December 17, 2002 PUC: 115 Docket #s: A.00-10-028; A.00-11-038; A.00-11-056

Media Contact: PUC Press Office, 415.703.1366, news@cpuc.ca.gov

PUC ADOPTS DWR REVENUE REQUIREMENT, LESS $29 MILLION

The California Public Utilities Commission (PUC) today allocated among Pacific Gas and Electric Company (PG&E), Southern California Edison, and San Diego Gas and Electric Company (SDG&E) the cost of the California Department of Water Resources' (DWR) forecast 2003 revenue requirement for its power purchase program, removing $29 million from the requested amount for demand response programs.

The methodology adopted pools the total costs of DWR's contracts and allocates those costs among the utilities on the basis of the quantity of energy supplied to each utility from the contracts. The resulting costs for each utility are remitted to DWR.

Based on the adopted allocation methodology, DWR's total 2003 revenue requirement is allocated to the utilities as follows:

· PG&E: $1,965,158,417

· Edison: $1,879,525,727

· SDG&E: $643,087,606


Each utility will remit DWR's share of surplus sales revenue directly to DWR on an actual incurred-cost basis.

DWR's revenue requirement includes $29 million in for a proposed demand response program intended to decrease customer demand during hours of high demand and short supply. These costs are included in DWR's forecast of ancillary service costs. Today's decision removes these costs from DWR's proposed revenue requirement. Assembly Bill (AB) 1X, which authorized DWR to purchase energy and charge the costs of DWR purchased energy to utility customers did not give DWR the authority to incur costs for demand reduction programs, nor charge such costs to ratepayers. Since the $29 million in costs for demand reduction programs in DWR's current request is not within DWR's statutory authority to include in charges to consumers, the Commission removed those costs from the revenue requirement adopted today. Costs for demand reduction programs were not included in the prior DWR revenue requirement previously approved by the Commission. Today's decision to remove these costs is not a reflection on the effectiveness or merit of such programs, which the Commission is not addressing in this proceeding.

The contents of DWR's 2003 revenue requirement are shown in the following table:

DWR's August 16 Determination of 2003 Power Charge Expenses

Power Costs	$4,119,902,243
Administrative and General Expenses	$28,400,000
Ancillary services	$170,454,426
Increase in Operating Fund Balance	$517,399,690
Total DWR Power Charge Expense	$4,836,156,359
Less: Revenue from Sales of Excess Power	($128,885,940)
Less: Interest Earnings on Fund Balances	($59,007,505)
Total Ratepayer Revenue Requirement	$4,648,262,914

Due to the mandatory expedited schedule for this proceeding, its complex interaction with other Commission proceedings, concerns about due process, and the constantly evolving nature of the California electricity market, the evidentiary record does not support a final allocation of DWR's revenue requirement for all of 2003. The allocation adopted today is interim, and will be superseded by a later allocation. In order to optimize the allocation for 2003, the Commission will need DWR's modeling efforts to incorporate direct access migration, to provide all parties an equal opportunity to contribute to the modeling assumptions and inputs, to treat sales of excess energy consistently with the protocols previously adopted by the Commission and to refine assumptions regarding ancillary services.

The Commission cannot require DWR to submit a supplemental revenue requirement determination for 2003, but a supplemental determination is needed if the allocation is to be as fair and comprehensive as possible. Without such cooperation and timely re-submittal from DWR, the Commission may be required to set the costs charged to ratepayers at a rate that is more than a billion dollars more than is necessary. Such an unnecessary burden on ratepayers must be avoided to prevent significant harm to individuals, businesses, and the economy of California.

While it is up to DWR to manage its own process for developing such a supplemental determination, the Commission has set out a process for how to implement this supplemental determination, and strongly encourages DWR to promptly submit a supplemental determination with the additional information identified. This approach will result in a more accurate and equitable allocation of DWR's 2003 revenue requirement and a likely reduction in the total amount of DWR's 2003 revenue requirement, with a corresponding decrease in the rates needed to be paid by consumers.

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