The purpose of unbundling, as we have stated many times, is to promote the development of competitive markets for generation services. The purpose of promoting competition where it may be viable is to assure the best use of the economy’s resources, to assure customers pay the lowest price for services, and to expand the array of services available to customers. Unbundling promotes competition by providing customers with options for individual services and sending customers price signals which would permit them to make reasoned choices about their competitive options. We accomplish unbundling the various utility functions with certain more specific criteria guiding our assessments.
AB 1890 set the state on a course of electric industry restructuring which this proceeding in part implements. AB 1890 recognized that "in order to achieve meaningful wholesale and retail competition in the electric generation market, it is essential to...(s)eparate monopoly utility transmission functions from competitive generation functions.…" (PU Code § 330(k)(1).) More specifically, the statute directs the Commission to review utility cost recovery plans which must "provide for identification and separation of individual rate components such as charges for energy, transmission, distribution, public benefit programs, and recovery of uneconomic costs." (PU Code § 368(b).) D.96-12-077 approved those plans as an interim step towards the process of unbundling which we continue in more detail here.
In providing for unbundled rates, AB 1890 prevents discriminatory ratesetting by providing that "the separation of rate components required by this subdivision shall be used to ensure that customers of the electrical corporation who become eligible to purchase electricity from suppliers other than the electrical corporation pay the same unbundled component charges, other than energy, a bundled service customer pays." (§ 368(b).) The section continues "(n)o cost shifting among customer classes, rate schedule, contract, or tariff options shall result from the separation required...."
Finally, AB 1890 provides for recovery of costs associated with public benefit programs by way of a separately identified charge. (See § 381.)
We proceed with these and related requirements as the foundation for our analysis of parties’ proposals.
Unbundling utility rates and services is one of the primary means by which efficient markets may develop for utility products and services. That is, to the extent that prices reflect the costs of associated products and services, sellers will offer the most efficient quantity and variety of these products and services. Buyers will then be able to make purchasing decisions that best serve their interests.
In pursuing a policy to promote more efficient generation markets, we reject proposals to allocate to monopoly functions any costs associated with services that are or will be subject to competition. Specifically, we will not permit allocations of generation cost to distribution customers. To do so would compromise market efficiency by producing artificially low utility generation rates (or utility profits which do not correspond to utility risk) and provide competitive advantages, which would stifle competition to the utilities. Moreover, any allocation to monopoly customers of costs associated with competitive products would be unfair to monopoly customers because they would, in effect, be required to subsidize shareholder profits.
Some parties propose that the Commission modify certain revenue requirements to reflect activities that the utilities will no longer undertake following the implementation of direct access. Utilities reply that this proceeding is not designed to accomplish any adjustments to their revenue requirements. They observe that AB 1890 does not direct the Commission to modify the utilities’ revenue requirements here.
This proceeding is not the appropriate forum for reaching the potentially complex issues relating to changes in revenue requirements. In D.96-10-074, we ordered the utilities to file revenue requirements "based on our last authorization and separate this total between transmission and distribution" (emphasis added). By this, we stated our intent to consider existing utility revenue requirements in this proceeding. We have accordingly emphasized allocations of existing costs to utility functions in this proceeding rather than seeking to accomplish the more ambitious task of reviewing revenue requirements.
We are aware that the utilities’ activities will change in the next few years. For example, the ISO will take on dispatch and management of electric loads. The utilities may eliminate or redefine some of their customer relations and generation activities. Even if we do not create new forums to consider these potential cost reductions, we recognize that these types of changes in activities will affect utility revenue requirements in the near future. We find nothing in AB 1890 to restrict this Commission’s authority to adjust revenue requirements as long as the changes are otherwise consistent with the statute’s provisions. In fact, AB 1890 requires PG&E to file a general rate case in late 1997. Edison’s PBR review is scheduled for 1999. The Commission is in the process of mid-term reviewing of SDG&E’s base rate PBR mechanism and may decide to review SDG&E’s revenue requirement in the near future.
Until then, we are not inclined to consider changes in revenue requirement piecemeal because that it would be unfair to consider a few accounts in isolation. One way or another, utility rates will reflect lower costs, consistent with our and the Legislature’s policy the purpose of electric restructuring is to exploit economic efficiencies and reduce electric rates. We therefore decline any proposals to change the size of the utilities’ total revenue requirements here except where required by law.
The Commission’s policy and AB 1890 set forth industry and regulatory changes that will in some instances create new risks for the utilities and in others shelter them from risk. Predictably, parties have advocated positions in this proceeding which would limit the liability of their respective constituencies. As always, our objective is to balance utility risk with opportunities for earnings in each relevant market. In this decision, however, we avoid having to weigh risk and reward to the extent possible. It is our intention to retain existing levels of risk overall. In so doing, we decline proposals which change the mix of risk and reward from that anticipated by AB 1890 and relevant Commission decisions.
We recognize that some of these principles may conflict or compete when applied to specific proposals. In such cases, we consider the relevant risks and costs, the primacy of our goal to promote competition, and principles of fairness. We address them where applicable to individual proposals in subsequent sections.
We proceed to address unbundling by first reviewing utility proposals generally. We then address allocations to specific functions or accounts within them and consider how to allocate costs between transmission and distribution revenue requirements. We then proceed to allocate revenues within each function and to establish rate design principles. Finally, we address billing and master metering issues.
Footnotes are bracketed and in blue