II. 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 increases 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 quantities to reflect current usage of gas and electricity, increase baseline quantities to the maximum percentage levels allowed by law for customers not already receiving those maximum allowances, and simplify and improve the process by which customers may obtain the standard limited additional baseline allowance for medical reasons. We determined that the Commission may increase baseline allowances for electricity, but may not reduce them for utilities taking power purchased from the Department of Water Resources (DWR) or otherwise bound by Water Code § 80110. Revenue shortfalls due to the baseline changes and administrative costs of the changes to the medical baseline program are recorded in the utilities' BBAs, the disposition of which was deferred to Phase 2.

Public participation hearings were held in this proceeding on August 27, August 28, September 10, September 20, September 24, December 12, and December 13, 2001. The Commission has received over 900 letters and other correspondence regarding this proceeding.

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 the following issues:

1. Household characteristics (including household/home size and demographics),

2. Climate zones and geographic boundaries of each utility's baseline zones,

3. Well water pumping for household use,

4. Condominium and other multiple dwelling unit common areas,

5. Seasonal residence effects on average use calculations (including the application of baseline to vacation homes),

6. Definition of seasons,

7. Rate impacts of changes to baseline, and

8. Proposed legislative changes.

The Scoping Memo provided for legal briefs in advance of the Phase 2 evidentiary hearing to address the scope of Commission authority to make changes to the baseline program related to items 1, 3, 4, and 5. Opening legal briefs were filed by Latino Issues Forum and Greenlining Institute (LIF/Greenlining), Office of Ratepayer Advocates (ORA), PG&E, Regional Council of Rural Counties (RCRC), SCE, Southern California Gas Company (SoCalGas) and SDG&E (collectively, SoCalGas/SDG&E), Southwest, and TURN. Reply legal briefs were filed by Aglet Consumer Alliance (Aglet), Executive Council of Homeowners (ECHO), LIF/Greenlining, ORA, PG&E, SCE, SoCalGas/SDG&E, and TURN.

In D.02-05-010, dated May 2, 2002, the Commission approved a request by SDG&E to divide its climate Zone 1 into a Coastal zone and an Inland zone based on different usage patterns in the two areas. The Commission increased the baseline quantities for the new Inland climate zone based on its higher average usage. Consistent with D.02-04-026, baseline quantities were not decreased for customers in the new Coastal zone.

The Assigned Commissioner and Administrative Law Judge Ruling Re Legal Issues, Climate Zone Issue and Updated Schedule, dated May 24, 2002, determined that the arguments in favor of a legal bar to the Commission making changes to its baseline program were not strong enough to preclude evidentiary hearings on the identified issues. The ruling required that parties file comments regarding whether information that the utilities had provided in response to an administrative law judge (ALJ) request for information regarding climate zones militates in favor of (or against) a climate zone change, provided for reply comments, and requested that the utilities supplement their responses to the request for information in certain respects. The ruling also modified testimony submittal dates. SCE, SDG&E, and SoCalGas filed comments on the utilities' climate zone submissions, and PG&E filed reply comments.

A second PHC for Phase 2 was held on August 15, 2002. Official notice was taken of the 2002 United States Census, and of the legislative history of Public Utilities Code § 739,¹ § 739.8, and AB 1X. It was determined that no party planned to present proposals regarding items 2 (baseline climate zones), 6 (seasons), and 8 (legislative changes) identified in the Scoping Memo. It was ruled that seasonal definitions and potential legislative changes would not be considered further in this proceeding but that evidence regarding the utilities' climate zones should be provided and company witnesses made available for cross examination. Upon review of the record regarding the utilities' climate zones, and in light of the parties' consensus that no climate zone modifications are needed at this time, we see no need to address baseline climate zones in this order.

At the second Phase 2 PHC, it was also determined that a settlement regarding PG&E's residential common area electric accounts would be addressed separate from other Phase 2 issues, to expedite Commission consideration. Evidence was received on the common area settlement and other common area issues on September 3, 2002, the first day of Phase 2 hearings, and the record regarding the common area settlement was submitted on September 13, 2002. In D.03-01-037, the Commission approved the settlement and deferred allocation and cost recovery issues regarding PG&E's CABA to this order on remaining Phase 2 issues.

Ten days of evidentiary hearings were held in Phase 2 between September 3 and September 13, 2002. Following the receipt of evidence on common area issues, the remaining hearings addressed other Phase 2 issues. Testimony was presented during the ten days by witnesses for the California Large Energy Consumers Association (CLECA), LIF/Greenlining, ORA, PG&E, RCRC, SCE, SoCalGas/SDG&E,² Southern California Water Company (which operates Bear Valley Electric Service) (SCWC), Southwest, TURN, and the Watergate Community Association (WCA). On September 13, 2002, the ALJ provided for the receipt of several late-filed exhibits and set a hearing for October 4, 2002, if needed, to address those exhibits. Following filing of the late-filed exhibits, no party objected to their receipt, the October 4, 2002 hearing was cancelled, and an October 9, 2002 ALJ ruling received the late-filed exhibits into evidence.

Opening briefs on Phase 2 issues (other than the common area settlement) were filed by Aglet, the California Farm Bureau Federation (Farm Bureau), CLECA, LIF/Greenlining, Mountain Utilities (Mountain), ORA, PG&E, RCRC, SoCalGas/SDG&E, SCE, Southwest, TURN, and WCA.³ Reply briefs were filed by Aglet, LIF/Greenlining, Mountain, ORA, PG&E, RCRC, SoCalGas/SDG&E, SCE, Southwest, TURN, and WCA. No party requested oral arguments in Phase 2. The Phase 2 record was submitted on November 4, 2002.

On May 2, 2003, the assigned ALJ issued a ruling reopening the Phase 2 proceeding to allow receipt of information regarding the impact of a settlement agreement submitted on April 23, 2003 in Application (A.) 03-01-019. That settlement agreement, while primarily addressing SCE's Procurement Related Obligations Account (PROACT), also proposed to resolve disputes in Phase 2 of this proceeding regarding SCE's BBA. The ALJ ruling required that SCE file the PROACT settlement agreement in the Phase 2 proceeding and provided for additional briefs on the impact of the PROACT settlement on this proceeding. SCE, TURN, and SDG&E/SoCalGas filed supplemental briefs and RCRC filed a supplemental reply brief. Phase 2 was resubmitted on May 20, 2003.

We approved the PROACT settlement in D.03-07-029 and the revised rates became effective on August 1, 2003. The adopted settlement incorporated the ongoing revenue impacts of the Phase 1 decision in SCE's rates, so that no further Phase 1 undercollection will accrue. It also provided that the balance in SCE's BBA due to Phase 1 will be amortized over 12 months and that the BBA will be terminated at the end of the amortization period. SCE's rates were modified and its surcharges were replaced with a permanent four-tier rate structure.

On September 12, 2003, the assigned ALJ issued a ruling reopening the Phase 2 proceeding to allow receipt of information regarding 2002 sales and revenue by class and by residential tier for PG&E, SCE, SDG&E, and SoCalGas. No party objected to the receipt of this additional information and Phase 2 was resubmitted on September 25, 2003.