V. Legal Authority for Imposing Cost
Responsibility Surcharges

The Settlement's provisions must be consistent with the law. Various parties representing DL interests generally argued that the Commission lacks jurisdiction over the right to engage in Customer Generation. EPUC/KCC/GAG also claimed that such charges are prohibited by law and contrary to principles of cost causation. Various parties also claimed that explicit State and federal policies encouraging the development of Customer Generation would be frustrated by the imposition of CRS on DG load.

We conclude that the Commission has the requisite legal authority to authorize and implement the cost responsibility surcharges on Customer Generation load. Under § 701, the Commission has broad authority to regulate public utilities and to "do all things...which are necessary and convenient in the exercise of such power and jurisdiction." Moreover, the charges imposed must be "just and reasonable" and must not be unfairly discriminatory. (See §§ 451 and 453.) Consistent with these statutory requirements prohibiting discrimination, bundled customers may not be arbitrarily charged for obligations which rightfully are the responsibility of DA customers.

Within the broad statutory authority prescribed under § 701, the Commission has specific authority to establish charges for the collection of costs incurred by DWR pursuant to AB 1X. We conclude that this authority extends to charges imposed on Customer Generation that took bundled service for some period subsequent to January 17, 2001, as prescribed in the Settlement Agreement.

DWR began buying electricity on behalf of the retail end use customers in the service territories of PG&E and SCE on January 17, 2001, and of SDG&E on February 7, 2001. AB 1X provides that funds flow to DWR from revenues generated by applying charges to the electricity that it purchased on behalf of retail end-users. AB 1X therefore requires that DWR include in its revenue requirement "...amounts necessary to pay for power purchased by it..." (Water Code § 80134(a)(2).)

Water Code § 80002.5 states that "[i]t is the intent of the Legislature that power acquired under this division shall be sold to all retail end use customers served by electrical corporations, ...." Water Code § 80104 explains that the power DWR purchases "shall be a direct obligation of the retail end use customer to the department."

Additionally, AB 117 (Stats. 2002, Ch. 838), signed into law on September 24, 2002, calls for imposing an appropriate share of cost responsibility on customers, including Customer Generation Departing Load, that took utility service on or after February 1, 2001. Although AB 117 primarily addresses community aggregation programs, the Legislature amended § 366 to add subsection (d) in order to clarify its intent concerning the cost responsibility of each retail end-use customer who was a bundled utility customer on or after February 1, 2001. This subsection states:

"It is the intent of the Legislature that each retail end-use customer that has purchased power from an electrical corporation on or after February 1, 2001, should bear a fair share of the [DWR's] electricity purchase costs, as well as electricity purchase contract obligations incurred. . . that are recoverable from electrical corporation customers in commission-approved rates. It is further the intent of the Legislature to prevent any shifting of recoverable costs between customers."

Thus, consistent with the above-referenced provisions of the Water Code and Public Utilities Code, Customer Generation load must be held responsible for a fair share of the DWR revenue requirements. To the extent that customers departed from bundled utility service to be served by Customer Generation after DWR began buying power on January 17, 2001, such customers consumed power that had been purchased by DWR. The DWR costs for which customers bear responsibility include both previously incurred costs as well as an ongoing cost component. We address the more specific applicability of each respective charge in our review of parties' positions in relation to the Settlement Agreement, as discussed below.