The purposes and policy objectives which motivated the creation of various regulatory accounts over the past two decades may conflict with more recently established policy priorities. At the very least, the usefulness of the accounts to accomplish those or other objectives may have changed with changing circumstances.
We begin by considering the passage of AB 1890, which sets forth the framework for major changes in the electric utility industry. Among other things, AB 1890 imposes a rate freeze on electric utility rates until the earlier of March 31, 2002 or the date on which uneconomic generation-related assets and obligations have been recovered. (It does not freeze revenues.) Under the rate freeze, the utilities may not increase or decrease total rates from those that were in place on June 10, 1996. Authorized revenue requirements and associated components of the total rate, such as distribution, may change. The difference between (1) the revenues collected for nongeneration rate elements and for the rates for energy purchased from the Power Exchange (PX) and (2) the revenues from the frozen total rate represents what we have termed "headroom," that is, the amount that is available for utility recovery of uneconomic generation costs. During the rate freeze period, we cannot use regulatory accounts to reconcile costs and revenues if such reconciliation would involve rate changes.
In addition, competition in generation markets will be introduced January 1, 1998 pursuant to AB 1890 and our policies. We have repeatedly stated a commitment to developing regulatory policies and programs which complement competitive generation markets. Balancing accounts and other types of regulatory accounts which provide protections for utility generation costs may conflict with the Commission's objective of fostering competition.
This decision addresses regulatory accounting and ratemaking to the extent they appear to require attention before January 1, 1998. We consider a variety of regulatory accounting mechanisms to assure that those in place on January 1, 1998 are consistent with the rate freeze and facilitate regulatory mechanisms adopted in or pursuant to AB 1890. For example, in a related proceeding, we have authorized each electric utility to establish a Transition Cost Balancing Account (TCBA) to track recovery of authorized costs related to uneconomic generation. The calculation of the revenues entered into the account is affected by the accounting of revenues from other functions, such as distribution and transmission.
Notwithstanding the need for some immediate changes to regulatory accounting, the scope of this decision is narrow because more comprehensive review of utility ratemaking is being considered in other proceedings. Accordingly, this decision does not modify any ratemaking mechanism adopted in any other proceeding if doing so would change the regulatory risks the utility faces. Specifically, we do not adopt changes to PBR mechanisms for Edison or SDG&E or to the existing regulatory regime under which PG&E operates, that is, a general rate case which assures recovery of an authorized revenue requirement through the operation of the ERAM. We retain regulatory mechanisms required to permit the continued promotion of other policy goals where possible. Such goals include the need for conservation, innovation, and the affordability of service to low-income consumers. Related program design issues are left to related proceedings.
Similarly, we defer to other proceedings issues related to cost allocation, interest rates, competition transition charge (CTC) recovery or accounts, or the appropriate ratemaking mechanisms for the period following the rate freeze or transition period.
