On March 19, 1997, several parties filed with the Commission a "Joint Motion for Adoption of Retail Transmission Rate Stipulation." The stipulation was signed by CIU, CLECA/CMA, DOD, ORA, PG&E, SDG&E, and Edison. The stipulation makes three recommendations. It asks the Commission to support the position that the FERC defer to the Commission’s recommendations regarding the design of rates for unbundled retail transmission service. It recommends that the Commission adopt in this proceeding the retail transmission revenue allocation and rate design methods included in the utilities’ December 6, 1996 filings, supplemented by Appendix A to the stipulation. Finally, it recommends that the Commission file comments with FERC supporting a request that FERC defer to the Commission’s recommendations for developing revenue allocations and rate design for unbundled retail transmission service for at least the first two years after implementation of the new industry structure.
No party protested either the joint motion or the elements of the stipulation. On June 5, 1997, the Commission filed comments in the FERC dockets addressing these issues. In the filing, we stated our support for the proposition that FERC should to defer to our recommendation regarding revenue allocations and rate design for unbundled retail transmission service, as the stipulation proposes. (See "Notice of Limited Protest, request for Hearing and Request for Deference to the Public Utilities Commission of the State of California on Rate Design and Cost Allocation for Retail Transmission Customers," in Docket Nos. ER97-2358-000, ER97-2364-000 and ER97-2355-000. Also see "Initial Comments of the Public Utilities Commission of the State of California on the March 31, 1997, Phase II Filings," in Dockets EC96-19-003 and ER96-1663-003.) Our recommendation came in response to the stipulation and in recognition that the FERC and this Commission have relied upon different approaches for wholesale and retail ratemaking, respectively. The application of those differing approaches as to retail rates might result in significant shifts in cost responsibility between retail customer classes. AB 1890 explicitly prohibits such cost shifting (see Public Utilities (PU) Code §§ 330, 367(e)). [ All section references are to the Public Utilities Code unless otherwise indicated.] At the time we filed our comments at FERC, we had not yet formulated such recommendations which are the subject of this order and so did not comment on the methods proposed by the stipulation.
The Commission’s most recently adopted revenue allocation methodologies determine marginal costs for each customer class and then reach the adopted revenue requirement by increasing (or decreasing) the rate by an equal percent of marginal cost for each class.
Edison proposes to apply this "equal percentage of marginal cost" (EPMC) methodology on the basis of total revenues instead of by functions, as PG&E and SDG&E propose.
ORA supports Edison’s EPMC method, arguing that the methods proposed by PG&E and SDG&E are equivalent to an embedded costs allocation.
CAL-SLA supports PG&E’s approach, believing it provides for an allocation that is proportional to the existing revenue requirement.
In the decision in which we adopted long-run marginal costs for gas prices, the Commission found that applying the EPMC method on a functional basis is, as ORA observes, essentially applying an embedded cost method. We reject such an approach, consistent with our view that EPMC is superior in moving utility prices toward those that would be found in competitive markets. We adopt ORA’s recommendation and direct all three utilities to use Edison’s EPMC approach in allocating costs between customer classes.
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