II. Background

A. Procedural History

On May 24, 2001, we instituted Rulemaking (R.) 01-05-047 to evaluate whether the utilities' baseline programs should be revised. This review was prompted, in large part, by the unprecedented rate surcharges we have been forced to impose on Californians due to the energy crisis and by our adoption of a rate design relying heavily on baseline quantities to determine which residential customers are affected and to what degree.

The rulemaking has proceeded in two phases. In D.02-04-026 issued in Phase 1, we required that the utilities update baseline allowances to reflect current usage of gas and electricity, increase baseline allowances to the maximum percentage levels allowed by state law for those customers not already receiving those maximum allowances, and simplify and improve the process by which customers may obtain additional baseline allowances for medical reasons.

A prehearing conference (PHC) for Phase 2 was held on January 31, 2002. The Scoping Memo of Assigned Commissioner and Administrative Law Judge for Phase 2 of Proceeding (Scoping Memo), dated February 26, 2002, identified the scope of Phase 2 to include issues related to multiple dwelling unit common areas, in addition to issues related to household characteristics, well water pumping, baseline zones, seasonal effects, proposed legislative changes, and rate impacts of changes to baseline. The Scoping Memo recognized that a settlement regarding multiple dwelling unit common areas would be presented in Phase 2.

The common area settlement is based on a proposal by the Office of Ratepayer Advocates (ORA). Parties pursued the proposal through a series of conferences, including a settlement conference held on March 25, 2002, pursuant to Rule 51.1.

On May 14, 2002, Executive Council of Homeowners (ECHO) filed the Joint Motion for Adoption of Stipulation on Common Area Accounts in Baseline OIR Phase 2 (Joint Motion). The submitted stipulation was entered into by ECHO, PG&E, ORA, Spinnaker Cove Association, Silk Purse Properties, Post International Owners Association, Inc., and 10 Miller Place Homeowners Association (Stipulating Parties). Of the Stipulating Parties, only ECHO, PG&E, and ORA are parties to this proceeding.

Comments in response to the Joint Motion were filed by San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), Aglet Consumer Alliance (Aglet), and Latino Issues Forum and the Greenlining Institute (LIF/Greenlining). Aglet and LIF/Greenlining contested the stipulation, whereas SDG&E and SoCalGas were concerned that the stipulation not be precedential for their common area accounts. ECHO and PG&E filed reply comments.

On July 15, 2002, ECHO filed a fully executed copy of the Stipulation on Common Area Accounts in Baseline OIR Phase 2 (Parties' Modified Version) (Modified Stipulation) which changed the original stipulation to address Aglet's concern that it would give priority to PG&E's largest common area accounts in the move to commercial tariffs. The Modified Stipulation is attached to this order as Attachment B.

On July 23, 2002, LIF/Greenlining filed a motion to strike PG&E's reply comments in their entirety or, alternatively, to strike specific portions of those reply comments. LIF/Greenlining argued that PG&E, in replying to LIF/Greenlining's protest, presented the equivalent of testimony and that a hearing must be held on the contested issues. PG&E replied to the LIF/Greenlining motion to strike on August 7, 2002.

A second PHC for Phase 2 was held on August 15, 2002. At that time, the administrative law judge (ALJ) denied the LIF/Greenlining motion to strike and ruled that an evidentiary hearing should be held on the contested factual issues regarding the settlement. While the signing parties characterize the submitted agreement as a stipulation, we agree with the ALJ that the Modified Stipulation's proposal to give PG&E's common area electric accounts the option of receiving service via commercial tariffs is properly classified under Rule 51 as a settlement ("a mutually acceptable outcome to the proceedings" (Rule 51(c))) rather than a stipulation (an agreement regarding an "issue of law or fact material to the proceeding" (Rule 51(d))).

An evidentiary hearing on the Modified Stipulation was held on September 3, 2002, the first day of the Phase 2 hearings. Testimony was presented by PG&E's witness Philip J. Quadrini, Watergate Community Association's (Watergate) witness Tim Sutherland, and ORA's witness Dexter Khoury.

On September 13, 2002, parties were given the opportunity to make oral statements in lieu of briefs regarding the common area settlement. At that time, LIF/Greenlining withdrew its protest based on the record that had been developed during the evidentiary hearing. The Utility Reform Network (TURN) stated that it does not oppose the settlement, although TURN disagrees about whether it should have precedential value for the other utilities. The record on the Modified Stipulation was submitted following the oral statements.

B. Context

About 1.1 million households served by PG&E live in multifamily dwelling units, including condominium complexes, apartment buildings, and mobile home parks. The bulk of common area electricity usage is for lighting (both outdoors and hallways), laundry rooms, and elevators. Electricity usage among common area accounts varies widely depending on the size of the building and how many meters are used for the common areas.

PG&E's common area electric accounts are served through residential tariffs. Each common area meter has a separate account, and each account receives one baseline allowance.

D.01-05-064 implemented the $0.03 per kilowatt-hour (kWh) average surcharge authorized in D.01-03-082 for PG&E and Southern California Edison Company (SCE). The new five-tier residential rate structure assesses surcharges for usage above 130 percent of a customer's baseline allowance. PG&E's resulting residential surcharges range up to $0.11505 per kWh for Tier 5 (usage over 300 percent of baseline). Because most of the usage of large common area accounts falls within the highest tiers, these accounts paid disproportionately high bills as a result of this rate design. By contrast, PG&E's surcharges for commercial customers do not vary based on usage levels.

PG&E's common area electric accounts have not always received service under residential tariffs. PG&E's common area electric accounts with single-phase service were switched from commercial to residential rates in 1967, and PG&E's common area accounts with poly-phase service (used for large customers) were switched to residential rates beginning in 1992.

No party has requested modifications to the treatment of SCE's and SDG&E's common area electric accounts. Common area accounts served by these utilities have not experienced rate increases of the magnitude experienced by PG&E's larger common area accounts. All of SCE's common area accounts, SDG&E's single-phase accounts serving common areas associated with detached homes, and SDG&E's three-phase common area accounts are on commercial electric schedules and, thus, are not subject to residential tiered charges. While SDG&E's single-phase common area accounts not associated with detached homes are served through residential tariffs, SDG&E does not have a steeply tiered residential rate design like PG&E's. Similarly, no party has indicated a need for the treatment of common area gas accounts to be reconsidered.