II. APPLICATION FOR REHEARING OF EDISON AND PG&E

A. Summary

Edison and PG&E contend that there is legal error in our decision with respect to:

1. the "ratio" method to be used by Edison and PG&E to calculate the payment for electric power supplied by CDWR for their end-use customers for the 12-day period covered by Water Code § 200(i);

2. a perceived conflict between the Commission's prior ratemaking decisions for certain electric power plant facilities and the interim order requiring that utilities account for the electric power sold at cost-based rates;

3. the lack of specific directions in ordering Edison to replace its Advice Letter 1514-E with one that complies with the directives in D.01-01-061, namely directions for: a) determining "capital related revenue requirement based on the amounts recorded in their respective Transition Cost Balancing Accounts;" b) modifying the cost-based rates relative to those previously stated in Advice Letter 1514-E; and c) the timeframe for withdrawing Advice Letter 1514-E and filing the replacement, and the impact of that timing on Edison's ability to calculate a direct access credit for 30 days;

4. ordering Edison and PG&E to remain scheduling coordinators for operational purposes while the Commission is considering the results of an evidentiary hearing held January 29, 2001, on whether Edison and PG&E should be preliminarily enjoined for refusing to act as scheduling coordinators; and

5. requiring that Edison and PG&E, respectively, hold the sums collected from end-use customers "in trust for the benefit of CDWR" for electric power provided by CDWR.

As we shall discuss, the objections raised do not demonstrate that our orders in D.01-01-061 are contrary to law. However, the application of Edison and PG&E indicates a need for clarification of some of our directions, which we shall provide herein.

B. Payment Mechanism for Department of Water Resources Electric Power

D.01-01-061 was issued on an emergency basis to implement recent legislation, Senate Bill x 1 - 7, which added Section 200 to the California Water Code. This statute was made effective for a period of 12 days ending February 2, 2001.

An essential provision of the new law ordered the Commission to "adopt and implement emergency regulations...to provide for delivery and payment mechanisms relating to the sale of electric power purchased by the department [of water resources] for sale directly or indirectly to the Independent System Operator, public utilities, or retail end-use customers." (Water Code § 200(i).)

Consistent with this directive, the Commission ordered in D.01-01-061 that CDWR's sale of electric power shall be to the retail end-use customers, rather than to the Independent System Operator or to the utility companies. Edison, PG&E, and SDG&E are the distributors of the electric power within their respective service territories and are to act as billing agents for the CDWR. (D.01-01-061, Ordering Paragraphs 8 - 11, at 11.)

The payment mechanism the Commission adopted also complies with two principal provisions of Water Code § 200(b):

- that for a period not to exceed 12 days, "...the department [of water resources] may purchase electric power from any party and make that electric power available at the cost of its purchase" plus related costs not to exceed $1 million;

- the retail-end-use customers who receive the CDWR electric power "shall be responsible for costs at no more than the rates established by the Public Utilities Commission in effect on the date the electric power is made available to the customers." (Emphasis added.) ²

Consistent with these provisions, the Commission ordered that the payment to be made to CDWR should be calculated, on a daily basis, according to the percentage of CDWR electric power distributed to end-use customers relative the total electric power delivered. However, because CDWR's costs, which the statute mandates must be recovered, could be in excess of the revenue collected from customers pursuant to the rate freeze in effect under Section 368(a) of the Public Utilities Code, a "shortfall" was anticipated. We ordered Edison and PG&E to track the shortfall in their accounting. (D.01-01-061, Ordering Paragraph 8. )

In their application for rehearing, Edison and PG&E object generally to what they describe as the "ratio of load served" methodology. (Edison and PG&E Application for Rehearing, at 2.) However, this objection goes to the statutory law, not to the Commission's implementation of that law. The payment mechanism of our interim order provides for CDWR to be paid "the cost of its [electric power] purchase." (Water Code § 200(b).) At the same time, customers are "responsible for costs at no more than the rates established by the Public Utilities Commission in effect on the date the electric power is made available to the customers." (Water Code § 200(b). Our payment mechanism, therefore, complies with what the Legislature has enacted into law. It does not constitute an unconstitutional "taking," as claimed by Edison and PG&E. It instead allocates to CDWR the revenues collected from customers for the power provided by CDWR.

Furthermore, to the extent the companies' argument is based on the "shortfall" accounting order, that matter is moot. In D.01-02-077, the Commission rescinded Ordering Paragraph 8 of D.01-01-061. (D.01-02-077, Ordering Paragraph 1, at 4.)

We are also not persuaded by Edison's and PG&E's argument that the payment mechanism required by Water Code § 200(b) must be the same as the payment mechanism required by the subsequently enacted Section 360.5 of the Public Utilities Code. Edison and PG&E do not cite to any provision of law to support their contention. In D.01-01-061, the Commission met its obligation to issue urgent regulations to comply with Water Code §200.

Finally, Edison and PG&E claim that the payment mechanism for compensating CDWR is "unworkable" on a daily basis as required by D.01-01-061. (Edison and PG&E application for rehearing, at 4.) This matter is also now moot. Although there was no stay of our order, Edison and PG&E failed to comply with our decision and did not make the required payments to CDWR. To expeditiously correct this situation, as part of a recent decision implementing related legislation, we specifically explained how the payment to CDWR is to be calculated and eliminated the "daily basis" requirement. (See, D.01-03-081, at 26.)

