6. Discussion

SDG&E's request and DWR's response identify a threshold question for our consideration; namely, were deliveries under the Williams RMR contract allocated to SDG&E along with the rest of the DWR-Williams contract?

D.02-09-053 requires the utilities to assume all operational, dispatch and administrative functions for the DWR contracts allocated to their portfolios (D.02-09-053, Ordering Paragraph 2). These functions include "day-ahead, hour-ahead and real-time trading, scheduling transactions and with all involved parties (e.g., suppliers, the ISO and transmission providers), making surplus sales, preparing forecasts and obtaining relevant information for these functions, such as transmission availability." (Id., at p. 45). However, these requirements only apply to the DWR long-term power supply contracts that have been allocated to the utilities. As discussed in D.02-09-053, we adopted a contract allocation that achieved an appropriate balance among the competing proposals in terms of the allocation of contract capacity, energy, residual net short, and other comparison metrics presented by the parties. None of the allocation proposals submitted in response to the April 2, 2002 Assigned Commissioner Ruling in Rulemaking (R.) 01-10-024 which led to the issuance of D.02-09-053 addressed the RMR contracts, nor were the RMR contract deliveries raised by DWR in its December 3, 2002, request to reallocate the Williams contract to SCE.⁹

Although DWR maintains that the RMR component is intended to be an integral part of the Williams contract, DWR does not reference decision language demonstrating that our allocation of the original Williams contract, or our subsequent refusal to reallocate Product D of the renegotiated Williams contract, contemplated an allocation of the RMR energy. Nor does DWR provide any evidence demonstrating that DWR is a party to the RMR contract. Finally, DWR does not cite to any contract language or Commission decision that supports its position that SDG&E is responsible for administration of the Williams RMR contract.

In contrast, as SDG&E points out, Product D of the renegotiated Williams contract specifically notes that the RMR energy is subject to a separate agreement. In addition, DWR's claim that D.02-09-053 and the Operating Agreement require SDG&E to "administer" the Williams RMR contract is belied by the fact that SDG&E does not appear to have the authority to fully administer the RMR contract. For example, SDG&E is not able to select whether the "contract path" option or the "market path" option is the optimal choice under the least-cost dispatch requirements.

Based on the facts presented, we believe that the RMR contract between Williams and the CAISO is outside the ambit of the products allocated to the utilities in D.02-09-053. The RMR contract is a contract between Williams and the CAISO that is separate and apart from the DWR-Williams contract that was allocated to SDG&E in D.02-09-053 and is therefore not subject to the SDG&E- DWR Operating Agreement.

DWR argues that SDG&E's request contravenes Water Code Sections 80110 and 80112, which provide that DWR shall retain title to all power sold by it to retail end-use customers and that all money paid with respect to any sale of power acquired under Division 27 of the Water Code shall constitute the property of DWR. Based on this premise, DWR states that remittances should be made at the retail rate set forth in the DWR revenue requirement decision (D.02-12-045, as amended by D.02-12-052 and D.03-03-031). SDG&E does not dispute that it received the RMR energy from the Huntington Units. However, the problem with DWR's argument is that it is not clear that the power that has been supplied to SDG&E under the RMR contract has been supplied by DWR. As noted above, DWR does not cite to any contract language that supports its claim that DWR, rather than Williams, is a counterparty to the Williams RMR contract. SDG&E suggests that Williams, rather than DWR, holds title to the RMR energy, and DWR, in turn, is entitled to the revenue produced by the sale of the RMR energy. As SDG&E points out, the payment provisions in Section 7 (c) of Product D of the Williams contract state that Williams should be paid by the CAISO (and indirectly by SCE as the Responsible Utility) and not by DWR.

On a fundamental level, if the power is supplied by Williams pursuant to the RMR Contract, and Williams has chosen the "market" path, then Williams, and in turn, DWR (if it is entitled to the revenues from the RMR contract), is entitled to whatever market price it can achieve. It does not follow that SDG&E should be required to purchase this power, nor does it follow that SDG&E should be required to pay more than the market rate for this power. We agree with SDG&E that if the energy is being sold by Williams, and not DWR, this approach does not violate any provisions of AB1X.

For these reasons, we deny SDG&E's petition and clarify that the RMR Contract is not among the DWR Contracts allocated to the utilities in D.02-09-053. In doing so, we emphasize that it is the utilities' responsibility to use least cost dispatch criteria, taking into account both their own direct costs, and the costs associated with system and local area reliability.