VI. Determination of List of MDL Entities Eligible for Applying for Any CRS Exception

A. Background

As stated above, the MDL Decision adopted a CRS for MDL customers, with specified exceptions for new load of existing publicly-owned utilities. That decision defined "new load," for purposes of applying the CRS exception, as load that had never been interconnected with a California IOU, but that was located in territory that had previously been IOU territory and had been annexed or otherwise expanded into by a publicly-owned utility. That decision also defined qualifying publicly-owned utilities eligible for the CRS exception as "publicly-owned utilities formed and delivering electricity to retail end-use customers before February 1, 2001.³¹

The MDL Decision further states:

"It is not clear from the record exactly which existing publicly-owned utilities would be entitled to exceptions from the CRS from this decision. It is our intent that only those publicly-owned utilities with substantial operations in place as of February 1, 2001 gain such benefit. Conversely, if there are any publicly-owned utilities serving minimal numbers of customers (e.g., under 100) which would technically qualify for CRS exceptions, we would choose to close such loopholes because there is too much chance for disproportionate expansion by such entities, expansion which could not reasonably have been considered by DWR." ³²

The MDL Decision anticipated the issuance of an ALJ ruling in this proceeding to clarify the definition of "existing publicly-owned utility" for these purposes." On July 23, 2004, the assigned ALJ solicited comments from the parties to develop comprehensive and final criteria for identifying publicly-owned utilities whose MDL departing load customers would qualify for exception from the CRS. The ruling identified the issues discussed below. The ruling anticipated the Commission would subsequently identify publicly-owned utilities whose customers qualify for the "new load" exception from the CRS.

Therefore, we use the identified list of qualifying publicly-owned utilities as eligible for the new load exception and use this same list to identify any MDL entities that are eligible to apply for the PG&E transferred load exception on a first-come, first-served basis, as discussed above.

To the extent that any "transferred load" CRS exception that remains available that is not otherwise utilized by the entities identified in PG&E's Bypass Report, these and other MDL entities may seek to apply for such exception if they are among those entities that meet the criteria identified below.

B. Defining Existing Publicly-Owned Utility for Purposes of Exceptions to CRS

In response to the ALJ's ruling regarding the identification of publicly-owned utilities eligible for a CRS exclusion as referenced above, the Commission received comments from PG&E, SCE, SDG&E, CMUA, Industry, Modesto, Merced ID, Rancho Cucamonga, SSJID.

The ALJ ruling asked parties to comment as to whether there should be a specific size cut-off criterion (e.g., number of customers, load, etc.) in order for an existing publicly-owned utility to qualify for CRS exceptions, or whether other criteria besides size should determine which existing publicly-owned utilities qualify for "new load" CRS exceptions.

C. Parties' Positions

PG&E believes that only publicly-owned utilities that fit the following criteria should be eligible for the MDL CRS exception: (1) the publicly-owned utility was providing retail service prior to February 1, 2001 (2) the publicly-owned utility was serving more than a minimal number of customers and (3) service to new customers within an IOU's service territory would not cause disproportionate expansion by the publicly-owned utility which could not reasonably have been considered by DWR. According to PG&E, compliance with the first and second criteria is straightforward. PG&E believes that the publicly-owned utilities should have the burden to establish whether they satisfy the third criteria before they are eligible to receive the exception.

SCE agrees with the Commission's intent to limit CRS exceptions to those utilities that were in existence prior to February 1, 2001. SCE would define publicly-owned utilities according to operational criteria, however, suggesting "size does not matter in this regard." SCE suggests that the Commission instead apply the definitions in Pub. Util. Code §§ 9604(d), 217 and 10001. SCE is specifically concerned that the definition of utility for purposes of the CRS exception exclude an entity that merely provides retail service by way of portable generators, because such generators are temporary in operation and also pollute.

