Item E-2a Resolution E-3528

Commissioner Jessie J. Knight, Jr., Concurring:

Item E-2a recommends to Stanislaus County that Patterson Water District be allowed to offer electric service and be allowed to construct facilities for the transmission and distribution of electricity.  I support this item because I do not believe that Patterson Water District’s provision of such service would substantially impair the ability of Pacific Gas & Electric (PG&E) to provide adequate service at reasonable rates to the remainder of the service area of the public utility.  

	First,  customers served by the proposed irrigation district will not be able to bypass payment of generation-related transition costs.  Hence, the proposed irrigation district will not shift stranded costs onto PG&E’s remaining ratepayers.  

	Second, the standard raised by Government Code section 56131 is substantial harm.  While it is true that if the irrigation district would purchase or lease PG&E’s distribution facilities, there would not be any impact on PG&E’s remaining customers.  However, this test sets the bar too high.  The intentions of the code section was clearly to ensure that PG&E’s other customers were not harmed, but just as clearly said that such harm had to be substantial to justify the Commission’s opposition of a proposed irrigation district. The water district already has transmission and distribution facilities.  The construction of these said facilities was at the irrigation district’s own economic risk, which further shields ratepayers from the impact of these facilities.  

	Third, should the irrigation district propose to construct its own facilities, only a infinitesimally small portion of PG&E revenues would be affected.  PG&E’s total revenue in the affected area is approximately $50,000.  Of this $50,000, a substantial portion of these revenues will be unaffected because of the ongoing competition transition charge (CTC) obligation of customers, who will be unable to shift the obligation to PG&E’s remaining customers.  In addition, the energy portion of these revenues is avoidable by PG&E, as the utility will not have to procure this power from the Power Exchange.  Hence, these costs will not be shifted to PG&E’s remaining customers.  In short, only a portion of the $50,000 in revenue responsibility would be shifted from customers served by the irrigation district to those customers of PG&E.  This minute cost shift would result in increased revenue requirement per customer of less than two thousandths of a percent.  In my mind, this is a prima facie de minimis change.  Such an infinitesimal change will not substantially impair the ability of PG&E to provide adequate service at reasonable rates.  The magnitude of this impact is smaller than the normal rounding error in most of the Commission’s other rate cases and is about 20 times smaller than the impacts cited in the Crossroads case.  Moreover, revenue fluctuations in the range of significantly less than $50,000 do not substantially harm PG&E’s ability to provide reliable service at reasonable rates.  

	Finally, it is not this Commission’s obligation, nor its duty to protect PG&E, its ratepayers and its customers from every slight variation in revenue requirement caused by dynamic market conditions.  Also, it is not the Commission’s obligation to raise barriers to entry for new entrants when PG&E faces the prospect of competition at what can only be considered the edge of the fringes of competition.  Lest we forget the mantra I have espoused many times:  competition brings with it certain benefits over time; it leads to innovation, a focus on customer service, and lower costs.  Even this small degree of competition will provide incremental discipline to the utility and regulators over time, to ensure prudence of judgment in approving costs that are loaded into utility distribution rates.  Limited competition will provide important price signals for efficiency and long-term sustainability of any distribution rate design.  As I see it, the irrigation project will bring significant benefits to those California citizens and taxpayers who are their customers, and impose a barely measurable potential burden on the remainder of PG&E’s customers, even in a worse case scenario.  

	For these reasons, I support this very important ground-breaking decision to further the goal of unharnessing the benefits of competition.

	Dated this 23^rd day of April, 1998 at Sacramento, California.

/s/          Jessie J. Knight, Jr. |
Jessie J. Knight, Jr. |
Commissioner |