2. Background

On December 19, 2002, the Commission issued Decision (D.) 02-12-069 ordering PG&E, SDG&E, and Southern California Edison Company (SCE), to perform contract administration services on behalf of the DWR in conjunction with DWR power contracts that the Commission allocated to the utilities for operational purposes in D.02-09-053. In D.02-09-053, the Commission directed the utilities to negotiate an operating agreement addressing contract administration services with DWR and jointly file such agreement with the Commission. D.02-12-069 was issued by the Commission as an "Operating Order" after concluding that the utilities had not succeeded in reaching an agreement with DWR.

D.02-12-069 allowed the utilities to continue negotiating with DWR to attempt to reach consensus on a mutually acceptable operating agreement, stating:

"We understand that DWR believes there is a realistic possibility that such an Operating Agreement can be worked out with the utilities through continued negotiations and we continue to support these efforts. The utilities may continue to negotiate with DWR to attempt to reach consensus on a mutually acceptable Operating Agreement. If such an agreement is reached, the utilities should submit the agreement to the Commission for approval and request termination of the Operating Order. Assuming that the agreement is substantially similar to the Operating Order we adopt today, we anticipate that it could be approved on an expedited basis, after the necessary public review and comment."

On December 19, 2002, SDG&E filed a "Motion Requesting Consideration and Approval of Operating Agreement with the Department of Water Resources Regarding Contract Administration." In addition, on December 20, SDG&E and PG&E (collectively, "the utilities") filed an "Expedited Joint Motion for Stay of Decision No. 02-12-069, and PG&E filed an "Expedited Motion to Terminate Operating Order and Approve Operating Agreement."

PG&E and SDG&E request that the Commission approve the Operating Agreements (Agreements) on the basis that they establish an acceptable contractual framework under which the utilities can provide the services requested by DWR. PG&E and SDG&E also request that the Commission stay the effectiveness of D.02-12-069 (otherwise referred to as the Operating Order) in the event that the Commission is unable to approve the Agreements by December 31, 2002.

The Agreements filed by PG&E and SDG&E are based on the Draft Operating Agreement submitted by DWR on December 9, 2002. In that submittal, DWR requested that the Commission order PG&E, SDG&E, and SCE to enter into the Draft Operating Agreement, pursuant to Water Code Section 80106 (b) and 80016. As noted in D.02-12-069, DWR has previously requested that the Commission adopt an operating agreement (See D.02-12-069, at 5-6). D.02-12-069 also noted that the Commission's decision derives from the explicit statutory authority provided in Water Code Sections 80016 and 80106(b) and from the Commission's general statutory authority under Public Utilities Code Section 701.

In an electronic ruling issued on December 23, 2002, PG&E and SDG&E were directed to identify and summarize the differences between the proposed Agreements and the Operating Orders and associated attachments and exhibits adopted in D.02-12-069 by December 26, 2002. On December 24, 2002 and December 26, 2002, respectively, PG&E and SDG&E filed responses to the ruling.

On January 6, 2002, SCE filed a reply to the Joint Motion. On January 7, 2003, PG&E requested and was granted permission to respond to SCE's reply. SDG&E was also granted permission to respond to SCE's reply. PG&E, SDG&E, and DWR filed responses to SCE's reply on January 8, 2003.