AB1X and Water Code § 80110

The settlement resolves all disputed issues among the settling parties save one: Whether Water Code § 80110 added by Assembly Bill 1X precludes increases in total rates for residential usage up to 130% of baseline. ORA takes the position that Water Code § 80110, added by AB 1X and effective February 1, 2001, precludes increases in total rates for residential usage up to 130% of baseline. In ORA's view, SDG&E's proposal to increase residential distribution rate components in such a way as to increase total residential rates for usage below 130% of baseline without offsetting reductions in other rate elements would be impermissible. SDG&E counters that AB 1X's 130% of baseline protection applies only to the commodity component of its residential rates. SDG&E argues that the intent of the Water Code § 80110 provision of AB 1X was to protect residential usage up to 130% of baseline from rate increases to pay DWR costs. Since DWR costs are commodity costs, SDG&E concludes that the AB 1X protection is limited to only the commodity component of its rates.

In settlement Section 6.b, the settling parties agree that if SDG&E's interpretation of the law is adopted and the Commission decides that it is permissible under AB1X and Water Code § 80110 to do so, then all tiers of the residential distribution rates will be changed on a uniform percentage basis. If ORA's interpretation is adopted, then the first 130% of baseline distribution rates will not be permitted to increase and the revenue shortfall will be made up from within the residential class on a uniform percentage basis from those tiers over 130% of baseline.

On February 26, 2004, the Commission issued D.04-02-057, its Final Opinion on Phase 2 Issues in Order Instituting Rulemaking (R.) 01-05-047.¹⁰ D.04-02-057 decided the matter in ORA's favor, stating in Conclusions of Law #28 and #29:

28. Based on an analysis of the legislative history of AB 1X, the rate protection in Water Code § 80110 should be interpreted to apply to total retail rates for residential electricity usage up to 130% of baseline amounts in effect when AB 1X became effective, for utilities that take power from DWR or are otherwise bound by its provisions.

29. SDG&E's proposal to increase its distribution and CTC rate components for all residential usage without offsetting decreases in other rate components for usage up to 130% of baseline is counter to Water Code § 80110 added by AB 1X.

Under settlement Section 6, SDG&E must apply the Commission's D.04-02-057 determination to spread to SDG&E's residential class its RDW and COS revenue allocation.