A.21-06-003: Southern California Edison’s Application for Approval of Its 2022 Energy Resource Recovery (ERRA) Forecast Proceeding

Description

Annual ERRA proceedings are used to determine fuel and purchased power costs which are recovered in generation rates. In theory, the utilities do not earn a rate of return on these costs and only recover actual costs. The costs are forecasted for the year ahead. Each investor-owned utility (IOU) submits its ERRA application in June of the year preceding the implementation of the new requested rate based on energy market pricing and any imbalance in the rate recovery of the current year. The application uses forecasted energy procurement and electricity sales for the coming year.

Activity

Each year, the IOU is required to file an update to the revenue recovery numbers in November (November Update). While the initial application submitted in June forecasted a decrease in generation rates for 2022, the November Update shows a significant increase in SCE generation rates, and a corresponding significant decrease in Power Charge Indifference Adjustment (PCIA) fees for most PCIA vintages.

There are two factors contributing to this significant change to the numbers in the November Update. First, current and forward-looking energy market pricing continues to increase. Therefore, generation rates must increase to cover forecasted energy procurement costs. Because the PCIA is calculated to reflect above markets costs of SCE’s existing energy portfolio, the energy market trends that result in an increase to generation rates, also result in a decrease to the PCIA fee. Second, SCE under-collected for its 2021 generation rates. SCE did not collect enough revenue in customer generation rates to cover their energy procurement costs. This under-collection will be recovered through the 2022 ERRA customer generation rates.

While the increase to SCE customer generation rates and the decrease in PCIA fees is good news for CCAs, because these factors are impacted by a significant under-collection for 2021 rates, it is very likely that the rates and PCIA fees will normalize in 2023.

Next Steps

CalChoice, jointly with Clean Power Alliance (CPA), collectively the SoCal CCAs, have engaged specialized legal counsel Keyes and Fox to engage in the 2022 ERRA proceeding. In reviewing the November Update to the ERRA, the Keyes and Fox rate consultant found several significant errors in SCE’s testimony. The SoCal CCAs, through Keyes and Fox, are working directly with SCE to correct these errors, but also are advising the California Public Utilities Commission (CPUC) through proceeding comments. SCE has been directed to revise their testimony and correct errors. Final rate schedules for 2022 are expected in February, with an implementation of the new rates March 1.