In Order No. 888, FERC asserted that it has jurisdiction over
unbundled transmission service provided by public utilities to
wholesale and retail customers, and ordered that customers participating
in voluntary or state-ordered retail direct access programs must
obtain their unbundled transmission service under a non-discriminatory
transmission tariff on file with FERC. However, FERC also indicated
in Order No. 888 that it would be willing to defer to state recommendations
regarding rates, terms, and conditions for retail transmission
service where appropriate to meet local concerns provided that
these recommendations are consistent with FERC's open access policies.
The parties to this settlement ("Parties") believe that
there are substantial "local concerns" in California
which require that the CPUC retain the ability under the new industry
structure to develop class revenue allocations and rate designs
for retail transmission service. The Parties therefore request
that the CPUC in this proceeding adopt the position that, upon
implementation of the new industry structure, FERC should defer
to the CPUC for developing retail transmission allocations and
rate designs for the applicable California investor-owned utilities
for, at a minimum, the first two years of the new industry structure.
The Parties also recommend adoption by the CPUC of the transmission
revenue allocation and rate design methodologies as proposed by
the utilities in their December 6, 1996 filings with the CPUC
(Applications 96-12-009, 96-12-010, and 96-12-011). Upon issuance
of a CPUC decision on this matter, the Parties recommend that
the CPUC file a request for deference on retail transmission allocation
and rate design with FERC, and that the utilities in their WEPEX
Phase II FERC filings, expected in March 1997, reflect that position.
This settlement is the result of extensive discussions among members
of the Ratesetting Working Group ("RWG"), which was
officially recognized by the CPUC in an Assigned Commissioners
Ruling dated June 21, 1996. Among the issues addressed by the
RWG is the design of unbundled retail transmission rates or access
charges.
Pacific Gas & Electric ("PG&E"), San Diego Gas
& Electric ("SDG&E"), and Southern California
Edison ("SCE") each filed with the CPUC on December
6, 1996, proposals for unbundling the components of their revenue
requirements and the associated retail revenue allocation and
rate design. The filings included proposals for developing the
transmission revenue requirement upon implementation of the Power
Exchange (PX) and the Independent System Operator (ISO). The utilities
expressed their belief that, under the new industry structure,
the determination of the revenue requirement associated with facilities
whose control has been transferred to the ISO will become the
responsibility of FERC. However, since the utilities are not expected
to file proposed transmission revenue requirements for 1998 with
FERC until March 1997, the utilities provided in their December
6 filings "illustrative" estimates of the transmission
revenue requirements. The utilities also provided class revenue
allocations and rate designs for the unbundled transmission function
based upon previously adopted CPUC methodologies for retail customers.
Thus, the filings were predicated upon the fact that the CPUC
would continue to be responsible for developing class revenue
allocation and rate designs for retail transmission service.
1. The CPUC should adopt the position in this proceeding that
FERC should defer to the CPUC regarding the rates, terms, and
conditions for all retail transmission service provided under
the new industry structure by the investor-owned utilities as
such deference will facilitate the successful implementation of
the state's electric industry restructuring efforts.
Under this proposal, FERC would authorize the total transmission
revenue requirement of the jurisdictional utility, the allocation
of that revenue requirement to retail and wholesale customers,
and the transmission rate design ("access charge") to
be assessed to non-self-sufficient wholesale utilities and to
wholesale wheeling through and out of the ISO. FERC would also
be responsible for developing rates for transmission congestion,
ancillary services, and ISO administration which will be paid
by scheduling coordinators and whose revenues would serve to reduce
the revenue requirement for developing the transmission access
charge. FERC would defer to the CPUC such that the CPUC would
be responsible for developing retail class revenue allocation
and rate designs to recover the FERC-authorized retail transmission
revenue requirement, retail class transmission revenue allocations,
and retail rate design ("access charge") as well as
the terms and conditions of transmission service to retail customers.
Such deference is appropriate and necessary for the reasons discussed
below.