SDG&E suggests that any size criteria (i.e., the 100 customers criteria) be a benchmark rather than a hard and fast rule and suggests the Commission also consider the following factors concerning the publicly-owned utility: (a) the number of customers served relative to the total number of electric consumers in the utility's geographic area; (b) the extent of ownership of the electric infrastructure; (c) whether substantial billing and customer service capabilities exist; and (d) the degree of integration of electric service with other services provided.

CMUA states that there should not be a specific size criterion in order for an existing publicly-owned utility to qualify for CRS exceptions, if the definition of existing publicly-owned utility remains as stated in the MDL Decision. If the Commission changes the definition of existing publicly-owned utility, the CMUA believes the following two factors should be considered: (a) the reasonable expectation of DWR and the IOUs in forecasting new municipal load of new publicly-owned utilities; and (b) the costs incurred by the new publicly-owned utilities with the reasonable expectation of serving new municipal load. CMUA believes that DWR's underlying forecasts should have accounted for the historical trend in the creation and operation of spot municipal utilities. CMUA also states that new publicly-owned utilities have invested millions of dollars in developing spot municipal utilities.

SSJID objects strongly to the proposal presented in the ALJ's ruling as it applies to SSJID. SSJID has provided agricultural water supplies since 1909. Adopting the proposed criteria, according to SSJID, would be unreasonable in its case because SSJID has pursued status as a retail electricity provider openly and publicly since 1997. It lists the actions it has taken in that regard, among them, the publication of a business plan in 1998 that addressed providing retail power from the Tri-Dam project and entering into an interconnection agreement with PG&E in 2000. SSJID argues that, in light of those public actions, DWR would have been unreasonable to have purchased power supplies assuming SSJID's continued reliance on PG&E power after an existing power contract with PG&E expires at the end of 2004. SSJID states PG&E has known for years of SSJID's plan to provide power to its constituents after that contract expires and even began negotiations for the purchase of PG&E distribution facilities. It argues that PG&E's load forecasts should have recognized that fact.

SSJID also proposes that the Commission use other milestones for determining eligibility for the publicly-owned utility exception from the CRS. For example, it would have the Commission consider evidence of "substantial progress" toward implementation of retail service using "developmental milestones" rather than size.

SSJID believes its proposal is consistent with Senate Concurrent Resolution (SCR) 39, which refers to municipal utilities and states that:

"...the Legislature intends that any municipal utility serving customers in newly developed areas shall be exempt from any exit fees, as long as the municipal utility was formed before June 1, 2003, and demonstrates that it has expended in good faith significant amounts of money and resources toward the creation of a municipal utility that will serve customers in newly developed areas."

Although SSJID states it is an irrigation district, it believes the principles set forth in SCR 39 should also apply to irrigation districts.

SSJID and Merced comment that the ALJ's proposed definition of "new load" departs significantly and inappropriately from that proposed in the MDL Decision. Specifically, Merced ID argues that the ALJ's definition contravenes the express language of the MDL Decision which applies the CRS exception to publicly-owned utilities with both exclusive and non-exclusive service areas. ³³

D. Discussion

In D.03-07-028, we set limits on the publicly-owned utilities that could seek to apply for a CRS exception. As stated in that decision, our intent was to avoid creating a loophole that would encourage new publicly-owned utilities to develop solely to take advantage of a disparity in rates associated with DWR and historical utility cost responsibility costs - to the detriment of remaining IOU ratepayers. We established the cut-off date of February 1, 2001 to determine whether the publicly-owned utility qualified for the limited CRS exception. We further stated that it was our intent that only those publicly-owned utilities with substantial operations in place as of February 1, 2001, be eligible for the exception, and proposed that such utilities serving a minimal number of customers (e.g., under 100) not qualify for the exception, because there is too much chance for disproportionate expansion by such entities, which expansion could not have been considered by DWR. We asked the assigned ALJ to develop a record to clarify the definition of "existing publicly-owned utility". ³⁴

