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Home My WebLink AboutPG&E - Petition of Modification . Pacific Gas snd Electric Company August 3, 2005 Mark H. Ikoffman . A ttorney at law VIA HAND DELIVERY Docket Clerk Califomia Public Utilities Commission 505 Van Ness Avenue, Room 2001 San Francisco,CA 94102 Re: A. OO-1l-03KA. 00-11-056, A. 00~10-028 Dear Sir/Madam: 77 Beale StreeUlJflA San Francisco. rAS::~105 Mailing Address P.O. Box 7442 San Francisco. CA 94120 4i5.973.3842 Fax: 415.973.0515 Enclosed for filing are the original and five (5) copies of "PACIFIC GAS AND ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF 03-10-040" in the above-captioned matter. Please file the original document, date-stamp one copy, and return it in the enclosed self- addressed stamped envelope. ("/- \\C' +~, \ \\ '"'J M Enclosures " cc: AdminIstrative Law Judge Peter V. Allen Administrative Law Judge Thomas R. Pulsifer All Parties to A. 00-11-038 et al. and R. 02-01-011 (via electronic mail) BEFORE THE PUBLIC UTILITIES COMMISSION OFTHESTATEOFCALWORNIA Application of Southern California Edison Company (U 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs. Application 00-11-038 U 39 E Emerg~ncy Application of Pacific Gas and Electric Company (U 39 E) to Adopt a Rate Stabilization Plan. . ApplicationOO-11-0?6 Petition of The Utility Reform Network for Modification ofResolutionE-3527. Application 00-10-028 PACIFIC GAS AND ELECTRIC COlVIPANY'S PETITION FORlVIODIFICATION OF DECISION 03-10-040 CH]USTOPHERJ.WARNER ANDREW L. NIVEN MARK R. HUFFMAN Pacific Gas and Electric Company 77 Beale Street San Francisco, CA 94105 Telephone: (415) 973-3842 E-mail: mrh2@pge.com Attorneys for PACIFIC GAS AND ELECTRIC COJ'vIP ANY August 3, 2005 BEFORE THE PUBLIC UTILITIES COMIvIISSION OFTHESTATEOFCALITOfu~ Application of South em California Edison Company (U 338-E)for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs. Application 00-1 1-038 U39E Emergency Application of Pacific Gas and Electric Company (U 39 E) to Adopt a Rate Stabilization Plan. Application 00-ll-056 Petition of The Utility Reform Network for Modification of Resolution E-3527. Application 00-10-028 PACIFIC GAS AND ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF DECISION 03-10-040 Ll1 D. 03-10-040 the California Public Utilities Commission (Commission) provides guidance to the utilities on how to remit funds to cities and counties in connection with revenues the utilities collect on behalf of the Califomia Department of Water Resources (DWR). Pacific Gas and Electric Company (PG&E) seeks a Commission modification ofD. 03- 10-040. PG&E requests that the Commission modify D. 03~1O-040 to clarify that the Commission did not intend, in adopting D.03-10-040, to modify how PG&E, or lliJ.Y other utility, calculates and remits funds to cities and counties pursuant to the "municipal surcharge" provisions of the Public Utilities Code, sections 6352-6354.1. PG&E requests that the Commission modify D. 03-l0-040 to clarify that the Commission did not intend that the method it adopted on how to remit funds to cities and counties in connection with revenues the utilities collect on behalf of DWR should be substituted for the , long-standing method PG&E uses to calculate municipal surcharge remittance amounts to cities 1 and counties. The requested modification is necessary because two cities, San Jose and Sunnyvale, have taken the position that based on D. 03-10-040 PG&E should change how it remits municipal surcharge amounts to them, demanding increased remittance amounts. For over ten years, since the adoption of the relevant code provisions in 1993, PG&E has followed the same approach. PG&Esent a letter to all cities and counties, including San Jose and Sunnyvale, explaining its methodology in 1994. Until now neither San Jose nor Sunnyvale, nor any other city or county, had raised any objection or concern with PG&E's approach. Now, however, after all these years San Jose and Sunnyvale are attempting to bootstrap the Commission's DWRdecision to obtain a larger share of the municipal surcharge revenues at the expense of other cities and counties who would necessarily receive less. PG&E has no direct stake in the matter, at least on a prospective basis. By statute PG&E is simply the collection agent for, and disperser of, municipal surcharge funds. But virtually all cities and counties in PG&E's service territory would be affected by the demanded change in the remittance methodology, as some would receive more municipal surcharge remittances .and others would receive substantially less than they do now. Thus hundreds of cities and cOl.mties, not just SanJose and Sunnyvale,have a significant stake in .tIns issue. The Commission should modify D. 03-10-040 to make clear that it was not suggesting that PG&E should change its long-est~blished approach for calculating municipal surcharge remittances to cities and counties. The Commission should clarify that it was not suggesting that munidpal surcharge revenues be shifted away from other cities and counties to provide San Jose and Sunnyvale with windfall municipal surcharge revenues, revenues they have never received 2 since the municipal surcharge provisions of the code were implemented in 1994. 1. THE FACTS A. What San Jose And Sunnyvale Are Demanding, Based On Their Interpretations OfD. 03-10~040, And How It Affects Other Cities And Counties Public Utilities Code sections 6352-6354.l establish and govern the "municipal surcharge" which utilities collect in their rates and remit to cities and counties. The municipal surcharge is an amount collected by utilities from utility customers on behalf ofthird party sellers of natural gas and electricity, and remitted to cities and counties in their respective service territories. The municipal surcharge came into being in response to the implementation ofthird party provision first of natural gas and, then, of electricity. When third parties rather than the utilities began to provide these commodities to~retaillltilitycustoIIlers, the utilities' revenues were decreased. This reduced the amounts the utilities remitted to cities and counties under their franchise fee arrangements. In response, the legislature implemented the municipal surcharge provisions of the public utilities code, which have the effect of providing additional revenues to cities and counties in connection with the third party provision of natural gas and electricity to retail utility customers. In D. 03-10-040 the Coinmissionreferred to Public Utilities Code sections 6352-6354.1 in detennining how PG&E, Southern California Edison Company (SCE) and San Diego Gas & Electric Company (SDG&E) are toremit funds to cities and counties in connection with revenues the utilities collect on behalf ofDWR. However, for PG&E at least, the method the Commission adopted for calculating these rernittances to cities and counties in connection with the DWR revenues is substantially different than the remittance calculations PG&E performs under the municipal surcharge sections of the code. D. 03-10-040 did not suggest that PG&E ~ Not surplising1y, San Jose supported the approach taken in D. 03...:10~040 for determining how the revenues associated with DWR power should be taken into account in determining amounts to be remitted to cities and counties. Due to San Jose's electric franchise fee agreement with PG&E, if will receive more DWR-related revenues under the adopted approach than it would if the Commission had adopted a methodology for DWR-related revenues more closely akin to PG&E's long-standing municipal surcharge remittance methodology_ Sunnyvale also ! Wells Declaration. 4 The effects can be very significant. For example, under PG&E's approach the County of Contra Costa received approximately $3.6 million of municipal surcharge gas revenues for ~ 2004.1 lfthe method used in connection with DWR revenues were applied instead, then the County of Contra Costa would have received only $150,000, a 95 percent reduction in county < revenue.=' As a final point, as is explained in more detail betow, the municipal surcharge approach now advocated by San Jose and Sunnyvale would create a mismatch between the amount of municipal surcharge revenues PG&Ecollects, and the total municipal surcharge reve~ue remittances to cities and counties. ,PG&Ecalculates that in 2004, for example, PG&E would have collected.$8.5 million more fl.'om third party gas suppliers than it would have been required to remit to cities andcounties as municipal surcharge revenues.~ B. How PG&E Determines Franchise Fee Remittances To Cities And Counties PG&E pays franchise. fee amounts. to cities and counties based on PG&E's franchise fee agreements with those cities and counties. Electricity and natural gas service are treated separately for franchise fee purposes. PG&E's franchise fee agreements with all of the counties and a few of the cities in its service territory are pursuant to the Broughton Act The franchise fee amount PG&E pays to a Broughton Act city or county is based on PG&E's service-territory-wide electric or natural gas gross receipts, allocated to the city or county in proportion of lines, mains and service located in the city or county's roads relative to those located in PG&E's service territory in total. PG&E's franchise fee agreements with most of the cities in its service territory are pursuant to the Franchise Act of 1937. The franchise fee amount PG&E pays to a 1937 Act city ~ Wells Declaration. 