5. Assignment of Proceeding

John A. Bohn is the assigned Commissioner, and John S. Wong is the assigned ALJ in this proceeding.

Findings of Fact

1. SDG&E's phase-out proposal is designed to eliminate the rate cap imposed by Water Code § 80110 by increasing SDG&E's Tier 1 and Tier 2 residential electric rates beginning on January 1, 2008, and ending on January 1, 2016.

2. In the settlement that we approved in D.08-02-034, the parties agreed to separate the AB1X rate cap issues from the other issues in this proceeding, agreed to waive evidentiary hearings on the AB1X issues, and agreed to a schedule for the filing of briefs on the AB1X issues.

3. Water Code § 80110 codifies the rate cap provision at issue in this proceeding.

4. SDG&E's proposal to phase-out the rate subsidies by 11.1% each year would have the effect of increasing the Tier 1 and Tier 2 electric rates for residential customers each year beginning in 2008 through 2016.

5. The rate cap is inconsistent with the EAP, and a barrier to cost-based rates and dynamic pricing.

6. The phrase "until such time as the department has recovered the costs of power" in Water Code § 80110 creates the condition of when the rate cap can be lifted.

7. No one disputes that the DWR power contracts are still in existence and that the power under those contracts is being supplied to the retail end use customers of the three electric utilities.

8. A switch of SDG&E's residential customers to Schedule DR-TOU, as it existed on February 1, 2001, would result in a large revenue shortfall for SDG&E.

Conclusions of Law

1. Since SDG&E's phase-out proposal would increase residential rates for Tier 1 and Tier 2 usage, the mandatory language in Water Code § 80110 prohibits the adoption of SDG&E's phase-out proposal unless the "until such time" condition is triggered.

2. Since DWR currently is still in the process procuring power on behalf of SDG&E's customers and recovering the costs of this power, a statutory precondition for eliminating the rate cap in Water Code § 80110 has not yet been met, and accordingly SDG&E's phase-out proposal cannot be adopted at this time.

3. The Commission's rulings on Water code § 80110 to date have not addressed the precise question of whether Water Code § 80110 requires that the rate cap be kept in effect after the time DWR ceases procuring power on behalf of SDG&E's customers but before the time when the bonds authorized by AB1X have been paid off.

4. The Commission finds that the question of how long the rate cap must remain in effect, pursuant to Water Code § 80110, must be considered within the broader context of the economic and policy effects that our ruling on this question will have. Because this will require further development of the record and because we need not answer this precise question in order to dispose of the instant application, we decline to make a ruling at this time.

5. If necessary, SDG&E shall file an advice letter within 20 days of today's date to revise its tariffs to conform the rates to reflect our decision not to adopt SDG&E's phase-out proposal.

6. Switching SDG&E's residential customers to the current Schedule
DR-TOU would result in an increase to the summer rate for Tier 1 and Tier 2 usage, and therefore should not be adopted because it would run afoul of Water Code § 80110.

7. Since there are no other issues to resolve in this proceeding, this proceeding should be closed.

ORDER

IT IS ORDERED that:

1. The proposal of San Diego Gas & Electric Company (SDG&E) to phase-out, i.e., roll off, the rate cap mandated by Water Code § 80110 is not adopted.

2. If necessary, within 20 days of today's date, SDG&E shall file an advice letter to revise its tariffs to conform the rates to reflect our decision not to adopt SDG&E's phase-out proposal:

The advice letter shall also state whether any collections were made pursuant to rates that would not comply with this decision and should include a plan to repay any such collections.

3. Application 07-01-047 is closed.

This order is effective today.

Dated November 6, 2008, at San Francisco, California.

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