Motion

SDG&E's motion requests authority to establish a sub-account within the PECA to record costs associated with the purchase of energy and ancillary services in the bilateral market for delivery through the PX day-ahead or day-of markets as well as authority to record costs associated with the purchase of capacity with associated energy as a hedging product. For those products which the PX's bilateral delivery service cannot accommodate, SDG&E would require that any bilateral contract specify that the products go to physical delivery in the PX day-ahead or day-of markets or that SDG&E would procure transmission needed to physically deliver into the PX markets. In such instance, SDG&E would make available to the PX, on a confidential basis, the terms of its contract for the purposes of allowing market monitoring.

Although SDG&E previously has requested Commission authorization to participate in the Block Forward Market (BFM) energy and ancillary services market, SDG&E has not, until now, requested Commission authorization to use the bilateral option feature of the California Trading Services Division (CTS). However, the PX has continually enhanced its BFM, including the bilateral option. The bilateral option has evolved to the point where delivery may be accomplished through the PX day-ahead market. Entering into appropriate bilateral transactions and providing delivery through the PX's bilateral delivery option has been approved for SCE and PG&E, and SDG&E now requests the same authority. The PX's bilateral delivery option requires that the terms of the transaction be disclosed on a confidential basis to the PX. SDG&E will also disclose all transactions that use the PX's bilateral delivery option to this Commission on a confidential basis. SDG&E proposes to submit such a report on a monthly basis. For bilateral transactions that the PX's bilateral delivery option cannot accommodate, SDG&E proposes to either require physical delivery in the PX's day-ahead or day-of markets on a "must-deliver, must-take" basis, or SDG&E will procure the transmission needed to be able to physically deliver in the PX markets.

Under the terms of the Commission's D.00-08-021, SDG&E is currently authorized to participate in the PX forward markets for energy services, subject to seasonal trading limits, through the end of the last utility rate freeze. SDG&E is not proposing an increase to the limits approved in D.00-08-021 and will treat its capacity purchases under those limits, although it reserves the right to request expanded authority in the future.

Consistent with D.00-08-023, SDG&E requests authorization to enter into bilateral contracts that expire on or before December 31, 2005. SDG&E proposes that costs associated with, and gains/losses from these bilateral contracts should be attributed only to small commercial and residential customers. Should the Commission adopt a rate stabilization plan applicable to a broader group of customers, SDG&E proposes that the authority to engage in bilateral contracts have a matching allocation of benefits and costs.

SDG&E proposes the following approach, per D.00-08-023, to determine prospectively whether a particular purchase meets a predefined reasonableness threshold. First, SDG&E will identify for the Energy Division and ORA, ahead of time, the specific sources of prices offered in the market for energy, ancillary services and capacity products that will be used to price the bilateral transactions. For example, SDG&E could use the weekly range of prices for energy services offered in the market in the same week that SDG&E procured incremental bilateral energy purchases. These identified sources will provide a target price range for SDG&E's contracts. Any purchases made by SDG&E within this approved price range will be reasonable per se. In addition, for any bilateral contracts entered into between SDG&E and an affiliate under this procedure, SDG&E requests that the Commission grant in this order a specific exemption from Affiliate Rule III B.²

SDG&E further asks the Commission for confirmation that it is reasonable not to enter into any of these products, since it is a new authority, it has heretofore not only been reasonable not to enter into them; it was required.

SDG&E proposes that it retain the right to make a filing for pre-approval of individual bilateral contracts with justifying support for the contract. This likely would apply to purchases of a large size or a long term, although within the authorized limits. The Energy Division would have 30 days to review the proposed contracts. If the Energy Division believes modification or rejection of the contract is required, it may place a proposal to do so on the Commission's Agenda at the earliest possible date. If such an item is placed on the Agenda, the contract will not be considered approved until full Commission approval is granted, or Energy Division withdraws the Agenda item.

If collateral costs are incurred by SDG&E as a result of its use of the bilateral option for energy and ancillary services, these costs will also be tracked in the PECA and included in rates in Schedule PX.

² Rule III B provides: Transactions between a utility and its affiliates shall be limited to tariffed products and services, the sale or purchase of goods, property, products or services made generally available by the utility or affiliate to all market participants through an open, competitive bidding process, or as provided for in Sections V D and V E (joint purchases and corporate support) and Section VII (new products and services) below, provided the transactions provided for in Section VII comply with all of the other adopted Rules.