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STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

July 16, 2004

TO: ALL PARTIES OF RECORD IN RULEMAKING 02-01-011

Decision 04-07-025 is being mailed with the Dissent of Commissioner Wood. The Dissent of Commissioner Lynch will be mailed separately.

Very truly yours,

/s/ Angela K. Minkin by PSW

ANGELA K. MINKIN, Chief

Administrative Law Judge

ANG/avs

ALJ/TRP/avs Mailed 7/16/2004

Decision 04-07-025 July 8, 2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Regarding the Implementation of the Suspension of Direct Access Pursuant to Assembly Bill 1X and Decision 01-09-060.

Rulemaking 02-01-011

(Filed January 2, 2002)

OPINION DENYING PETITIONS TO MODIFY
DECISIONS (D.) 03-04-057 and D.02-03-055

TABLE OF CONTENTS

OPINION DENYING PETITIONS TO MODIFY DECISIONS (D.) 03-04-057 and D.02-03-055 22

ORDER 4343

APPENDIX 1

OPINION DENYING PETITIONS TO MODIFY
DECISIONS (D.) 03-04-057 and D.02-03-055

By this decision, we resolve two related pleadings: (1) the Petition to Modify D.03-04-0571 and the Petition for Clarification of D.02-03-055.2 We deny both petitions, but adopt certain near-consensus principles governing direct access (DA) load growth that were developed as a result of an Energy Division workshop held on March 11, 2004.

I. Discussion

A joint petition to modify D.03-04-057 was filed on August 1, 2003 by SBC Services (SBC), University of California/California State University (UC/CSU), and California Large Energy Consumers Association (CLECA) (Joint Petitioners). The Petition was filed to prevent Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) (i.e., "utility distribution companies [UDCs]) from implementing a new policy which Petitioners claim would require pre-suspension DA customers to install a second meter and establish a second, bundled account in the ordinary course of business whenever a meter change is required. Joint Petitioners believe this new requirement is based on an untenable interpretation of D.03-04-057, a decision establishing certain ground rules when customers want to move DA accounts.

Thus, Petitioners ask that the Commission modify D.03-04-057 to affirm that second meters and second, bundled accounts are not required when meters are changed. Moreover, because of the expense, increased operational complexity, failure risk associated with increased operational complexity, and disruption caused by this policy, Petitioners ask that the Commission act expeditiously. Pursuant to Rule 47, Joint Petitioners specifically request that D.03-04-057 be modified by changing the requirements of Rule 6 (in Appendix A, p. 2) as follows:


Rule 6 should not be construed to prevent, after September 20, 2001, the installation of meters or meter-reading equipment as necessary to initiate direct access service for eligible customers, or the replacement or upgrade of existing meters for existing direct access customers, including meter changes and upgrades caused by normal increases in load at pre-suspension accounts. (Proposed text additions underlined.)

The Joint Petitioners argue that the UDCs erroneously base their proposed two-account, two-meter policy on language in D.03-04-057 regarding "no net increase in DA load." The Joint Petitioners argue this language was adopted by the Commission merely to ensure that the ability to move the location of DA-eligible accounts would not result in gaming the suspension order (i.e., D.02-03-055), but that the issue of normal load changes, at stationary accounts was simply not before the Commission in D.03-04-057. Joint Petitioners believe their requested modification to Rule 6 will prevent the UDCs from implementing the two-meter, two-account policy for normal increases in load.

The economic and administrative disruption caused by the two-meter, two-account policy as identified by the Joint Petitioners fall into two categories: (1) expense; and (2) increased operating complexity and inefficiencies. Joint Petitioners cite examples of the costs and disruptions that a two-meter, two-account policy would have on the UC/CSU system. As discussed in the declaration of Len Pettis, both UC/CSU, the systems are adding significant new facilities to existing campuses over the next decade to meet mandated enrollment growth. (Pettis Decl.¶ 3.) Typically, these facilities are infill buildings that are not proximate to a campus' main service connection point. The campuses typically own the distribution system within the campus boundaries that supplies electricity to individual campus facilities. The normal practice of the campuses would be to serve these new facilities through the campus-owned distribution systems. Joint Petitioners claim the UDCs' policy would require that a campus install not only a separate meter but a separate feed to new facilities that would likely cost millions of dollars for each new facility.