The CPUC has in the past and is currently responsible for developing
transmission rates for all retail customers of investor-owned
utilities. The movement to an ISO structure and direct access
for retail customers does not so fundamentally change the retail
customer's use of the transmission system to justify a total shift
in ratemaking responsibility from the CPUC to FERC. In the Parties'
view, such assumption of responsibility by FERC over ratemaking
for retail transmission service in California is inappropriate
in that it is likely to have a chilling effect on the willingness
of other states to participate in the WEPEX or to pursue their
own ISO.
Parties are particularly concerned about the significant differences
between FERC and CPUC ratemaking methodologies. While the CPUC
has relied upon marginal cost-based approaches, FERC has utilized
methodologies such as 12-CP or load ratio share, and for point-to-point
transmission service, contract demands. The FERC approaches have
been established over the years predicated on wholesale service
where a utility is developing allocations and transmission rate
design for a few, relatively large wholesale utility customers.
On the other hand, CPUC methodologies have been developed specifically
with full consideration of the millions of retail customers provided
service under the rate schedules. A shift in ratemaking for retail
transmission from the CPUC to FERC is likely to result in significant
shifts in transmission cost responsibility between retail customer
classes. Since cost shifting is prohibited under AB1890, and the
total rates to retail customers are to be frozen through 2001,
any dramatic shift in transmission revenue allocation to retail
customer classes or in retail transmission rate design, will necessitate
an equal and opposite change in other rate components. To the
extent that FERC adopts a rate structure for retail transmission
based on billing parameters not provided for under current retail
schedules, such as 12-CP or load ratio share, it would be impossible
for the CPUC to residually develop the remaining rate structure
to comply with the AB1890 prohibition on cost shifting. In this
situation, cost shifting for some customers would be assured.
In the view of the Parties, FERC deference to the CPUC is required
to ensure that key provisions of AB1890 (i.e., no cost shifting
and the rate freeze) are honored.
Also, wholesale transmission customers are fundamentally different
from retail transmission customers. Wholesale utilities have larger
and more diversified total loads than retail customers and the
transmission service is acquired to meet the combined, diversified
system load of all end-users of the wholesale utility. Retail
customers of course only use the transmission grid for their individual
demands. It is unlikely that FERC has the ability, even under
a retail direct access structure, to assert jurisdiction over
the retail rates of wholesale municipal utilities. It is inappropriate
in the Parties' view for FERC to assume responsibility over the
design of retail transmission rates of California investor-owned
utilities from the local regulator (the CPUC), while the retail
transmission rates of a wholesale municipal utility remain subject
to local governmental control. For consistent treatment, FERC
should allow the CPUC to continue to develop rates for retail
transmission under the new industry structure.
There is also the potential jurisdictional issue of whether FERC
has any jurisdiction over the transmission provided to full service
utility retail customers under the new industry structure. It
is quite possible that such service is not "unbundled"
transmission service and therefore would remain the jurisdiction
of the CPUC. This raises the possibility of split jurisdiction
for retail customers which could have significant impacts on the
implementation of the California program. A key provision embodied
in AB1890 is that similar full service utility retail customers
and direct access retail customers of a utility are to pay the
same transmission and distribution rates (Section 368(b)). The
utilities' network transmission pricing model proposed at FERC,
where the end-user is responsible for paying the access charge,
is designed to allow adherence to that provision of AB1890. Given
the possibility that split jurisdiction may exist under the new
industry structure, Parties believe that compliance with Section
368 (b) of AB1890 can best be achieved by requesting at the outset
that FERC defer to the CPUC for developing retail transmission
rates for all retail customers.
The Parties' recommendation for FERC deference described above
is consistent with FERC's open access policies and comparability
principles, since the CPUC can and will ensure that all similarly-situated
retail direct access and bundled utility service customers of
a jurisdictional utility pay the same access charge rates and
face the same terms and conditions for transmission service.
2. The CPUC should adopt in this proceeding the retail transmission
revenue allocation and rate design methodologies reflected in
the utilities' December 6, 1996 filings for use in developing
unbundled transmission rates for retail customers under the new
industry structure .
