II. The Utilities' Obligation to Serve

One of the basic tenets of public utilities regulation is the utilities' obligation to serve, i.e. to provide adequate service at reasonable rates. Pub. Util. Code § 451² provides, in relevant part:

"All charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service is unlawful.

"Every public utility shall furnish and maintain such adequate, efficient, just and reasonable service, instrumentalities, equipment and facilities . . . as are necessary to promote the safety, health, comfort and convenience of its patrons, employees, and the public."

We recognize the obligation to serve is broad and we are focused here on only one aspect, the obligation to purchase power on behalf of customers.

A bankruptcy filing or the threat of insolvency has no bearing on this aspect of state law. Even utilities that file for reorganization must serve their customers. (See D.01-01-046 at p. 2.)

A. The TRO

1. Scheduling Coordinator and the ISO

A brief overview of the obligations of a scheduling coordinator under the ISO tariff is useful. The scheduling coordinator function did not exist before electric industry restructuring commenced in 1998. Sections 2.26 through 2.28 of the ISO tariff provide that the scheduling coordinator should schedule and dispatch electric generation, including but not limited to submitting balanced schedules in the day-ahead and hour-ahead market. The tariff also provides that each scheduling coordinator shall be responsible for paying the ISO's charges in accordance with the ISO tariff. (See ISO tariff § 2.2.6.1.)

The responsibility for paying the ISO charges is significant to this decision, because the ISO is responsible for procuring energy in the real-time market to the extent necessary to meet utility load that was not balanced and scheduled in the day-ahead and/or hour-ahead markets, and to procure energy and capacity necessary to maintain appropriate levels of operating reserves.

2. The Commission Issues the TRO

In the emergency hearings held on financial issues in December and early January, Edison's counsel indicated that in the event Edison could not purchase power in excess of the 7 cents per kilowatt-hour available in retail revenues to pay for power, Edison would request to be relieved of its obligation to serve. (TR: 755.)

On January 17, 2001, Governor Davis declared a state of emergency with respect to the state's power crisis. The Governor also announced that the state, through the California Department of Water Resources (DWR), would purchase power on behalf of PG&E and Edison. However, at that time, it was somewhat unclear whether those purchases were limited to the day-ahead market or whether they included spot market purchases.

At that same time, the ISO, the Power Exchange (PX) and PG&E were restructuring their agency agreement for scheduling services to specifically provide that PG&E would be the scheduling coordinator under the ISO tariff, and that to the extent that the PX performed such duties for PG&E, that it would act as PG&E's agent, and that "it shall have no liability as a principle for PG&E's scheduling coordinator obligations."³ PG&E's obligations under this restructured agreement include making payments due to the ISO directly to the ISO, and compensating the PX for services rendered.⁴

Against this backdrop, on January 18, 2001, the Commission received declarations from Gary Heath, Executive Director of the Electricity Oversight Board (EOB), Terry Winter, the President and Chief Executive of the ISO, Ziad Alaywan, Managing Director of the ISO, and Peter Garris, Chief Water and Power Dispatcher with DWR which raised concerns about the utilities' continuing obligation to serve. We issued the TRO to maintain the status quo so as to avoid further degradation of the provision of electric service and to avoid the irreparable harm to the public health and safety that would be caused by further degradation of service. We also directed PG&E and Edison to appear at an evidentiary hearing on January 29 to show cause why a preliminary injunction should not issue. The TRO has been in effect as of January 19, 2001. We now discuss whether the TRO should be dissolved or whether a preliminary injunction should be issued.