For SBC, as claimed in the declaration of John Keller, more than 15% of SBC's DA loads will require a second meter this year. (Keller Decl., ¶ 9.) The additional energy costs to SBC will be $3.6 million annually, which represents only the additional energy charges from the second account not being billed as DA service. Keller claims the SBC hardware and installation costs for the second meter and panel will increase by approximately $460,000 for the work scheduled for 2003.

In addition, the second meter proposal will require a second House Service Panel (HSP) to keep the two systems separate, as well as additional equipment, which will cost from $50,000 to $300,000 per project.

SCE opposes the Petition to Modify D.03-04-057.3 SCE denies Joint Petitioners' claim that SCE relied on the "no net increase in DA load" language in D.03-04-057 to implement its procedures for increases in DA load. SCE argues that its procedures are intended to implement the Commission's "standstill approach" to DA load and to prevent "add-ons of new DA load," as promulgated in D.02-03-055, prior to D.03-04-057.

SCE also denies Joint Petitioners' claim that SCE is "taking the position that routine meter changes can trigger the loss of DA service" and that SCE is requiring DA customers to install a second bundled account "whenever a meter change is required." (Jt. Petition, p. 1.) SCE argues that it has implemented procedures to respond to requests by DA customers to "significantly increase" DA load, which may or may not require a meter change.4 In fact, SCE believes existing metering for most large customers, is adequate for the increased load.

SCE does not agree with the Joint Petitioners' conclusion that the Commission limited its prohibition of new DA load to only new accounts. SCE argues that the Commission's "standstill approach" was intended to prohibit growth in DA load, and that the term "add-ons of new load" clearly contemplates adding load to an existing DA account, not solely opening a new account. SCE argues that allowing DA accounts to add-on new load without limitation would be a giant loophole in the Commission's "standstill approach" and would render the entire approach meaningless.

As a related matter, SCE filed on August 4, 2003, a Petition for Expedited Clarification of D.02-03-055." SCE seeks clarification from the Commission regarding the appropriate procedures for implementing the "standstill approach" adopted in D.02-03-055 in connection with requests received from DA customers to increase their DA load. SCE seeks the Commission's approval of its proposed procedures to respond to such requests. SCE seeks timely resolution of this issue to minimize potential future costs increases to DA customers if it becomes necessary for them to reconfigure their electric facilities to separate their existing DA load from any significant incremental load.

Pursuant to Assembly Bill (AB) 1X (Cal. Water Code, Section 80110), which requires that "the right of retail end users to acquire service from other providers shall be suspended until the department [DWR] no longer supplies power hereunder," the Commission issued a series of decisions implementing DA suspension. On September 20, 2001, the Commission issued D.01-09-060, suspending the right of customers to acquire DA service on or after September 21, 2001. Subsequently, the Commission issued D.02-03-055, which confirmed the September 21, 2001 suspension date and articulated a general "standstill approach" which enabled current DA customers to preserve their DA service while assuring that overall DA load would not increase.

Under the Commission's "standstill approach," DA load is not permitted to grow, "apart from normal load fluctuations." However, in attempting to implement the "standstill policy," SCE argues that it is difficult to differentiate "normal load fluctuations" (due to factors such as weather changes or seasonal businesses) from the "addition of new load" (due to factors such as the addition of new equipment). Therefore, SCE is proposing to use an objective criterion (500 kilowatt (kW) or 10% threshold) that it believes is large enough that it will not be confused with a "normal fluctuation" in load. SCE selected a 500 kW threshold because an increase of 500 kW is equivalent to adding a large industrial customer to SCE's system.

SCE explains that it files its Petition over a year after D.02-03-055 was issued because DA load growth and requests for increases in DA load did not occur immediately. Given the increase in the volume of requests over the past year, however, SCE developed certain interim procedures to respond to such requests, and is now filing its petition to obtain the Commission's approval of those procedures, as summarized below:

· Determine when additions of load on existing DA accounts will result in a "significant increase" is defined as an increase greater than 500 kW or 10% over current load, whichever is greater.

· Where it is determined that the load on a DA account has significantly increased (or will significantly increase), provide the customer with the option of returning to bundled service or separately metering the new load as a new bundled service account.

