SDG&E Faces Jump in DWR Contract Costs

Grappling with methods to permanently spread the financial pain of long-term pacts created during the energy crisis, the California Public Utilities Commission is floating four proposals to allocate Department of Water Resources contract costs. San Diego Gas & Electric customers face a bigger responsibility in the plans?a cost shift of between $550 million and $983 million over ten years. CPUC president Mike Peevey?s alternate, ?with some changes to computational errors, does a good job of allocating the fixed costs of DWR?s revenue requirements? among the utilities, said Lad Lorenz, SDG&E vice president of regulatory affairs. SDG&E wants Peevey?s plan to reduce SDG&E?s power contract costs from $550 million to $345 million, to match the utility?s recommended numbers. Unable to make a decision earlier this year, the commission allocated DWR contract costs on an interim basis in August ( Circuit , August 20, 2004). Along with Peevey?s plan, proposals by commissioners Geoffrey Brown and Loretta Lynch, as well as an approach by administrative law judge Peter Allen, are scheduled for a vote on September 23. Highlights of the plans provided by the CPUC Energy Division for 2004 to 2013 include: The proposed settlement: None of the proposals would adopt a settlement proposed by Pacific Gas & Electric, Southern California Edison, and The Utility Reform Network. All the plans agree that the pact relies on a flawed method to calculate above-market costs. SDG&E argues that the settlement amounts to an unfair cost shift of $1 billion to the utility. Utility allocations, current: Under the current allocation approach, Edison is on the hook to DWR for $13.136 billion over 10 years (46.4 percent); PG&E owes $11.454 billion (40.4 percent); and SDG&E is responsible for $3.738 billion (13.2 percent). Utility allocations: While Peevey?s plan appears aimed at minimizing sticker shock to SDG&E, Brown?s plan spreads cost responsibility more evenly among the utilities. Allen and Lynch adopt the same allocations. Calculations of how the costs are divvied up in dollars are based on CPUC modeling runs. Utility allocation, Peevey: Peevey?s proposal would shift $550 million for 15.1 percent of contract costs to SDG&E. San Diego customers? total would be $4.3 billion. PG&E customers would see a negative $157 million in cost shifting but would be responsible for $11.3 billion, or 39.9 percent. Edison customers would see a negative $393 million in cost shifting. They would bear 45 percent of contract costs at $12.74 billion. Utility allocation, Brown: Brown would shift $817 million in costs to SDG&E. San Diego would pay $4.55 billion, or a total of 16.1 percent. PG&E would see a negative cost shift of $307 million, with 39.4 percent of the burden, or $11.147 million. Edison would see a negative cost shift of $511 million, with 44.6 percent of the burden and $12.62 billion. Utility allocation, Lynch and ALJ: Lynch and Allen propose that SDG&E bear a cost shift of $983 million. San Diego would be allocated 16.7 percent of the weight, for a total of $4.72 billion. PG&E would see a cost shift of $370 million, with 41.7 percent and a total of $11.8 billion. Edison would bear 41.6 percent of the total, $11.784 billion, but would see a negative cost shift of $1.35 billion. Timing: Brown, Lynch, and Allen would make the plans retroactive to January 2004. Peevey would begin the levy in January 2005. Excess DWR costs: Lynch?s plan differs from other proposals in its emphasizing that DWR?s 2004 revenue requirement is bloated by more than $290 million. DWR has inflated its numbers with $130 million for unneeded costs this year and has ignored $160 million in expected refunds from the El Paso settlement over price manipulation allegations, according to Lynch. J.A. Savage also contributed to this report.

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SDG&E Faces Jump in DWR Contract Costs

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