STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

January 28, 2003 Agenda ID #1722

TO: PARTIES OF RECORD IN RULEMAKING 02-01-011

This is the proposed decision of Administrative Law Judge (ALJ) Pulsifer, previously designated as the principal hearing officer in this proceeding. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180 a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days before hand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.

The Commission may act at the regular meeting, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on communications.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ CAROL BROWN__

Administrative Law Judge

CAB: sid

ALJ/TRP/sid DRAFT Agenda ID #1722

Ratesetting

Decision PROPOSED DECISION OF ALJ PULSIFER (Mailed 1/28/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Regarding the Implementation of the Suspension of Direct Access Pursuant to Assembly Bill 1X and Decision 01-09-060.

Rulemaking 02-01-011 (Filed January 9, 2002)

(See Decision 02-11-022 for a list of appearances.)

OPINION ADOPTING COST RESPONSIBILITY

SURCHARGE MECHANISMS FOR

CUSTOMER GENERATION DEPARTING LOAD

TABLE OF CONTENTS

Title Page

OPINION ADOPTING COST RESPONSIBILITY SURCHARGE MECHANISMS FOR CUSTOMER GENERATION DEPARTING LOAD 2

I. Introduction 2

II. Procedural Summary 7

III. Standard for Considering Settlements 9

IV. Legal Authority for Imposing Cost Responsibility Surcharges 13

V. Overview of Parties' Positions 15

A. Pre-Settlement Positions 15

B. The Settlement Agreement 17

VI. Review of Specific Provisions of the Settlement Agreement 19

A. Recovery of DWR Bond Charges 19

1. Background 19

2. Parties' Positions Prior to the Settlement 21

3. Proposed Settlement Treatment 22

4. Parties' Positions in Opposition to the Settlement 24

5. Discussion 26

a) Consideration of Incentives Favoring Customer Generation 31

B. DWR Ongoing Power Costs 33

1. Positions of Parties Prior to the Settlement 33

2. Position of Parties to the Settlement Agreement 34

3. Comments on the Settlement 35

a) Position of ORA 36

b) Position of Parties Representing Customer
Generation Interests 38

C. Position of SDG&E and ORA 42

1. Discussion 43

a) Prevention of Cost Shifting 43

b) Incentives to Promote Alternative Generation 46

c) Rules for Administering the MW Cap 50

D. SCE'S Historical Procurement Charge 52

1. Parties' Positions - Pre-Settlement 52

2. Proposed Settlement Treatment 54

3. Discussion 54

E. Ongoing Transition Costs 55

1. Background 55

2. Parties' Positions - Pre-Settlement 56

3. Proposed Settlement Treatment 57

4. Discussion 58

F. Miscellaneous issues 61

1. Definition of Customer Generation and Departing Load 61

2. Biogas Digesters Exemptions 63

3. Implementation of Surcharges on Net Metering Customers 64

4. Tariff Filing Implementation 64

VII. Rehearing and Judicial Review 65

VIII. Comments on the ALJ Proposed Decision 65

IX. Assignment of Proceeding 65

Findings of Fact 65

Conclusions of Law 68

ORDER 70

ATTACHMENT A - Settlement Agreement

I.

OPINION ADOPTING COST RESPONSIBILITY

SURCHARGE MECHANISMS FOR

CUSTOMER GENERATION DEPARTING LOAD