· Monitor cumulative DA load for large power customers. If it is determined that DA load is increasing significantly (e.g., an increase of 10% above the level of DA load as of the beginning of 2003) then re-evaluate these procedures.

· Exclude DA customers that maintain DA demand of less than 500 kW from the second meter requirement.

On September 2, 2003, PG&E and SDG&E (the utilities) filed a joint response to the Petition to Modify D.03-04-057, and on September 3, 2003, filed a joint response to the SCE Petition to Modify D.02-03-055. In their joint response to SCE's Petition, the utilities agree with SCE that the Commission's DA suspension decisions limit load growth on existing DA accounts to "normal usage variations" and "normal load fluctuations," but disagree with SCE in terms of how to address the DA load growth that exceeds such "normal" variations.

PG&E and SDG&E agree that SCE's proposed approach would reduce administrative burden to the extent it focuses load growth limits only on the largest DA customers. PG&E and SDG&E oppose the SCE approach, however, arguing that it still would require considerable "policing" by the utilities, and would require uneconomic load splitting expenses to be incurred by large customers. PG&E and SDG&E thus ask the Commission to modify its "standstill approach" to eliminate restrictions on DA load growth on accounts in existence and under contract on September 20, 2001, in view of significant cost impacts on individual customers of splitting load. The utilities continue to support the prohibition in D.02-03-055, however, on new DA accounts being added after September 20, 2001. The utilities thus propose language changes to D.02-03-055 for this purpose.

PG&E and SDG&E, however, do not believe modification of D.03-04-057 is necessary or appropriate to accomplish this result. D.03-04-057 is a decision modifying one aspect of D.02-03-055 and does not change the underlying "standstill" policy adopted in D.02-03-055. While the utilities do not believe any changes to D.03-04-055 are necessary, they propose that the Commission convene a Rule 22 Working Group meeting to determine whether the affidavit developed by the utilities to implement D.03-04-055 needs further revision in light of a modification of the DA load growth rules.

The utilities claim their proposed D.02-03-055 modification to the Commission's "standstill" policy would minimize monitoring and policing of DA load by the utilities, while accommodating "reasonable" load growth. PG&E and SDG&E propose that load on DA accounts be allowed to grow to the point where the distribution facilities serving the customer (i.e., wires, transformers, panels) need to be upgraded (referred to as a "panel upgrade") to accommodate the increasing load. Once a panel upgrade is requested, the customer would be required to physically divide the load allowing the original load amount as of September 20, 2001 to remain on DA with the increment being metered separately as a bundled service load.

Even though the utilities agree with petitioners that load on DA-eligible accounts should be allowed to grow, the utilities disagree with many of the statements and characterizations made in the Petition to Modify D.03-04-057. The utilities argue that petitioners obscure the real issue of allowable DA load growth by alleging that the utilities require a DA customer to install two meters whenever it changes its existing meter. At least for PG&E and SDG&E, however, only when a customer seeks a panel upgrade (which often does not require an upgraded meter) do the utilities seek to require that loads be split between DA and bundled service charges. A panel upgrade means that significant load growth has occurred. The utilities would allow DA load to fluctuate within the limits of the capacity of distribution lines and equipment serving the load which PG&E and SDG&E believe more than accommodates daily and seasonal load variations.

The utilities argue that Petitioners' proposed change to Rule 6 in D.03-04-057 does not address the core question, namely, determining the allowable load growth for DA accounts. The proposed Rule 6 change would allow for "the installation of meters or meter reading equipment as necessary to initiate direct access service for eligible customers, or the replacement or upgrade of existing meters for existing direct access customers, including meter changes and upgrades caused by normal increases in load at pre-suspension accounts."

The utilities argue that granting this modification will lead to considerable confusion and new disputes over the meaning of the word "normal." The proposed modification to D.03-04-057 moreover, ignores the provisions of D.02-03-055 limiting DA load growth to "normal load fluctuations" and "normal usage variation." D.02-03-055 makes it clear that existing DA load growth is limited to "normal load fluctuations" or "normal usage variations" on existing DA accounts. New accounts are prohibited. Subsequent clarifications in D.03-04-057 state that that "normal load fluctuations" means "daily and seasonal load fluctuations" and that the Commission standstill policy is aimed at maintaining DA levels as they existed on September 20, 2001. Thus, the utilities argue, adopting the proposed modification to D. 03-04-057 would create an internal inconsistency with D.02-03-055.

