II. Discussion

Because of their interrelated nature, we address herein: (1) the SCE Petition to Clarify D.02-03-055, (2) the Joint Parties' Petition to Modify D.03-04-057 and (3) the Joint Utilities' Response to the above pleadings in which it proposes alternative modifications to D.02-03-055.

We agree with Petitioners that second meters and second bundled accounts should not be required for DA customers simply because meters are changed for any reason. Yet, we disagree that Petitioners' claim that modification or clarification to D.03-04-057 is necessary or warranted to "make clear" that such is the Commission's policy. Existing Commission rules already articulate this policy clearly. Moreover, based on the pleadings by the UDCs, there is no indication that they are seeking to require DA customers to install second meters with bundled accounts any time a meter is changed. SCE denies that it is requiring DA customers to install a second bundled account "whenever a meter change is required," but only seeks to require a second bundled account to respond to requests by DA customers to "significantly increase DA load" based on criteria defined in its proposal.

Joint Petitioners infer that SCE's rationale for requiring a second meter is based on a misinterpretation of D.03-04-057 regarding "no net increase in DA load." Petitioners argue that because the issue of "normal load changes" at stationary DA accounts was not before the Commission in D.03-04-057, no basis is provided in that decision for SCE's practice of requiring a second meter based on a "significant increase " in DA load at a stationary DA location.

SCE, however, does not rely on the "no net increase in DA load" language in D.03-04-057 as a basis for its second-meter policy. SCE relies instead upon the Commission's "standstill approach" to prevent "add-ons of new DA load" as required by D.02-03-055. Thus, even if we granted the modifications to D.03-04-057 sought by Petitioners, the "standstill" requirements of D.02-03-055 would still prohibit increases in DA load in excess of September 20, 2001 authorized levels. D.02-03-055 prohibits load on existing DA accounts from growing substantially above levels in effect as of September 20, 2001, with the only allowable growth on these accounts being limited to "normal usage variations." In this regard, D.02-03-055 states that:

We favor a balanced approach which allows existing direct access customers to continue in the direct access market, but limits additional load moving to direct access to load changes associated with normal usage variations on direct access accounts in effect as of September 20, 2001. . . . Under the standstill approach . . . we will permit assignments and renewals, but not add-ons of new load. D.02-03-055, mimeo., at 18. (Emphasis added.)

Likewise, Finding of Fact 12 in D.02-03-055 states:

It is reasonable to interpret a September [21], 2001 date for suspension of direct access to mean that the level of direct access load as of that date (irrespective of whether power flowed under any direct access contract) should not be allowed to increase, apart from normal load fluctuations. (Emphasis added.)

In addition, in AB 117, signed into law on September 24, 2002. (Stats 2002, ch. 838), the Legislature amended Public Utilities Code Section 366.2 to add subsection (d) in order to clarify its intent concerning the prevention of cost shifting relating to DWR cost recovery. 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." (Pub. Util. Code, § 366, subd. (d)(1).) (Emphasis added.)

In comments on the Draft Decision, joint parties argue that the standstill principle equates ineligible new DA load growth only with new accounts, but not with increased load at existing accounts. Joint parties' argue that the prohibition in D.02-03-055 on additional load "moving to" direct access does not refer to the load already being served through existing DA accounts. We disagree. The references in D.02-03-055 to limitations on load "moving to" direct access do, in fact, refer to existing DA accounts. The Joint Parties referenced language in D. 02-03-055, as cited above, stating that the DA suspension "limits additional load moving to direct access to load changes associated with normal usage variations on direct access accounts in effect as of September 20, 2001." (Emphasis added.) The "movement" of load thus is specifically referenced to changes within existing accounts as of the suspension date.

