IV. DWR's Request

In a letter to the Commission dated March 14, 2001, DWR set forth its views on how the Commission should determine the CPA. (See Attachment A.) This letter was provided the parties for comment by ALJ ruling.

DWR believes the Commission's determination of the CPA is a critical element in the implementation of AB 1X and the initial step in establishing a revenue source for DWR in meeting its power purchase responsibilities. Further, DWR asserts that the CPA is also important to any long-term or short-term financing. Based on the comments received from parties, we agree with DWR's characterization of the importance of the CPA.

DWR argues that nothing in AB 1X suggests that the utilities should retain any revenues attributable to power furnished by DWR. DWR believes Section 360.5 contemplates that utilities will no longer bear costs for the "net short" power that DWR buys in their place, and that utility generation rates should be adjusted to reflect DWR's purchases. DWR asserts that Section 360.5 was also intended to provide financial assurance to DWR for its power purchases.

In general summary, DWR believes that for the sale of net short energy to the customers of each utility, DWR should receive:

(i) a per-kWh price equal to the applicable generation-related retail rate per kilowatt-hour established for each utility as in effect on January 5, 2001; plus

(ii) a Commission-determined portion of the January 5, 2001 rate for power the utility continues to sell. (Fixed DWR Set-Aside.)

Further, each utility, on a per-kWh basis, should receive:

(i) the components of the January 5, 2001 rate attributed at the time of original rate-making to power that the corporation will continue to sell to its retail end use customers, (i.e., native generation, qualifying facility contracts, existing bilateral contracts and ancillary services); plus

(ii) a portion of the January 5, 2001 rate for power the electrical corporation continues to sell, to be determined by the Commission, (i.e., the portion of such rate which is not determined to be part of the Fixed DWR Set-Aside.)

Specifically, for each utility, DWR believes the Commission should do the following:

First: Identify the generation related component of the corporation's retail rate that was in effect on January 5, 2001, expressed in terms of cents per kilowatt-hour (the "Total Generation Related Rate").

Second: Determine the "sum of the costs" (also expressed as a rate, i.e., in terms of cents per kilowatt-hour) imputed by the Commission to the corporation's own generation, qualifying facility contracts, existing bilateral contracts, and ancillary services at the time the January 5, 2001 rate was established (the "Utility Retained Rate").

Third: Determine "the difference between" the Total Generation Related Rate and the Utility Retained Rate. That is, subtract the Utility Retained Rate from the Total Generation Related Rate to determine the CPA applicable to the utility.

For power sold by the utility,⁶ DWR asserts that each utility must pay DWR an amount equal to the product of (i) the number of kilowatt-hours purchased by retail end users from the utility, multiplied by (ii) the Fixed DWR Set-Aside.⁷ DWR asserts that such payment is due upon the utility's receipt of payment by each of its retail end-use customers.

DWR also makes a number of points about the nature of the CPA. DWR asserts that the CPA is a set, immutable rate, which should be expressed in terms of cents per kilowatt-hour. DWR contends that any changes in the costs of any generation resource of any utility from the costs reflected in the January 5, 2001 rate should not affect the CPA. .

DWR's letter asserts that the calculation of the CPA does not alter DWR's right to recover any portion of its revenue requirement, which AB 1X does not require to be fully recovered through the Fixed DWR Set-Aside. Similarly, calculation of the CPA does not prevent the Commission from allowing utilities to recover their costs for that portion of the power for which they remain responsible. Further, DWR believes that the calculation of the CPA does not per se determine the division of the CPA as between DWR (Fixed DWR Set Aside) and any utility. DWR requests that the Commission determine the CPA now, and the Fixed DWR Set Aside at a later date.

Finally, DWR makes specific requests of the Commission. It requests that the Commission (i) determine, pursuant to Section 360.5, the CPA of each utility, and (ii) acknowledge that DWR may rely upon this determination for the purposes of Water Code Section 80130. Lastly, DWR requests that upon DWR's acceptance of this order in writing, that it constitute an agreement between DWR and the Commission having the full force and effect of a financing order, as provided by Water Code Section 80110.