Assignment of Proceedings

Loretta M. Lynch and Geoffrey F. Brown are the Assigned Commissioners and Peter Allen is the assigned Administrative Law Judge in these proceedings.

Findings of Fact

1. Among the allocation methodologies proposed in this proceeding, ORA's proposed allocation methodology is both consistent with recent Commission decisions and provides the fairest allocation of DWR's 2003 revenue requirement.

2. ORA's proposed allocation methodology should be modified to reflect differences in line loss among the utilities to avoid cross-subsidies.

3. Using revenues from surplus sales to directly offset the revenue requirement of the dispatching utility provides a better incentive for economic dispatch than would pooling of revenues from surplus sales.

4. Allocation of DWR's revenue requirement should take into consideration direct access customers subject to the Cost Responsibility Surcharge (CRS) set in R.02-01-011.

5. Consideration of direct access customers subject to the Cost Responsibility Surcharge (CRS) set in R.02-01-011 requires the results of a "Direct Access-In" modeling run from DWR's consultant.

6. A "Direct Access-In" modeling run was not available in time to become part of the evidentiary record in this proceeding.

7. D.02-09-053 required that revenues from sales of excess energy should be allocated pro rata between DWR and the utilities.

8. DWR's August 16 Determination does not reflect the treatment of revenues from sales of surplus energy adopted in D.02-09-053.

9. Crediting of revenues from the sale of excess energy to the customers of the utility involved in the transaction provides the proper incentives for utilities to maximize the revenues from sales of surplus energy.

10. Utilities are not required to obtain ancillary services through DWR.

11. Utilities differ in their potential need for DWR to provide ancillary services in 2003.

12. DWR's August 16 determination does not reflect differences between utilities relating to DWR provision of ancillary services.

13. DWR's August 16 Determination was based upon a modeling run known as PROSYM 36.

14. PROSYM 36 does not reflect the treatment of excess energy sales revenue adopted in D.02-09-053.

15. PROSYM 36 does not contain the most recent data and assumptions.

16. The output of the modeling run known as PROSYM 37 was presented too late in the proceeding to allow all parties a reasonable opportunity to evaluate and address its contents and impacts.

17. A supplemental determination from DWR that provides the necessary additional information would allow the Commission to improve the accuracy and equity of its allocation of DWR's 2003 revenue requirement.

18. Significant changes in the procedures for making remittance payments to DWR are not necessary.

19. PG&E's proposal to alter the procedures for remittance payments to DWR is a significant change to current practices and is opposed by DWR.

20. The evidentiary record does not contain accurate information about the volume of direct access sales that will be subject to the surcharge ordered in D.02-11-022.

21. D.02-11-022 authorized collection of an interim capped DA CRS of 2.7 cents per kWh beginning on January 1, 2003.

22. Actual data for DWR's revenue requirement for the year 2002 will not be available until 2003.

23. With DWR's agreement, ALJ Allen deferred all issues relating to the true-up of DWR's 2001-2002 revenue requirement until 2003.

24. Absent utilization of the Catch-Up Surcharge, SCE will require a rate increase as a consequence of its customers' share of DWR's 2003 revenue requirement.

25. D.02-08-071 authorized PG&E and SCE to enter into power contracts using the credit backing of DWR, but did not authorize SDG&E to do so.

26. DWR includes $29 million in its proposed revenue requirement for demand reduction efforts.

27. Assembly Bill 1X does not give DWR the authority to incur costs for demand reduction programs or to charge such costs to utility customers.

Conclusions of Law

1. ORA's proposed methodology, with the modifications described above, should be adopted.

2. A "Direct Access-In" modeling run should be utilized for allocation when it becomes available, consistent with due process.

3. Until a "Direct Access-In" modeling run becomes available, a modeling run without "Direct Access-In" should be utilized.

4. Revenues from sales of excess energy should offset the portion of the DWR revenue requirement allocated to the customers of the dispatching utility.

5. DWR's August 16 Determination, October 23 Memorandum, and the Rate Agreement preclude the Commission from allocating to a utility the actual costs that DWR incurs for providing ancillary services to that utility.

6. The use of PROSYM 37 at this time would not be consistent with due process.

7. The use of PROSYM 36 at this time does not present due process issues.

8. A supplemental determination from DWR, as described above, could remedy the due process problems of using an updated modeling run.

9. All parties should have equal opportunity to provide input to DWR's supplemental determination, and should be subject to the same deadline.

10. Utilities should generally maintain their current processes for remitting funds to DWR.

11. Changes to current remittance practices should be limited to those necessitated by Commission decisions subsequent to D.02-02-052.

