STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

April 22, 2003 Agenda ID #2123

and

Agenda ID #2124

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

Enclosed are the proposed decision of Administrative Law Judge (ALJ) Pulsifer and alternate proposed decision of Commissioner Brown. These items will not appear on the Commission's agenda for at least 30 days after the date they are 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 or the alternate, 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 and the alternate 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.

Consistent with the service procedures in this proceeding, parties should send comments in electronic form to those appearances and the state service list that provided an electronic mail address to the Commission, including ALJ Pulsifer at trp@cpuc.ca.gov. Service by U.S. mail is optional, except that hard copies should be served separately on ALJ Pulsifer and Assigned Commissioners Brown and Wood, and for that purpose I suggest hand delivery, overnight mail, or other expeditious methods of service. In addition, if there is no electronic address available, the electronic mail is returned to the sender, or the recipient informs the sender of an inability to open the document, the sender shall immediately arrange for alternate service (regular U.S. mail shall be the default, unless another means-such as overnight delivery) is mutually agreed upon). The current service list for this proceeding is available on the Commission's web page, www.cpuc.ca.gov.

/s/ ANGELA K. MINKIN by PSW

Angela K. Minkin, Chief

Administrative Law Judge

ANG:tcg

ALJ/TRP/avs DRAFT Agenda ID #2123

Ratesetting

Decision PROPOSED DECISION OF ALJ PULSIFER (Mailed 4/22/2003)

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)

ORDER ADOPTING COST RESPONSIBILITY
SURCHARGE MECHANISMS FOR
MUNICIPAL DEPARTING LOAD

TABLE OF CONTENTS

Title Page

ORDER ADOPTING COST RESPONSIBILITY SURCHARGE
MECHANISMS FOR MUNICIPAL DEPARTING LOAD 22

I. Summary 22

II. Overview of Issues 66

A. Parties Positions 66

B. Discussion 1111

III. Jurisdictional Authority for Imposing
Cost Responsibility Surcharges 1414

A. Parties' Position 1414

B. Discussion 1919

IV. Elements of Cost Responsibility Applicable to MDL Customers 2323

A. DWR Bond Charge 2323

1. Parties' Position 2424

2. Discussion 2727

B. Ongoing DWR Power Charges 3030

1. Position of Parties 3131

2. Discussion 3434

C. Tail CTCs 3939

1. Parties' Position 4040

2. Discussion 4444

D. Recovery of Costs in Edision's PROACT Through the HPC 4646

1. Parties' Positions 4646

2. Discussion 4848

V. Other Issues 4949

A. Applicability of Surcharges to New Customer Load 4949

1. Position of Parties 4949

2. Discussion 5656

B. Effect of Surcharges on Economic
Viability of Municipal Service 6161

1. Parties' Positions 6161

2. Discussion 6363

C. Quantifying MDL CRS and Implementing
Billing and Collection 6464

1. Parties' Positions 6464

2. Discussion 6666

TABLE OF CONTENTS

(Continued)

Title Page

VI. Rehearing and Judicial Review 6969

VII. Comments on the Proposed Decision 6969

VIII. Assignment of Proceeding 6969

Findings of Fact 6969

Conclusions of Law 7373

O R D E R 7575

APPENDIX A

ORDER ADOPTING COST RESPONSIBILITY
SURCHARGE MECHANISMS FOR
MUNICIPAL DEPARTING LOAD

I. Summary

Today's decision adopts policies and mechanisms to implement cost responsibility surcharges applicable to "Municipal Departing Load" (MDL),¹ within the service territories of California's three major electric investor-owned utilities (IOUs): Southern California Edison Company (SCE), Pacific Gas and Electric Company (PG&E), and San Diego Gas & Electric Company (SDG&E). As defined in this order, MDL refers to departing load served by a "publicly owned utility" as that term is defined in Public Utilities Code Section 9604(d), including municipalities or irrigation districts.²

The departing load that is the subject of this decision does not address "Customer Generation" Departing Load which was the subject of a separate phase of this proceeding, and D.03-04-030. The surcharge mechanisms and associated principles adopted in this order are patterned after those previously adopted for Direct Access (DA) customers in Decision (D.) 02-11-022.

Parties have used different terms for the charges at issue in this order, including expressions such as "nonbypassable charge," forward costs, and "exit fee." For the sake of uniformity, clarity, and consistency with D.02-11-022, we shall use the term "cost responsibility surcharge" (CRS) as a comprehensive term in referring to the various cost components that are applied to MDL as discussed in this order.

