5. Conclusion

We have reviewed the various provisions contained in the Agreements in light of the parties' positions, the relevant Commission decisions, DWR's request pursuant to Water Code Section 80106 (b) and 80016, and our statutory responsibilities. We find that the Agreements, as modified by this decision, are reasonable. We note that in reviewing and approving the Agreements, the Commission retains the obligation to independently assess and protect the public interest.

We reject provisions in the Agreements that would: (1) allow the utilities to terminate the Agreements without Commission approval, (2) require disputes be subject to binding arbitration, (3) allow the utilities to submit various operational "option" for DWR's approval, (4) provide an alternate option for recovery of utility fees and charges, and (5) require DWR to approve pay-for-curtailment and surplus sales protocols. We also reject PG&E's proposed "economic stacking" protocol for calculating surplus sales revenues. As discussed above, PG&E's proposal is incomplete and inconsistent with the pro rata sharing policy adopted in D.02-09-053.

The PG&E and SDG&E Agreements, as modified, are attached to this decision as Appendix A and B. PG&E and SDG&E are directed to file the executed Agreements, as compliance advice letters, within seven days.

We decline to require SCE to enter into an Operating Agreement with DWR. As indicated by today's decision, we are receptive to reviewing a mutually agreeable Operating Agreement between SCE and DWR so long as the terms do not substantially deviate from the terms in D.02-12-069 or today's decision. However, until such an agreement has been mutually agreed by SCE and DWR and approved by the Commission, D.02-12-069 will serve as the ordering instrument by which SCE shall conduct itself with respect to administration of the DWR contracts. Similarly, if PG&E or SDG&E determine that the modifications to the Operating Agreement contained herein are unacceptable and decline to file revised Operating Agreements via advice letter, they too shall remain subject to the Operating Order adopted in D.02-12-069. We do however, direct SCE to file a Gas Supply Plan by compliance Advice Letter on or before April 17, 2003 along with PG&E and SDG&E.

We also note that, in its motion, PG&E stated that it would need to obtain Bankruptcy Court authorization to commence performance under the Operating Agreement and that PG&E intends to seek authority from the Bankruptcy Court on an expedited basis. PG&E has since received approval from the Bankruptcy Court. Despite the modifications necessitated by today's decision, we do not anticipate that PG&E will need to obtain Bankruptcy Court authorization to enter into the revised Operating Agreement.

Nonetheless, if PG&E believes that it must seek Bankruptcy Court approval for this operating agreement, it is free to do so. In that case, the operating agreement will not become effective until such approval has been obtained.

We also note that the nature of the relationship between DWR and the utilities does not require this Commission to alter its adopted standards for review of utility administration of the DWR contracts. We decline SDG&E's request that the Commission expressly recognize that the reasonableness of contract administrative activities will be measured against the terms of the Agreement.