2 Wells Declaration. .1 Wells Declaration. () that is not a "chmier city" is based on the higher of the BroughtOl~ Act fee that PG&E would pay or a fixed (by statute) percentageofPG&E'sgross receipts from the sale of either electricity or gas within the city. Some cities, called charter cities, have more flexibility to set the terms and conditions of the franchise fees they receive from PG&E. This includes both San Jose and Sunnyvale. For these cities the franchise fee amount is ~ased on the formula in the franchise fee agreement With the city. For example, under its franchise fee agreement San Jose receives franchise fees equal to two percentof the gross receipts received by PG&E within the city of San Jose. Similarly,under its franchise agreement SUImyvale receives franchise fees equal to one percent of the gross receipts received by PG&Ewithin the city of Sunnyvale. The franchise fees PG&E remits to cities and counties are collected inPG&E's rates via the "franchise fees and uncollectibles (FF &lJ) factor." PG&E calculates the franchise fee components of the FF&U factor in its general rate case in the following manner. PG&E estimates the franchise fee amount it will pay separately for gas and electric and converts that to a percentage ofPG&E's estimated total revenue requirement. That percentage is then added to . PG&E' s other revenue requirements, to collect the amount forecasted to be necessary to meet PG&E's franchise fee obligations. PG&E's current electric franchise fee factor is 0.7586 percent and the current gas franchise fee factor is 0.9765 percent. C. How PG&E Determines lVlunicipalSurcharge Remittances To Cities And Counties As is discussed above, San Jose and Sunnyvale are challenging PG&E's long-standing approach to the calculation of municipal surcharge revenues. This section explains how PG&E calculates these amounts. Section II, below, explains why PG&E's approach is consistent with 7 the municipal surcharge provisions of the Public Utilities Code while the approach that San Jose and Sunnyvale now argue for is not. The municipal surcharge amounts PG&E collects do not belong to PG&E. PG&E collects them on behalf of cities and counties. PG&E collects a surcharge amount for each kWh of electricity or thern1 of natural gas, as the case might be, that it transports to an end use customer for a third party energy supplier. The amount it collects for each therm or kWh, as the case might be, is setby statute to equal the adopted franchise fee factors multiplied by an estimate of the cost of the kWh or therm being transported. For each city or county, PG&E remits to that city or county the municipal surcharge revenues collected in association with the kWh andtherms delivered within the city or cQunty's jurisdiction. II. PG&E'S APPROACH TO DETERlVIINING lVIUNICIPAL SURCHARGE RElVIITTA1'lCES TO CITIES AND COUNTIES IS CONSISTENT WITH THE MUNICIPAL SURCHARGE SECTIONS OF THE PUBLIC UTILITIES CODE ful examination of the municipal surcharge code sections demonstrates the correctness of PG&E's method of remitting municipal surcharge revenues to cities and counties. In 1993 when the legislature considered SB 278~, which became the statute in issue, it realized that federally mandated gas industry deregulation meant a potential for a multimillion dollar drop in munic~pal franchise revenues statewide. To the extent that third party energy suppliers rather than PG&E provided natural gas to end use customers, PG&E' s natural gas revenues would be decreased substantially. As the description above of how PG&E remits franchise fees to cities and counties demonstrates, that meant that cities and counties' franchise fee revenues would be dropping significantly. 2. Stats. 1993, Ch. 233. SB 278 was supported by the League ofCa1ifornia Cities, the California State Association of Counties, and the City of Oakland, among others. 8 With new competitors to the incumbent utilities enterirrg{:alifornia's markets, the legislature determined that all users of franchised facilities should pay something toward franchise fees. Q The code sections define how PG&E is to collect surcharges from third party suppliers of gas and electricity and remit those funds to cities and counties. By statute, those surcharge calculations are based on the "franchise fee factor adopted in PG&E's latest General Rate Case" as PG&E eXplained in the AprilS, 1994; letter it sentto cities and counties.1 Surcharge remittances to a jurisdiction are based on the end use customers receiving third party electricity and natural gas because that is the location of the "end use point."~ As the Assembly Committee on Utilities and Commerce noted in its bill analysis fora July 15, 1993, hearing: "'fheapproach taken by the bill applies a surcharge ollthe value of gas owned and consumed by the third party. It thus provides a. roughapptoximation of the/ost franchise fee revenue from the reduction in utility sales due loforegohe sales. The surcharge is calculated on the basis ofthe utility's weighted average cost of gas (WACOG), which is an amount that approximates but does not equal precisely the lost commodity sales revenue.,,2 The legislature never intended to make each city and county whole as a result of industry deregulation. The legislature intended a "rough approximation,': which "does not equal precisely" the lost franchise fees. Given the variety in franchise agreements and the , corresponding franchise fee formulas statewide, it made sense to accommodate as many Q See,Jd., 99 1-2. 1 . Wells Declaration, paragraph 2. See, section 6353( d) - "... the franchise fee factor.., authorized for the energy transporter as approved by the commission in the energy transporter's most recent proceeding in which those factors ... were set." 1! See, section 6353( e). ~ Emphasis added. 9 jurisdictions as possible. It is equally clear that the legislature intended that collections and remittances be confined to sales activities within each locality. In section 6353( d) energy transporters who are not Commission-regulated are required to pay a surcharge based on their individually negotiated franchise fee agreements in effect in each municipality. Further, in section 63546) the legislature auth?rized municipalities "notwithstanding any other provision oJ law" to collect franchise surcharges on their own using the statutory formula until the utility began billing and collecting the surcharge. TheE.tatutory formula, of course, means using the franchise fee factors authorized by the Commission in the utility's most recent rate case.lQ The municipality is not authorized to charge and collect a surcharge based on its own franchise fee agreement with the facility owner. Simplybecause under the municipal surcharge statute the utility becomes the principal collection agent does not mean that a municipality is entitled to take advantage of the pooled nature of utility collections of the municipal surcharge amounts to take funds from other jurisdictions for its own benefit. Each municipality is entitled to nothing more or less than it could have collected itself because the surcharge "only applies to the end use point," i.e., where the sales occur within the individuallocality.ll In 1997 the municipal surcharge code sections were amended to accommodate electric industry restructuring. These amendments do not change the statute's basic structure. 12 San Jose and Sunnyvale would, inconsistent with the municipal surcharge statute, take advantage of the pooled nature ofthe utility collections ofthe municipal surcharge amounts to lQ See, Section 6353(d). Section 6353(e). See, SB 703. Stats. 1997 Ch. 487. 11 11 10 take funds fi-om other jurisdictions_ The correct approach, theoiie followed by PG&E, is to remit to each jurisdiction, including San Jose and Sunnyvale, the municipal surcharge amounts collected in association with the transport ofthird-party electricity and natural gas to end use customers within that jurisdiction.JJ. The municipal surcharge statute dictates that the same amount be collected for each "dollar value" of third-party electricity and natural gas transported by the utility to end use customers. Under the statute the amount collected for electricity or natural gas transported to an end use customer in San Jose, for example, does not depend on San Jose's particular franchise fee arrangement with PG&E. It depends only on the average franchise fee factors adopted in PG&E's general rate case. Therefore, since the amount collected under the municipal surcharge statute within any jurisdiction is independentoftheparticularfranchise fee arrangements that jurisdiction has with PG&E, the amount remitted to that jurisdiction should be independent of the particular franchise fee arrangement it has. with PG&E, as well. Had the legislature intended to ensure that the municipal surcharge amounts mimicked more exactly the amounts that a city or county would have received under its franchise fee arrangement in the absence of any third party transport of electricity or natural gas, the legislature could have done so. It could have required that the amounts collected in each jUl~sdiction be detern1ined not on the average franchise fee factors, but rather on factors based on that jurisdiction's particular franchise fee arrangement with PG&E. That is what San Jose and Sunnyvale clearly yvish that the legislature had done. Since their franchise fee an-angements provide relatively more revenues to them than is provided on Jl Section 6353(e). 