As context for addressing the MDL CRS issues, we review pertinent background leading to this order. This proceeding was opened to address the suspension of DA pursuant to legislative directive, as set forth in Assembly Bill (AB) No. 1 from the First Extraordinary Session of 2001-2002 (AB 1X). (See Stats. 2002, Ch. 4.) DA suspension was ordered as part of Legislative action to address the serious situation in California that developed beginning in the summer of 2000 when PG&E and SCE became financially unable to continue purchasing power due to extraordinary increases in wholesale energy prices.

Emergency legislation³ enacted on January 17, 2001 required that DWR assume responsibility for procuring electricity on behalf of the customers in the service territories of the California utilities.⁴ The Legislature enacted AB 1X on February 1, 2001, authorizing DWR to continue to meet the utilities' net short requirements through December 31, 2002. DWR thus 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.

Among its provisions, AB 1X mandated the suspension of the right to acquire DA service. In compliance therewith, the Commission issued D.01-09-060, suspending customers' rights to acquire DA after September 20, 2001. In D.01-09-060, we stated, however, "that we may modify this order to include the suspension of all direct access contracts executed or agreements entered into on or after July 1, 2001." (D.01-09-060, pp. 8-9.)

On January 14, 2002, the instant Rulemaking (R.) 02-01-011 was initiated to consider, among other things, whether a DA suspension date earlier than September 21, 2001, should apply.⁵ On March 27, 2002, we issued D.02-03-055, determining that the DA suspension date should remain in effect as "after September 20, 2001."

In D.02-03-055, we also required that bundled service customers not be burdened with cost shifting due to customers' migration from bundled to DA service between July 1, 2001 and September 20, 2001. Prevention of cost shifting requires that surcharges be imposed on DA customers so that "bundled service customers are indifferent."⁶ As stated in D.02-03-055:

"There would be a significant magnitude of cost-shifting if DWR costs are borne solely by bundled service customers, and direct access customers are not required to pay a portion of these costs that were incurred by DWR on behalf of all retail end use customers in the service territories of the three utilities during a time when California was faced with an energy crisis."⁷

Proceedings were accordingly initiated to implement the necessary surcharges on DA load to prevent such cost shifting.⁸ At the prehearing conference (PHC) on February 22, 2002, certain parties argued that cost shifting also implicated "Departing Load" (DL) customers. An administrative law judge (ALJ) ruling issued on March 29, 2002, prescribed that this proceeding would thus consider cost responsibility relating to DL customers. The ruling also stated: "In order to ensure that the Commission is able to consider a fully compensable surcharge, a record must be developed that takes into account all possible cost responsibilities including but not limited to DWR purchase costs . . . attention will be focused on how such cost responsibility can be formulated."⁹

In D.02-04-067, the Commission expressly stated that DA cost responsibility will take into account relevant non-DWR costs as required by AB 1X and other statutes (e.g., AB 1890). (See D.02-04-067, Ordering Paragraph (OP) 1e.) An ALJ Ruling issued on April 5, 2002 stated that the "full range of costs" was also to be considered in determining the cost responsibility for DL customers necessary to avoid cost shifting to bundled service customers.

Parties filed prehearing opening briefs on April 22, 2002, and reply briefs on May 6, 2002, on legal issues relating to the Commission's authority to impose cost responsibility charges both on DA and DL customers. Opening testimony was mailed on June 6, 2002 and reply testimony was mailed on June 20, 2002.

By ALJ oral ruling on the first day of hearings, DL issues were deferred to a later hearing phase. Parties submitted supplemental testimony on September 11, 2002, and supplemental reply testimony on September 23, relating to DL issues. Evidentiary hearings on DL issues were held on October 7, 9-11, 15 and 18, 2002.

During the course of DL hearings, certain parties entered into settlement discussions on issues relevant to DL served by customer generation. The disposition of Customer Generation DL was the subject of D.03-04-030. This order addresses remaining DL CRS issues that relate to load served by publicly owned utilities (i.e., municipal utilities and irrigation districts, as defined in Section 9604(d). Post-hearing opening briefs on MDL CRS issues were filed on November 25, 2002, and reply briefs were filed on December 6, 2002.

Parties participating in the MDL CRS phase of the proceeding included the IOUs, the Office of Ratepayer Advocates (ORA), and The Utility Reform Network (TURN), and various interests representing municipalities and irrigation districts, including the California Municipal Utilities Association (CMUA).¹⁰ City of Corona (Corona), Merced Irrigation District (Merced), Modesto Irrigation District (Modesto), and Westside Power Authority (WPA).

⁵ The administrative record relating to these specific issues in Application (A.) 98-07-003 et al. was incorporated into this rulemaking. Judicial notice was also taken of specific information in the DWR Revenue Allocation Proceeding A.00-11-038 et al. (See Letter of January 25, 2002, to the parties that accompanied the Draft Decision of ALJ Barnett.)

⁶ D.02-04-067, pp. 4-5.