Utility Rates

Critical Peak Pricing

The CPUC is pushing the IOUs to develop Critical Peak Pricing (CPP) programs that would apply during State-initiated emergency power supply shortage situations. In the model CPP program that the CPUC has previously outlined (described in D.05-04-053 and D.06-05-038), a CPP rate would be mandatory for all large electricity consumers. When a shortage situation occurs, the customer would be notified (either on a day-ahead or same-day basis) that a CPP event had been called. During the CPP event, some or all of the customer’s electricity usage would be billed at a substantially higher rate than normal. The intent of CPP rates is to encourage customers to reduce consumption in response to these mandatory pricing signals.

While some large electricity consumers can reduce their usage or shift their consumption patterns to different times of the day in response to price signals, local governments should be concerned about the magnitude of the pricing signals compared to their ability to reduce consumption in public service facilities (e.g.; jails, hospitals, courts).

In the most recent decision on Critical Peak Pricing (D.06-05-038), the CPUC directed each IOU to institute Critical Peak Pricing in its next General Rate Case (GRC). PG&E’s GRC was already underway, and so was not directly affected. However, the CPUC has solicited comments in PG&E’s GRC and sponsored a workshop to consider and develop a dynamic pricing policy, which the CPUC believes will reduce consumer costs and increase system reliability.

While the CPUC will establish policy, it will not be setting dynamic pricing rates in the PG&E GRC – those will be established in each IOU’s GRC proceeding. Because the CPUC is focused on policy issues, any decisions will likely also apply to customers in Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) territories. Various parties have submitted comments on these policy issues. Within the next month or so, CPUC staff is expected to release a strawman rate design proposal to which parties may respond and/or provide alternatives. The CPUC will then hold additional workshops before releasing a proposed decision on these policy issues.

In SDGE’s recent GRC, the parties entered into a settlement agreement that adopts a very weak Critical Peak Pricing program, with an easy opt out (instead of a mandatory program), bill protection that would limit customers’ actual rate exposure by capping the amount of extra money a customer would be billed on an annual basis, and the ability to reserve an uncapped amount of capacity that would not be subject to the CPP rate.The assigned ALJ has not yet issued a Proposed Decision on the settlement agreement, so it is not clear how the CPUC will react to the Critical Peak Pricing provisions.

The settlement agreements adopted a couple of years ago also called for weak Critical Peak Pricing programs, which the CPUC rejected. SCE will be the next utility to consider Critical Peak Pricing, in Phase 2 of its new GRC (see below).

SCE’s General Rate Case

Southern California Edison Company (SCE) filed its application for Phase 1 of its next General Rate Case asking for a huge increase in its revenue requirement: 16.2% in 2009, additional increases in 2010 and 2011, for a total of $2.9 billion more over the three year period. For more details see LGSEC Update #1, January 2008.

SCE cites load growth and system issues - for example, the need to build new facilities and to reinforce the existing network to accommodate load growth; the need for substantial capital investments to replace aging distribution infrastructure and business systems; and increased costs for system operations and maintenance. SCE also cites increased costs it faces with an aging workforce and the need to recruit, train, and retain employees in light of pending retirements.

A pre-hearing conference (PHC) was held on January 15, 2008. The Scoping Order has been released, and testimony from parties other than SCE is due in April, and rebuttal testimony is due in May. Hearings are scheduled from May 29 to June 16.

Phase 1 of a GRC primarily focuses on the revenue requirement and several parties, including TURN and the Division of Ratepayer Advocates, normally take the lead on that issue. Local governments have not in the past actively participated in Phase 1 of a GRC. However, SCE’s request is huge - and the impact on rates will also be huge. If SCE receives a 16.2% increase in its revenue requirement, system-wide rates will go up by 16.2%. It is unlikely that residential rates would be allowed to rise by that amount, which means that commercial and industrial customers could be faced with even higher rates.

SCE has also now filed it application for Phase 2 of the GRC. While the amount of rate increases will depend upon the CPUC’s decision in Phase 1, SCE has proposed large increases for street lighting and for GS-2 rate schedules. SCE has proposed a “cap” on increases for other rate schedules that would substantially increase the otherwise relatively minor rate increases for TOU-8 secondary and primary schedules. A pre-hearing conference will be held on May 1, and the Scoping Memorandum, which will establish the procedural schedule, should be issued two or three weeks later.

PG&E’s General Rate Case

In its settlement agreement in the most recent Phase 1, which the CPUC adopted last year, PGE agreed to the addition of a third attrition year, 2010, which shifts PG&E’s next GRC to test-year 2011, now, PG&E will likely file at the end of 2009 for test year 2011.

Rumor is that PG&E will file for a large rate increase due to (1) infrastructure additions, (2) aging workforce and related issues, and (3) program implementation related to GHG reduction programs (energy efficiency, project development, etc.), as well as the various accounts that SCE has reported.

Southern California Gas Company Cost Allocation

SoCalGas filed its long-awaited Biennial Cost Allocation Proceeding (BCAP) on February 4, 2008 (A.08-02-001). This filing addresses how the cost of providing natural gas service is allocated to and among its customers. On February 26, 2008, the presiding ALJ issued a ruling (“Ruling”) scheduling the first Pre-hearing Conference for April 3, 2008. SoCalGas has requested that the matter be phased with storage risk and revenue issues being addressed in phase one and all other issues, such as implementation of firm access rights, being addressed in phase two.

The BCAP filing, the first in a decade of what was to be biennial submittals, was protested by many parties who raised issues on nearly every part of the filing. The protests address issues related to cost allocation, rate design and gas storage. The protests were so extensive that SoCalGas’ response was set forth in multiple parts and it was forced to respond by issue rather than by party. Despite its extensive response, SoCalGas conceded that it did not cover all issues raised in the protests.

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