Memorandum CAPITAL of SILICON VALLEY
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RULES COMMITTEE: 03-26-08 ITEM: E CITYOF A SAN]OSE Memorandum CAPITAL OF SILICON VALLEY TO: Honorable Mayor & FROM: Lee Price, MMC City Council Members City Clerk SUBJECT: The Public Record DATE: March 21, 2008 March 15-20,2008 ITEMS TRANSMITTED TO THE ADMINISTRATION ITEMS FILED FOR THE PUBLIC RECORD (a) Reply comments ofPacific Gas and Electric Company from Andrew L. Niven and Craig M. Buchsbaum attorneys for PG&E beforethe Public Utilities Commission ofthe State ofCalifornia dated March 11, 2008. (b) Notice ofTrustee's intent to enter into stipulation for relieffrom the automatic stay, and to abandon and destroy unrepossessed assets and business records to all creditors and parties in interest and the Office ofthe United States Trustee dated March 13, 2008. (c) Notice ofEX PARTE Communication before,the Public Utilities Commission ofthe State ofCalifornia dated March 6, 2008. (d) Letter from David S. Wall to Mayor Reed and Council dated March 14,2008 regarding arts stabilization fund update. (e) Invitation from Santa Clara County Office ofHuman Relations to Mayor Reed and Council received March 20, 2008 to attend the 3'd Annual Veterans and Their Families Resource Fair on April19, 2008. (f) Reply ofPacific Gas and Electric Company to protests ofexpedited application from Andrew L. Niven and Ann H. Kim attorneys for PG&E before the Public Utilities Commission ofthe State ofCalifornia dated February 22,2008. (On file in the Office of the City Clerk) Lee Price, MMC . City Clerk LP/np Distribution: Mayor/Council . City Auditor City Manager Director ofPublic Works Assistant City Manager Director ofFinance Assistant to City Manager Public Information Officer Council Liaison San Jose Mercury News Director ofPlanning Library City Attorney BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Rulemaking to Consider the Annual Revenue Requirement Determination ofthe California Department ofWater Rulemaking 06-07-010 Resources (Filed July 20, 2006) REPLY COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY ANDREW L. NIVEN CRAIG M. BUCHSBAUM Pacific Gas and Electric Company 77 Beale Street San Francisco, CA 94105 Telephone: (415) 973-4844 Facsimile: (415) 973-0516 E-Mail: [email protected] Attorneys for PACIFIC GAS AND ELECTRIC COMPANY Dated: March 11,2008 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Rulemaking to Consider the Annual Revenue Requirement Determination ofthe California Department ofWater Rulemakiug 06-07-0I0 Resources (Filed July 20, 2006) REPLY COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY Pursuant to the "Administrative Law Judge's Ruling Inviting Comments" dated February 22, 2008, PG&E hereby files reply comments on allocation ofthe California Department ofWater Resources' (DWR) supplemental revenue requirements determination for 2008. In summary, as described in PG&E's opening comments filed on March 5, 2008, PG&E's near term reliefpertaining to the Calpine 2 termination should be granted within the requested time-frame, and the Commission also should initiate efforts to implement PG&E's longer term request to revisit the permanent allocation method. These reply comments also focus on two technical matters, relating to the actual computation for 2008 (See II, below) and implications for the 2010 revenue requirement determination (See III, below). I. ALL PARTIES CONCUR WITH PG&E'S NEAR-TERM ALLOCATION PROPOSAL, AND THE RESULTING ADJUTMENTS SHOULD BE IMPLEMENTED BY THE COMMISSION, OR REFLECTED IN A PROPOSED ALLOCATION DECISION, BY APRIL 10,2008 All commentitig parties support, or otherwise concur with, PG&E's request that DWR's supplemental revenue requirements determination for 2008 be allocated consistent with the short-term reliefrequested in PG&E's petition for modification ofDecision 05-06-060, filed on January 18, 2008, in Application 00-11-038 et af (i.e., that PG&E be allocated the entire net fixed cost reductions attributable to the termination and replacement ofthe Calpine 2 contract with the substitute "peaking contract"). See Comments ofSCE, p. 2; ofSDG&E, p. 2; and of CLECA; p. 2. Accordingly, the Commission should implement this recommendation, and the resulting adjustments, when allocating tlie 2008 DWR supplemental revenue requirements. As to timing, PG&E repeats its recommendation (described in its opening comment at pp. 2"3) that, in order to reflect these adjustments in PG&E's May 1 rate changes, either 1) the Commission shorten the comment period on a proposed supplemental 2008 DWR allocation decis.ion to allow a fmal decision by April 10, 2008 or 2) the ALJ issue a proposed allocation decision no later than April 10, 2008 which PG&E could then use a basis for implementing the DWR revenue requirement. Ifthe latter alternative is followed, PG&E notes that any change in revenue requirements from the proposedallocation decision could notbe implemented in time to be reflected in PG&E's May 1 rate adjustments. II. PG&E'S ALLOCATED DWR REVENUE REQUIREMENTS FOR 2008 SHOULD BE REDUCED