IV. Standard for Considering Settlements

The Settlement Agreement is sponsored by parties representing a range of interests but is not supported by all parties. Certain provisions are opposed by a number of parties, including ORA, SDG&E, and various parties representing Customer Generation interests.

As a basis for reviewing the Settlement, we are guided by the Commission's Settlement Rules set forth in the Rules of Practice and Procedure, Article 13.5: "Stipulations and Settlements." Rule 51.1(e) provides that the Commission must find a settlement, whether contested or uncontested, to be "reasonable in light of the whole record, consistent with the law, and in the public interest" before it may approve a settlement. As we explained in D.96-01-011:

"[W]e consider whether the settlement taken as a whole is in the public interest. In so doing, we consider individual elements of the settlement in order to determine whether the settlement generally balances the various interest at stake as well as to assure that each element is consistent with our policy objectives and the law." (Re Southern California Edison Company, [D.96-01-011] 64 Cal. P.U.C.2d 241, 267, citing Re Natural Gas Procurement and System Reliability Issues [D.94-04-088] (1994) 54 Cal. P.U.C.2d 337.

Since the Settlement before us is contested, we take note of the approach followed regarding a contested settlement in D.01-12-018. There, we stated that when a contested settlement is presented to us where hearings have been held on the contested issues, we are free to consider such settlements under Rule 51.1(e) or as joint recommendations. Evidentiary hearings were held on the contested issues in this proceeding, although various parties elected to waive or curtail cross-examination. Nonetheless, the underlying testimony was received into evidence, and forms an independent basis against which to evaluate the reasonableness of the Settlement Agreement.

Settling Parties have stipulated, however, that the Settlement Agreement is to be treated as a complete package and not as a collection of separate agreements on discrete issues. To accommodate the interests of different parties on diverse issues, the Parties acknowledge that changes, concessions, or compromises by a party or parties in one section of the Settlement Agreement resulted in changes, concessions, or compromises by other parties in other sections. Each party thus reserves the right to withdraw support of the Settlement Agreement if the Commission modifies it or approves it conditionally.

Under Rule 51.1(e), we may reject a settlement if one or more of its elements is not consistent with our policy or the law, without elaborate examination of all the elements and without dealing with each contention of each party. We recognize that considerable time and effort have been expended preparing a settlement such as this one, which is sponsored by a large number of diverse interests. Nevertheless, we cannot abandon our regulatory obligations in favor of a negotiated outcome.

In this instance, upon review, we find the terms of the Settlement to be reasonable in light of the whole record before, and consistent with the law, subject to certain modifications we discuss in Section VI.A.5. The Settlement also reflects a broad range of divergent interests, including those of the utilities (i.e., PG&E and SCE) and of residential customers (i.e., TURN). The interests of commercial and industrial customers who have developed, or are developing, Customer Generation projects are represented in the Settlement by parties such as BOMA, EPUC, and CIPA, among others. The interests of developers of Customer Generation are represented in the Settlement by Clarus Energy Corporation and Real Energy, among others. The interests of the State of California as a large energy consumer are represented by UC/CSU. The CEC, as a joint settling party, also brings its broad perspective on the State's energy future.

We have also reviewed and considered the objections of those parties that did not join in the Settlement. We recognize that these parties disagree with certain aspects of the results reached in the Settlement. We find merit in the objections raised by ORA and SDG&E regarding the proposed Shortfall Charge, and modify the Settlement accordingly. With this limited modification, and after weighing the merits of parties' objections in relation to the overall results produced, we conclude that, on balance, the Settlement appropriately resolves the contested issues relating to cost responsibility for Customer Generation load.

We view the negotiations that led to the Settlement as an integrated whole. Thus, the results we adopt are specific to this proceeding, and no single provision should be construed as binding or precedential for any other proceeding.

Notwithstanding our acceptance of most of the terms of the Settlement, we cannot approve it in its present form, absent the modifications relating to the DWR Bond Charge as noted below. Upon rejection of a settlement, the Commission may take various steps, including the following options, as set forth in Rule 51.7:

1. Hold hearings on the underlying issues, in which case the parties to the stipulation may either withdraw it or offer it as joint testimony,

2. Allow the parties time to renegotiate the settlement,

3. Propose alternative terms to the parties to the settlement which are acceptable to the Commission and allow the parties reasonable time within which to elect to accept such terms or to request other relief.

In this instance, we will offer alternative terms which we find acceptable. We shall permit parties to comment on these alternative terms as part of their comments on the ALJ's Proposed Decision. In their comments, Settling Parties should either elect to accept the revised terms, and to amend the Settlement Agreement accordingly, or to request other relief, as specified in Rule 51.7. Depending on the responses received from the Settling Parties, we shall determine whether the Settlement Agreement, in amended form, can be adopted promptly. In the alternative, if Settling Parties decline to amend the Settlement Agreement, we shall then consider what further steps may be necessary to determine the appropriate CRS.