Also, as defined in Finding of Fact 12 of D.02-03-055, quoted above, it is the overall level of DA load that is not allowed to increase, apart from normal load fluctuations. There is no separate exclusion from the suspension rules in Finding of Fact 12 for growth in DA load in existing accounts. The limitations prescribed by D.02-03-055 therefore do not allow for unlimited growth in DA load served at existing accounts, but only growth within "normal usage variations." As affirmed in D.02-03-055, while "assignments and renewals" were permitted under the standstill principle, "add-ons of new load" were not. Joint parties' proposed modification would be inconsistent with this restriction by permitting unlimited "add-ons of new load." Under the parties proposed modifications, there would be no limit in "add-ons of new load" that could be negotiated with an ESP as long as the new load was linked to an DA existing account.

If unlimited load growth on existing accounts was intended by D.02-03-055, it would have been superfluous to add language limiting load growth eligible for DA only to "normal usage variations." Petitioners' requested modification to allow unlimited load growth on existing DA accounts is thus clearly in conflict with D.02-03-055.

Limiting load growth on existing DA accounts in this manner is required to "alleviate the significant cost-shifting of DWR costs onto bundled service customers." D.02-03-055 mimeo., at 18. We confirmed this load growth limitation by clarifying in D.03-04-057 that the "standstill" policy is aimed at "maintaining the then-current levels of DA" as of September 20, 2001. (D.03-04-057, mimeo., at 14.) We also clarified that "normal usage variations" means "daily and seasonal load fluctuations." (D.03-04-057, mimeo., at 17.) Thus "normal load variations" cannot refer to unlimited growth of load on DA accounts from expanding customer operations, but instead refers to the daily and annual load shape or profile associated with DA load authorized under contract as of September 20, 2001.

Petitioners argue that placing DA eligibility limits on the growth of new load at existing DA accounts would disrupt the DA market and customer service. Parties argue that many DA contracts are "full requirements arrangements" that cover "incremental load," if any, since September 20, 2001. Parties argue that requiring such customers to place that incremental load on bundled utility service is a "substantial interference" with those contracts.

We recognize that under the standstill principle, DA load volumes under contract as of the suspension date are permitted even though the actual level of DA power flowing on September 20, 2001 may have been below the total contracted volumes in effect on the suspension date. Thus, we do not intend to prevent DA customers from increasing load on existing DA accounts so long as any such load increases do not exceed the volumes that were authorized under contractual arrangements executed on or before September 20, 2001. The fact that DA power had not yet flowed under a particular ESP contract as of September 20, 2001, would not preclude increases in DA load deliveries on an existing account up to the level provided for under contracts in effect on that date. The governing criteria under the standstill principle, therefore, is whether the load had been contracted for as of the suspension date. This principle is articulated in Finding of Fact 12 of D.02-03-055 where the Commission stated that suspension applied to the level of direct access load in effect as of September 20, 2001 "irrespective of whether power had yet flowed under any direct access contract."

Thus, even to the extent the actual growth in DA load occurred after September 20, 2001, the standstill principle still is observed as long as the contractual commitment associated with the load growth was made on or before September 20, 2001. On the other hand, the suspension rules adopted in D.02-03-055 preclude contractual "add-ons" of DA load commitments entered into after September 20, 2001 even if such increases are assigned to an existing DA account. Thus, permitting incremental load growth at existing DA accounts attributable to "add-ons" of new load that were executed under contract after September 20, 2001 would conflict with the suspension rules adopted in D.02-03-055.

Thus, we conclude that the modifications sought by Petitioners would violate the "standstill principle" and related statutory requirements to suspend DA to the extent they allow unlimited DA load growth beyond authorized contract volumes as of the suspension date. Moreover, the modification of D.03-04-057 proposed by Petitioners is overly broad and vague. Petitioners' proposed modification refers to "meter changes and upgrades caused by normal increases in load." Yet, Petitioners fail to define what constitutes "normal" increases in load, as distinguished from "abnormal" or "supernormal" increases. Given this ambiguity, allowing DA billing to apply to "normal increases in load" fails to provide safeguards to enforce the mandated suspension of new direct access volumes as adopted in D.02-03-055. To the extent such "normal" increases in load fail to delineate the constraints imposed by our suspension rules, permitting such load increases to qualify for direct access would violate our statutory mandate to suspend direct access, and related Commission decisions implementing that suspension. Accordingly, we deny the Petition to modify Rule 6 of D.03-04-057.

