Debate Over Financing of Exit Fee Cap

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Feb. 8, 2003 Share this on FacebookTweet thisEmail this to a friend

The issue of which customers will "finance" the direct access exit fee cap is heating up at the California Public Utilities Commission and the State Capitol. The CPUC will take up this issue this spring, and a Senate committee will hold hearings later this month.

Last November, in Decision 02-11-022, the CPUC established a Cost Responsibility Surcharge, or exit fee, to recover Department of Water Resources power costs from DA customers, capped at 2.7 cents per kWh.

With a cap on exit fees, any shortfall of surcharge revenues would in effect be loaned from bundled customers to DA customers, with interest. The issue now being debated is which customers should finance the revenue shortfall created by the cap.

In last year's exit fee proceeding at the CPUC, the financing issue was barely discussed. Instead the CPUC and parties focused on the level of the surcharge, whether the surcharge should be capped, and if so at what amount. The lack of debate over financing issues was due to the assumption by most parties that with a cap on exit fees, any shortfall in revenue would be "loaned" from bundled customers to DA customers, to be eventually repaid with interest. This would be in keeping with the Commission's often stated goal that bundled customers be made indifferent, over time, to the cost impacts of the increase in DA load that occurred in the summer of 2001.

The focus is now on the precise meaning of language added at the last minute to November's exit fee decision, when the CPUC adopted The Utility Reform Network's (TURN) recommendation "that any financing of the [exit fee] cap shall be retained within the same customer class that benefits from the cap."

CMTA and many other parties interpret the TURN language to mean that only the interest cost of any "loan" from bundled customers to DA customers would be retained within each customer class. Others argue that the language requires that the entire loan amount be retained within each customer class.

A lot is at stake for industrial customers. Since the overwhelming majority of DA customers are industrial, keeping the financing requirement within each class means industrial consumers would foot most of the rate impacts of financing. Sixty-six percent of all DA sales are made to customers in the industrial class. If the CPUC requires that these costs have to be loaned only by bundled industrial customers, the impact on these users would be 1.34 cents per kilowatt hour (kWh). If the loan amount is spread across all bundled customer sales evenly, each customer would incur approximately 0.36 cents per kWh of financing costs.

In testimony filed this week, CMTA is seeking clarification and/or modification of the TURN-recommended language. Specifically, CMTA is urging the CPUC to clarify the meaning of the TURN language to "state that the loan is to be provided by bundled customers generally to DA customers generally, without specification by customer class." "Because any revenue shortfall resulting from the cap will be 'loaned' to DA customers and repaid with interest", CMTA argues in the filing, "there is no basis for determining that the loan should not come from the broadest possible cross section of customers."

The financing issue is one of several thorny exit fee implementation issues the CPUC will be grappling with this year. At mid-year, the Commission will revisit the issue of the level of the surcharge, with the distinct possibility that they may revise it upward.

Meanwhile, the Senate Energy, Utilities, and Communications Committee will be conducting legislative hearings later this month to examine the issue. The committee chairwoman, Senator Debra Bowen (D-Marina del Rey) has expressed reservations about the prospect of having all ratepayers finance the cap, equating it to a "forced loan".
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