1 1 average, they would like to substitute in a jurisdiction-specific factor into the statutory formula, rather than the average franchise fee factors adopted in the general rate case. They would receive more municipal surcharge funds, and other cities and counties would receive less. But the legislature did not adopt that approach. It applied the average franchise fee factors to each and every jurisdiction, including San Jose and Sunnyvale. Closer examination of San Jose and Sunnvale's preferred approach reveals that, in fact, it . . is unworkable. It creates a mismatch between the amounts that would be collected under the municipal surcharge provisions of the code, and the amounts that would be remitted to cities and counties. At first blush, one mightthink thatSan Jose andSwmyva1e'stheory would simply redistribute municipal. surcharge amounts, but that the total amount remitted wouldremain the same. However, thatis noithe case. For example, with respect to natural. gas it is not thecase because relatively more of the third party natural gas is delivered to end use customers in jurisdictions that receive relatively lower amoUnts of franchise fee revenues. Thus, under San Jose andSullilyvale's theory, below average jurisdiction-specific franchise fee factors would be applied to a disproportionate amount of the dollar value of the third party natural gas delivered to end use customers. Therefore, the total amount of municipal surcharge revenues that would be remitted if jurisdiction-specific factors were used would be less than the amount that is collected, because in collecting municipal surcharge amounts the adopted average franchise fee factor is applied to the entire dollar value of the third party natural gas delivered to end USe customers. PG&E estimates that for 2004 this difference would be $8.5 million for natural gas, out 17 of a total municipal surcharge revenue amount collected for natural gas of $16.6 million.Ii With respect to third party electricity the situation is reversed, and PG&E estimates that for 2004 it would have paid out $1.4 million more than it collected in municipal surcharge 15 revenues. - The municipal surcharge statute cannot have intended this mismatch between the revenues collected and the revenues remitted to cities and counties. The flaw in San Jose and Sunnyvale's theory is highlighted by the fact that under the municipal surcharge statute cities and counties were authorized to collect these municipal surcharge revenues themselves until the utilities were able to begin to do so.16 If San Jose or Sunnyvale coIlected this surcharge ontheir OWn behalf, then they would have collected the adoptedaveragefral1chise fee factors applied to the dollar value ofthirdpartyelectricity and naturaL gas delivered to.end use customers within their respective jurisdictions. Under San Jose and Sunnyvale's theory the two cities would have been entitled not only to what they collected within their own respective jurisdictions under the municipal surcharge. . . I statute. Since their jUlisdiction-specific franchise fee factors are above the average, under their theory they would also have been entitled to demand additional municipal surcharge amounts collected by other jurisdictions to make up the difference between what they collected and what they claim they are entitled to. This makes no sense. Under the statute the amount collected in each jurisdiction, which is based on the adopted average franchise fee factors and the dollar value of the third-party 11 Wells Declaration. 11 Wells Declaration. lQ Section 6354(j). 13 electricity and natural gas delivered to end .usecustomers within-the jurisdiction, is the amount to. which that jurisdiction is entitled. Nothing more and nothing less. PG&E's method carries out the legislative scheme. San Jose and Sunnyvale's proposal does not, and creates clear administrative difficulties in that it would create a mismatch between the municipal surcharge revenues collected by PG&E and the amount PG&E would remit to cities and counties in totaL Therefore, the. Commission should modify D. 03-10-040 to make Gl~arthat in issuing that decision it did not intend to modify PG&E's approach to remitting municipal surcharge amounts to cities and counties, that it did not intend to endorse the self- serving theory San Jose and Sunnyvale nOW put forth, after a long period of acceptance of PG&E's current approach, that PG&E should modify its reasoned, supported~by-the~statute method for remitting municipal surcharge revenues to cities and counties. . Both cities demand that PG&E calculate future municipal surcharge remittances consistent with their theory that D. 03-10-040 suggested a change in how these remittances are to be calculated. Any such change would require PG&E to reallocate the municipal surcharges it 14 1-) Respectfully Submitted, \ nd Electric C6mpany 77 Beale St et San Francisc ,CA 94105 Telephone: (415) 973-3842 E-mail: mrh2@pge.com By: Attorneys for . ." PACIFIC GAS Al"ID ELECTRICCQMP.A1'N August 3, 2005 ~c ATTACHMENTA.. . BEFORE THE PUBLIC UTILITIES COMlVIISSION OF THE STATE OF CALIFORNIA Application of Southern California Edison I Company (U 338-E) for Authority to Institute a Application 00-11-038 Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs. U39E Emergency Application of Pacific Gas and Electric Company (U 39 E) to Adopt a Rate Stabilization Plan. Application 00-11-056 Petition of The Utility Reform Networkfor Modification of Resolution E-3527. Application 00-10-028 DECLARATION OF TARYNWELLS CHRISTOPHER J. WARNER ANDREW L. NIVEN 1\t1ARK R. HUFFMAi'{ Pacific Gas and Electric Company 77 Beale Street San Franci~co, CA 94105 Telephone: (415) 973-3842 E-mail: mrh2@pge.com Attomeys for PACIFIC GAS AND ELECTRIC Co.MPANY August 3, 2005 I, Taryn Wells, declare as follows: 1. I am employed by Pacific Gas and Electric Company (PG&E) as the Accounting Supervisor of Revenue Control & Statistical Reporting. In such capacity, I am familiar with and knowledgeable about the franchise fee surcharge payment calculations for various cities and counties in California. I make this statement in support ofPG&E's motion to modifyD. 03-10-040. This Declaration is based upon my personal knowledge (except as to any matters stated on information and belief, and as to such . matters I am informed ~nd believe they are true), and, if called as a witness, I could and would testify competently to the facts stated.herein. 2. In April 1994, PG&E sent a letter to all cities and counties within PG&E's service territory,inc1udingSan Jose, describing the methodology for the calculation of gas fi-anchise fee surcharge. The letter provided a customer listing, with associated gas transportation volumes for each city and county to use in calculating gas franchise fee - surcharge for the retroactive period from August 1, 1993 to March 31, 1994. The letter also stated that the franchise fee factor to be used in. the calculation was the franchise fee factor adopted in PG&E's latest General Rate Case. PG&E began billing gas franchise fee surcharge using that same formula on behalf of cities and counties effective April 1, 1994 and subsequently remitted those surcharges in March and April, 1995. PG&E has consistently used this billing and remittance methodology since that time. 3. PG&E also sent annually to San Jose detail reports of every customer within the city that. was charged gas franchise fee surcharge in accordance with PUC Code Section 6354( e). This report listed customer names, customer usage volumes, billing period and franchise fee surcharge billed amounts for each customer during the calendar year. The purpose of the report was to assist the city in determining the propriety of surcharge amounts remitted by PG&E. 1. 4. Under PG&E's approach the County of Contra Costa received approximately' $3.6 million of municipal surcharge gas revenues for 2004, PG&E estimates that if.the approach San Jose and Sunnyvale are supporting for determining the amount of municipal surcharge revenues to remit to cities and counties were applied instead, then the County of Contra Costa would have received only $150,000, a95 percent reduction in county revenue. 5. PG&E estimates that in 2004, PG&E would have collected $8.5 million more &omthird party gaS suppliers than it would. have been r~quired to remit to cities and counties as municipal surcharge revenues if it had followed the approach San Jose and Sunnyvale are ; supporting for determining the amount of municipal surcharge revenues to remit to. cities and co4nties.. This is. out of a total municipal surcharge reveIlueamount ,collected for natural gas 0[$16.6 miUiolL With respect to third party electricity PG&E estimates that for 2004 it Mfould have pa.idout $1.4 million more than it collected in municipal surcharge revenuesifit had followed the approach San Jose and Sunnyvale are supporting for determining the arnountof municipal surcharge revenues to remitto cities and counties. I dedareunder penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed this 3rd day of August, 2005, at San Francisco, California. .j~^-, zJ e/}y1./ .. TaryrtWells c 2. CERTWICATE OF SERVICE BY ELECTRONIC MAIL I, the undersigned, state that I am a citizen ofthe United States and am employed in the City and County of San Francisco; that I am over the age of eighteen (18) years and not a party to the within cause; and that my business address is Pacific Gas and Electric Company, Law Department B30A, 77 Beale Street, San Francisco, California 94105. On the 3rd day of August, 2005, I served a true copy of: PACIFIC GAS AND ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF DECISION 03-10-040 By Electronic mail- serving the enclosed via e-mail transmission to each of the parties listed on the official service list for AOO-11-038 et al. . I certify and declare under penalty of perjury under the laws of the State of Califomia that the foregoing is true and correct Executed on the 3rd day of August, 2005. <-/---vF7 . ~_4.Z,,1/ / / IOJL, LLL ~&Uu'lx-- "MARTIEL.WAY 0 CERTIFICATE OF SERVICE BY U.S. MAIL I, the undersigned, state that I am a citizen of the United States and am employed in the City and County of San Francisco; that I am over the age of eighteen (18) years and not a party to the within cause; and that my business address is Pacific Gas and Electric Company, Law Department B30A, 77 Beale Street, San Francisco, California 94105. I am readily familiar with the business practice of Pacific Gas and Electric Company for collection and processing of correspondence for mailing with the United States Postal Service. In the ordinary course of business, correspondence is deposited with the United States Postal Service the same day it is submitted for mailing. On the 23rd day of August, 2005, I served a true copy of: PACIFIC GAS AND ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF DECISION 03-10-040 [xx] By U.S. Mail- by placing it for collection and mailing, in the course of ordinary business practice, with other correspondence of Pacific Gas and Electric Company, enclosed in a sealed envelope, with postage fully prepaid, addressed to the state, cities and counties on the attached lists. I certify and declare under penalty of peIjury under the laws of the State of California that the foregoing is true and correct. Executed on the 23rd day of August, 2005. ~]"~ LINDA S. DANNEWITZ State of California To the Attorney General and the Department of General Services. State of California Office of Attorney General 50 Fremont Street San