12. Each utility should remit DWR's share of surplus sales revenue directly to DWR on an actual receipts basis.

13. The Rate Agreement bars the utilities from remitting variable costs and ancillary services costs directly to DWR on an actual incurred-cost basis.

14. Calculation of the power charge should use DWR retail sales adjusted to reflect the protocol for surplus sales adopted in D.02-09-053.

15. An interim DA CRS of 2.7 cents per kWh can be implemented on January 1, 2003, subject to adjustment.

16. It is reasonable to defer until 2003 all issues relating to the true-up of DWR's 2001-2002 revenue requirement.

17. It is consistent with Commission precedent and the purpose of the Catch-Up Surcharge to allow SCE to use revenues from that Surcharge to defer a rate increase.

18. Any 2003 DWR revenue requirement pertaining to power contracts entered into by DWR between August 22, 2002 and January 1, 2003 (pursuant to D.02-08-071) should be allocated to the utility entering the particular contract.

19. This decision construes, applies, implements, and interprets the provision of AB 1X (Chapter 4 of the Statues of 2001-02 First Extraordinary Session). Therefore, Pub. Util. Code § 1731 (c) (applications for rehearing are due within 10 days after the date of issuance of the order or decision) and Pub. Util. Code § 1768 (procedures applicable to judicial review) are applicable.

20. Costs for demand reduction programs cannot be included in DWR's revenue requirement and charged therein to ratepayers.

ORDER

IT IS ORDERED that:

1. Department of Water Resources' (DWR's) 2003 revenue requirement is to be allocated according to the allocation methodology proposed by Office of Ratepayer Advocates (ORA), as modified and described above, and as set forth in Appendix A. The corresponding charges shown in Table C shall go into effect on January 1, 2003, and remain in effect until further order of the Commission.

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

PG&E: $1,965,158,417

SCE: $1,879,525,727

SDG&E: $ 643,087,606

3. Revenues from excess sales are to be accounted for as described above.

4. DWR's forecast ancillary services costs are to be allocated on the same basis as fixed costs until an improved allocation method is approved by the Commission.

5. No later than December 30, 2002, parties may submit information and assumptions for DWR's use in a supplemental determination. If parties do so, they shall also file such information and assumptions at the Commission's Docket Office and serve them on all parties to this proceeding.

6. DWR is encouraged to promptly submit a supplemental determination, as described above.

7. Each utility shall remit DWR's share of surplus sales revenue directly to DWR on an actual receipts basis.

8. Calculation of the power charge shall use DWR retail sales adjusted to reflect the protocol for surplus sales adopted in D.02-09-053, as described above.

9. The respective servicing agreement or Commission order for each utility should be modified to the extent necessary to be consistent with the approaches described above.

10. Within seven days of the issuance of today's decision, SCE, PG&E, and SDG&E shall file advice letters with revised tariffs to implement the Direct Access Cost Responsibility Surcharge (DA CRS) at the interim capped level of 2.7 cents per kWh approved in D.02-11-022. The revised tariffs will become effective on January 1, 2003, subject to Energy Division's determination that they comply with applicable statutes and Commission Decisions. Except for the Bond Charge component of the DA CRS, the utilities shall initially apply the revenues from the 2.7 cent DA CRS to the DWR Power Charge for 2003, and we permit SCE to recoup its one-cent historic procurement charge from these revenues. Once the Commission's determination regarding the Bond Charge component of the DA CRS in D.02-11-022 becomes final and unappealable, the utilities shall apply revenues from the DA CRS according to the priority in Ordering Paragraph 20 of D.02-11-022.

11. For DA customers that have remained continuously on DA, and did not take bundled service on or after February 1, 2001, pursuant to D.02-11-022 the applicable DA CRS shall be limited to the Historic Procurement Charge (HPC), applicable to SCE customers only. The determination of the utility retained generation component of the DA CRS to be charged to continuous DA customers shall occur as part of the pending implementation workshops.

12. Any true-up of DWR's 2001-2002 revenue requirement is deferred until actual data for 2002 is available, consistent with the ruling of ALJ Allen.

13. SCE may use revenues from the Catch-Up Surcharge to offset its share of DWR's 2003 revenue requirement, as described above.

14. Any 2003 DWR revenue requirement pertaining to power contracts entered into by DWR between August 22, 2002 and January 1, 2003 (pursuant to D.02-08-071) shall be allocated to the customers of the utility entering the relevant contract.

15. The Commission or Assigned Commissioner or ALJ shall issue further orders or rulings as needed regarding the process and schedule of future phases of this proceeding.

