Division of Ratepayer Advocates
Proposed Approach on Unbundling Issues
At the May 9, 1996, meeting of the Unbundling Working Group, the discussion
resulted in the following preliminary issues:
| Track 1 | Unresolved or Track 2 |
Generation Capacity & Energy
Generation Ancillary Services
Generation CTC
Transmission/ISO
Distribution/Customer Access
Public Benefits Programs
|
Billing
Metering
Customer Service & Support
Complaint Resolution
Hookups
Line Extensions
Power Quality
Prepayment of CTC
|
Parties were invited to develop position papers for discussion at the May 29
working group meeting, concerning the following:
- For track 1 issues, the appropriate costing methodology, and
- For track 2 issues,
- whether we have identified the correct issues,
- the appropriate costing methodology, and
- what the group should accomplish for implementation in January 1998.
In general, DRA believes that priority should be placed on those items that
are essential before the Commission can proceed with unbundling, i.e., critical
path items. To do otherwise would jeopardize the orderly implementation of
electric restructuring, with results that could be worse for ratepayers than
any that would otherwise occur. DRA believes the critical path items are those
that have already been identified as "Track 1", with any additional unbundling
efforts being placed on billing and metering. As for methodology, DRA
recommends using already-adopted methods as far as possible, with evolution of
those methodologies being allowed to proceed as it traditionally does from case
to case, and with resolution of differences in methodology between utilities
being a part of that traditional evolution. DRA's identification of
methodologies is preliminary at this time, with the next steps to be taken by
the group being refinement of the methodological details; indeed, this
position paper stops short of recommending specific approaches on some issue
areas, and can only identify details that must be further explored. The need
to resolve such details is among the reasons why DRA recommends limiting our
commitments to pricing new competitive services.
Track 1 Issues
- Generation Capacity & Energy: Fundamentally, generation capacity
and energy will be priced through markets such as the Power Exchange. However,
there may be unresolved issues in what otherwise may seem simple. To set rates
for January 1998, we need to anticipate market prices for markets that do not
yet exist. Traditionally we have used an ERI-adjusted combustion turbine cost,
but under the new market conditions, is this a workable approach, and what ERI
should be used? After that, there will not be just one price at which purchases
occur, even in the Power Exchange: there will be the day-ahead price, the
hour-ahead price, and the real time spot price, all of which may be part of the
transactions that make up purchases on behalf of UDC customers.
- Generation Ancillary Services: The pricing of ancillary services
appears to be more complex than for generation capacity and energy: in some
cases, there are no hourly prices to be observed, such as reactive power/
voltage control and black start resources, which will be obtained competitive
auctions conducted, for example, one to two years in advance of the operating
date. DRA has not been able to identify, with confidence, any ancillary
services where we could be certain that a simple pass-through of market prices
would be appropriate; instead, it seems likely that ratemaking theories will
need to be developed in order to attribute cost causation to types of customers
within the UDC. There may be three tiers of costing methodologies: (1) long
lead time items such as black start capacity, (2) day ahead price setting such
as spinning reserve, and (3) short lead time price setting (hour ahead, spot
market, etc.).
- Generation CTC: At the April 15 meeting, PG&E's preview suggested
that CTC may need to be set residually. Before reaching a conclusion on this
issue, DRA will need to see the outcome of cost studies on other Track 1
issues. DRA may not be content to rely on residual allocation of CTC because
after the initial transition period, when CTC is amortized, all ratepayers
must be assured of benefits from restructuring.
- Transmission/ISO: Depending on the extent of ratemaking that is
taken on by FERC, DRA recommends using adopted CPUC methodologies.
- Distribution/Customer Access: DRA recommends using adopted CPUC
methodologies.
- Public Benefits Programs: In D.95-12-053, the Commission directed
PG&E to establish an interim public benefits charge, with costs allocated among
customers in the manner they are currently. DRA believes this would be a
workable approach to anticipate for 1998, pending future developments.
- O & M, A & G, and other adders: Based on discussion at the
May 9 meeting, O & M, A & G, and other adders will be unbundled along
with the utility functions that they are associated with. Before DRA can
make further recommendations, we need to obtain a greater understanding of the
utilities' acounting systems, such as through presentations by the utilities.
Track 2 Issues
Among the "Unresolved or Track 2" issues, the highest priority should be placed
on billing and metering. Cost studies for these items should rely on recorded,
historical data. With a target date of January 1998, we should use an avoided
cost, i.e., decremental, approach where customers who do not receive billing
and/or metering services from the UDC receive rate reductions in the amount of
cost that the UDC can avoid through allowing aggregators to perform these
functions. Through this approach, we have the greatest chance of successful
implementation by January 1998, and avoid the possibility of creating additional
stranded costs for billing and metering. As more refined cost studies can be
performed, we should use marginal costs or market information to set rates for
these services at more competitive levels.
DRA remains open to working with parties on further unbundling as expeditiously
as possible, but believes that commitments should not be made to their
completion by January 1998.