C. Cost-Based Rates for URG And Prior Ratemaking Decisions

Edison and PG&E argue that it is unlawful for the Commission to adopt cost-based rates for the URG orders in D.01-01-061 without stating that this rate order "does not override existing ratemaking established pursuant to statute and prior Commission decisions." (Edison and PG&E Application for Rehearing, at 5.) Edison and PG&E point out that cost-based rates may have different meanings depending on the kind of generation resource used. They discuss, for example, the rates for Edison's Palo Verde nuclear generation that have been determined by a particular incremental cost ratemaking calculation as first established in D.96-12-083. They also refer to the ratemaking treatment for PG&E's hydroelectric generating facilities described in D.00-02-048.

We will clarify, therefore, that for the purposes of this interim order, the accounting required includes previously ordered Commission ratemaking rules that are in effect for a particular facility at the time the generation facility is used. This means that the "cost-based rate" accounting required by D.01-01-061 is essentially based on the accounting prescribed for electric restructuring proceedings, e.g., the Transition Revenue Account, the Transition Cost Balancing Account, and the generation memorandum accounts. Again, because our order is interim, the required accounting for utility retained generation shall be subject to revision and modification in further Commission proceedings.

D. Edison's Advice Letter 1514-E Replacement

Edison has raised questions regarding the advice letter filings required by Ordering Paragraph 11 of D.01-01-061. Edison requests clarification of our direction that it shall "determine the capital-related revenue requirement based on the amounts recorded in its Transition Cost Balancing Account." We meant that Edison should use the reduced rate of return on equity for transition cost recovery of generation-related plant assets adopted in D.97-11-074 in determining its capital related revenue requirement for retained generation. Ordering Paragraph 12 of that decision established a reduced rate of return for Edison's non-nuclear generation assets of 7.22 percent. D.97-11-074 (Section 18.1, p. 175) set a reduced rate of return for Edison's nuclear assets as established in D.96-04-059 for SONGS 2&3, and D.96-12-083 for Palo Verde.

In the rehearing application, Edison also asked for specific directions for the filing that is to replace Advice Letter 1514-E. Edison stated that it is not clear what modification is needed to make Advice Letter 1514-E consistent with D.01-01-061. Edison further stated that it was not clear whether the Commission intends for Edison to withdraw Advice Letter 1514-E "immediately" or at the time Edison files its revised advice letter.

Edison did not withdraw Advice letter 1514-E immediately, but on March 2, 2001, Edison filed Advice Letter 1521-E as directed in D.01-01-061. The advice letter issues raised by Edison, accordingly, are moot.

E. Edison and PG&E To Remain Scheduling Coordinators

The Commission ordered Edison and PG&E to "remain" the scheduling coordinators for operational purposes and to ensure that total load and total generation are balanced. (D.01-01-061, at 9, and Ordering Paragraphs 13 and 14, at 17.) Edison and PG&E claim that this order prejudges an issue that was subject of an evidentiary hearing held on January 29, 2001. However, our order followed and is consistent with the issuance of a temporary restraining order (TRO) on January 19, 2001 in D.01-01-046. The TRO prevented the two utility companies from refusing to act as scheduling coordinators in conjunction with the California Independent System Operator for their non-direct access customers. The hearing on January 29, 2001 considered whether it was necessary to continue to enjoin Edison and PG&E by the issuance of a preliminary injunction. A decision on that matter is pending. The Commission's order in D.01-01-061, therefore, retained the status quo, and we thus find no unlawful prejudgment.

F. Customer Revenues To Be Held In Trust for CDWR

Edison and PG&E object to our requiring that the sums collected from their customers for CDWR be held "in trust" for CDWR." We stated:

"Edison and PG&E shall collect, in trust for the benefit of CDWR, sums owed by retail end-use customers. Edison and PG&E shall make monthly payments to CDWR. All amounts so collected by the utilities shall be held in trust for the benefit of CDWR and shall not constitute property of the utilities." (D.01-01-061, Ordering Paragraph 7, at 15.)

Edison and PG&E contend that giving CDWR a superior claim to the payments CDWR is owed for the electric power it sells to end-use customers will result in "spooking an already-scared marketplace and thereby exacerbating shortages of electricity supply." Edison and PG&E propose instead to have the money owed CDWR subject to their self-determined priorities. In our decision, however, we also ordered that CDWR shall at all times maintain ownership of the electric power it purchases until it is sold to the retail end-use customer, and that PG&E and Edison shall function solely in an administrative capacity as billing agents. (D.01-01-061, Ordering Paragraphs 3 and 4, respectively, at 14.)

The argument of Edison and PG&E, therefore, is not persuasive. It does not present a logical rationale or legal grounds for finding that the Commission unlawfully ordered customer payments due CDWR, the owner of the power delivered, must be held in trust for CDWR by the billing agents. Failing to specify how the Commission's order is contrary to law, Edison and PG&E have not established the statutory basis for rehearing. (See, Cal.Pub.Util. Code §1732.)