This excerpt taken from the PCG 10-K filed Feb 18, 2005.
Electric Operating Revenues
Beginning January 1, 1998, electricity rates were frozen as required by the California electric industry restructuring law. In 2001, in response to the California energy crisis, the CPUC increased frozen rates by imposing fixed surcharges which the Utility collected through December 31, 2003. As a result of the Settlement Agreement and various CPUC decisions, the Utility's electricity rates as of January 1, 2004, are no longer frozen and are determined based on its costs of service.
As a result of the return to cost-of-service ratemaking in 2004, the Utility records its electric distribution revenues under revenue requirements approved by the 2003 GRC. Differences between the authorized revenue requirements and amounts collected by the Utility from customers in rates are tracked in regulatory balancing accounts and are reflected in miscellaneous revenues in the table below.
From mid-January 2001 through December 2002, the DWR was responsible for procuring electricity required to cover the Utility's net open position. The Utility resumed purchasing electricity on the open market in January 2003 to satisfy its residual net open position, but still relies on electricity provided under DWR contracts for a material portion of its customers' demand. Revenues collected on behalf of the DWR and the DWR's related costs are not included in the Utility's Consolidated Statements of Operations, reflecting the Utility's role as a billing and collection agent for the DWR's sales to the Utility's customers. Previously, under the frozen rate structure, increases in the revenues passed through to the DWR decreased the Utility's revenues. Starting in 2004, the Utility's electric operating revenues are based on an aggregation of individual rate components, including base revenue requirements, and electricity procurement costs, among others. Changes in the DWR's revenue requirements will not affect the Utility's revenues. Although the Utility is permitted to pass through the DWR charges to customers, any changes in the amount of DWR charges that the Utility's customers are required to pay can affect regulatory willingness to increase overall rates to permit the Utility to recover its own costs. As overall rates rise or decline, there may be changes regarding the risk of regulatory disallowance of costs.
The Utility is required to dispatch, or schedule, all of the electricity resources within its portfolio, including electricity provided under the DWR allocated contracts, in the most cost-effective way. This requirement, in certain cases, requires the Utility to schedule more electricity than is necessary to meet
its retail load and to sell this additional electricity on the open market. The Utility typically schedules excess electricity when the expected sales proceeds exceed the variable costs to operate a generation facility or buy electricity under an optional contract. Proceeds from the sale of surplus electricity are allocated between the Utility and the DWR based on the percentage of volume supplied by each entity to the Utility's total load. The Utility's net proceeds from the sale of surplus electricity after deducting the portion allocated to the DWR are recorded as a reduction to the cost of electricity.
The following table shows a breakdown of the Utility's electric operating revenues.
The Utility's electric operating revenues increased in 2004 by approximately $285 million, or approximately 4%, compared to 2003 due to the following factors:
Partially offsetting the increase in electric operating revenues was the absence of surcharge revenues in 2004 as a result of the return to cost of service ratemaking in 2004. The Utility collected $875 million in surcharge revenues in 2003.
In 2003, the Utility's electric operating revenues decreased approximately $596 million, or 7%, compared to 2002.
Partially offsetting this decrease was an increase of approximately $270 million for electric distribution operations as a result of the 2003 GRC.