IV. CONCLUSION

PG&E's application for rehearing fails to demonstrate legal error in Commission Decision (D.) 02-03-058.

IT IS THEREFORE ORDERED THAT:

1. D.02-03-058 is modified as follows:

a. On page 7, footnote 5, the fourth full sentence should be corrected to read: "PG&E argues that it does not meet ISO creditworthiness requirements and therefore cannot be responsible for ancillary services provided in ISO markets."

b. On page 15, the last word on the last line of the page should be changed from "Be" to "By." The corrected sentence shall read: "By taking these actions, we presume that we have now met our obligations to DWR and we also presume that the Edison Letter Agreement is part of that obligation."

c. On page 16, the last full paragraph is deleted and replaced with the following: "While we adopt an approach that requires the utilities to reimburse DWR for ISO-related costs, this method does not violate AB 1X. AB 1X is not implicated in this instance because we are considering utility costs, not DWR's costs. We have provided for recovery of these utility costs from customers, i.e., the ratepayers will be paying for these costs as part of the utilities' URG revenue requirements. Since we are taking a balancing account approach, the utilities have little risk in this regard. We recognize that the utilities have little control over these costs. Thus, we intend to audit the costs to ensure that DWR is paid on a timely basis and that any revenues associated with RMR or the provision of ancillary services are credited appropriately."

2. Rehearing of D.02-03-058, as modified, is denied.

This order is effective today.

Dated September 5, 2002 at San Francisco, California.

LORETTA M. LYNCH

President

CARL W. WOOD

GEOFFREY F. BROWN

MICHAEL R. PEEVEY

Commissioners

Commissioner Henry M. Duque, being necessarily absent, did not participate.