The California Public Utilities Commission issued its final order on unbundling rates for generation, transmission and distribution functions performed by the state's three largest investor-owned utilities on Aug. 1.

The commission also determined how to calculate transition costs and addressed customer billing and education issues. (Decision 97-08-056, Docket A. 96-12-009 et al.)

The utilities affected are Pacific Gas and Electric, San Diego Gas & Electric, and Southern California Edison.

Rates by Function. The PUC identified separate revenue requirements for distribution and allocated costs of those functions to the various customer classes. It also addressed corresponding rate design principles. The distribution revenue requirements are: $1.95 billion for PG&E; $501.6 million for SDG&E; and $1.67 million for SoCalEd.

The PUC still must review performance-based ratemaking plans of SDG&E and SoCalEd. PG&E must file a general rate case later this year, so the PUC deferred final adjustments to total revenues until those cases have been decided.

The PUC rejected the allocation of generation costs to distribution customers, finding that to do so would subject monopoly customers to competitive products costs.

The PUC said that its most recently adopted revenue-allocation method determines marginal costs for each customer class. It then reaches the adopted revenue requirement by adjusting the rate by an equal percent of marginal cost for each class.

SoCalEd proposed applying the "equal percentage of marginal cost" method, based on total revenues instead of by function. The PUC agreed.

Transition Charges. The PUC rejected the utilities' suggestion for calculating the competitive transition charge. The proposal would have calculated the CTC as the residual cost after calculating all other costs, including the PX price. The charge would have been the difference of the rate at rate-freeze levels and the combination of all other costs: the PX price, the distribution rate, the transmission rate, the public-purpose program surcharge and the nuclear decommissioning surcharge.

Since the CTC can't be known in advance, the utilities would have used real-time pricing and would have "trued-up" the difference after finishing the ISO settlements process.

PUC President P. Gregory Conlon had disagreed with this method of CTC calculation in an alternative proposed order. He said it would mask or distort price signals, create inefficiencies, especially among customers who can shift loads, and reduce peak system demand. Conlon argued in favor of an averaged CTC.

The PUC agreed with Conlon. It implemented an averaged, ex post energy cost for utility service customers. That in turn, through residual calculation, provides an averaged CTC rate for all customers.

Calculations of the average energy costs and the derived average CTC charges will be made for each rate class. The PUC explained that averaging is done weekly, then a rolling average of usually four weeks is calculated to cover the monthly billing cycles for different customers. The series of about one-month averages of PX energy costs is used to calculate residually the averaged CTC on a billing-cycle basis. The PUC said one month was the minimal period for calculating averaged CTC. It's open to proposals for longer averaging periods and for proposals using forecasted PX energy costs.

Customer Bills. The PUC also told utilities what they must include on customer bills beginning with direct access Jan. 1, 1998. They'll have to include information on generation, transmission and distribution charges. Other components they'll need to address will involve public-purpose programs, energy efficiency programs, low-income services, the CTC and nuclear decommissioning. The power exchange will set electric prices, based on a weighted average of day-ahead and hour-ahead prices. The prices would be adjusted for administrative costs, settlements and other fees. Utilities have until June 1, 1998 to mail bills that include unbundled charges.

Customer Education. The commission approved a customer education plan that major utilities will use jointly to educate customers about industry restructuring and the choices available (Docket R.94-04-031/I.94-04-032).

The four major utilities will conduct the program with a $98-million budget. The cost will be recovered through rates. Electric rates are frozen at June 1996 levels, and residential and small commercial electric rates will drop 10 percent Jan. 1.

The PUC will evaluate the program regularly for effectiveness. By May 1998, it is expected that at least 60 percent of residential, small business, special needs customers and opinion leaders will recall information about electric industry changes and choices available. The utilities are responsible for meeting or exceeding that goal. For every percentage point below 60, three percent of the costs of the education program won't be recoverable in rates.

The PUC noted that while it's possible information will spill into areas served by municipal electric utilities, care must be taken not to mislead municipal customers into thinking they may choose alternate suppliers. (em LAB

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