, a Joint Recommendation was submitted to the Commission by PG&E, Edison, SDG&E, CIU, CLECA, CMA, the Farm Bureau, EPUC, and CAC. [ PG&E and SDG&E attached the Joint Recommendation to their reply briefs, filed on February 5, 1997.] Reply briefs were timely filed by PG&E, Edison, SDG&E, ORA, TURN et al., CIU et al., Farm Bureau, Sonoma County, and FEA. [ The Arvin-Edison Water Storage District also filed a reply brief. Arvin-Edison is not a party to this proceeding nor has it filed a petition to intervene. We will accept its reply brief as part of our correspondence file, but direct Arvin-Edison to take steps to become an Interested Party should it wish to attain party status.] Oral argument was held on February 10, 1997. Supplementary briefs addressing the Joint Recommendation were filed on February 14 by ORA, TURN, DGS, PG&E, Edison, and SDG&E.