16. $29 million for demand reduction programs is removed from DWR's proposed revenue requirement.

This order is effective today.

Dated December 17, 2002, at San Francisco, California

	LORETTA M. LYNCH President
	CARL W. WOOD
	GEOFFREY F. BROWN
	Commissioners

I dissent.

/s/ HENRY M. DUQUE

Commissioner

I dissent.

/s/ MICHAEL R. PEEVEY

Commissioner

APPENDIX A

Appendix A
Allocation Methodology for 2003 DWR Revenue Requirement
1) Calculate each IOU's portion of DWR Pre-DA migration supplied energy.
	a) Calculate the proportion of the DWR- and URG-supplied energy in each IOU's resource portfolio
		Line	GWh	PG&E	SCE	SDG&E	Total	Source
		1	Supply from URG	52,756	57,881	7,056	117,693	ProSym 36
		2	Supply from DWR	21,835	22,246	6,953	51,034	ProSym 36
		3	Total Supplied Energy	74,591	80,127	14,009	168,728	Line 1 + Line 2
		4	URG % of IOU Portfolio	71%	72%	50%	N/A	Line 1 / Line 3
		5	DWR % of IOU Portfolio	29%	28%	50%	N/A	Line 2 / Line 3
	b) Adjust the amount of DWR supplied energy for each IOU by adding DWR's share of Pre-DA migration to DWR supplied energy.
		Line	GWh	PG&E	SCE	SDG&E	Total	Source
		6	Direct Access	0	0	0	0	Need Supplemental DWR Modeling
		7	Departing Load	0	0	0	0	Need Supplemental DWR Modeling
		8	Total DA/DL Migrated Load	0	0	0	0	Line 6 + Line 7
		9	DWR Share of Portfolio	21,835	22,246	6,953	51,034	Line 2 + Line 8

	c) Subtract DWR's portion of surplus energy from DWR supplied energy to determine DWR's adjusted supplied energy.
		Line	GWh	PG&E		SCE		SDG&E	Total		Source
		10	Total Surplus Energy*	2,710		7,052		133	9,895		ProSym 36
		11	URG Share of IOU Portfolio	1,979		5,159		64	7,202		Line 10 * Line 4
		12	DWR Share of IOU Portfolio	731		1,893		69	2,693		Line 10 * Line 5
		13	Adjusted DWR Supplied Energy	21,104		20,353		6,884	48,341		Line 9 - Line 12
		*In its Allocation Comparison Exhibit, ORA used surplus sales numbers that were cash based, not accrued. To accurately model the impact of D.02-03-059 on surplus energy sales and revenues, the Energy Division applied the surplus sales allocation methodology outlined in D.02-09-053 to monthly surplus energy sales and revenue. The results of these calculations are reflected on Lines 11 and 12.
	d) Calculate URG and DWR share of revenue from surplus sales.
		Line		PG&E		SCE		SDG&E	Total		Source
		14	Revenue from Surplus Sales*	($33,586,940)		($93,371,835)		($1,927,165)	($128,885,940)		ProSym 36
		15	Utility Share of Surplus Revenue	($24,444,018)		($68,035,638)		($923,002)	($93,402,658)		Line 14 * Line 4
		16	DWR Share of Surplus Revenue	($9,142,922)		($25,336,197)		($1,004,163)	($35,483,282)		Line 14 * Line 5
		*In its Allocation Comparison Exhibit, ORA used surplus sales numbers that were cash based, not accrued. To accurately model the impact of D.02-03-059 on surplus energy sales and revenues, the Energy Division applied the surplus sales allocation methodology outlined in D.02-09-053 to monthly surplus energy sales and revenue. The results of these calculations are reflected on Lines 14, 15, and 16.
2) Calculate the adjusted DWR Revenue Requirement and allocate to each IOU
	a) Start with DWR's 2003 August 16th Determination Revenue Requirement
		Line	2003 DWR Revenue Requirement					Source
		17	Power Costs				$4,119,902,243	August 16th Determination
		18	Administrative & General Expenses				$28,400,000	August 16th Determination
		19	Increase in Operating Fund Balance*				$0
		20	Ancillary Services				$170,454,426	August 16th Determination
		21	Less:
		22	Revenue from Surplus Sales**				$0	ProSym 36
		23	Interest Earnings on Fund Balance				($59,007,505)	August 16th Determination
		24	DWR Revenue Requirement				$4,259,749,164
		*Operating fund balance is initially set to zero and then calculated once everything else has been allocated to the IOUs. See step 2.e
		** Surplus sales are directly assigned to the IOUs per D.02-09-053. See step 2.d.
	b) Calculate each IOU's supplied energy allocation factor by dividing each IOU's portion of DWR supplied energy by the total DWR supplied energy