Francisco, CA 94105 and Department of General Services Office of Buildings & Grounds 505 Van Ness Avenue, Room 2012 San Francisco, CA 94102 Counties To the County Counselor District Attorney and the County Clerk in the following counties: Alameda Alpine Amador Butte Calaveras Colusa Contra Costa EI Dorado Fresno Glenn Humboldt Kern Kings Lake Lassen Madera Marin Mariposa Mendocino Merced Modoc Monterey Napa Nevada Placer Plumas Sacramento San Benito San Bernardino San Francisco San Joaquin San Luis Obispo San Mateo Santa Barbara Santa Clara Santa Cruz Shasta Sierra Siskiyou Solano Sonoma Stanislaus Sutter Tehama Trinity Tulare Tuolumne Yolo Yuba Municipal Corporations To the City Attorney and the City Clerk ofthe following municipal corporations: Alameda Albany Amador City American Canyon Anderson Angels Antioch Arcata Arroyo Grande Arvin Atascadero Atherton Atwater Auburn Avenal Bakersfield Barstow Belmont Belvedere Benicia Berkeley Biggs Blue Lake Brentwood Brisbane Buellton Burlingame Calistoga Campbell Capitola Carmel Ceres Chico Chowchilla Citrus Heights Clayton Clearlake Cloverdale Clovis Coalinga Colfax Colma Colusa Concord Corcoran Coming Corte Madera Cotati Cupertino Daly City Danville Davis Del Rey Oakes Dinuba Dixon Dos Palos Dublin East Palo Alto EI Cerrito Emeryville Escalon Eureka Fairfax Fairfield Femdale Firebaugh Folsom Fort Bragg Fortuna Foster City Fowler Fremont Fresno Galt Gilroy Gonzales Grass Valley Greenfield Gridley Grover Beach Guadalupe Gustine Half Moon Bay Hanford Hayward Healdsburg Hercules Hillsborough Hollister Hughson Huron lone Isleton Jackson Kerman King City Kingsburg Lafayette Lakeport Larkspur Lathrop Lemoore Lincoln Live Oak Livermore Livingston Lodi Lompoc Loomis Los Altos Los Altos Hills Los Banos Los Gatos Madera Manteca Maricopa Marina Martinez Marysville McFarland Mendota Menlo Park Merced Mill Valley Millbrae Milpitas Modesto Monte Sereno Monterey Moraga Morgan Hill Morro Bay Mountain View Napa Newark Nevada City Newman Novato Oakdale Oakland Orange Cove Orinda Orland Oroville Pacific Grove Pacifica Palo Alto Paradise Parlier Paso Robles Patterson Petaluma Piedmont Pinole Pismo Beach Pittsburg Placerville Pleasant Hill Pleasanton Plymouth Point Arena Portola Valley Red Bluff Redding Redwood City Reedley Richmond Ridgecrest Rio Dell Rio Vista Ripon Riverbank Rocklin Rohnert Park Roseville Ross Sacramento Saint Helena Salinas San Anselmo San Bruno San Carlos San Francisco San Joaquin San Jose San Juan Bautista San Leandro San Luis Obispo San Mateo San Pablo San Rafael San Ramon Sand City . Sanger Santa Clara Santa Cruz Santa Maria Santa Rosa Saratoga Sausalito Scotts Valley Seaside Sebastopol Selma Shafter Shasta Lake Soledad Solvang Sonoma Sonora South San Francisco Stockton Suisun City Sunnyvale Sutter Creek Taft Tehama Tiburon Tracy Trinidad Turlock Ukiah Union City Vacaville Vallejo Victorville Walnut Creek Wasco Waterford Watsonville West Sacramento Wheatland Williams Willits Willows Windsor Winters Woodland Woodside Y ountville Yuba City BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Edison Company (E 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs. Application 00-11-038 (Filed November 16, 2000) Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E) Application 00-11-056 (Filed November 22,2000) Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527. Application 00-10-028 (Filed October 17, 2000) CITY OF SAN JOSE'S RESPONSE TO PACIFIC GAS & ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF DECISION 03-10-040 RICHARD DOYLE, City Attorney (#88625) KARIN MURABITO, Deputy City Attorney (#157135) Office of the City Attorney City of San Jose 200 East Santa Clara Street San Jose, CA 95113 Tel: (408) 535-1900 Fax: (408) 998-3131 Email: Karin.Murabito@sanjoseca.gov CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T-331.014/319031_3 The City of San Jose ("San Jose") hereby responds to PG&E's Petition for Modification of Decision 03-10-040 as follows: I. BACKGROUND While PG&E does not dispute the California Public Utilities Commission's (CPUC) decision with respect to how municipal surcharges are calculated and remitted for Department of Water Resources (DWR) revenues, it does object to using the same remittance methodology for third party energy service provider (ESP) revenues. PG&E insists that it should be allowed to remit on ESP revenues using the averaqed franchise fee factor from its General Rate Case (GRC) even though this argument was expressly rejected by the CPUC in Decision 03-10-040 and is in direct contravention of State law. By this petition, PG&E is asking the CPUC to reverse itselfwith regards to how municipal surcharges should be calculated for ESP revenues. In Decision 03-10-040, PG&E was ordered by the CPUC to remit surcharge fees to each municipality using the same percentage factor that is set forth in the specific franchise agreement applicable to the franchisor municipality in question. This remittance methodology is the same for DWR and ESP revenues. Now, nearly two (2) years later, PG&E seeks to have the order modified based on no new facts or law, but on the same arguments considered and rejected by the CPUC in 2003. For all the reasons discussed below, there is no basis whatsoever for modifying Decision 03-10- 040 and PG&E's petition should be denied. 11// 11// 11// -1- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 II. LEGAL ARGUMENT A. PG&E'S PETITION FOR MODIFICATION FAILS TO SATISFY THE REQUIREMENTS OF RULE 47 AND SHOULD BE DENIED. 1. PG&E's Petition for Modification is untimely and should be summarily denied. Rule 47(d) of the CPUC Rules of Practice and Procedure states that a petition for modification must be filed and served within one year of the effective date of the decision proposed to be modified. If more than one year has elapsed, the petition must explain why the petition could not have been presented within one year of the effective date of the decision. If the Commission determines that the late submission has not been justified, it may on that ground alone issue a summary denial of the petition. In 0.03-10-040, the CPUC explicitly rejected PG&E's methodology for calculating the municipal surcharge. The CPUC found that PG&E's methodology of using an averaqed franchise fee factor unduly deprives some municipalities of remittances to which they are entitled under the Municipal Surcharge Act (Public Utilities Code Section 6350, et seq). PG&E was ordered to remit municipal surcharge revenues in accordance with the remittance requirements specified in each respective franchise agreement, and on a consistent basis with the remittance method already being used by Southern California Edison Company (SCE) and San Diego Gas & Electric Company (SOG&E). (D.03-10-040, p. 12). Accordingly, 0.03-10-040 left no doubt that PG&E's methodology to remit surcharges to the municipalities using an averaaed franchise fee factor was wrong. While PG&E concedes that the correct methodology for remitting municipal surcharge fees on DWR revenues is the particular municipality's franchise fee, it -2- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-1 0-040 T -331.014/319031_3 continues to use the wrong methodology (i.e. the averaqed franchise fee factor from its GRC) to remit on ESP revenues in contravention of the Municipal Surcharge Act and D.03-10-040. By its Petition for Modification, PG&E is asking the CPUC to modify its earlier decision to allow PG&E to continue its misapplication of the Municipal Surcharge Act with respect to ESP revenues. However, the Petition for Modification was not presented within one year, and PG&E has failed to justify why it could not have presented the petition within the one- year timeframe. Accordingly, it should be summarily denied. 2. The Petition for Modification fails to satisfy the requirements of Rule 47 that there has been a change in the facts. A petition for modification is reserved for those unique situations where there has been a change in facts which warrants the CPUC re-examining its earlier decision. However, PG&E fails to allege any new facts in support of its petition. In fact, it doesn't even attempt to satisfy the requirements of Rule 47 or to discuss Rule 47 in its petition. By its petition, PG&E asks the CPUC to reverse itself with respect to how municipal surcharges are calculated for ESP revenues and to approve PG&E's concocted remittance methodology, in a desperate attempt to undermine the collection efforts of the cities and counties which have been underpaid by PG&E. This, however, does not constitute new facts under Rule 47. Since PG&E has failed to satisfy the requirements of Rule 47, its petition should be summarily denied.1 1 Further, since PG&E objects to using the percentage factor that is specified in the specific franchise agreement applicable to the franchisor municipality for ESP revenues, PG&E is really seeking a rehearing of 0.03-10-040 and not a modification. Pursuant to Rule 85 of the CPUC Rules of Practice and Procedure, PG&E's application for rehearing should have been (footnote continued on next page) -3- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 B. THE MUNICIPAL SURCHARGE ACT REQUIRES PG&E TO REMIT SURCHARGES TO MUNICIPALITIES AT THE RATE PRESCRIBED IN EACH MUNICIPALITY'S RESPECTIVE FRANCHISE AGREEMENT. Even though PG&E concedes that 0.03-10-040 mandates that the municipal surcharge applied to revenues from the sale of energy by the OWR is the percentage prescribed in the franchise agreement (which for San Jose is 2%), PG&E contends that the municipal surcharge for all other revenues from third party suppliers is based on an averaged franchise fee factor based on its GRC. PG&E's argument was rejected by the CPUC in both D.03-02-032 and D.03-10-040, as discussed herein. Specifically, the CPUC ordered PG&E to remit surcharges to municipalities pursuant to the rate prescribed for each individual municipality in its respective franchise agreement with PG&E pursuant to the Municipal Surcharge Act. The intent behind the Municipal Surcharge Act was to keep the cities and counties whole after deregulation which permitted entities other than PG&E, SOG&E, and SCE (known as the Independently Owned Utilities or "IOUs") to sell energy to retail customers.2 Because filed within thirty days of the date of issuance of D.03-1 0-040. Therefore, PG&E's attempt to file an application for rehearing disguised as a petition for modification is even more untimely and should be denied. 