Joint Petitioners suggest that the utilities may be relying on a typographical error in Conclusion of Law of D.03-04-057. Although we do not believe SCE relied on a typographical error for its position, we do agree that a typographical correction is appropriate to insert the word "not" into Conclusion of Law 8 in D.03-04-057 as follows:

"The limitations on DA eligibility of load from replacement or relocation of facilities as adopted in the modifications herein to D.02-03-055 are not intended to prohibit load changes associated with normal usage variations for accounts at other locations that are eligible for DA as of September 20, 2001." (Correction underlined.)

This typographical correction, however, has no substantive effect on the disposition of either of the Petitions at issue here.

While we agree with SCE that unlimited load growth experienced by DA customers that exceeds authorized limits in effect as of September 20, 2001, beyond "normal load fluctuations," does not qualify for DA service, we disagree with the means by which SCE proposes to implement its "two-meter" policy.

As noted by opponents, there are detrimental effects in terms of the cost, disruption, and confusion that the second metered account would cause. SCE provides no refutation that at least some additional customer cost and disruption would likely result from the installation of second meters, even if the specific magnitude may be questioned.

Moreover, while SCE's procedures would impose additional burdens on DA customers, its proposed criteria for installing second meters fail to correspond to DA suspension levels. SCE's proposed procedures to install a second meter would merely be activated upon detection of a "significant increase" in DA load in any given account beyond "current" levels. SCE would separately meter "new load" that is in excess of 500 kW or 10% of "current load."

It is unclear as to what data SCE would use to determine "current load" or to what extent "current load" for any given authorized DA account is an appropriate baseline proxy for the maximum level of DA contract load as of the September 21, 2001 suspension date. SCE's mere reference to "current levels" of load provides no means of determining whether such load levels necessarily correspond to the authorized contract limits in effect as of September 20, 2001, taking into account "normal load fluctuations" as allowed under existing suspension rules. A more meaningful approach would be to measure growth in DA load in relation to the authorized maximum level of authorized DA load as of the September 20, 2001 suspension date.

While we agree with SCE's ultimate goal of adhering to the "standstill principle" in D.02-03-055 regarding DA suspension, we disagree with its proposed method of determining what constitutes "excess" load, and its approach of requiring separate metering of such "excess" load. Requiring an extra meter as proposed by SCE is not the most efficient or beneficial way by which load growth in DA accounts beyond the level authorized as of September 20, 2001 could be recognized.

Conformance with the Commission's standstill principle does not require separately metered data to the extent that a process can be used to avoid cost shifting and to maintain bundled customer indifference.

While the modifications to D.02-03-055 proposed by PG&E and SDG&E would entail less cost and disruption to customers, we still find the PG&E/SDG&E proposal would conflict with the statutory suspension of direct access and would risk cost shifting prohibited by D.02-03-055, and thus, in violation of AB 1X and AB 117. Although the PG&E/SDG&E proposal would prevent DA customers from adding new accounts for DA service beyond the DA load in effect as of September 20, 2001, those at existing locations and meters would be allowed to grow beyond September 20, 2001 levels. The current policy of the Commission, as discussed above, however, limits load growth on both existing DA accounts as well as prohibiting new DA accounts after September 20, 2001.

Under the PG&E/SDG&E proposal, a second meter would still be required for certain incremental load growth, but only at the point where distribution facilities capacity growth required a panel upgrade. PG&E and SDG&E concede, however, that a panel upgrade signifies that peak load has grown substantially, typically more than 10 %, and probably exceeds what might be considered a "normal load fluctuation." Thus, the PG&E/SDG&E proposal would allow DA load to grow beyond legally permissible limits under the "normal load fluctuation" standard in violation of the statutory suspension mandate.