BY $475 MILLION ON ACCOUNT OF THE CALPINE 2 TERMINATION AND REPLACEMENT There is a small discrepancy between the amount ofthe reduction attributable to the Calpine 2 termination and replacement, as estimated by SCE for 2008 ($467 million) and the amount ofthe reduction which should be allocated to PG&E ($475 million). This discrepancy is not caused by a misunderstanding regarding the mechanism for reflecting the Calpine 2 tettnination and contract replacement, but by independent adjustments not related to Calpine 2, including adjustments attributable to the so-called Coral contract. Specifically, in DWR's supplemental determination for 2008, DWR made an additional adjustment, correcting an error attributable to their estimate ofnon-avoidable costs under that contract. The increase in non- avoidable costs ($10 million) attributable to DWR's correction ofCoral non-avoidable costs (as well as any smaller changes in fixed costs not related to Calpine 2, as well as reserve adjustments), must be spread to all utilities, consistent with the permanent allocation method and past practices. Excluding Coral and other changes, the reduction to PG&E from the DWR -2- supplemental determination should be $475 million, consisting ofa $479 million decrease due the termination ofthe Calpine 2 contract, and a $4 million increase due to its replacement by the peaker contract. III. THE REDUCTION IN DWR COSTS ATTRIBUTABLE TO THE CALPINE TERMINATION WILL EXTEND INTO THE 2010 REVENUE REQillREMENT DETERMINATION Although there is no present controversy, PG&E wishes to note for the record that DWR costs will be reduced, on account ofthe Calpine 2 termination, through January ofthe 2010 revenue requirement determination. Thus, PG&E will be entitled to be allocated one"month's benefit ofthe Calpine 2 contract reductions, in the allocation ofthe 2010 DWR revenue requirement. This adjustment to 2010 allocations is necessary because DWR reflects its contract costs in the revenue requirement determination, one month after the costs are actually incurred. Because ofthis lag, DWR's Calpine 2 costs that were incurred in December, 2007, before the effective termination date ofJanuary 1, 2008, were included in DWR's 2008 supplemental determination (i.e., Calpine 2 costs for December, 2007 were included, as a January, 2008, DWR cost and PG&E was allocated only eleven months ofcost reductions).l Consequently, for the 2010 revenue requirement qetermination, PG&E will be entitled to one month ofreduced costs to reflect costs that would have been incurred under the Calpine 2 contract in December, 2009, and reflected in the 2010 DWR revenue requirement determination. In this way, PG&E will receive the entire allocation, through the DWR allocation process, oftwo year's worth of reduced Calpine 2 contract costs (11/12 for 2008 plus 12/12 for 2009 plus 1/12 for 2010). 1 Specifically, the Supplemental DWR Revenue Requirement Detennination for 2008 still includes (in the month ofJanuary, 2008) $44 million ofCalpine 2 costs, or 1/12th ofthe $522 million in Calpine 2 costs that DWR incnrred during 2007. - 3 - IV. PG&E CONTINUES TO SUPPORT REVISITING THE PERMANENT ALLOCATION METHOD For all the reasons previously stated, in addition to the short tenn relief, described above, PG&E supports, over the longer tenn, a revisiting ofthe pennanent allocation method. In particular, PG&E believes the Commission should endorse efforts to detennine metrics and gather data tocompare the relative burdens ofthe respective utilities over time, as a first step towards initiating such a review. Respectfully Submitted, ANDREW L. NIVEN CRAIG M. BUCHSBAUM By: /s/ .--'-------==-:-::-=-'~==-:-::-:=-=---- CRAIG M. BUCHSBAUM Pacific Gas and Electric Company 77 Beale Street San Francisco, CA 94105 Telephone: (415) 973-4844 Facsimile: (415) 973-0516 E-Mail: [email protected] Attorneys for PACIFIC GAS AND ELECTRIC COMPANY Dated: March 11, 2008 -4- CERTIFICATE OF SERVICE BY ELECTRONIC MAIL OR U.S. MAIL I, the undersigned, state that I am a citizen ofthe United States and am employed in the City and County ofSan Francisco; that I am over the age ofeighteen (18) years and not a party to the within cause; and that my business address is Pacific Gas and Electric Company, Law Department B30A, Post Office Box 7442, San Francisco, CA 94120. On the 11th day ofMarch 2008, I served a true copy of: REPLY COMMENTS OF PACIFIC GAS AND ELECTRIC COMPANY [XX] By Electronic Mail- serving the enclosed via e-mail transmission to each ofthe parties listed on the official service list for R.06-07-010, A.00-11-038 (consolidated with A.OO 11-056, and A.00-10-028), and A.08-01-014 with an e-mail address. [XX] By U.S. Mail- by placing the enclosed for collection and mailing, in the course of ordinary business practice, with other correspondence ofPacific Gas and Electric Company, enclosed in a sealed envelope, with postage fully prepaid, addressed to those parties listed on the official service list for R.06-07-010, A.00-11-038 (consolidated with A.00-11-056, and A.00-10-028), and A.08-01-014 without an e-mail address.