On September 3, 2003, other parties also filed responses to the SCE Petition.5 The Joint Parties (AREM and Albertson's) oppose the SCE proposal, but support the modified approach proposed by PG&E and SDG&E in response to the petition of SBC et al. to modify D.03-04-057. The Joint Parties claim that complying with SCE's two-meter policy would cause DA customers to incur significant costs without any corresponding benefit. The Joint Parties oppose SCE's Petition to Clarify D.02-03-055 and instead favor lifting the restrictions on load growth for "grandfathered" DA accounts6 as suggested by PG&E and SDG&E.

The Joint Parties view the PG&E/SDG&E approach to the DA load growth issue as being simple, easy to implement, and less confusing than the SCE approach. In addition, the Joint Parties ask the Commission to clarify that the DA suspension rules should not be construed to prevent changes in the "normal course of business" including but not limited to changes in DA account or meter numbers, implementation of temporary accounts, or consolidation of multiple DA-eligible accounts into a smaller number of new DA accounts. Joint Parties argue that such changes in the identification of DA accounts do not affect the total amount of DA-eligible load and thus should not trigger a loss of a customer's DA rights, regardless of whether the Commission adopts the SCE approach or the PG&E/SDG&E approach.

Strategic Energy also opposes the SCE proposal and supports the PG&E/SDG&E approach. Strategic Energy argues that SCE's proposed two-meter policy would be unworkable and unenforceable with respect to splitting load between bundled and DA service. Strategic Energy argues that SCE has not demonstrated that DA load growth within its service territory has exceeded levels attributable to "normal load fluctuations" that are allowable under Commission rules, thus calling into question whether there is any shortcoming in the existing DA rules. Strategic Energy notes that the DA load figures posted on the Commission's website show that statewide DA load in May 2003 is virtually the same as in January 2002.

CIPA also opposes the SCE proposal at least until certain issues are clarified or modified. CIPA characterizes the SCE proposal as establishing a precedent ultimately requiring CIPA members to bifurcate their load growth and begin receiving separate bills as bundled customers. CIPA views such a result as inconsistent with the Commission's original intention, and argues that this proposal appears to have serious implications for self-generation. For example, if a gas producer installs a self-generation facility and zeroes out load growth, it is unclear whether the producers should be required to pay any cost responsibility surcharge (CRS). CIPA also questions when the clock would start for the purposes of assessing load growth under the SCE proposal.

1 D.03-04-057 granted the Petition to Modify D.02-03-055 filed by Albertson's Inc. to allow DA customers to add new locations or accounts to DA service provided there is no net increase in the amount of load served under DA as of September 20, 2001. 2 D.02-03-055 set forth the Commission's policies concerning suspension of DA based on a September 20, 2001 suspension date. 3 SCE filed its response in opposition to the Joint Parties' Petition on September 2, 2003. SCE also filed a third-round reply in support of its own Petition for Clarification on September 15, 2003. The Joint Petitioners, on September 18, 2003, filed a motion to strike the third-round reply, arguing that SCE failed to obtain advance permission and that the reply improperly challenged the "standstill principle." SCE filed a response to the Joint Motion to strike on September 25, 2003. SCE argues that its failure to obtain advance permission was inadvertent, and no party is prejudiced thereby. SCE denies that it is challenging the "standstill principle." The motion to strike the third-round reply is denied. SCE should have asked for permission in advance pursuant to Rule 47(g), although SCE did belatedly seek permission after the fact to file the third-round reply. Its receipt will not prejudice any party. Permission to receive the third-round response is granted. 4 SCE's proposed implementation procedures are discussed in the following section of this order relating to SCE's Petition for "clarification" of D.02-03-055. 5 Responses to the SCE Petition were filed by SBC Services, Inc., University of California/California State University, and California Large Energy Consumers Association (collectively, the "Joint Petitioners"); PG&E and SDG&E; Strategic Energy L.L.C.; and the California Independent Petroleum Association CIPA). 6 "Grandfathered" DA accounts refer to those accounts in effect prior to February 1, 2001, the effective date of AB 1X.

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