Such proposed modifications would fundamentally change the "standstill principle" adopted in D.02-03-055 to implement DA suspension. Parties have not justified the legal permissibility of lifting the suspension on DA load growth under the statutory requirements of AB 1X and AB 117. Our DA "standstill" policy, adopted in compliance with these statutory requirements mandating the suspension of DA, prohibits cost shifting among customer groups, and holds DA load responsible for its fair share of DWR and related utility procurement costs.

PG&E and SDG&E argue, however, that the resulting incremental shift of DWR costs from their proposal should be "relatively insignificant" for bundled customers, "provided that the DA `load pays its share of the cost responsibility surcharge (CRS)." The utilities also argue that any cost shifting that results from a capped DA CRS will be temporary and ultimately, DA loads will pay their full share of DWR's costs over time even if one assumes that the incremental DA load would otherwise have been bundled load if the "no growth" policy were maintained.

Ignoring growth limits on existing DA accounts would conflict with the requirement to keep bundled customers indifferent between DA suspension as of July 1, 2001 versus September 20, 2001. Likewise, retention of the 2.7 cents/kWh surcharge, as adopted in D.03-07-030 was predicated on payback of the DA cost responsibility undercollection no later than the termination date of the DWR contracts. The payback analysis, in turn, relied upon the indifference cost approach between authorized DA load levels at September 21, 2001 versus July 1, 2001 as adopted in D.02-11-022. Thus, the assumptions underlying D.03-07-030 regarding the adequacy of the 2.7 cents cap could be undermined by removal of DA suspension limits.

While more DA load would pay the 2.7 cents surcharge, unrestricted growth in DA load would simultaneously increase the DA cost responsibility undercollection (to the extent actual DA cost responsibility exceeds 2.7 cents/kWh). The incremental 2.7 cents/kWh surcharge collections thus would not capture the increased DA undercollection triggered by the incremental DA load growth that is based upon total cost shifts under a DA-in/DA-out comparison, not just the fraction covered by the surcharge cap.

We therefore decline to grant parties' requested modifications to Rule 6 of D.03-04-057 in view of our statutory obligations to prevent cost shifting and to hold DA load responsible for its "fair share" of DWR costs. Likewise, we find the proposed procedures offered by SCE, as well as the alternative offered by PG&E/SDG&E inappropriate as a means of enforcing the "standstill principle."

With the denial of the respective modifications proposed by the parties, we are left with the question of how to deal with potential increases in DA load beyond what the suspension rules allow. Strategic Energy notes statistics indicating that the overall level of DA load has not grown appreciably in the past year. We believe, however, that some additional Commission guidance is warranted in terms of what levels of load growth would exceed permissible limits under mandated suspension rules and what means should be used to identify and assign cost responsibility to such load.

We favor a practical process for applying and enforcing the suspension rules that is fair to DA customers while guarding against cost shifting to bundled customers.

The ALJ's draft decision raised the issue of whether the utilities could incorporate modifications into their own billing and accounting systems to subtract out a predetermined allowable DA load cap based upon DA amounts authorized as of the September 20, 2001 suspension date, taking into account "normal load fluctuations." Then, to the extent the total metered sales from the DA account exceed the authorized predetermined suspension amount as of September 20, 2001, the residual load balance subject to bundled service billing would be mathematically calculated without the need for a second meter. The incremental load in excess of the authorized suspension load level could then be billed at the equivalent bundled service rate applicable to the bundled tariff counterpart to the DA customer in question.

In their comments on the draft decision, joint parties pointed out that the problems and complexities of devising billing modifications to split load between DA and bundled would entail considerable cost and delay. We agree that the suggested approach of splitting load through utility billing system modifications may not be a practical remedy. We shall therefore not authorize any new billing or metering mechanisms to split DA load to delineate growth that may exceed permissible suspension limits.

