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Calif. Utilities Seek To Allocate More Costs To Customers Departing Bundled Service Through Direct Access, Municipal Aggregation

April 26, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric have petitioned the California PUC to implement a new methodology for allocating, to direct access and community choice aggregation customers, legacy generation costs for which the customers would continue to be responsible despite no longer taking bundled service

Currently, such competitive supply customers must pay the Power Charge Indifference Adjustment (PCIA) and Competition Transition Charge (CTC) rates

However, the utilities said that the PCIA is "broken" and "unfair" to bundled service customers due to its reliance on forecasts to establish costs paid by departing load, which the utilities said result in bundled service customers paying a greater amount of costs.

"The current approach forecasts costs based on administratively-determined estimates of hypothetical future market prices, with no true-up for actual costs. Because this complex process is not and cannot be based on actual, current market prices, it results in cost shifts between customer groups," the utilities said

The utilities said that this result is contrary to SB 350, which became effective January 1, 2016, which requires that remaining utility customers, "shall not experience any cost increase," as a result of customers departing for CCA or DA service

"Currently, the Commission relies on a method to allocate costs to departing load customers based on an estimate of the 'above-market' costs for resources procured or built prior to their departure from bundled utility procurement service. Those 'above-market' costs estimates are based on administratively-determined 'market price benchmarks' for RECs and RA. Relying on those benchmarks is no longer reasonable because they are grossly inflated relative to actual market conditions (making the Joint Utilities’ portfolios appear less 'above-market')," the utilities said

"This directly translates into departing load customers paying PCIA and CTC rates that do not fully pay for their share of the actual above-market costs of the portfolios, which is contrary to law. But the Joint Utilities ultimately recover these costs. Because these are pass-through costs (pursuant to AB 57), by definition the remaining utility bundled service customers pay the shortfall through their generation rates, resulting in a cost shift that is prohibited by statute," the utilities said

The utilities proposed a new Portfolio Allocation Methodology (PAM) to assign utility generation costs to departing load, which will consist of all departing load customers paying a new Portfolio Allocation Charge (PAC) and CTC rates. "Under PAM, all departing load customers and remaining bundled service customers will pay the actual costs of the generation portfolios procured or built on their behalf. In addition, all departing load customers and remaining bundled service customers will be allocated the actual value of those portfolios (e.g., energy and ancillary services revenues, Renewable Energy Credits (RECs) and Resource Adequacy (RA) attributes)," the utilities said

"To further ensure indifference for all customers, PAC and CTC rates will be retrospectively 'trued up' in the same manner that bundled service customers’ generation rates are today," the utilities said

Similar to the current methodology, PAM will be implemented on a 'vintaged-portfolio' basis pursuant to the existing Commission methodology, which is dependent on the date a customer departs bundled utility procurement service, thereby ensuring that all customers are only assigned the costs and benefits of resources actually procured or built on their behalf.

Notably, aside from using actual costs rather than forecasts for various PPAs, the utilities also sought changes to how the costs of utility-owned resources are allocated to departing load customers under PAM.

Specifically, there is currently a 10-year cost allocation period limit for Utility-Owned Generation (UOG) fossil fuel resources acquired through a procurement process after 2002.

"[T]he Joint Utilities propose in this Application that departing load cost recovery for UOG resources should be consistent between 'legacy' (i.e., pre-2002) and post-2002 UOG resources. Specifically, the Joint Utilities propose that both legacy and post-2002 UOG resources continue to be eligible for cost recovery from departing load customers until the last of the long-term contracts associated with those customers’ vintage expire, with the caveat that the Joint Utilities specifically reserve the right to seek Commission approval of future UOG cost recovery relief from those customers should circumstances so warrant," the utilities said [emphasis added].

"For example, if a utility experiences an expectedly-large load departure after the presumptive cost-recovery period ends but before the UOG resource is retired, it may become necessary to revisit the cost-recovery issue to preserve bundled service customer indifference as mandated by state law. In such a situation, the Joint Utilities reserve their rights to seek appropriate relief at the Commission," the utilities said

This reservation of rights with respect to future UOG cost recovery relief ostensibly flies in the face of the utilities' stated goals of creating a "predictable", "transparent," and "objective," new mechanism

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