In this order, we determine eligibility criteria for "existing publicly-owned utilities" who qualify for the limited CRS exception for transferred load, as adopted in this order. Specifically, "existing publicly-owned utilities" are those publicly-owned utilities who were (1) providing electricity to retail end-use customers on or before July 10, 2003; and (2) serving 100 or more customers. We modify the date from our original determination of a February 1, 2001 cut-off date because we are allowing other publicly-owned utilities beyond those originally named in the Bypass Report to be eligible for exceptions, on a first-come, first-served basis. Because we have modified the eligibility date for new load as described above, to allow exceptions on a non-discriminatory basis, we do so for transferred load as well. Thus, we adopt the effective date of July 10, 2003.

We define "substantial operations" in terms of number of customers, and decline to add other criteria to this definition. For example, PG&E suggests that the publicly-owned utility should establish that service to new customers within the IOU's service territory would not cause disproportionate expansion by the publicly-owned utility which could not reasonably have been considered by DWR, and SDG&E suggests adding other multiple criteria to the definition. However, an inquiry as to the number of customers strikes the balance as the best and most efficient way to insure against disproportionate expansion, because it is an objective test that does not require a mini-hearing for each publicly-owned utility claiming the exception.

We similarly decline to create a definition that relies on the type of technology (such as portable generators) a publicly-owned utility uses to serve its customers, because the number of customers a utility served as of this date is a more reasonable manner to address the issue of the possibility of disproportionate expansion. Finally, we do not create a definition that considers evidence of "substantial progress" toward implementation of retail service as of February 1, 2001 or the effective date of this decision, using "developmental milestones" rather than size, as suggested by SSJID, because as of February 1, 2001 or the effective date of this decision, there was no certainty as to when, if at all, such publicly-owned utilities would have begun to provide electricity to retail end-use customers.

PG&E lists the entities that, based on the Department of Energy table, appear to meet PG&E's first two suggested criteria (i.e., were formed and delivering electricity to retail end-use customers before February 1, 2001 and were serving more than 100 customers before February 1, 2001). PG&E believes that the burden should rest on the publicly-owned utilities to demonstrate that they satisfy the third criteria PG&E advocates be adopted before they qualify for the exception.

SCE states all municipal utilities in its territory that would qualify for the CRS exception are included in the ALJ's ruling. SDG&E states there are no qualifying publicly-owned utilities in its territory.

Modesto and Merced ID describe how they each meet all of the criteria proposed by D.03-07-028 and the ALJ's ruling. Modesto and Merced ID are included on the list of exempt publicly-owned utilities attached to the ALJ ruling.

Based on the lists provided by the IOUs in response to the ALJ ruling,³⁵ and the criteria adopted above, we conclude that the following publicly-owned utilities qualify as being eligible to apply for any unused portion of the CRS exception for transferred load that is not utilized by MDL of the irrigation districts and municipalities that are given first priority to utilize the CRS exception. In addition to those listed below, other publicly-owned utilities may make a motion to the assigned ALJ to be added to the eligibility list based on a demonstration that they meet the criteria we establish in this decision. The Assigned ALJ may rule on the eligibility of any entity who makes such a motion, after verifying eligibility and considering comments from other interested parties. Any such motions should be served on all parties on the service list for R.02-01-011.

The currently eligible Municipal Utilities are: Alameda, Anaheim, Azusa, Banning, Biggs, Burbank, Calaveras, Colton, Glendale, Gridley, Healdsburg, Lodi, Lompoc, Los Angeles, Needles, Palo Alto, Pasadena, Pittsburg, Redding, Riverside, Roseville, Santa Clara, Shasta Lake, Tuolumne, Ukiah, Vernon.

The currently eligible Municipal Utility Districts are: Lassen and Sacramento.

The currently eligible Public Utility Districts are: Trinity, and Truckee-Donner.

The currently eligible Irrigation Districts are: Imperial, Merced, Modesto, and Turlock.