We conclude that the most efficient and practical way to account for potential load growth beyond permissible levels under the suspension rules is through the periodic process for reviewing and adjusting the CRS cap and undercollections. The process adopted by the Commission in D.03-07-030 requires periodic review of the adequacy of the DA CRS cap to recover all CRS undercollections by the end of the DWR contract term. We conclude that to the extent that growth in DA load exceeds permissible levels under the suspension rules, any resulting potential for cost shifting can be addressed through adjustment either to the DA CRS cap or to the accrued undercollection.

In order to use the DA CRS cap review process to adjust for the effects of DA load growth beyond authorized suspension limits, ineligible incremental DA load must be properly accounted for in the DA-in/DA-out calculations of cost responsibility. Under the adopted "bundled indifference cost" methodology, the DA cost responsibility obligation applies to incremental migrations in DA load between July 1, 2001 and September 20, 2001. The magnitude of DWR cost responsibility is based on changes in load between July 1 and September 20, 2001. "Continuous DA load" that existed before DWR began its power procurement program, by contrast, is not subject to cost responsibility for DWR costs. The modification sought by Petitioners would treat growth in DA load in existing accounts as "continuous" DA load. As such, under their proposal, incremental load added after September 20, 2001 would escape cost responsibility.

As noted above, DA load growth that relates to contracted volumes that were in effect as of September 20, 2001, properly falls within the suspension limits even if full power levels did not flow under the contract volumes until a later date. On the other hand, incremental DA load growth that had not been contracted for as of September 20, 2001 constitutes excess load beyond permissible suspension levels in making the indifference cost calculations.

In order to assure that increased DA load growth beyond the suspended limits bears its "fair share" of cost responsibility, any necessary adjustments shall be made through the calculation of "indifference" costs to take into account such incremental volumes. As such, a cost responsibility provision must be applied to load increases attributable to new contract "add-ons" executed after September 20, 2001 as required to keep bundled customers indifferent to such DA load growth under the standstill principles outlined in D.02-03-055. We shall therefore require appropriate recognition of such add-ons of new load due to contractual commitments for new DA load volumes entered into subsequent to the suspension date of September 20, 2001, as part of the next periodic review of DA CRS cap levels. We shall assess the extent to which increases in DA load volumes have occurred in excess of the authorized amounts under contract as of September 20, 2001, taking into account, as appropriate, "normal load fluctuations," as allowed under the standstill principle.

To the extent that we determine that excess load exists beyond "normal load fluctuations" as part of our next reassessment of the DA CRS cap, we shall make an adjustment, if necessary, either through an increase in the DA CRS cap or by increasing the cost responsibility undercollection accrual to maintain bundled customer indifference. In any event, we shall maintain the requirement adopted in D.03-07-030 that any DA CRS undercollections be paid off no later than the end of the DWR contract term.

In making such adjustments, we shall consider "normal load fluctuations" as permitted under the standstill principle. We shall also consider a materiality threshold with respect to specific DA accounts that warrant adjustment for exceeding authorized suspension volumes in the DA in/out calculation. As noted in its comments on the draft decision (p. 3), SCE expected only about 20 DA customers to be affected under its proposed "two-meter" procedure. By contrast, a total of approximately 40,000 DA accounts are served within the SCE territory, the vast majority of whom have small individual loads. Load growth in such small DA accounts are not expected to have any material effect on bundled customer cost shifting. Thus, we agree that it is reasonable to consider a materiality threshold by focusing only on the larger DA accounts as being subject to adjustment for increases in load beyond permissible suspension limits, and to exclude the majority of DA customer accounts. We shall entertain proposals concerning appropriate materiality thresholds for this purpose at the time we take up this analysis in the next DA CRS cap reassessment proceeding.

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