IV. Overview of Parties' Positions

A. Pre-Settlement Positions

In their pre-settlement cases-in-chief, parties generally gravitated into one of two groups. There were also certain variations of parties' positions within a group.

One group, generally representing the views of bundled customers and utility interests was composed of the utilities, ORA, and TURN. Within this group, PG&E, SCE, ORA, and TURN all argued that DL that departed the utility system after January 17, 2001, should bear a share of both past and future costs on an essentially similar basis to their respective proposals for DA customers. SCE sought to recover an HPC element from customers that became DL after March 29, 2002, the date of the ALJ ruling formally notifying DL customers that such charges were being considered in this proceeding.

PG&E proposed that if exemptions were granted to a limited class of DL customers that install "super clean" and/or efficient DG units, such exemptions should be based upon an evaluation and policy conclusion that the benefits of encouraging these DG technologies outweighs the cost-shifting burden other customers will have to bear.

SDG&E proposed that DWR Bond Charges be recovered from all customers, including all forms of DL that remain directly or indirectly connected to the grid. SDG&E also proposed that DL served by customer self-generation generally be excluded from paying for DWR ongoing power charges, based on the premise that DWR did not incur costs to serve this load. SDG&E is already recovering a competition transition cost (CTC) component from DL customers under its existing tariffs, and proposes no change in that process. SDG&E argues that a surcharge should apply only to DL that was not anticipated by DWR when it made purchases and for which it incurred costs that became stranded.

The other major group of parties generally comprised interests representing various aspects of the Customer Generation market. In their pre-settlement testimony, these parties generally opposed imposition of any surcharges on DL customers, citing legal, factual, and policy reasons. Parties cite state and federal statutes, including AB 1890, AB 1X, Public Utilities Code Sections 216 and 281, and the Public Utilities Regulatory Policies Act (PURPA) to support their claims. Parties argue that Customer Generation projects are more appropriately characterized as demand reduction or energy efficiency measures that provide quantifiable benefits to customers and the state's energy grid.

Certain parties, including EPUC/KCC/GAG, UC/CSU, AREM, and CalSEIA, argued that the Commission lacked legal authority and a policy basis upon which to impose these charges retroactively. EPUC et al. argue that Public Utilities Code Section 218(a) and (b) place customer-owned generation outside the scope of this Commission's jurisdiction, and that it is subject only to Federal Energy Regulatory Commission (FERC) regulation pursuant to PURPA. These parties argue that the Commission does not have the authority to impose a surcharge for DWR costs or costs for purchased power from qualifying facilities (QFs) and utilities' retained generation. To the extent that the Commission retains any right to regulate customer generation, they claim that it is limited to the development of standby service charges.

These parties contrast the Legislature's decision to authorize the suspension of new direct access contracts (Water Code § 80110), with the Legislature's strong support for the construction of new generation, particularly cogeneration and distributed generation. These parties cite legislation such as Assembly Bill No. 970 (AB 970), Stats. 2000, ch. 329, and Senate Bill 28 of the First Extraordinary 2001-2002 Session ("SB 28"), (Stats. 2001, ch. 12), as intending to encourage private investment in new generating facilities in order to relieve the strain upon the state's system. Given the recent cancellations and delays in the planned construction of large power plants in the state, they argue that the need for small generation facilities is even more critical. Parties further argue that Customer Generation did not cause DWR to incur costs, and accordingly, such generation should not be subject to surcharges.

A. The Settlement Agreement

The Settlement Agreement proposes that DL that began to receive service from onsite or over-the-fence generation after January 17, 2001 shall pay a "DWR Shortfall Charge" equal to 72% of the DWR bond charge imposed on bundled service customers.¹¹ "Existing" and "grandfathered" DL are exempt from paying any surcharge for DWR's ongoing costs, as is DL served by new onsite or over-the-fence generation up to an annual megawatt ("MW") cap.¹² DL covered by the Settlement Agreement is required to continue to contribute toward the recovery of costs in SCE's Procurement Related Obligation Account (PROACT).¹³ Finally, the Settlement Agreement provides that DL that is not statutorily exempt from paying CTC shall pay a tail CTC consisting of the components specified in Public Utilities Code Section 367(a).¹⁴

The Settlement Agreement does not address certain issues that Settling Parties do not consider to be fully ripe for determination, such as the applicability of an HPC for PG&E, or how, if at all, generator refunds in pending FERC dockets would apply to DL customers. The Settlement Agreement likewise does not address narrow issues that Settling Parties believe are better left to case-specific applications. For example, specific questions relating to the implementation of charges at customer sites with multiple accounts, and sites at which the customer maintains no utility connection are not addressed in the Settlement. The Settlement Agreement also does not address the question of exemption from CRS for "eligible customer generators" as defined in Public Utilities Code Section 2827(b)(2), or eligible biogas digester customer-generator" as defined in Public Utilities Code Section 2827.9.

ORA and SDG&E oppose the "Shortfall" charge, and argue instead that a full share of the DWR Bond Charge should apply on the same pro rata basis as for bundled and DA customers. ORA also opposes the exclusions from ongoing DWR power charges pursuant to the proposed megawatts (MW) cap. Other parties representing CG interests opposed the Settlement for opposite reasons, arguing against imposition of any surcharges on the basis that it would be contrary to public policy and statutory mandates in favor of developing new sources of alternative generation. We address the substance of parties' objections in the discussion of each specific element of CRS, as set forth below.