COM/MP1/PAJ/acb ID#1246

ALTERNATE DRAFT Ratesetting

12/17/02 H-7a

Decision ________________

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of San Diego Gas & Electric Company (U 902-E) for an Order Implementing Assembly Bill 265.

Application 00-10-045

(Filed October 24, 2000)

Application of San Diego Gas & Electric Company (U 902-E) for Authority to Implement an Electric Rate Surcharge to Manage the Balance in the Energy Rate Ceiling Revenue Shortfall Account.

Application 01-01-044

(Filed January 24, 2001)

OPINION REGARDING SAN DIEGO GAS & ELECTRIC COMPANY'S REQUEST FOR A SURCHARGE TO RECOVER THE AB 265 UNDERCOLLECTION AND

DECISION ADOPTING SETTLEMENT AGREEMENT

OPINION REGARDING SAN DIEGO GAS & ELECTRIC COMPANY'S REQUEST FOR A SURCHARGE TO RECOVER THE AB 265 UNDERCOLLECTION AND 1 1

DECISION ADOPTING SETTLEMENT AGREEMENT 1 1

I. Summary 1 1

II. Background 1 1

A. Procedural Background 1 1

B. Background Of Accounts 8 8

C. The Intermediate Term Contracts 10 10

III. Position of the Parties 11 11

A. SDG&E 11 11

B. City of San Diego 28 28

C. California Farm Bureau Federation 30 30

D. Federal Executive Agencies 31 31

E. Office of Ratepayer Advocates 32 32

F. Utility Consumers' Action Network 37 37

IV. Discussion 43 43

A. Introduction 43 43

B. AB X1 43 Overcollection 43 43

C. AB 265 Surcharge Request 45 45

1. Introduction 45 45

2. The Relevancy Of The Character Of The Intermediate Term Contracts 47 47

3. SDG&E's Proposed Settlement Is In The Public Interest 51 51

4. The Resulting Reduction to the AB 265 Undercollection 54 54

5. Other Sources Of Reducing The Undercollection 55 55

6. Rate Ceiling 57 57

7. Miscellaneous 57 57

V. Comments on Alternate Proposed Decision 57 57

A. Responses to Comments of the Parties 58 58

B. Responses to Proposed Revisions of the ALJ's Proposed Decision 64 64

VI. Assignment of Proceeding 70 70

Findings of Fact 70 70

Conclusions of Law 76 76

O R D E R 80 80

I. Summary

Today's decision addresses the relief requested by San Diego Gas & Electric Company (SDG&E) in the two above-captioned applications. SDG&E seeks authorization to impose a Revenue Shortfall Surcharge (surcharge) of $0.00349 per kilowatt hour (kWh) on residential, small commercial, and street lighting customers for a period of two years to recover the undercollected revenues resulting from the legislative enactment of a 6.5 cents per kWh rate ceiling on the rates of these customers.

A central issue in this proceeding are the power purchase contracts that SDG&E entered into with three entities in late 1996 and early 1997. These contracts are referred to in this proceeding as the intermediate term contracts.

This decision adopts the proposed settlement of June 14, 2002, which divides the profits from the intermediate term contracts between ratepayers and SDG&E's shareholders. This settlement will have the effect of reducing the undercollection resulting from the "AB 265" rate ceiling by $24 million. The reduction to the undercollection resulting from the adoption of this settlement, together with the expected true-up adjustment of the rates of the California Department of Water Resources (DWR), and other factors, including other matters currently before the Commission, have the potential to eliminate the undercollection by the end of 2003. SDG&E's request for a surcharge is therefore denied at this time.