STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 9, 2003

TO: ALL PARTIES OF RECORD IN RULEMAKING 02-01-011

Decision 03-05-034 is being mailed without the Dissent of Commissioner
Carl W. Wood. The Dissent will be mailed separately.

Very truly yours,

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:jyc

ALJ/TRP/jyc Mailed 5/9/2003

Decision 03-05-034 May 8, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Regarding the Implementation of the Suspension of Direct Access Pursuant to Assembly Bill 1X and Decision 01-09-060.

Rulemaking 02-01-011 (Filed January 9, 2002)

(See Decision 02-11-022 for a list of appearances.)

TABLE OF CONTENTS

Title Page

OPINION ADOPTING RULES FOR SWITCHING EXEMPTION 2

I. Background 2

II. Basis for the Switching Exemption 5

A. Parties' Positions 5

B. Discussion 7

III. Terms and Conditions for Switching Between Bundled and DA Service 10

A. Transitional Rules Applicable to "Grandfathered" DA Customers 10

1. Parties' Positions 10

2. Discussion 12

B. Temporary "Safe-Harbor" Return To Bundled Service
While Switching ESPs 15

1. Parties' Positions 15

2. Discussion 18

C. Switching After the Initial Transition Period:
Minimum Term and Price 23

1. Parties' Positions 23

(a) PG&E 23

(b) SCE 24

(c) SDG&E 26

(d) TURN 29

(e) ORA 30

(f) CLECA 32

(g) CIU 32

(h) CMTA 33

2. Discussion 34

(a) Overall Framework 34

(b) Applicability of Switching Rules to Large Versus Small Customers 34

(c) Switching After Initial Transition Period: Minimum Term and Price 36

(d) Extensions of Bundled Service Commitment
Beyond Three-Year Minimum 40

(e) Advance Notice Requirements for Departure from Bundled Service 42

(f) Responsibility of Returning Customers for Previous DA CRS Undercollections 43

IV. Rehearing and Judicial Review 45

V. Comments on the ALJ Proposed Decision 45

VI. Assignment of Proceeding 45

Findings of Fact 45

Conclusions of Law 48

ORDER 50

OPINION ADOPTING RULES FOR SWITCHING EXEMPTION

Today's decision adopts rules regarding the rights and obligations of Direct Access (DA) customers to return to bundled service and subsequently switch back to DA service. These issues include consideration of legality of the "switching exemption" pursuant to the limited rehearing of Decision (D.) 02-03-055 granted by D.02-04-067.

I. Background

DA service was authorized as part of the Commission's electric restructuring program in the mid 1990s whereby retail electricity customers were permitted to choose the entity from which they purchased their electricity. Customers could either subscribe to "bundled" service from the public utility or DA service from an electric service provider (ESP). Customers who purchase bundled service pay an electricity charge to cover the utility's power supply costs. Bundled service customers' total bill includes charges for all utility services, including distribution and transmission as well as electricity. A DA customer receives distribution and transmission service from the utility, but purchases electricity from its ESP.

Pursuant to the Governor's Proclamation of January 17, 2001,¹ and Assembly Bill No. 1 from the First Extraordinary Session (AB 1X). (See Stats. 2002, Ch. 4.), the California Department of Water Resources (DWR) became responsible for procuring electricity on behalf of the customers of the California utilities. As part of its provisions to deal with California's energy crisis, AB 1X also called for the suspension of DA. In compliance, the Commission issued D.01-09-060, suspending the right to enter into new contracts or agreements for DA after September 20, 2001.

In D.01-09-060, we reserved for subsequent consideration matters related to various implementation issues concerning DA suspension.² On January 14, 2002, we instituted the instant Rulemaking (R.) 02-01-011 to consider various pending implementation issues concerning the suspension of DA. As an initial phase of that proceeding, we issued D.02-03-055 which, among other things, adopted an exemption to the suspension requirements of D.01-09-060 by permitting contract renewals and assignments whereby existing DA customers could choose a new ESP and continue on DA even if they had returned to bundled service after September 20, 2001, subject to certain restrictions.³ (D.02-03-055, p. 21.) This exemption is referred to as the "switching exemption."

The Utility Reform Network (TURN) subsequently filed an application for rehearing, arguing that the "switching exemption" was unlawful and challenged its basis. (TURN's Application for Rehearing, pp. 6-7.) In D.02-04-067, the Commission granted a rehearing on this issue, and directed that the issue be made part of the phase of this proceeding on the DA cost responsibility surcharges. As stated in D.02-04-067, the limited rehearing was to consider the switching exemption further in light of AB 1X and D.01-09-060, and to develop an adequate record.

In accordance with D.02-04-067, an ALJ ruling was issued on May 2, 2002, directing parties to address the switching exemption issue within the scope of the evidentiary hearings scheduled on DA cost responsibility issues in this proceeding. Accordingly, parties addressed the switching exemption as part of the opening testimony on DA CRS submitted on June 6, 2002, and reply testimony submitted on June 20, 2002. Evidentiary hearings were held from July 11 through July 24, 2002, which included the issue of the switching exemption. Post-hearing opening briefs were filed on August 30, 2002, and reply briefs were filed on September 6, 2002. In D.02-11-022, addressing DA CRS issues, consideration of the switching exemption was deferred to today's order.

Active parties in this phase of the proceeding represented a range of interests including the investor-owned utilities: Pacific Gas and Electric Company and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E); parties representing bundled customers (i.e., Office of Ratepayer Advocates (ORA) and TURN; and parties representing DA customers, either through industry associations or as individual customers. The most active parties representing DA interests include the Alliance for Retail Energy Markets and the Western Power Trading Forum (AReM/WPTF), California Large Energy Consumers Association (CLECA), California Industrial Users (CIU), and California Manufacturers & Technology Association (CMTA). Other DA parties presented testimony or filed briefs.