2 Historical and Statutory Notes of SB 278 [the Municipal Surcharge Act] provide as follows: "In enacting this chapter, the Legislature finds and declares that changes in the public utility regulatory environment have inadvertently provided for the potential erosion of the franchise fee base upon which local government has become quite dependent for its financial stability. Further, the Legislature has determined that there exists the possibility that these same regulatory changes may not ensure equitable treatment between customers purchasing gas or electricity from a utility and customers purchasing gas or electricity from other sources. Therefore, the purpose of this Act is to provide protection for the financial integrity of local government to ensure that all customers purchasing gas or electricity on transmission systems that are subject to a franchise agreement share equitably in the burden of compensating local government for the private use of public lands." (Stats. 1993, Chapter 233, Section 1, S8 278). -4- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 then existing statutory requirements for remittance of franchise fees only applied to revenue from sales of energy by IOUs, non-utility commodity sales resulted in reduced IOU revenues and reduced franchise fees paid by IOUs to municipalities. The Legislature recognized that reducing franchise revenues simply because the commodity was supplied by an entity other than the franchised IOU was inequitable to municipalities because the private use of the public right of way was the same. 0.03-02- 032, pp. 5-6, 11-12. In 0.03-10-040, the CPUC concluded that PG&E's interpretation of 0.03-02-032 and of the pertinent statutory language regarding the method of remittances of municipal surcharge fees to individual municipalities was wronQ, finding that the "provisions of the municipal surcharge do not change the rights of municipalities to receive revenues at the same level that apply under the provisions of franchise fees." 0.03-10-040, p. 11. The CPUC concluded, "PG&E shall not simply apply a uniform average factor to all municipalities based on its 1999 GRC. Such an approach as contemplated by PG&E violates the statutorv provisions of Section 6350 Qoverning the municipal surcharge that specify that the surcharge will 'replace. but not increase. franchise fees that would have been collected. . .'" (emphasis added) 0.03-10~040, p. 12. Further, the CPUC clearly stated that "[b]y using a simple average remittance rate, PG&E would necessarily remit municipal surcharges that exceed the comparable franchise fees for some municipalities and fees that fall short for others. The proper application of the statute should provide the same level of remittances to the municipality as they would have received under the franchise fee formula." Id. -5- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 Accordingly, there is no justification for PG&E's position that revenues derived from the sale of energy by ESPs is subject to a municipal surcharge calculated differently than the municipal surcharge calculated for revenues from the sale of energy by the DWR. The municipal surcharge is calculated based on the specific franchise fee factor prescribed in the municipality's franchise agreement with PG&E, which for San Jose is 2%. PG&E's failure to use the franchise fee factor of 2% in calculating the municipal surcharges remitted to San Jose for the sale of energy by ESPs has resulted in an underpayment to the City of over $4,000,000 for the period from 1999-2003. Contrary to PG&E's petition, San Jose is not trying to deprive the other cities and counties of their municipal surcharges. Rather, San Jose is trying to ensure that PG&E correctly remits to all the cities and counties the municipal surcharges to which they are entitled under the Municipal Surcharge Act - nothing more and nothing less. As discussed above, the intent of the Municipal Surcharge Act is to make the cities and counties whole after deregulation. If applied correctly, the Act ensures that there are no winners or losers since the IGUs are required to remit surcharges to the cities and counties based on the percentage prescribed in each municipality's respective franchise agreement. Under PG&E's methodology. cities and counties with franchise agreements with PG&E where the contractual percentage is greater than the average franchise fee factor in the GRC will be losers, and cities and counties where the franchise fee is less than the average franchise fee factor will be unjustly enriched at the expense of the other cities and counties with a more financially favorable franchise -6- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T-331.014/319031_3 agreement. 3 PG&E's attempt to pit local jurisdictions against each other in this process by offering higher surcharges than authorized by law to those jurisdictions with franchise fees that are less than the averaged franchise fee factor in the GRC in exchange for lowering franchise fees in jurisdictions with franchise fees greater than the averaged franchise fee factor (like San Jose), should not be condoned by the CPUC. As discussed in San Jose's Comments to the ALJ's Ruling Soliciting Comments on PG&E's Workshop Report in 2003, the inherent problem with PG&E's position is quite simple - PG&E desires to stand in the shoes of the Legislature. However, PG&E has no legislative authority to unilaterally reallocate the revenue that is due to each of its franchisor public agencies according to their respective franchise agreements. C. PG&E FAilS TO PRODUCE ANY EVIDENCE WHATSOEVER IN SUPPORT OF ITS CONTENTION THAT PG&E'S DECADE LONG ERRONEOUS INTERPRETATION AND APPLICATION OF THE MUNICIPAL SURCHARGE ACT SHOULD BE ALLOWED TO CONTINUE UNCHALLENGED. PG&E takes the position that since it has been erroneously remitting to the cities and counties in its service territory for over a decade now, that the cpue (and cities and counties) should allow the practice to continue. PG&E's contention is completely without merit. PG&E concedes that its interpretation of the Municipal Surcharge Act differs from that of SeE and SDG&E. The epue specifically ordered PG&E to use the same 3 In SCE's Response to the ALJ's Ruling Soliciting Comments on PG&E's Workshop Report, SeE confirmed that under PG&E's methodology, 58 local governments in its service territory would receive more than the rate called for in their franchise agreements while 145 would receive less (p. 6). Similarly, in PG&E's Petition for Modification, it admits that under its current methodology, Contra Costa County has been overpaid approximately $3,450,000 (pp. 5- 6). This was certainly not the intent of the Municipal Surcharge Act. -7- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T-331.014/319031_3 methodology used by SCE and SDG&E, i.e. to remit the surcharges to municipalities per the rate prescribed for each individual municipality in their respective franchise agreements. Nevertheless, PG&E has ignored the CPUC and continues to remit to the cities and counties based on the averaged franchise fee factor in its GRC for ESP revenues. The fact that PG&E has erroneously remitted the surcharge to the cities and counties for so long does not justify in any way whatsoever PG&E's continued failure to comply with the CPUC's decision and State law. In support of its petition, PG&E refers to a 1994 letter it supposedly sent to all cities and counties, including San Jose, which according to PG&E explained its methodology for remitting the surcharge to the various municipalities. The letter itself is not attached to the Declaration of Taryn Wells. However, in 2004, San Jose received a copy of a letter from PG&E dated April 11 f 1994 (which bears the word "sample" in the upper right-hand corner) and it appears to be the letter to which PG&E refers. See, Decf of Andy Heath, Exhibit 1. The sample letter does not support PG&E's position. First of all, it is not specifically addressed to San Jose or any other municipality. Second, despite PG&E's representation to the contrary, it does not discuss PG&E's proposed methodology for remittinQ municipal surcharges. It would have been impossible for San Jose or any other municipality even if they had received such a letter, to know that PG&E intended to utilize a methodology for remitting surcharge fees that differed substantially from that set forth in the Municipal Surcharge Act. The first time San Jose even suspected that PG&E might be remitting less than that to which it was entitled under the Municipal Surcharge Act was on April 15, 2003, -8- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T-331.014/319031_3 during PG&E's workshop when it appeared that PG&E proposed using the averaged franchise fee factor from its GRC to calculate the municipal surcharge owed on DWR electricity sales. Further, the workshop itself was confusing and actually raised more questions than it answered, prompting San Jose's then Deputy Director of Finance to request that PG&E provide San Jose with a detailed explanation of how it calculates municipal surcharges for direct access customers. See, DecJ of Andy Heath, Exhibit 2. In fact, it wasn't until July 2003 when PG&E finally responded to San Jose's request for additional information, that PG&E informed San Jose for the first time that it was multiplying direct access revenues by an averaged franchise fee factor from its GRC to derive the municipal surcharge owed San Jose and the other cities and counties. See, Decl of Andy Heath, Exhibit 3. Accordingly, PG&E has failed to produce any facts whatsoever to support its contention that San Jose or any of the other cites and counties knew or should have known as early as 1994 that PG&E was misapplying the Municipal Surcharge Act to ESP revenues. More importantly, it is irrelevant whether San Jose should have