VI. Assignment of Proceeding

Carl W. Wood and Geoffrey F. Brown are the Assigned Commissioners and Thomas R. Pulsifer is the assigned ALJ in this proceeding.

Findings of Fact

1. As part of its provisions to deal with California's energy crisis, AB 1X was enacted by the Legislature which, among other things, called for the suspension of DA.

2. D.02-03-055 did not change the DA suspension date of September 21, 2001, but created an exemption to the suspension requirements of D.01-09-060 (the "switching exemption") by permitting existing DA customers to choose a new ESP and continue on DA even if they had returned to bundled service after September 20, 2001, subject to specified restrictions.

3. In D.02-04-067, the Commission granted a limited rehearing on the issue of the switching exemption, to be considered further in light of AB 1X and D.01-09-060, and so that an adequate record could be developed.

4. Parties presented testimony and briefs on issues relating to the switching exemption in this proceeding.

5. Preservation of the switching exemption, along with protective restrictions, will provide flexibility to DA customers and will help to preserve DA as a viable service option.

6. Consistent with the principles set forth in D.02-03-055 (as clarified in D.02-04-067) and D.02-11-022, DA customers remain responsible for costs they cause resulting from their return to bundled service. To the extent those customers switch back to DA service, they remain responsible for costs that potentially would become stranded due to obligations entered into on their behalf.

7. If the DA customers are permitted to depart bundled service without restriction, they could potentially leave long-term supply commitments stranded, to be shifted to the remaining bundled service customers.

8. A 45-day period provides a reasonable window during which DA customers that have returned to bundled service since September 20, 2001, to make an elections either to remain on bundled service or to return to DA.

9. It is reasonable for DA customers to be permitted to return on a temporary basis to bundled service for up to 60 days as a "safe harbor" while switching ESPs.

10. By charging DA customers for the incremental costs of short-term power during their temporary return to bundled service as a "safe harbor," no costs will be shifted to bundled customers.

11. To the extent the utility must plan for the contingency that significant amounts of DA load may return to bundled service on short notice, its procurement costs will be impacted

12. A three-year minimum term commitment to bundled service is the shortest period that is sufficient to adequately plan to serve bundled customers and to eliminate the potential for DA customers to base a gaming strategy on anticipated seasonal pricing patterns.

13. A period longer than a three-year commitment may be necessary to avoid stranding long-term portfolio supply obligations undertaken to serve DA customers returning to bundled status, although the record on this issue needs further development.

14. A six-month advance notice by DA customers to the utility prior to any shifting into or out of the bundled portfolio rate provides a reasonable opportunity for the utility to adjust its portfolio and also guards against arbitraging or similar activities by customers.

15. It is appropriate for returning DA customers to pay for the added portfolio costs they place on the system as a result of switching between bundled and DA service in order to avoid cost shifting to other bundled customers.

16. While there are differences in how utility procurement is impacted by large versus small customers, a better record is needed to quantify how those differences would translate into procurement decisions or size-specific rules.

17. There are billing implementation issues related to a returning DA customer's responsibility associated with the DA CRS undercollection that warrant further development by the utilities, with review of the Rule 22 Working group.

Conclusions of Law

1. The switching exemption is lawfully permitted.

2. There is no violation of AB 1X in adoption of the "standstill" principle as articulated in D.02-03-055.

3. To the extent that customers had already acquired DA service as of September 20, 2001, or are eligible under the DA suspension rules, switching subsequent to that date is no more than a resumption of DA service.

4. Because a customer can only "acquire" DA service where it did not previously have such service, the suspension applies to those customers that had not acquired DA, service as of September 20, 2001.

5. Even though the switching exemption is warranted, appropriate limitations need to be imposed on DA customers return to or departure from bundled service to guard against potential arbitrage or cost shifting that could harm bundled customers.

6. The switching rules should be designed so that DA customers may not avoid their cost responsibility by switching into or out of bundled service without appropriate restrictions, consistent with the requirements of AB 1X and AB 117 relating to DA cost responsibility.

7. The rules set forth in the order below are reasonable and should be adopted as a basis for DA customers returning to bundled service or switching back to DA.

8. In order to prevent arbitrage or similar potential activities, and to prevent cost shifting to bundled customers, it is reasonable to adopt restrictions on DA switching relating both to minimum term commitments and rates paid for bundled service.

9. Further proceedings should be held to develop a more extensive record on the need for bundled service commitments beyond three years and to determine what cost responsibility, if any, should be assessed on customers switching back to DA.

10. DA customers should be permitted to return to bundled service for a temporary period of not more than 60 days while switching ESPs or for related reasons, subject to appropriate restrictions as adopted in the order below.

