IV. Resolution of Limited Rehearing Issues Granted in D.03-08-076

A. Framework for Determination of Cost Responsibility for MDL "New Load"

As a basis for resolving the disputes at issue in the rehearing phase of this proceeding, we first clarify the conceptual framework within which any evidence should be evaluated as a basis for assigning cost responsibility. In D.03-07-028, we concluded that the MDL CRS should be imposed, and that the CRS should extend to "new municipal load" attributable to publicly-owned utilities that formed after February 1, 2001. We granted a limited exception to the CRS, however, applicable to new municipal load attributable to publicly-owned utilities providing "substantial operations" as of February 1, 2001.

The date of February 1, 2001 represents the point in time that DWR officially took over responsibility for procuring the net short position of the IOUs pursuant to AB1X. By adopting that date in D.03-07-028 as a cutoff for establishing eligibility for a CRS exception, we were implicitly assuming that the load forecasts relied on by DWR incorporated recognition of bypass due to new load at least for POUs that were already in existence at that time.

In approaching the issue this way, we inherently set up the question, in both the initial proceeding leading to D.03-07-028 as well as this rehearing phase, to be an issue of fact. Did DWR, in fact, rely upon a forecast that included or excluded municipal departing load, such that DWR made a decision to buy or not to buy power based on that forecast?

However, after examining this issue more carefully in this rehearing phase of the proceeding and reviewing the evidence in the record, we are convinced that there are ambiguities in the evidence that we must resolve. Where facts exist to show that municipal departing load was explicitly excluded from the forecast to which DWR was referring when making its purchasing decisions, then it is clear that no cost-shifting would be occurring if we allow an exception to the cost responsibility surcharge. This is because DWR would not have bought power to serve the excluded load in the first place. We address this situation more specifically in Section V. below relating to CMUA's Petition for Modification on "transferred load."

But when examining the issue of "new" MDL we simply are not convinced by the parties that the "new" NDL was explicitly included in the forecasts of the IOUs or of DWR. Nor has any party shown with any persuasive certainty that "new" MDL was explicitly excluded. The basic reality is that the IOU forecasts transmitted to DWR and subsequently augmented by DWR were not performed to the level of specificity for "new" MDL that they were for other types of load. We know that "new" MDL was not explicitly accounted for, but we cannot know for sure that it was not implicitly accounted for.

In fact, comments by both Edison and PG&E support the conclusion that "new" MDL was implicitly included in the forecasts. In Edison's opening comments, they state that "SCE's econometric load forecast model factors historical SCE trends of retail sales, and would to that extent necessarily include the de minimus annexation of its service territory noted above, but not as a separate `line item' input." In addition, PG&E's comments responded that "explicit" adjustments are only necessary if there are "additional blocks of load that...are above the trend captured implicitly." D.03-07-028 already concluded that "a certain level of new MDL was assumed due to historical trends."

Thus, both utilities' comments and D.03-07-028 acknowledge that "new" MDL would have been implicitly accounted for in the forecasts, even though those adjustments were not large enough or noteworthy to warrant a specific line item adjustment to the forecasts. In addition, logically some "new" load of publicly-owned utilities is being created all the time, and thus, it does not make sense by inference that a portion of this load would not have been considered. It is a fact that publicly-owned utilities can and do serve new MDL, and this is also an historical fact. Obviously and undeniably, utilities have been aware that new load of publicly-owned utilities can have has affected their load forecasts, and as D.03-07-028 concludes, "it is reasonable to assume that historical trends will continue with current publicly-owned utilities."

For this reason, we grant the motion of CMUA to "Update Exhibit 80" and amend its petition for modification. CMUA's motion includes information the SCE had updated its Exhibit 80 to include evidence of accounting for historical trends of annexations of its territory by publicly-owned utilities in the past. While this information is not directly relevant to the time period of costs at issue in this proceeding and should not be used to determine an exact amount of "new" MDL implicit in SCE's forecast, it does show by reasonable factual inference that there is a historical trend of some MDL that SCE was necessarily aware of and would have implicitly accounted for in its forecast delivered to DWR. Thus, we grant CMUA's motion of September 27, 2004.