known in 1994 of PG&E's intended application of the Municipal Surcharge Act. The intent of the Municipal Surcharge Act is to preserve the amount of franchise funding to local government. PG&E's methodology for remitting surcharge fees completely runs afoul of the plain language and express legislative intent of the Municipal Surcharge Act, as recognized by the CPUC in 0.03-10-040 that the surcharge will replace, but not increase franchise fees that would otherwise have been collected -9- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 and remitted to the franchisor cities and counties.4 The epue should not condone PG&E's past practices of misapplying the remittance methodology set forth in the Municipal Surcharge Act to ESP revenues or permit PG&E to do the same in the future. D. PG&E'S ACCOUNTING AND BILLING SYSTEM DEFICIENCIES DO NOT EXCUSE PG&E FROM COMPLYING WITH THE MUNICIPAL SURCHARGE ACT. PG&E contends, as it did in 2003, that because of deficiencies in its accounting and billing system it might not be able to properly remit to the cities and counties that to which they are otherwise entitled under the Municipal Surcharge Act. PG&E alludes to a "mismatch" that might occur between amounts collected and amounts remitted to the cities and counties if PG&E is required to use the same methodology used by SeE and SDG&E. The epue was not swayed by the argument in 2003 and it should not be swayed by PG&E's argument now. Any billing and accounting deficiencies (to the extent they even exist) are PG&E's own creation because PG&E is using the wronQ methodology to remit surcharge fees to cities and counties on ESP revenues. SeE and SDG&E have had no difficulty with correctly calculating and remitting the appropriate 4 PG&E attempts to confuse the CPUC by mischaracterizing the legislative intent behind the passage of the Municipal Surcharge Act by taking a legislative committee comment regarding the collection of the surcharge fees out of context. The comment referred to in the petition appears to have been in reference to deregulation and the committee's concern that gas purchased from non-utility providers (or ESPs) is less expensive because private ESPs are not regulated like local utilities. Since franchise fees are a percentage of receipts, the less expensive non-utility gas would produce less revenue and thus less fees than regulated gas. Accordingly, the concern expressed by the commentator was that the municipal surcharge fee might not equal precisely the lost franchise fee revenue. While the legislature might not be able to guarantee recovery of 100% of prior franchise fee revenue due to deregulation's impact on gas prices, it was nevertheless the Legislature's intent when it passed the Municipal Surcharge Act to keep the cities and counties whole to the best of its ability by requiring the IDUs to remit surcharge fees at the rate orescribed in each municipality's respective franchise aareement. (See, Stats. 1993, Chapter 233, Section 1, SB 278). -10- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 surcharges to the cities and counties in their respective service territories. The same should be expected and demanded of PG&E. III. CONCLUSION In D.03-10-040, the CPUC held that PG&E had misinterpreted and misapplied the Municipal Surcharge Act. The CPUC further held that the remittance methodology used by PG&E for ESP revenues was wrong. Whether the revenues owed the cities and counties are from the DWR or the ESPs, "PG&E shall remit surcharge fees to each municipality utilizing the same percentage factor that is specified in the specific franchise agreement applicable to the franchisor municipality in question." (0.03.10-040 p. 12). There is nothing in PG&E's Petition for Modification that warrants the CPUC modifying its earlier decision regarding how municipal surcharges are calculated under the Municipal Surcharge Act. Further, the Petition for Modification is untimely and fails to allege any new facts and, therefore, should be summarily denied. Dated: September 1, 2005 Respectfully submitted, RICHARD DOYLE City Attorney By ~..u~ ~ '777./.ou.tt~ RIN M. MURABITO, Deputy City Attorney Office of the City Attorney 200 East Santa Clara Street San Jose, CA 95113 Tel: (408) 535-1900 Fax: (408) 998-3131 Email: Karin.Murabito@SanJoseca.gov Attorneys for CITY OF SAN JOSE -11- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 PROOF OF SERVICE BY ELECTRONIC MAIL AND U.S. MAIL I, the undersigned, say: I am a citizen of the United States, over 18 years of age, a resident of the County of Santa Clara, and not a party to the within action. My business address is 200 East Santa Clara Street, San Jose, California, 95113. On September 1, 2005, I caused to be served the within: CITY OF SAN JOSE'S RESPONSE TO PACIFIC GAS & ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF DECISION 03-10-040 [8] on persons and entities named on the official service list for A-OO-11-038, et al. (attached hereto), by electronic mail transmission; and ~ on entities named on the attached service list entitled "Counties and Cities" by placing a true copy thereof enclosed in a sealed envelope, with postage thereon fully prepaid, for collection and mailing at my place of business following ordinary business practices. Said correspondence will be deposited with the United States Postal Service at San Jose, California, in the ordinary course of business; and there in United States mail at the place so addressed below. I am aware that on motion of party served, service is presumed invalid if postal cancellation date or postage meter date is more than one (1) day after date of deposit for mailing in affidavit. I declare under penalty of perjury that the foregoing is true and correct. Executed at San Jose, California, on September 1, 2005. ~~ -12- CITY OF SAN JOSE'S RESPONSE TO PETITION FOR MODIFICATION OF 03-10-040 T -331.014/319031_3 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Edison Company (E 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs. Application 00-11-038 (Filed November 16, 2000) Emergency Application of PG&E to Adopt a Rate Stabilization Plan. (U 39 E) Application 00-11-056 (Filed November 22, 2000) Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527. Application 0D-I0-028 (Filed October 17,2000) DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF D.03-10-040 I, Andy Heath, hereby declare: 1. Unless specified otherwise, the matters set forth below are based upon my personal knowledge and, if called as a witness, I would so testify. 2. From July 1995 to May 2005, I was employed by the City of San Jose ("City" or "San Jose") and, from March 2003 to May 2005, I served as the Deputy Director of the Finance Department for the Treasury Division. I left the City on May 19, 2005, to pursue employment with the City of Auburn where I am currently the Director of Finance. As Deputy Director for San Jose, my duties included managing the billing, remittance, collection and investment of -1- DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF 0.03-10-040 321388 citywide revenue sources. As such, I became familiar with the issues surrounding PG&E and its proposed methodology for collecting and remitting municipal surcharges and related matters pending before the California Public Utilities Commission ("CPUC"). 3. In 2003, I became aware ofD.03-02-032 and PG&E's request for a workshop to address certain accounting and billing deficiencies which PG&E alleged had the potential of adversely affecting its ability to correctly calculate the municipal surcharge owed on revenues from the sale of electricity by the Department of Water Resources (DWR). 4. I personally attended PG&E's workshop on April 15, 2003, and was very surprised to learn that PG&E wasn't so much interested in correcting its accounting and billing deficiencies as it was proposing a new methodology for calculating the municipal surcharge for DWR revenues which consisted ofPG&E using the averaged franchise fee factor from its most recently adopted General Rate Case (GRC). PG&E's proposal appeared to be in direct contravention of the Municipal Surcharge Act (public Utilities Code Sections 6350 - 6354.1), as I understood it, and D.03-02-032. 5. After reviewing PG&E's Status Report following the workshop, the City informed PG&E in its April 25, 2003, letter that the workshop actually raised more questions than it answered. Please refer to the Declaration of Scott P. Johnson, Finance Director, filed on June 26,2003, in Support of City of San Jose's Opening Comments to ALl's Ruling Soliciting Comments on PG&E's Workshop Report. 6. It appeared from PG&E's Status Report that PG&E was taking the position that it should be allowed to revise the methodology for calculating the municipal surcharge by multiplying the DWR revenues by the averaged franchise fee factor of 0.006368 for electricity for all the municipalities as set forth in its 1999 ORC. Based on the information available to the -2- DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF D.03-10-040 321388 City, this proposed methodology for calculating the municipal surcharge owed the City was inconsistent with State law and D.03-02-032. 7. By its April 25, 2003, letter the City informed PG&E that it would not in any way endorse, condone, or ratify any methodology for calculating the municipal surcharge owed for electricity sales by the DWR that resulted in less revenues to the City than that to which it was otherwise entitled under State law and D.03-02-032. 8. PG&E did not respond to the City's concerns before finalizing and submitting its report to the CPUC. In fact, I am informed and believe that the first communication the City received from PG&E came in the form of a letter dated May 2, 2003, with a copy of the final Workshop Report already attached. See, Decl of Scott P. Johnson, Exhibit 2. 9. Shortly thereafter, the City received a copy of a letter from PG&E addressed to Ms. Laura Martin of the CPUC, stating that PG&E estimated that its proposed revised methodology for calculating municipal surcharges due the City for electricity sold by the DWR would result in a decrease of revenue to the City in the amount of $2,234,000 for 2003 alone. See, Dec!. of Scott P. Johnson, Exhibit 3. 