COM/LYN/gig/epg* MAILED 12/17/2002

Decision 02-12-045 December 17, 2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.	Application 00-11-038 (Filed November 16, 2000)
Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)	Application 00-11-056 (Filed November 22, 2000)
Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527.	Application 00-10-028 (Filed October 17, 2000)

TABLE OF CONTENTS

Title Page

OPINION ADOPTING INTERIM ALLOCATION OF THE 2003 REVENUE REQUIREMENT OF THE CALIFORNIA DEPARTMENT OF WATER RESOURCES 3

Summary 3

Chronology of the Proceeding 5

The Issues 6

Allocation of DWR's 2003 Revenue Requirement 6

SCE 9

PG&E 12

SDG&E 13

ORA 15

Excess Energy Sales and Revenues 21

Ancillary Services 25

Modeling Issues 29

Demand Reduction Costs 31

Ratemaking and Remittance Issues 31

Direct Access Cost Responsibility Surcharge 34

2001-2002 True Up 35

Other Issues 37

Implementation 40

A. Narrative Explanation of the Revenue Requirement Allocation 41

Definitions 41

Revenue Requirement Adjustments 41

Allocation of 2003 DWR Revenue Requirement 41

B. The DWR Supplemental Determination Process 42

Rehearing and Judicial Review 44

Comments on Proposed Decision 44

SCE 44

PG&E 47

SDG&E 53

DWR 56

ORA 57

Assignment of Proceedings 57

Findings of Fact 57

Conclusions of Law 59

ORDER 61

OPINION ADOPTING INTERIM ALLOCATION OF THE
2003 REVENUE REQUIREMENT OF THE CALIFORNIA
DEPARTMENT OF WATER RESOURCES

Summary

This decision allocates among the customers of the three major California utilities the cost of the California Department of Water Resources' (DWR) forecast 2003 revenue requirement for its power purchase program.¹

The parties presented four different allocation methodologies. The allocation methodology proposed by the Commission's Office of Ratepayer Advocates (ORA) is the fairest, and we adopt it with modifications. In essence, the methodology we adopt 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.

We also resolve a number of issues relating to how the allocation of the revenue requirement is calculated, including issues relating to the proper treatment of revenues from sales of excess energy, procurement of ancillary services, inclusion of funds for demand reduction efforts, and the use of particular modeling runs. Issues relating to the true-up of DWR's 2001-2002 revenue requirement will be addressed after actual data for 2002 becomes available, and are not resolved here.

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. Accordingly, the allocation we adopt today is interim, and will be superseded by a later allocation. We believe that a final allocation for 2003 can be achieved expeditiously, but it will require additional input from DWR.

As described below in more detail, in order for us to optimize our allocation for 2003, we need DWR to update it'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 adopted in D.02-09-053, and to refine assumptions regarding ancillary services and cash reserve levels. We cannot require DWR to submit a supplemental revenue requirement determination for 2003, but we need a supplemental determination if our allocation is to be as fair and comprehensive as possible. Without such cooperation and timely resubmittal from DWR, we 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, we have set out a process for how the Commission will implement this supplemental determination, and we strongly encourage DWR to promptly submit a supplemental determination with the additional information we identify. 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..

The Commission acknowledges the hard work and cooperation of the participants and Commission staff in meeting this proceeding's tight deadlines.

Chronology of the Proceeding

· August 16, 2002 - DWR issued its Determination of Revenue Requirements For the Period January 1, 2003 Through December 31, 2003 With Reexamination and Redetermination For the Period January 17, 2001 Through December 31, 2002 (Determination).

· August 19, 2002 - DWR submitted its Determination to the Commission.²

· August 29, 2002 - Pre-Hearing Conference Statements were filed and served by the Commission's Office of Ratepayer Advocates (ORA), the Energy Producers and Users Coalition (EPUC),³ and Modesto Irrigation District.

· September 4, 2002 - A Pre-Hearing Conference was held at the Commission.

· September 12, 2002 - A technical workshop was conducted by the staff of the Commission's Energy Division.

· September 13, 2002 - Notices of recommended allocation method were filed and served by PG&E, SDG&E, SCE, and ORA.

· September 23, 2002 - Opening testimony was served by PG&E, SDG&E, SCE, and ORA.

· September 30, 2002 - Rebuttal testimony was served by PG&E, SDG&E, SCE, ORA, and The Utility Reform Network (TURN).

· October 2, 2002 - Supplemental testimony was served by PG&E and DWR.

· October 2-4, 2002 - Evidentiary hearings were held at the Commission.

· October 16, 2002 - Opening briefs were filed by PG&E, SDG&E, SCE, and ORA.

· October 23, 2002 - Reply briefs were filed by PG&E, SDG&E, SCE, ORA, and TURN.

· November 15, 2002 - Proposed Decision was issued.

The Issues

The issues addressed here are: 1) allocation of DWR's 2003 revenue requirement among the three utility service territories; 2) treatment of excess energy sales and revenues; 3) treatment of ancillary services; 4) modeling questions; 5) exclusion of costs for demand reduction efforts; and 6) ratemaking and remittance procedures. Pursuant to the oral ruling of Administrative Law Judge (ALJ) Allen, issues relating to the true-up of DWR's 2001-2002 revenue requirement have been deferred until actual data for 2002 is available.