This excerpt taken from the PCG 10-K filed Feb 18, 2005.
The CPUC sets and periodically revises a baseline allowance for the Utility's residential gas and electricity customers. A customer's baseline allowance is the amount of its monthly usage that is covered under the lowest possible natural gas or electric rate. Electricity baseline usage is also exempt from certain surcharges. Natural gas or electricity usage in excess of the baseline allowance is covered by higher rates that increases with usage.
As a consequence of the California energy crisis, on January 17, 2001, the Governor of California signed an order declaring an emergency and authorizing the DWR to purchase electricity to maintain the continuity of supply to retail customers. This was followed by AB 1X, which authorized the DWR to purchase electricity and sell that electricity directly to the California investor-owned utilities' retail end-user customers and to issue revenue bonds to finance electricity purchases. AB 1X also required the Utility to deliver the electricity purchased by the DWR over the Utility's distribution systems and to act as a billing and collection agent for the DWR, without taking title to DWR purchased electricity or reselling it to the Utility's customers.
AB 1X allows the DWR to recover its costs of electricity and associated transmission and related services, principal and interest on bonds issued to finance the purchase of electricity, administrative costs and certain other amounts associated with purchasing electricity through a revenue requirement. AB 1X also authorizes the CPUC to set rates to cover the DWR's revenue requirements, but prohibits the CPUC from increasing electricity rates for residential customers who use less electricity than 130% of their existing baseline quantities.
Under AB 1X, the DWR was prohibited after December 31, 2002 from entering into new electricity purchase contracts and from purchasing electricity on the spot market. SB 1976, which became law in September 2002, required the CPUC to allocate electricity from existing DWR contracts among the customers of the California investor-owned electric utilities, including the Utility's customers. On September 19, 2002, the CPUC issued a decision allocating electricity from the DWR contracts to the customers of the three California investor-owned electric utilities. The DWR continues to be legally and financially responsible for these contracts. The electricity provided under 19 of the DWR contracts was allocated to the Utility's customers. The Utility is responsible for scheduling and dispatching the electricity subject to the DWR allocated contracts on a least-cost basis and for many administrative functions associated with these contracts.
The DWR pays for its costs of purchasing electricity from a revenue requirement collected from electricity customers of the three California investor-owned electric utilities through what is known as a power charge. The Utility's customers also must pay what is known as a bond charge to pay a share of the DWR's revenue requirements to recover costs associated with the DWR's $11.3 billion bond offering completed in November 2002. The proceeds of this bond offering were used to repay the State of California and lenders to the DWR for electricity purchases made before the implementation of the DWR's revenue requirement and to provide the DWR with funds to make its electricity purchases. Because the Utility acts as a billing and collection agent for the DWR, amounts collected for the DWR and any adjustments are not included in the Utility's revenues.
On January 1, 2003, the California investor-owned electric utilities resumed responsibility for procuring electricity to meet their residual net open positions (i.e., that portion of the Utility's electricity customers' demand not satisfied by electricity that the Utility generates or has under contract, or by electricity provided under the DWR allocated contracts). They also became responsible for scheduling and dispatching the electricity subject to the DWR allocated contracts on a least-cost basis and for many administrative functions associated with those contracts. The utilities also were required by SB 1976 to submit short-term and long-term procurement plans to the CPUC for approval.
Effective January 1, 2003, under California law, the Utility established a balancing account, the Energy Resource Recovery Account, or ERRA, designed to track and allow recovery of the difference between the recorded electricity procurement revenues and actual costs incurred under the Utility's authorized procurement plans, excluding the costs associated with the DWR allocated contracts and certain other items. SB 1976 requires the CPUC to review the revenues and costs associated with a utility's electricity procurement plan at least semi-annually and adjust retail electricity rates or order refunds, as appropriate when the aggregate over-collections or under-collections exceed 5% of the utility's prior year electricity procurement revenues, excluding amounts collected for the DWR.
All load-serving entities, including the utilities, energy service providers and future community choice aggregators, must achieve an electricity planning reserve margin of 15% to 17% in excess of peak capacity electricity requirements by June 1, 2006. Also, beginning in 2006, the utilities and other load-serving entities are required to secure 90% of their electricity needs during the peak energy months of May through September through forward contracts at least one year in advance.
On December 16, 2004, the CPUC issued a final decision which approved, with certain modifications, each California investor-owned electric utility's long-term electricity procurement plan, or LTPP, in order to authorize each utility to plan for and procure the resources necessary to provide reliable service to their customers for the ten-year period 2005-2014. The decision recognizes that each utility will have capacity needs over the ten-year period, especially in 2011 when most of the DWR contracts expire. The decision states that a major issue in the proceeding is the extent to which the utilities will be compensated for investments or purchases that they must make in order to meet their obligation to provide reliable service to their customers, noting that the implementation of community choice aggregation, departing municipal load, and the potential for allowing new direct access all create a great degree of uncertainty as to the amount of load the existing utilities will be responsible for serving in the future. The decision includes the following key points:
or longer are submitted to the CPUC for pre-approval. The decision adopts a rolling 10-year procurement period, noting that the LTPPs cover a 10-year period and will be updated and reviewed every 2 years. The decision grants the Utility's petition for modification of its existing short-term procurement plan to permit all utilities to conduct procurement using negotiated bilateral agreements for transactions up to 3 calendar months, or one quarter, forward. The decision notes that ultimately the CPUC will eliminate short-term procurement plans and the utilities will act in accordance with a single CPUC-approved plan; but until then, the utilities' existing short-term plans remain in effect and any updates or modifications should be filed with an advice letter within 30 days after the issuance of the decision. The Utility filed an update to its short-term plan on January 18, 2005. The decision requires the utilities to submit a compliance filing updating their procurement plans to reflect the changes and modifications in the decision by March 25, 2005.
The Utility's electricity transmission revenues and its wholesale and retail transmission rates are subject to authorization by the FERC. The Utility has two sources of transmission revenues: charges under the Utility's transmission owner tariff and charges under specific contracts with existing wholesale transmission customers that pre-date the Utility's participation in the ISO. Customers that receive transmission services under these pre-existing contracts, referred to as existing transmission contract customers, are charged individualized rates based on the terms of their contracts. Transmission rates established by the FERC in the Utility's transmission owner rate cases are included by the CPUC in the Utility's retail electricity rates and collected from retail electricity customers receiving bundled service under the federal filed rate doctrine.