STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

February 15, 2005 Agenda ID #4324

TO: PARTIES OF RECORD IN RULEMAKING 99-11-022

Enclosed is the draft decision of Commissioner Peevey. The decision will not appear on the Commission's agenda for at least 30 days after the date it is mailed. The Commission may act then, or it may postpone action until later.

When the Commission acts on the draft 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 draft 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 BY KEN HENDERSON

Angela K. Minkin, Chief

Administrative Law Judge

ANG: avs

COM/MP1/avs DRAFT Agenda ID #4324

Quasi-Legislative

Decision DRAFT DECISION OF COMMISSIONER PEEVEY
(Mailed 2/15/2005)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Into Implementation of Public Utilities Code Section 390.

Rulemaking 99-11-022 (Filed November 18, 1999)

OPINION REGARDING SHORT-RUN AVOIDED COST ENERGY
PAYMENTS BETWEEN DECEMBER 2000 AND MARCH 2001

TABLE OF CONTENTS

Title Page

OPINION REGARDING SHORT-RUN AVOIDED COST ENERGY PAYMENTS BETWEEN DECEMBER 2000 AND MARCH 2001 22

I. Summary 22

II. Procedural Background 33

III. Positions of Parties Recommending SRAC Refunds Regarding Application of the Modified SRAC Formula 1111

IV. Positions of Parties Opposed to SRAC Refunds
Regarding Application of the Modified SRAC Formula 1919

V. Position of SDG&E Regarding Application of the
Modified SRAC Formula 2525

VI. Utility Responses Regarding Remand Period Energy Prices 2626

VII. CCC's Comments on Utility Energy Price Information 2929

VIII. Responses to CCC's Comments on Remand Period Energy Prices 3131

IX. Discussion 3232

X. Do Section 390 Requirements Apply to the Court's Remand? 3333

XI. Do SRAC Prices as Determined by the Transition Formula During the Remand Period Meet PURPA Requirements? 3535

XII. Are Differences Between SRAC Prices and Avoided
Costs Sufficient to Conclude that PURPA Was Violated? 4545

XIII. Conclusion 4848

XIV. Comments on Draft Decision 4848

XV. Assignment of Proceeding 4848

Findings of Fact 4848

Conclusions of Law 5050

ORDER 5252

OPINION REGARDING SHORT-RUN AVOIDED COST ENERGY
PAYMENTS BETWEEN DECEMBER 2000 AND MARCH 2001

I. Summary

This decision resolves an outstanding matter remanded to us by the California Court of Appeal (The Court) regarding applications for rehearing filed by Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (Edison). These applications asserted that a modified short run avoided cost (SRAC) formula adopted in Decision (D.) 01-03-067 for purposes of calculating Qualifying Facility (QF) energy¹ payments should be retroactively applied to utilities' SRAC payments between December 2000 and March 2001 (Remand Period). The Court ordered that the Commission must determine whether SRAC payments were correct² under the Public Utility Regulatory Policy Act of 1978 (PURPA). If evidence indicated that SRAC payments in the Remand Period were correct, that would end the matter. However, if evidence indicated that SRAC prices were not correct, then utility payments to the QF during the Remand Period would need to be adjusted.

We have determined that evidence shows SRAC prices were correct between December 2000 and March 2001, and retroactive application of the modified SRAC formula is not warranted. Our decision on this matter is based on an analysis of the avoided cost prices under PURPA, and comparisons of these avoided cost prices with utilities' SRAC payments. Furthermore, we have concluded that we have implemented § 390 of the California Pub. Util. Code regarding QF payments in a manner that complies with PURPA.

Although we have determined that SRAC prices in the Remand Period comply with the avoided cost requirements of PURPA, this determination does not affect our arguments made in other proceedings that non-QF energy prices during the 2000-2001 "energy crisis" were unreasonable and unjust. Accordingly, we contend that California ratepayers are entitled to refunds for these unreasonable electric prices.