PG&E argues that Merced ID should not qualify for a CRS exception because its service to new customers within an IOU's service territory would cause disproportionate expansion by the publicly-owned utility which could not reasonably have been considered by DWR. All of the electric service that Merced ID provides is within the area in which PG&E has an obligation to serve existing and new load. PG&E estimates that as of February 1, 2001, Merced ID was serving about 333 customers, about 328 of which were former PG&E customers and 5 of which were new customers. PG&E states that Merced ID tripled the number of customers it served between February 1 and the end of 2001, and almost all of the customer increase was represented by new load. PG&E also argues that, according to Merced ID's summer newsletter, the utility expects to serve about 4,300 residences by the end of 2004, and DWR could not have reasonably considered this expansion. Merced ID states that it qualifies for the CRS exception under the criteria set forth in the MDL Decision.

Merced ID states that it should qualify for the CRS exception, and that even applying PG&E's criteria, Merced ID's service to new load in recent years does not constitute a "disproportionate expansion" which could not have reasonably been considered by DWR. Merced ID states that its witness testified that between the time it began providing retail electric distribution service in 1996, and the beginning of 2001 when the DWR forecasts were prepared, its customer count had grown to over 200 and it was serving connected peak load in the range of 40 to 60 megawatts. Merced ID then refers to PG&E's witness Keane, who testified that PG&E included a detailed combined forecast of departing load for Merced ID and Modesto including 351,173 megawatt hours (MWh) for 2000; 385,321 MWh for 2001; 458,192 MWh for 2002; 531,064 MWh for 2003; 603,936 MWh for 2004; and 676,808 MWh for 2005.

Merced ID agrees with PG&E that Merced ID was serving approximately 881 customers in 2001, and that it expects to serve 4,300 residences by the end of 2004. Merced ID also agrees that most of this is new load. However, Merced ID explains that the 4,300 residences comprise only about 2.5 to 3 MW, and that this new load, combined with existing load that departs PG&E service in 2003 and 2004, is well within the forecast of departing load prepared by PG&E.

We conclude that the MDL of Merced ID qualifies under the criteria adopted above, because it had over 100 customers as of February 1, 2001 and therefore also as of July 10, 2003.

SCE believes that new publicly-owned utilities serving load with portable generators should not qualify for a CRS exception. In its reply comments, CMUA states that, contrary to PG&E's earlier comments, Needles is an existing publicly-owned utility since 1983, and is listed in the Department of Energy table attached to the ALJ ruling as having retail sales in 2001. CMUA also states that Edison failed to include the city of Banning within its list of existing publicly-owned utilities providing retail electric service as of February 1, 2001, and clarifies that Banning first began providing electric service in 1913, as is also listed on the Department of Energy table cited above.³⁶

For the reasons set forth above, we adopt the list of excepted entities set forth above, and decline to eliminate any of the listed entities whose new MDL would qualify for the exception.

³¹ ." D.03-07-028, p. 76 [Conclusion of Law 11] (slip op.).

³² Id. at pp. 61-62 (slip op.).

³³ D.03-07-028, p. 61 (slip op.), stating: "A reasonable way to make a distinction is to assume that historical trends will continue with current publicly-owned utilities and to not impose a CRS on new MDL associated with existing publicly-owned utilities (including publicly-owned utilities with non-exclusive service areas."

³⁴ D.03-07-028, pp. 61-62 (slip op.).

³⁵ The ALJ ruling attached a list of California public owned utility entities as of 2001 extracted from publicly available data on the Department of Energy website.

³⁶ The CMUA also states that SCE is wrong that only one new publicly-owned utility has been formed in its service area before February 1, 2001, because Victorville and Industry had both formed publicly-owned utilities on January 9 and January 25, 2001 respectively. CMUA also states that SCE is in error by including Downey on its list, because to CMUA's knowledge, Downey has not formed a publicly-owned utility.