D0209053 Interim Opinion on Procurement Issues: DWR Contract Allocation

2. Procedural Background

On October 29, 2001, the Commission issued an Order Instituting Rulemaking (OIR), designated as Rulemaking (R.) 01-10-024, to

(1) establish ratemaking mechanisms to enable California's three major investor-owned electric utilities to resume purchasing electric energy, capacity, ancillary services and related hedging instruments to fulfill their obligation to serve and meet the needs of their customers, and

(2) consider proposals on how the Commission should comply with Public Utilities Code Section 701.3 which requires that renewable resources be included in the mix of new generation facilities serving the state.

A preliminary scoping memo contained in the OIR set a schedule for utilities to file procurement proposals, for interested parties to comment on the proposals, and scheduled a prehearing conference (PHC) for January 8, 2002. SDG&E and PG&E filed their proposals on November 21, 2001 and SCE late-filed its proposal on November 27, 2001. Interested parties requested and were granted a one-week extension until December 21, 2001 to file comments. In their comments, many parties urged the Commission to decide initially those issues that need to be in place for the utilities to resume full procurement responsibilities no later than January 1, 2003, as anticipated by ABX1-1. One of those issues was the allocation of DWR contracted purchases among the utilities.

The procedural schedule and scope for the initial proceeding was adopted in the April 2, 2002 Assigned Commissioner Ruling Establishing Category and Providing Scoping Memo (April 2 Scoping Memo). The ruling requested briefs on transition issues that needed to be resolved and set a schedule for the utilities to file procurement plans for 2003 with accompanying testimony. In preparing their procurement plans, the utilities were directed to allocate the DWR contract volumes as follows:

· For those contracts with specific delivery points/locations identified, the contract volumes are allocated to the utility in whose service territory the delivery point is located.

· Unless delivery points/locations are specified in the contracts, all NP-15 contract volumes should be allocated to PG&E and all SP-15 volumes to SCE and SDG&E.

· SP-15 contract volumes, without specific delivery points/locations identified are allocated among SCE and SDG&E using factors derived from the utilities net short positions, and

· SP-15 contracts with specific delivery points/locations identified within the utility service area should be allocated to the appropriate utility. For example, the Calpeak El Cajon contract volumes should be allocated solely to SDG&E.

In addition to using the above assumptions, the ruling directed the utilities to propose their preferred method for allocating the DWR contract volumes in their testimony.

The utilities filed their briefs on transition issues on April 12, 2002 and served their testimony on May 1, 2002. As part of this testimony, SCE proposed the Commission adopt a process by which it could immediately begin contracting for up to a five-year term for capacity and related products in conjunction with DWR. On May 6, 2002, SCE filed a motion requesting that this proposal be approved on an expedited basis outside of the hearing process.

By ruling dated May 15, 2002, the Assigned Commissioner and Administrative Law Judge (ALJ) issued a ruling (May 15 Ruling) that expanded the scope of this initial phase and provided a short extension to the procedural schedule to consider SCE's May 6 proposal in the hearing process. The May 15 Ruling reiterated the importance of resolving issues related to the allocation of DWR contract volumes. To that end, SCE was directed to:

"quickly organize and coordinate a series of meetings between the three utilities, DWR, the Commission staff and all interested reviewing representatives of parties who have access to protected information in this proceeding. The purpose of these meetings is to develop, in whole or in part, a proposal, or proposals to resolve the physical allocation of DWR contracts and MW's between the three utilities....The focus is on the physical allocation and administration of the DWR contracts, not on the revenue requirement."³

The utilities did not submit this information in their May 24, 2002 supplemental testimony. Instead, they requested additional time until July 15, 2002 to develop proposals for a physical allocation of DWR contract quantities.⁴ The extension was granted and a schedule for written comments on the utilities' proposals was established by ALJ ruling.⁵

On July 12, SCE (on behalf of the utilities) contacted the assigned ALJ to request an additional week to file their proposals. The utilities stated that such additional time would enable them to submit comprehensive filings addressing contract allocation issues and related DWR coordination and operating agreements, with the potential for a narrowing of disputed issues. The ALJ allowed an extension of four days for the utility and DWR filings until July 19, 2002 and scheduled a workshop on July 26, 2002 to discuss the proposals on the record.⁶

On July 18, 2002, DWR submitted an analysis of several options for allocating the DWR contracts among the utilities. The options reflected scenarios requested by Commission staff, which had previously been discussed with the utilities during informal meetings. PG&E, SCE and SDG&E filed their DWR contract allocation proposals on July 19, 2002. Comments on DWR's analysis of options, the utilities' proposals and the discussion during July 26, 2002 workshop were filed by the utilities, the Office of Ratepayer Advocates (ORA), DWR and the California Consumer Power and Conservation Financing Authority (California Power Authority) on July 30, 2002. At the direction of the ALJ, the utilities and DWR addressed an alternate DWR contract allocation scenario in their July 30 filings. Replies were filed on August 5, 2002 by the utilities, ORA and the California Energy Commission.⁷

³ Assigned Commissioner's and Administrative Law Judge's Ruling Changing the Procedural Schedule for Testimony and Hearing in Response to Southern California Edison Company's Motion of May 6, 2002, May 15, 2002, pp. 5-6 (emphasis added). ⁴ See the May 24^th supplemental testimony of SCE (pp. I-6 to I-8), PG&E (p. S-3.) and SDG&E (p. 2.) ⁵ ALJ Ruling dated July 10, 2002. ⁶ See Administrative Law Judge's ruling Regarding Recent Electronic Notices to Parties, July 16, 2002. ⁷ In its comments, the California Energy Commission makes recommendations concerning the timing of the issuance of our contract allocation decision, and other procedural and scheduling matters, but does not address the specific allocation of DWR contracts proposed by parties in this proceeding. Therefore, we do not discuss these comments any further in today's decision.