10. In October 2003, the CPUC in D.03-10-040 rejected PG&E's proposed methodology for calculating the municipal surcharge and instructed PG&E that "PG&E shall not simply apply a uniform average factor to all municipalities based on its 1999 GRC," and that "[b]y using a simple average remittance rate, PG&E would necessarily remit municipal surcharges that exceed the comparable franchise fees for some municipalities and fees that fall short for others. The proper application of the statute should provide the same level of remittances to the municipality as the would have received under the franchise fee formula." (0.03-10-040, p.12). -3- DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF D.03-IO-040 321388 11. Now, nearly two years later, PG&E has filed a Petition for Modification ofD.03- 10-040 and the Declaration ofTaryn Wells, copies of which I have read. As part ofits petition, PG&E contends, in part, that it should be allowed to remit municipal surcharges based on the averal!ed franchise fee factor from its GRC for revenues derived from the sale of energy by third party energy service providers or "ESPs." In support of its position, PG&E alleges that, in April 1994, it mailed a letter to San Jose explaining the methodology it would be using for remitting municipal surcharges to the City. The letter itself is not attached to the Declaration ofTaryn Wells, and I am not aware of any such letter. As Deputy Director, I had access to Finance Department records. In connection with the City's audit ofPG&E during the course of 2003 and 2004, I am informed and believe that I reviewed all files related to this subject matter that were in existence at the time or instructed my staff to do so. I have no personal knowledge of any such letter having been received by the City. While I did receive correspondence from PG&E, dated September 3, 2004, with a copy of a PG&E letter attached, dated April 11 , 1994 (with the word "sample" in the upper right~hand comer), a true and correct copy of which is attached hereto as Exhibit 1, the April 11, 1994, letter is not specifically addressed to San Jose or any other municipality, and does not explain PG&E's proposed methodology for remitting municipal surcharges to the City for ESP revenues. 12. Further, the first time I even suspected that PG&E might be remitting less than that to which the City was entitled under the Municipal Surcharge Act for ESP revenues was on April 15, 2003, during PG&E's workshop when PG&E proposed using the averaged franchise fee factor from its GRC to calculate the municipal surcharge, prompting me shortly thereafter to request that PG&E provide a detailed explanation of how it calculates municipal surcharges for direct access customers. A true and correct copy of my June 27,2003, correspondence sent by -4- DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF D.03-10-Q40 321388 electronic mail to Taryn Wells, Ricky Leung, and Jackson Cheung ofPG&E is attached hereto as Exhibit 2. 13. I am informed and believe that it wasn't until July 11, 2003, when Jackson Cheung responded to my correspondence that PG&E informed the City for the first time that it was multiplying direct access revenues by an averaged franchise fee factor from its GRC to derive the municipal surcharge owed the City rather than using the franchise fee factor of2% from the City's franchise agreement with PG&E. It was certainly the first time that PG&E had communicated this information directly to me. A true and correct copy of Mr. Cheung's July 11, 2003, response sent to me by electronic mail is attached hereto as Exhibit 3. 14. Upon learning that PG&E had been using the averaged franchise fee factor from its GRC rather than the specific rate prescribed in San Jose's franchise agreement with PG&E (which is 2%) for remitting the municipal surcharges owed the City, Treasury Division staff began to analyze the impact of the underpayment by reviewing all previous remittances. Upon completing the analysis, PG&E was notified of the underpayment. As of May 19,2005, PG&E had refused to pay the underpayment amount, and I am informed and believe that PG&E has not paid the underpayment as of this date. I declare under penalty of perjury under the laws of the State of California that the matters set forth herein are true and correct except as to those matters stated on information and belief, and as to those matters I believe them to be true and correct. This Declaration was 7/ sr h executed on the .,:) day of nll/..vJr ,2005, at I/v8;;a,.u , California. AND~ -5- DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF 0.03-10-040 321388 PROOF OF SERVICE BY ELECTRONIC MAIL AND U.S. MAIL I, the undersigned, say: I am a citizen of the United States, over 18 years of age, a resident of the County of Santa Clara, and not a party to the within action. My business address is 200 East Santa Clara Street, San Jose, California, 95113. On September 1, 2005, I caused to be served the within: DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PACIFIC GAS & ELECTRIC COMPANY'S PETITION FOR MODIFICATION OF DECISION 03-10-040 ~ on persons and entities named on the official service list for A-00-11-038, et al. (attached hereto), by electronic mail transmission; and ~ on entities named on the attached service list entitled "Counties and Cities" by placing a true copy thereof enclosed in a sealed envelope, with postage thereon fully prepaid, for collection and mailing at my place of business following ordinary business practices. Said correspondence will be deposited with the United States Postal Service at San Jose, California, in the ordinary course of business; and there in United States mail at the place so addressed below. I am aware that on motion of party served, service is presumed invalid if postal cancellation date or postage meter date is more than one (1) day after date of deposit for mailing in affidavit. I declare under penalty of perjury that the foregoing is true and correct. Executed at San Jose, California, on September 1,2005. ~No~ -7- DECLARATION OF ANDY HEATH IN SUPPORT OF CITY OF SAN JOSE'S RESPONSE TO PG&E'S PETITION FOR MODIFICATION OF D.03-1o..040 321388 EXHIBIT 1 . " . ", , . -~ - . . " '.. ....... ..-,. -.";. " ._.~'~~.~.:.<~~:\;;...~>....,.., .:........_.~:;... ,-,f,,,.,, ,":.. . ,_ "., ..... '.. ..o' :;... : . Pacific Gas and 'EJectri~. Company": ,. ..n Beale Street .... .;.' . . ". .;'::..:~...:':':;....'.; .. ... ... . .'. ..... .~P.O.Box770000.::..-- .. . ,': :',.. ~ ,;.. .:... . .;.. ,. .; .' . . . . .San Francisco', eA 94177' :. i. .. . ....- .. - .... .' .~ ..' SAMPL:E : .;: ~'. ~ ," ..' ...' .. .' .., ." " ," 0' f.. ~_' . :'. '.~ (. . :.~~ ':" . ;;::::~". . ':". ./. .<:;:. ,~,;/~-'.~.' :: ~~.;-: .. ...::.;~': ...: .- ..,..., ," ',"' . ,.- . ~.. ......' .' , ',' . :.~ : ~'. ," ,.' ". '" .'. . . ".. ,....' .' "," . . , .' .~. : .'.,.',. ,--",,' 'a " " . ,', .. ,", ..-.-....., . '-'.: -" . . . . . . . ::! ,", :.: ::.'- ,'-, .:. ;' ~.' .,;.... '. ..... . ," .,-...... ~\..~.::.~f ':.: .~. . .,~ . .' - ';". .. .: -~ --.: .,': .. ,. " 0', ',: ::'... <"<~"".:~.. " . . 0" . ......: .' . .. . ....:. .~,.::,..::April1i, i9.94.., ", ,~. ..... .... . .... :.... '.';.. ';. .\' '. . ~. .', ,',.. . _0. . ~ '. .. - '.', . .: ". -". .. .'. . . 0,'. _,,; . ',' ... . Finance Director. ;', ',' .,:'- . :.: ,Re:' S~llate Bill 278 (Franchise Fee Surcharge) .. ." ." :"" . . ',", '- .,-'. ' :' ~ ,. ..... . . .Dear Finance Director:'~. . ':. .. i ~ . . . .... . . !-. . ... . . .. .:.In 1993, the California State Legislature paSsed Seriate Bill 278 which requires utilities . -calculate and collect a franchise fee surcharge on behalf oflO.€a1.municipalities for energy . . . .' .. ::., ~;tra.nSported by utilities but procured from other sources by customers. :The intent of SB278 is... . ::<.'. '.". ..-;. .::.; '. .:...:~'- to protect citie~ and counties from reven\!.e losses due to. customers choosing to buy'gas from' a..: . ..~., ~... -",. ./~:::~.~, >;.,/non-utilitJ: source~' Inaddition, the bill also allows cities and counties to~olle.i::t the franchise' .<: ....,..: ..... .":~..: ,-:,:-.:->, ".. c.:':C~"surcbarge r~tr<?-~ctivet.9~uguSt 1,1.993... .'.' .' '.' . . .,. ',. ., ' -i~~"::~L.~".t!:;i~~~~ct~~~:~~:~i~~~':~:=:~:;i~=~~;r:::~,:::[2;:';:; ;:;. :..: ;,.....:, . ,... :<. ". ....:.:addresses of transpOrtatIOn. c.ustomers who procured thel! own gas, thelI' PG&.E account..... ;; ,:>. :;.:--;.. . .:. .. .>/ ~S~::~~~~::~:'~:.:).::~/ ~{~':,,:~<::'i..:. ~.~. ~~~f~~:.tl1~:.~:o;~e. ~ftransported.~ in,th~.~ ,~~. i~ .~s,~l?iat~~ bil~g.,P~ri~~, .....: '. ~::. ". ....:.,.:.:.~;.:(~.t{.:...~/.~.~ ';..: :,. :<:~;;;/.::<~;: ....:;:::; ":' : The followmg table lists PG&E's. tariffed core; subscriptIon .weighted average costof gas. .. co'; ..:.': . ; :.,: .<::.. .. ,. . (W ACOG) exclusive of any California sourced franchisefa.ctor, the franchise fee factor:. ... ..:'. .. ., adopted in PG&E's latest General Rate Case, and the Surcharge Rate you will need to . . . .. ' calculate the retro-active sur:charge. ! :' . .....:::,:, . .' . . Franchise Surcharge Month W ACOG Factor Rate* .. .. Mar-94 0.21054 .0.00738 0.00155 Feb-94 0.20422 0.00738 0..00151 Ian-94 _ 0.23795 0.00738 0.00176 Dec~93 0.18858 0.00738 0.00139 Nov~93 0.18809 0.00738 0.00139 Oct-93 0..18523' 0.00738 . 0.00137 Sep-93 0.17655 . 0.00738 0.0013. . Aug-93 . 0.18146 0.00738 0.00134 ., . ". .' ':,'::' . ".- . . . "': . ~ ~--':" -. .~. ':~. ;. ~ . ." o' . .'. .,'" ::...", ;. '.' ..., .. '..... .. . .. . . ~ . -: '::,. ': .-' . '. . '. . '. . ..:.:":~T:he-Surcharge Rate."'.VlACOG * Francliise'Factor, rounded ~o 5 decmUilplaceS:" ..:~ ....:.. . " '. . ~. :, .''").;" ':.:'):'.: .:... '.J :', .,. . ';: ~ '. . 0' , -" ',: .... .' '. ~,.'. ", ,: I ;... .' .;. .~ ,,: -. . . .. - . '.. -:" :.... ~:. .~. " . . ' .' .- , . .;.;.', ~'. . .,~' :'~" . ~'. . ,." " :'(,," .,-: .-" ".'..:.' ,~u: : Senate Bill 278 (Franchise Fee Surcharge) ':.Page2... ..:... "." . .'. . . . .' . '. ,. '.... ~. . '.....1......... ~. .~. ..; . . """; ." . '.,;- .,' :';"..":. ,.,; . . .'; . : '~, '." ...' .' .,' '....;. :.......", .i". . '. ..,. ~ ,- . - . ~ ,": ,!.. - '::{,';;.::}::::.. "; '.' : ': " ," ". . . I'". . .' .