The methodologies for developing retail transmission revenue allocation
and rate design filed in this proceeding by the three utilities
on December 6, 1996 are consistent with the methodologies previously
adopted by the CPUC and they were utilized to develop the total
retail rate levels in effect on June 10, 1996. AB1890 freezes
retail rates of the three utilities at the June 10, 1996 levels,
so consistency requires that the June 10, 1996 revenue allocation
and rate design methodologies be utilized for development of unbundled
transmission rates under the new industry structure. Thus, the
Parties recommend that the CPUC adopt the retail transmission
revenue allocation and rate design methodologies as filed by the
utilities on December 6, 1996. A summary of the methodologies
which should be adopted for each utility is provided below.
PACIFIC GAS & ELECTRIC
To Be Provided
SAN DIEGO GAS & ELECTRIC
To Be Provided
SOUTHERN CALIFORNIA EDISON
- The FERC authorized transmission revenue requirement would be
allocated to rate groups by multiplying the transmission revenue
requirement by each rate group's percentage of marginal transmission
cost revenue responsibility (MTCRR) authorized in Phase 2-A of
Edison's 1995 GRC.
- Rates would be designed to collect the transmission revenue
requirement allocated to each rate group. For rate schedules
with demand charges, the demand charges would be set equal to
the marginal transmission costs adopted in Phase 2-A of Edison's
1995 GRC and then scaled uniformly so that the charges recover
the allocated transmission revenue requirement by rate group.
If the scaled charge would exceed the total demand charge in violation
of the legislated rate freeze, it would be set equal to the total
demand charge, and the remaining revenue requirement would be
collected on an equal cents per kWh basis.
- For rate schedules with time-related demand charges, 90% of
annual marginal transmission costs would be considered coincident
demand-related and converted to time of use demand charges based
on the relative loss of load probability occurring during each
time period. 10% of annual marginal transmission costs would
be considered noncoincident demand-related and converted to monthly
non-time related demand charges by dividing the annual value by
12. The time-related and non-time-related marginal cost demand
charges would be equally scaled to yield demand charges that recover
the transmission revenue requirement allocated to the rate group.
- For rate schedules that contain a non-time related demand charge
or a connected load charge and do not contain time-related demand
charges, 100% of marginal transmission costs would be converted
to a monthly non-time related demand charge by dividing the annual
value by 12. The non-time-related marginal cost demand charge
would be scaled to yield a demand charge that recovers the transmission
revenue requirement allocated to the rate group.
- For rate schedules without demand charges, transmission rates
would be designed on an equal cents per kWh basis by dividing
the allocated transmission revenues by total kWh sales to the
rate group.
3. The CPUC should file with FERC in February 1997, a request
that FERC defer to the CPUC for development of retail transmission
revenue allocations and rate designs for at least the first two
years after implementation of the new industry structure.
As discussed above, Parties believe that it is appropriate and
necessary for the CPUC to continue to develop retail transmission
revenue allocations and rate designs after the implementation
of the new industry structure. Parties therefore recommend that
the CPUC file with FERC in February 1997, a request that FERC
defer to the CPUC for retail revenue allocation and rate design
for at least the first two years after the implementation of the
new industry structure. Parties believe that a filing in February
1997 is necessary to allow the utilities to reflect in their WEPEX
Phase II filings, expected in March 1997, the position that the
CPUC will continue to develop the transmission rates for all retail
customers of the utilities. In particular, this would allow the
utilities to develop and file proposed retail transmission rates
reflecting the CPUC methodology adopted in this proceeding and
the utilities' proposed transmission revenue requirements for
1998 .
Parties believe that the request for deference should be for a
period of at least two years after the implementation of the new
industry structure, since two years is the minimum period of time
that the utility-specific transmission access charge as proposed
by the utilities in the April 29, 1996 FERC filing is expected
to be in effect. However, many of the reasons which support the
position of FERC deference would suggest that such deference would
be appropriate for the entire period of the retail rate freeze
mandated by AB1890, i.e., 2001, and it may be appropriate for
the CPUC to request deference for the longer period.