		Line		PG&E	SCE	SDG&E	Total	Source
		25	DWR Supplied Energy	21,104	20,353	6,884	48,341	Line 13
		26	% DWR Supplied Energy	43.66%	42.10%	14.24%	100%	Line 25 / Total Line 25
	c) Determine each IOU's share of the DWR Revenue Requirement by multiplying the adjusted DWR Revenue Requirement by each IOU's supplied energy allocation factor.
		Line		PG&E	SCE	SDG&E	Total	Source
		27	Adjusted DWR Revenue Requirement				$4,259,749,164	Line 24
		28	% Pre-load Migration Supplied Energy	43.66%	42.10%	14.24%	100%	Line 26
		29	IOU Share of Adjusted DWR Revenue Requirement	$1,859,628,380	$1,793,485,733	$606,635,051	$4,259,749,164	Line 27 * Line 28
	d) Determine each IOU's share of the DWR Revenue Requirement by multiplying the adjusted DWR Revenue Requirement by each IOU's supplied energy allocation factor.

		Line		PG&E	SCE	SDG&E	Total	Source
		30	IOU Share of Adjusted DWR Revenue Requirement	$1,859,628,380	$1,793,485,733	$606,635,051	$4,259,749,164	Line 29
		31	DWR's share of Surplus Sales Revenue	$9,142,922	$25,336,197	$1,004,163	$35,483,282	Line 16
		32	IOU Share of DWR Revenue Requirement less operating fund balance	$1,850,485,458	$1,768,149,536	$605,630,887	$4,224,265,882	Line 30 - Line 31
	e) Solve the DWR model to determine the additional revenue required to maintain the operating account balance at or above $1 billion and then allocate that undercollection to the IOUs to determine the final DWR Revenue Requirement allocation.
		Line		PG&E	SCE	SDG&E	Total	Source
		33	IOU Share of Adjusted DWR Revenue Requirement	$1,850,485,458	$1,768,149,536	$605,630,887	$4,224,265,882	Line 32
		34	Operating Reserves	$134,351,926	$129,573,341	$43,827,352	$307,752,619	Line 34 total * Line 28
		35	Final allocation of DWR Revenue Requirement	$1,984,837,384	$1,897,722,878	$649,458,239	$4,532,018,501	Line 33 + Line 35

3) Power Charge Calculation
	a) Determine the amount of dollars to be remitted for variable costs, fixed costs, ancillary services, and operating fund balance.
		Line		PG&E	SCE	SDG&E	Total	Source
		36	Allocation Factor	44%	42%	14%	0%	Line 28
		37	Adjusted Rev Req.	$1,850,485,458	$1,768,149,536	$605,630,887	$4,224,265,882	Line 33
		38	Less:
		39	Variable Costs	$85,661,819	$65,501,750	$68,722,250	$219,885,819	ProSym 36
		40	Ancillary Services	$74,413,275	$71,766,569	$24,274,582	$170,454,426	Line 20 * Line 36
		41	DA Cost Responsibility Surcharge Revenues	$0	$0	$0	$0	Need Implementation workshop
		42	Fixed Costs	$1,690,410,363	$1,630,881,218	$512,634,056	$3,833,925,637	Sum of Line 37 thru Line 42
		43	Operating Account Funds	$134,351,926	$129,573,341	$43,827,352	$307,752,619	Line 34

	b) Calculate the IOU-specific DWR power charges
		Line		PG&E	SCE	SDG&E	Total	Source
		44	2003 DWR Delivered Energy (kWh)	19,205,963,516	18,459,409,403	6,398,534,999	44,063,907,918	ProSym 36
		45	Variable Costs ($/kWh)	$0.00446	$0.00355	$0.01074	$0.00499	Line 39 / Line 44
		46	Fixed Costs ($/kWh)	$0.08801	$0.08835	$0.08012	$0.08701	Line 42 / Line 44
		47	Ancillary Services ($/kWh)	$0.00387	$0.00389	$0.00379	$0.00387	Line 40 / Line 44
		48	Operating Account Funds ($/kWh)	$0.00931	$0.00931	$0.00931	$0.00931	DWR model solution
		50	Total IOU Power Charge ($/kWh)	$0.10566	$0.10510	$0.10396	$0.10518	Sum of Line 45 thru Line 48

(END OF APPENDIX A)