11. This decision construes, applies, implements, and interprets the provisions of AB 1X (Chapter 4 of the Statutes of 2001-02 First Extraordinary Session).

12. Pub. Util. Code § 1731(c) (any applications for rehearing are due within 10 days after the date issuance of the order or decision) and Pub. Util. Code § 1768 (procedures applicable to judicial review) are applicable.

ORDER

1. This order shall apply to Southern California Edison Company. Pacific Gas and Electric Company, and San Diego Gas & Electric Company.

2. A 45-day period is hereby authorized from the effective date of this order for "grandfathered" Direct Access (DA) customers (i.e., those that have switched to bundled service since September 20, 2001) to elect either to remain on bundled service or to return to DA service. The UDCs shall notify customers of this 45-day window by letter following conclusion of the Rule 22 Working Group meeting as ordered below.

3. Customers returning to DA service during the 45-day window period, will resume responsibility for payment of DA CRS on the same basis as applicable to other existing DA customers pursuant to Decision 02-11-022.

4. Returning DA customers that elect to remain on bundled service beyond the transitional window period shall be required to make a minimum commitment as a bundled customer for a three-year minimum period in order to continue to receive the bundled portfolio rate.

5. DA customers shall be permitted to return to bundled service on a transitional basis while switching from one electric service provider to another, or for similar reasons for up to a 60-day period as a temporary "safe harbor."

6. DA customers returning to bundled service for only a temporary "safe harbor" shall pay the utility for procurement at the short term spot price, whether that rate is above or below the utility's bundled rate.

7. For purposes of determining applicable charges for returning DA customers subject to "safe harbor" provisions, the utility shall utilize the Cal-ISO Hourly EX Post Incremental Price as a pricing index. The utility charges applicable to DA customers returning to the "safe harbor" shall also include other relevant costs associated with the spot power procured to serve them including ancillary services, grid management, unaccounted for energy, and similar charges paid to the ISO. The utility charges shall also include applicable administrative costs, such as meter reading, incurred to serve "safe harbor" customers.

8. The utilities shall jointly develop advice letters to implement tariff changes and implementation timing and details necessary to comply with the provisions of this order (including the recovery of undercollections) and review with the Rule 22 working group within 30 days of this order. In their advice letter filings to implement tariff changes, the utilities shall explain more specifically what accounting and tracking measures they propose to use to identify, and apply requisite charges to the bills of DA customers temporarily returning to bundled service. Utility advice letters to be filed within 45 days of the effective date of this order. Until such advice letters take affect, DA customers will continue to operate under current DA provisions.

9. Customers intending to switch ESPs shall not be penalized for failure beyond customer control to complete the DASR processing within the 60-day window but shall continue to pay the spot price for bundled energy consumed during the delay in DASR processing and switching.

10. The utilities shall file advice letters within 15 days of the effective date of this order to implement tariff changes necessary to comply with the provisions of this order. In their advice letter filings to implement tariff changes, the utilities shall explain more specifically what accounting and tracking measures they propose to use to identify, and apply short-term commodity costs to the bills of DA customers temporarily returning to bundled service and to exclude such costs from bundled portfolio charges.

11. Customers that elect to receive the bundled portfolio rate shall be required to provide six-months advance notice and shall make a three-year minimum commitment to remain on bundled service.

12. During the six-month waiting period after providing advance notice, customers may return to bundled service, but will pay the spot price of power as billed by the utility.

13. Further proceedings shall be conducted on what options shall be available to returning DA customers after the conclusion of a three-year minimum bundled service commitment, either in terms of a further bundled service commitment or payment of cost responsibility for stranded costs if switching back to DA service.

14. Customers that switch to bundled service shall continue to be liable for DA CRS undercollections attributable to the period that they took DA service. Even if those customers remain permanently on bundled service, they shall remain responsible for paying off the accumulated DA CRS undercollections. Because of practical problems limiting the feasibility of customer specific billing, an alternative billing methodology shall be addressed through the Rule 22 Working Group meeting as ordered above.

15. Further proceedings shall be conducted on what options shall be available to returning DA customers after the conclusion of a three-year minimum bundled service commitment, either in terms of a further bundled service commitment or payment of cost responsibility for stranded costs if switching back to DA service.

16. Customers that switch to bundled service shall continue to be liable for DA CRS undercollections and rules shall be incorporated in utility advice letters as defined in this order.

This order is effective today.

Dated May 8, 2003, at San Francisco, California.

I will file a dissent

/s/ LORETTA M. LYNCH

Commissioner

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