- .~;..- . .', -. .~. . '. .\",' n;.. ". . . . .. .. ". . '. " . ~.; .' " . -""~ . , . . .'... . . .~'. ..' ..'.'.< To. ~orri.ptite the .monthly franchise fee surcharge, take the Surcharge Rate for the appr<;>pr:iate, . .." ;,..:..\,:,., .~::.. .' '~'.:.billirig month fr<;>m the above table~ look up:th.e corresponding therins for that billing month. .,., ;i::.:';:....~'.>.. :.' . . from the enclosed report, and use the following formula:' . ". . ....: .- ...... ,".", ,". .:-'.. ,". .' .:..' . Franchise Fee Surchai-g.e:"" Total Monthly therms:* Surcharge Rate', " . -. . . . .~',-; : . . . Our business closing. cycle .limits us to providing you with your customers' transportation. ,.:volumes for ~he period 8/-1/93 through 2/28/94 at this time. As a result, we will issue.a . .. : ,.... second report in. mid June covering the full retro~active period, 8/1/93 through 3131/94. On...... . ',<' . ..:'.:-_ .. .:thissecond report, we will inc[ude the total Franchise Fee Surcharge.owed by the customer_.,., . .'nalqng.withthe customer's mailing add.ress,. if one exists in our files. : We hope this additional". .' :. . .' ... : i~fonnation wi~l help'streamJine your effort:.:; inbi,lling (tnd collecting the surcharge.:' ..,. .:.. .... :/;:.' .. ~ . :., ", ',.' . '.:. .'~',':.,::,' ~: ; ", ..-: . .... ..- .. ':Ifyou have any questions;:please call Eileen Cotron9Pat:(415). 973~2364. ..... ",' .... ,';t. . ." .,- <Sincerely,.. ..."" ):~:J,:..,. . Nf"'!(;<h<~~Jf~ , ',;~r{,~;~,i~,!:'f.t;j;%~~e~~;:' ~~JedM~ag~.,...."",," .. ,. ~~1~?~~1';f~_;"'En~IoSUr~" _ ,; ..~ . i: . . .....-. .." -:o'.',':~; ..:~ . ........ . ,: .. '. '. .: .", .. . ~ . .' . ..' . ~ '. '.' '.. . /-/;: ;:....::: .;' .~>,~':~~..-X:~.'!{::;:; . .......... '. . :.>.~:::.-\~::;/~..::~~.~..; .. ;.)'. ." ~ .~." '. ..11",-: .. '':' ..,. ~ '::.-' '..-' . -:"- .,....... ,'.., : .. ,.~...,.', . Y ;:~~~.i. ,>:.:<~//:,:(\}~ . ...:;.:~.,..':.::': ,.'~ ,:..::};':Y::',: . .#., .' " ....- _ '_ .... : ._ r. , . '-: . ~.' ~: '. . i.:.=:-..I.:,.-;.. . 'r.. ....- ., ..' '.' . ~ ~!:.. .' . .... '. . .,.. .... , . ,~. " c' ~. .' .' -"- ..... . -," - '.~.'" f:.' : .~_ "'- :...:....-; .. ,>~~.~.:::..~~ ,~-~~ . .. ::-. -~ -. . '~.. '." . .. l." ~ I';' -, . . _: ..' _." ,h.:~ '. ":"~,,,~:,~,:~.,, ',"':: . :.,/ . .... ,.! ( -< . ":',' ....- . . "". f' ~'.- .; .... . '" '. . . ::' ~ :.... ....~ '~'J . '.' . .... '.. . '. ' . ~ :" '. r:.. .' ." .. . ..... ".' , '" ~. '. ,~. . '.....' ,,':' " . .:~. '..,- :' . " .. .:,' :~ .'. ' . . ;.~:../:.'::~~...~-, .,-: -", '.:=..' ~:}{::';;:;:~~":. .:.,~..-:_: .~,'.', ., .' . - .....:..' '.,1. :, .~. ';, ..' . ...... .. . .. .... '.' '. ..1 . ': :.. ~:;:. ',' '. .:'. .; I _' : . ...., . ' :'" . :,:". .- . ." ..~ '. ......: '. . .~: :" .~:.. . ,.' ',,' .' :. " '-' .' ".":.i. .:,:'":-..::. ~';.'; :":.> . ~...' '..<" , . \ .. ..... : . ~.. ,.' EXHIBIT 2 Page 1 of 1 From: Heath, Andy Sent: Friday. June 27, 2003 11 :55 AM To: 'tkw1@pge.com'; 'Leung, Ricky'; Cheung, Jackson; 'TaxComply1@aol.com' Cc: Vu, Oat Ricky and Taryn- Oat and I have been working on the Franchise Fee issue and have just about finished constructing our spreadsheets. We need a little clarification on a couple of issues; 1. Please explain how direct access revenues are derived. What is the source of the revenue (i.e. what is PG&E receiving revenue for)? Who receives the revenue? Who is the revenue from? 2. Please explain how Direct Access revenues are handled for calculation of UUT and Franchise Fees due to affected jurisdictions. Are these revenues "netted" in the exemptions box for 5an Jose reporting purposes? What is the nature of a positive versus a negative Direct Access revenue? Can you provide an example of how these look on customer bills? 3. How are 58 703 and S8 278 revenues derived? What is the source of the revenue? How are franchise fees paid on these revenues? Are these revenues reported separately from those reported in Gross Receipts for Franchise Fees due to the City? 4. What are the revenues for each month for which the 58703 and 58278 surcharges are calculated from (as opposed to the surcharges themselves)? 5. What are the exempt amounts for each month (not including Direct Access revenues) for purposes of calculating the UUT? I look forward to your response to these questions. If you have any questions, please call Oat at 408-794-1192. Thanks! Andy EXHIBIT 3 Page 1 of1 From: Cheung, Jackson [JWCi@pge.com] Sent: Friday. July 11. 2003 2:08 PM To: andy.heath@ci.sj.ca.us Cc: Wells, Taryn; Leung, Ricky; TaxComply1@aol.com; dat.vu@ci.sj.ca.us Subject: RE: Attachments: Responseto062703email.doc Andy, Per your request below, we prepared the attached response for your review. Please let us know if you have further questions. Thank you. Jackson -----Original Message----- From: Heath, Andy [mailto:andy.heath@ci.sj.ca.us] Sent: Friday, June 27,2003 11:55 AM To: Wells, Taryn; leung, Ricky; Cheung, Jackson; 'TaxComplyl@aol.com' Cc: Vu, Oat Subject: Ricky and Taryn - Oat and I have been working on the Franchise Fee issue and have just about finished constructing our spreadsheets. We need a little clarification on a couple of issues: 1. Please explain how direct access revenues are derived. What is the source of the revenue (i.e. what is PG&E receiving revenue for)? Who receives the revenue? Who is the revenue from? 2. Please explain how Direct Access revenues are handled for calculation of UUT and Franchise Fees due to affected jurisdictions. Are these revenues "netted" in the exemptions box for San Jose reporting purposes? What is the nature of a positive versus a negative Direct Access revenue? Can you provide an example of how these look on customer bills? 3. How are 58 703 and 58278 revenues derived? What is the source of the revenue? How are franchise fees paid on these revenues? Are these revenues reported separately from those reported in Gross Receipts for Franchise Fees due to the City? 4. What are the revenues for each month for which the 58703 and 58278 surcharges are calculated from (as opposed to the surcharges themselves)? 5. What are the exempt amounts for each month (not including Direct Access revenues) for purposes of calculating the UUT? I look forward to your response to these questions. If you have any questions, please call Dat at 408-794- 1192. Thanks! Andy July 11 t 2003 . Response: San Jose's Franchise Fee and UUT inquiry on 6/27/2003. 1.~ 3. &. 4. Direct Access (DA) refers to any end-use PG&E customer electing to procure its electricity, and any other CPUC-authorized energy services,-directly from energy service providers (ESPs) as defined in PG&E's Electric Rule 1 on file with and approved by the CPUC. Rule 1 defines an ESP as an entity who provides electric supply services to Direct Access Customers within PG&E's service territory. An ESP may also provide certain metering and billing services to its DA Customers as provided for within these tariffs. Please see PG&Ets Electric Rule 22 for further details on metering and billing services. PG&E's DA revenue is from the transmission, distribution, emergency procurement surcharget public purpose programs, nuclear decommissioningt and competitive transition costs. The commodity charge is received by the ESPs and not included in PG&Ets DA revenues. For franchise fee purposes, an electric franchise fee surcharge instead of a franchise fee is paid on the DA usage. The method to determine the electric franchise fee surcharge is usage times the rate removed from a customer's bill who has elected DA times the franchise fee factor adopted in PG&E's most recent General Rate Case (GRC). Previously while it was in business, PG&E used the price paid by the California Power Exchange as the proxy for the rate removed from a DA customer's bill. On the gas side, the revenue is gas sales by third party gas providers to their customers. PG&E's revenue is from transporting the gas commodity. A gas franchise fee surcharge is paid on third party gas volume. Gas franchise fee surcharge is determined by multiplying the third party volumes (therms) times the weighted average cost of gas (W ACOG) times the franchise fee factor adopted in PG&E's most recent General Rate Case. See PG&E Gas Rate Schedule G-SUR. Franchise fee surcharge is treated separately from franchise fee. Please see Public Utilities Code Sections 6350. 6354 for an exact definition of SB2781703 and how they are treated with respect to franchise fee surcharges. On June 13, we provided to the City of San Jose the DA revenues by month. However, per the PUC Code 6350-6354, the franchise fee surcharge is not calculated based on the third-party revenue. It is based on the methodologies mentioned above. 2. DA revenue is subject to UUT; accordingly, it is a component to the OUT calculation. It is not netted on the monthly OUT statements. Electric DA revenue is derived from customers' energy usage multiplied by our frozen rate less the rate removed from a customer's bill who has elected DA. Negative DA revenue can occur when the rate removed from a customerts bill exceeds our chargeable rate allowed by CPUC. 5. On line 1 of the UUT monthly statement, we report PG&E's energy and DA revenues, both electric and gas, with respect to the City of San Jose's TOT's geographic code. As discussed earlier, each customer's account is identified with a geographic "town and territory code." We aggregate the billings for the TOTs associated with customers with meters within the limits of the City of San Jose. At an earlierrequest from your office, we already restated the monthly OUT statements from July 2000 to January 2001 by separating DA revenue from the exemption amoWlt. This was due to the negative DA revenue phenomenon. From our previous discussion and as illustrated in our system flowchart provided to you, our revenue reporting (RR) system reports our energy sales amount when the SRG system reports the UUT amount. On a monthly basist we use these two reports to complete the City of San Jose's UUT statements. Since exemption infonnation is not available in the SRG systemt the exemption figure on the tax statement is a calculated amount.