STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

January 31, 2003

TO: PARTIES OF RECORD IN Application 00-11-038, et al.

Enclosed is a draft decision responding to the issues raised in DWR's filings of December 27, 2002, concerning DWR's 2003 Revenue Requirement. This matter will be on the Commission's agenda at its regularly scheduled meeting on February 13, 2003. The Commission is expected to act then, but it may postpone action until later. When the Commission acts on the draft decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare a different decision. Only when the Commission acts does the decision become binding on the parties.

Generally, pursuant to California Public Utilities Code Section 311(g)(1), the Commission allows for a 30-day public review and comment period. In this case, the Commission has reduced the review and comment period pursuant to California Public Utilities Code Section 311(g)(3) and Commission Rules Of Practice and Procedure Section 77.7(f)(9). Comments must be filed and served by February 7, 2003. In addition to regular filing and service, comments shall be served electronically to the service list in this proceeding, including Assigned Commissioners Lynch and Brown (lyn@cpuc.ca.gov and gfb@cpuc.ca.gov), Administrative Law Judge Allen (pva@cpuc.ca.gov), Aaron Johnson (ajo@cpuc.ca.gov), David Gamson (dmg@cpuc.ca.gov) and Mary F. McKenzie (mfm@cpuc.ca.gov). No reply comments will be accepted.

/s/ Carol Brown, Interim Chief

Administrative Law Judge

Attachments

CAB:vfw

Decision ______________

Before The Public Utilities Commission Of The State Of California

Application of Southern California Edison Company (U 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.	Application 00-11-038 (Filed November 16, 2000)
Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)	Application 00-11-056 (Filed November 22, 2000)
Petition of the UTILITY REFORM NETWORK for Modification of Resolution E-3527.	Application 00-10-028 (Filed October 17, 2000)

ORDER AMENDING DECISION UNDER SECTION 1708

I. SUMMARY

Rather than decide whether the California Department of Water Resources ("DWR") has standing to file an application for rehearing, the California Public Utilities Commission ("Commission") is, on its own motion, reopening this matter and considering the substantive allegations raised by DWR. We hereby amend Decision 02-12-045 to restore $29 million to the 2003 Revenue Requirement of DWR.

II. BACKGROUND

In Decision 02-12-045 ("Decision"), the Commission allocated among customers of the three major California utilities¹ the cost of DWR's 2003 Revenue Requirement for its power purchase program. The three major utilities were joined as parties to this proceeding. DWR, however, declined to become a formal party to this proceeding.² Before apportioning the Revenue Requirement among the three service territories, the Commission disallowed $29 million from DWR's Revenue Requirement.

Although not specifically identified in the Decision, the $29 million at issue represents costs under a Demand Reserves Purchase Agreement ("Contract") between DWR and the California Consumer Power and Conservation Financing Authority ("Power Authority.") While the Contract was not part of the record of this proceeding when DWR filed its Application for Rehearing, SCE attached the Contract as Appendix B to its Comments in Response to the January 13, 2003 Administrative Law Judge ("ALJ") Ruling. Accordingly, the Contract is now a part of the record of this proceeding.

On December 27, 2002, DWR filed an Application for Rehearing of Decision 02-12-045 ("Application for Rehearing") along with an accompanying Memorandum. The Rehearing Application and Memorandum make several substantive arguments. First, DWR alleges that the Commission committed legal error by conducting a "justness and reasonableness" review of the Contract costs. AB1X exempts the DWR Revenue Requirement from any "justness and reasonableness" review by the Commission. DWR argues that the question of whether these costs are authorized to be included in its Revenue Requirement is a matter of "justness and reasonableness." DWR similarly argues that the Commission violated the Rate Agreement because it has an affirmative obligation to establish power charges sufficient to satisfy the Revenue Requirement as specified by DWR.

Second, DWR alleges the Commission erroneously found that the Contract was not for the purchase of energy. DWR argues that the Contract is an agreement to purchase energy and capacity. Third, DWR alleges that even if it is not an energy purchase, the Contract and any costs under it are authorized pursuant to several other provisions of the California Water Code. Water Code Section 80100(f) authorizes DWR to contract for "other related power services necessary or desirable to accomplish the purposes of this division." Water Code Section 80200(b)(1) authorizes DWR to pay out of the Electric Power Fund costs for "electric power and transmission, scheduling, and other related expenses incurred by the department, and Water Code Section 80122 authorizes DWR to "[c]ontract for the services of other public agencies."

Subsequent to receiving DWR's Application for Rehearing, the assigned ALJ issued a ruling on January 13, 2003, requesting comments on the following issues: (1) DWR's authority as a non-party to

file an application for rehearing in this proceeding pursuant to Public Utilities Code Section 1731(b) and (2) other issues raised in DWR's Memorandum and Application for Rehearing. SCE and SDG&E timely filed comments in response to this ruling.

III. DISCUSSION.

While having reviewed the parties' comments on DWR's standing to file an application for rehearing, we decline to reach that issue. Whether or not DWR has standing, we wish to reach the merits of its arguments. Accordingly, the Commission will, on its own motion, reopen this matter to consider herein the substantive issues raised by DWR. This will avoid any uncertainty about our ability to reach the substantive merits.

The Commission has continuing jurisdiction to rescind, alter or amend any prior decision at any time. Public Utilities Code Section 1708 ("Section 1708") fully authorizes the Commission to reopen and reverse any order or decision, provided that parties are given notice and an opportunity to be heard. Section 1708 states:

The commission may at any time, upon notice to the parties, and with opportunity to be heard as provided in the case of complaints, rescind, alter or amend any order or decision made by it.

