STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 28, 2004 Agenda ID #3591

Quasi-Legislative

TO: PARTIES OF RECORD IN RULEMAKING 02-10-001

Enclosed is the proposed decision of Commissioner Lynch which we are mailing pursuant to Public Utilities Code Section 311(d) and Rule 77.1 of the Rules of Practice and Procedure. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed.

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/ Angela K. Minkin

Angela K. Minkin, Chief

Administrative Law Judge

ANG:avs

COM/LYN/ALJ/BMD/avs DRAFT Agenda ID #3591

Quasi-Legislative

Decision PROPOSED DECISION OF COMMISSIONER LYNCH
(Mailed 5/28/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on the Establishment of a Public Purpose Program Surcharge Pursuant to Assembly Bill (AB) 1002.

Rulemaking 02-10-001 (Filed October 3, 2002)

(See Appendix A for List of Appearances)

OPINION REGARDING IMPLEMENTATION OF

ASSEMBLY BILL 1002, ESTABLISHING A

NATURAL GAS SURCHARGE

TABLE OF CONTENTS

Title Page

OPINION REGARDING IMPLEMENTATION OF ASSEMBLY BILL 1002, ESTABLISHING A NATURAL GAS SURCHARGE 22

Summary 22

Procedural Background 33

Phase One Issues - Policy and Implementation of AB 1002 55

Is the Gas Surcharge a Tax or a Fee? 88

BOE Remittances to Utilities 1010

PG&E AL 2440-G 1111

Gas Volumes Used to Set Surcharge Rates 1212

Formulas for Calculating Surcharge Rates 1414

Customer Surcharge Exemptions 1515

Franchise Fees and Uncollectibles (F&U) 1717

Re-Allocating PPP Costs from Exempt Customers
to Non-Exempt Customers 1818

Interest Bearing Account for Surcharge Collections 1919

Allocation of Commission and BOE Administrative Costs 2020

Interstate Pipeline Customers Outside of Service Territories 2121

Intrastate Pipeline Customers Served by a Utility Different
from the Utility Operating that Service Territory 2121

Third Party Gas Storage Providers 2323

Research and Development 2323

Definition of Public Interest Research and Development 2323

Additional Project Criteria 2525

Administration 2828

Commission R&D Program Oversight 3232

R&D Funding Level 3232

Allocating R&D Costs and Remittances 3737

Other Issues 3838

Commercialization of R&D Benefits 3939

Implementing Annual Surcharge Rates 4040

Comments on Proposed Decision 4040

Assignment of Proceeding 4141

Findings of Fact 4141

Conclusions of Law 4343

ORDER 4444

Appendix A - Appearance List

OPINION REGARDING IMPLEMENTATION OF
ASSEMBLY BILL 1002, ESTABLISHING A
NATURAL GAS SURCHARGE

Summary

In this decision, we implement Assembly Bill (AB) 1002 (stats. 2000, Ch. 932), establishing a natural gas surcharge to fund gas related public purpose programs (PPP) such as low-income customer assistance, energy efficiency and public interest research and development (R&D).¹ We adopt the Energy Division's AB 1002 Workshop Report (Workshop Report) and address and resolve Workshop Report implementation issues raised by parties. Many of these implementation issues involve the State Board of Equalization (BOE), which is charged under AB 1002 with administering the gas surcharge fund (Fund). This decision also initiates a public interest R&D program, and appoints an administrator, the University of California (UC), to improve gas energy efficiency and environmental quality, develop renewable technologies, and otherwise provide benefits to the public.

Our decision resolves issues concerning the exemption of certain customers as required by AB 1002. We also establish procedures to improve the efficiency of the surcharge collection and remittance process, and increase the dollars available for PPP by requiring that interest is paid on customer revenues in the possession of utilities.

Our adopted R&D program establishes project criteria and provides an opportunity for other parties to suggest beneficial R&D projects to the administrator, subject to approval by the Commission. We adopt a zero-based budget for 2004 capped at $12 million for the first year, and provide flexibility to increase funding thereafter. We also provide that any commercial benefits resulting from public interest R&D accrue to ratepayers.