III. Background

This decision involves the determination of cost responsibility for DA load pursuant to the directives in D.02-03-055, which did not change the effective date of September 21, 2001 for the suspension of DA that was adopted in D.01-09-060. We suspended DA pursuant to legislative directive, as set forth in Assembly Bill No. 1 from the First Extraordinary Session (AB 1X ). (See Stats. 2002, Ch. ___.) This emergency legislation was enacted to respond to the serious situation in California when PG&E and SCE became financially unable to continue purchasing power due to extraordinary and unforeseen increases in wholesale energy prices.

The Governor's Proclamation of January 17, 2001,⁵ and AB 1X required that DWR procure 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, as set forth in Section 80110 to the Water Code:

"After the passage or such period of time after the effective date of this section as shall be determined by the commission, the right of retail end use customers pursuant to Article 6 ... to acquire service from other providers shall be suspended until [DWR] no longer supplies power hereunder."

In compliance with the mandate to suspend DA, we considered the related implementation issues in A.98-07-003. A proposed Administrative Law Judge (ALJ) decision was issued in that proceeding in June 2001, proposing a DA suspension date of July 1, 2001. The Commission ultimately issued D.01-09-060, suspending the right to acquire DA after September 20, 2001. In D.01-09-060, we placed parties on notice, however, "that we may modify this order to include the suspension of all direct access contracts executed or agreements entered into on or after July 1, 2001." (D.01-09-060, pp. 8-9.)

On January 14, 2002, the instant rulemaking (R.) 02-01-011 was initiated to consider among other things, whether a suspension date earlier than

September 20, 2001 should be applied to direct access.⁶ On March 27, 2002, we issued D.02-03-055 in this proceeding, determining that the DA suspension date should remain as "after September 20, 2001," in the interests of providing for predictability and regulatory consistency on a going-forward basis. DA contracts executed on or prior to September 20, 2001, were not suspended, but were made subject to the restrictions imposed by D.02-03-055. We emphasized in D.02-03-055 that bundled service customers should not be burdened with the additional costs that would otherwise shift to them due to the significant migration of customers from bundled service to direct access between July 1, 2001 (the suspension date originally anticipated in the ALJ Proposed Decision) and September 21, 2001 (the suspension date adopted by the Commission).

We noted that, in lieu of an earlier suspension date, DA surcharges must be considered as a means of preventing cost-shifting and the development of these surcharges must be timely. We later clarified that prevention of cost shifting meant that "bundled service customers are indifferent."⁷ Should timely implementation of such charges fail to occur, we stated in D.02-03-055 that the proceeding would be reopened to reconsider the suspension date for DA.

⁶ The administrative record relating to these specific issues in A.98-07-003 et al. was incorporated into this rulemaking. Judicial notice was also taken of specific information in the DWR Revenue Allocation Proceeding A.00-11-038 et al. (See Letter of January 25, 2002, to the parties that accompanied the Draft Decision of ALJ Barnett).

⁷ D.02-04-067, pp. 4-5.