The parties have been provided the requisite notice and the opportunity to be heard.³ The ALJ Ruling noted that the DWR Rehearing Application "objects to the Decision's removal of the $29 million from DWR's requested 2003 Revenue Requirement."⁴ The ALJ Ruling then solicited comments on the merits of the Rehearing Application as well as the standing of DWR. This is in addition to the requisite notice and comment period associated with the filing of the Rehearing Application. More importantly, the ALJ Ruling gave "notice . . . that the issues raised by this matter may be addressed by the Commission at its meeting on January 30, 2003."⁵

Comments were in fact filed by SDG&E and SCE in response to the ALJ Ruling. Neither party requested a hearing. Additionally, neither party raised any factual issues which might warrant a

hearing. We note that the allegations raised by DWR are purely matters of law and none seem to require an evidentiary hearing.

Having satisfied the requirements of Section 1708, we will now proceed to address the merits of DWR's allegations. We agree with DWR that the $29 million is an authorized power expense under AB1X that is properly included in its revenue requirement. The $29 million represents costs under the Contract between DWR and the Power authority. AB1X defines power to include energy as well as "capacity" and authorizes DWR "to make power available directly or indirectly to electric consumers."⁶ Because this Contract reduces demand when power supplies may otherwise be insufficient, and therefore may avoid a shortage of power, the Contract makes power available indirectly to electric customers

The Commission will reduce the 30-day period for public review and comment on this decision pursuant to Commission Rules of Practice and Procedure Section 77.7(9). Parties to this proceeding have already had several opportunities to comment on the substance of DWR's position. Furthermore, we recognize DWR's interest in being able to timely recover its authorized Revenue Requirement. Accordingly, we find that the public interest in the Commission adopting this decision before expiration of the 30-day public review and comment period clearly outweighs the public interest in having the full 30-days for public review and comment on this decision.

IV. CONCLUSION

For the reasons stated above, the Commission amends its Decision to restore the subject $29 million to the 2003 Revenue Requirement of DWR.

FINDINGS OF FACT

1. The ALJ Ruling noted that the DWR Rehearing Application "objects to the Decision's removal of the $29 million from DWR's requested 2003 Revenue Requirement." The ALJ Ruling then solicited comments on the merits of the Rehearing Application as well as the standing of DWR.

2. The Rehearing Application had a notice and comment period associated with its filing.

3. The ALJ Ruling gave "notice . . . that the issues raised by this matter may be addressed by the Commission at its meeting on January 30, 2003."

4. SCE and SDG&E filed comments in response to the ALJ Ruling.

5. Neither SCE nor SDG&E requested an evidentiary hearing in their comments.

6. The $29 million represents costs under a Demand Reserves Purchase Agreement ("Contract") between DWR and the Power authority.

7. The Contract reduces demand when power supplies may otherwise be insufficient and therefore makes power available indirectly to electric customers.

CONCLUSIONS OF LAW

1. The requirements of Section 1708 are satisfied.

2. There is good cause to amend the Decision to restore the subject the $29 million to the 2003 Revenue Requirement of DWR.

3. AB1X authorizes DWR "to make power available directly or indirectly to electric consumers."

4. The $29 million is authorized by AB1X and properly included in DWR's revenue requirement.

5. The public interest in timely resolving this matter clearly outweighs the public interest in having the full 30-day period for public review and comment on this decision when there have already been several opportunities for comment.

6. Therefore, public necessity requires a reduction of the 30-day period for public comment and review of this decision.

Therefore IT IS ORDERED that:

1. This matter is reopened pursuant to Section 1708.

2. Decision 02-12-045, as corrected by Decision 02-12-052, is amended to restore the subject $29 million to the 2003 Revenue Requirement of DWR, and to read as shown in Attachment A.

This order is effective today.

Dated: 2003, at San Francisco, California.

A.00-11.038 et al. ATTACHMENT A

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.	Application 00-11-038 (Filed November 16, 2000)
Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)	Application 00-11-056 (Filed November 22, 2000)
Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527.	Application 00-10-028 (Filed October 17, 2000)

TABLE OF CONTENTS

Title Page

AMENDED OPINION ADOPTING INTERIM ALLOCATION OF THE 2003 REVENUE REQUIREMENT OF THE CALIFORNIA DEPARTMENT OF WATER RESOURCES 2

Summary 2

Chronology of the Proceeding 3

The Issues 4

Allocation of DWR's 2003 Revenue Requirement 5

SCE 7

PG&E 9

SDG&E 10

ORA 12

Excess Energy Sales and Revenues 18

Ancillary Services 22

Modeling Issues 25

Ratemaking and Remittance Issues 26

Direct Access Cost Responsibility Surcharge 31

2001-2002 True Up 32

Other Issues 34

Implementation 36

A. Narrative Explanation of the Revenue Requirement Allocation 37

Definitions 37

Revenue Requirement Adjustments 37

Allocation of 2003 DWR Revenue Requirement 37

B. The DWR Supplemental Determination Process 38

Rehearing and Judicial Review 40

Comments on Proposed Decision 40

SCE 40

PG&E 43

SDG&E 48

DWR 50

ORA 51

Assignment of Proceedings 51

Findings of Fact 51

Conclusions of Law 53

ORDER 55

AMENDED OPINION ADOPTING INTERIM ALLOCATION OF THE
2003 REVENUE REQUIREMENT OF THE CALIFORNIA
DEPARTMENT OF WATER RESOURCES

¹ The three major utilities are Pacific Gas & Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E) and Southern California Edison Company (SCE).

² Rather, DWR agreed to respond to limited discovery requests from other parties and agreed to provide witnesses and testimony in this and other proceedings. (See e.g. Rate Agreement, Section 7.2.)