Finally, in deciding whether or not new load of publicly-owned utilities should be granted exceptions to the cost responsibility surcharge, we use the forecast as a prediction of what trends may occur, but not, by definition, what will actually happen with certainty. PG&E argues that there was no "careful correlation" between the multi-year forecasts DWR received and the long-term commitments that DWR ultimately made. PG&E claims therefore that it is not reasonable to use those forecasts to excuse a portion of MDL customers from paying the CRS. We do not agree. Rather, we believe that the forecasts do not provide convincing and persuasive evidence to rebut the logical presumption of the historical trends for new municipal departing load and the inference that the utilities were aware of this trend and implicitly included this information in their load forecasts.

In addition to there being substantial evidence to suggest that new MDL was implicitly accounted for in the utility forecasts, we also note that this implicit inclusion is consistent with our legal obligations not to create cost-shifting to remaining IOU customers, as well as our policy preference not to create an undue burden on those customers on whose behalf DWR did not incur costs.

Based on the above discussion and our consideration of the record evidence, we grant an exception to cost responsibility surcharges for new MDL of publicly-owned utilities that never took service from an IOU.

B. Amount of "New Load" to be Granted CRS Exceptions

We have evidence to show that some amount of new load was accounted for in the IOU forecasts delivered to DWR that would have represented an approximation of both historic trends and future growth projections. Because the forecasts were not specified in enough level of detail to determine how much new load was implicitly accounted for in the forecasts, we are left with the question of how much new load should be granted an exception to the CRS.

CMUA proposes that the Commission grant exceptions to the CRS for new load up to a limit of 150 MW by the year 2012. As we stated in D.03-07-028, while we wish to be fair to those POUs whose customers were never IOU customers and never took DWR power, we do not wish to create a loophole in CRS collection that gives POUs an incentive to form and site facilities with the express purpose of escaping CRS charges. Therefore, we accept CMUA's proposal to set a cap of 150 MW before the end of 2012 that will be granted an exception to the CRS by this decision. This is a cap for the PG&E and SCE territories, since no evidence was submitted that there has been any history of municipalization in the SDG&E territory. We also consider 150 MW spread across the PG&E and SCE territories before 2012 to be a de minimus amount that would not have been separately or explicitly accounted for in any load forecast of the IOUs.

This "new" MDL cap should be administered by the PG&E and SCE on a first-come first-served basis until the cap is reached or until the end of 2012, whichever comes first. PG&E and SCE should file an advice letter with the Energy Division detailing how they propose to administer the cap.

C. Date of Eligibility for Exceptions

In the Rehearing Decision, however, we concluded that the record appeared inadequate to determine eligibility for the new load exemption adopted in D.03-07-028 based on whether a publicly-owned utility POU was formed before or after February 1, 2001. Accordingly, the Rehearing Decision directed that further proceedings be conducted concerning "whether, or to what extent, there is sufficient factual basis for a CRS allocation based on whether the publicly-owned utility was formed before or after February 1, 2001."

Now that we have determined that some limited exceptions to the CRS should be granted to new load of POUs, the question still remains which POUs are eligible for this exception. In D.03-07-028 we set a cutoff of February 1, 2001 as the date before which a POU had to have been providing service to at least 100 customers in order to qualify for the CRS exceptions. Upon further examination in this rehearing phase, however, we agree with Irvine that setting that date did not take into account the complexities of forming a POU. Though it was based on the approximate date that DWR began providing power to IOU customers, it was not a date that could have been known in advance by those involved in forming POUs. In addition, we set that cutoff date in July of 2003, more than two years after a POU would have had to have taken some actions in order to qualify.

In addition, City of Industry argues that the February 1, 2001 cutoff is arbitrary and ignores the fact that IOUs were aware that some POUs were in the process of forming as of that date, but were not yet operational. Therefore, it is plausible that some POUs were in the process of forming, and their annexed and/or new load could have been included in the forecasts sent to DWR by the IOUs, and yet the new POU would not be granted an exception to the CRS. In order to avoid these types of potential inequities, we amend our earlier decision to create a February 1, 2001 cutoff date for POUs to qualify for CRS exceptions. Instead, we will allow any POU in existence as of the date of this decision, and also serving at least 100 customers, to qualify for potential exceptions to the CRS for "new load" as outlined above.