COM/RB1/rmn Item 3a

3/7/01

Decision ALTERNATE DRAFT ORDER OF COMR. BILAS (Mailed 2/23/01)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (E 3338-E) for Authority to Institute a Rate Stabilization Plan with a Rate Increase and End of Rate Freeze Tariffs.	Application 00-11-038 (Filed November 16, 2000)
Emergency Application of Pacific Gas and Electric Company to Adopt a Rate Stabilization Plan. (U 39 E)	Application 00-11-056 (Filed November 22, 2000)
Petition of THE UTILITY REFORM NETWORK for Modification of Resolution E-3527.	Application 00-10-028 (Filed October 17, 2000) AB X1 Implementation

INTERIM OPINION

This order recognizes that the Water Code Section 80114 revenues are not subject to present or future prudency review by this Commission, and that DWR is solely responsible for setting its revenue requirement which we must pass through to ratepayers. It also stays action on implementation of the suspension of direct access under Water Code Section 80110 until further order.

Discussion

On February 1, 2001, Governor Davis signed Assembly Bill No. 1 from the First Extraordinary session (AB X1) in an effort to alleviate the energy crisis in California. AB X1 contains many provisions necessitating action from this Commission, the Department of Water Resources (DWR), and the Department of Finance. Based on input received from parties, the Administrative Law Judge (ALJ) has adopted an expedited schedule to determine the California Procurement Adjustment (CPA) on an interim basis.

Pub. Util. Code Section 360.5, as added by AB X1, requires the Commission to calculate a CPA, which then becomes a portion of the retail rate. The statute defines the CPA as "the difference between the generation related component of the retail rate [on January 5, 2001] and the sum of the costs of the utility's own generation, qualifying facility contracts, existing bilateral contracts and ancillary services." The statute and this Commission recognize that headroom may exist and be used to finance DWR purchases. The ALJ is now considering proposals for establishing an interim CPA and expects to render his decision on March 14, 2001. Once the interim CPA is established, we will also establish an interim allocation as required by Section 360.5. Section 360.5 mandates that we determine the amount of the CPA which is allocable to power sold by DWR. That allocation must be paid by the utilities to DWR upon receipt of revenues from retail end users. This revenue stream is denominated the Fixed Department of Water Resources Set-Aside (FDWRSA). It is "Fixed" because it is permanent and irrevocable.

Additionally, Water Code Section 80110 entitles DWR to recover as a revenue requirement any monies it expends or has expended to purchase power under AB X1, including any amounts specified under Water Code Section 80134¹. While this Commission retains its general authority under Pub. Util. Code Section 451, we specifically cannot conduct any prudency review of the DWR purchases. Water Code Section 80110 mandates that "any just and reasonable review under Section 451 shall be conducted and determined by the department." Therefore, we acknowledge that contracts for and purchases of power by DWR are per se reasonable. We also acknowledge that under Section 80134(b), DWR will notify this Commission of its revenue requirement and we must ensure its receipt.²

Water Code Section 80114 requires the Commission to ensure that "all, or a portion of, the component rates that are available to the electrical corporations for the purchase of their net short position of electricity are used to recover the revenue requirements" that DWR sets. We acknowledge that this means that this net short stream of income is totally within the control of DWR, is not subject to any prudency review by this Commission, must be paid to DWR and is therefore irrevocably DWR's money.

The exact amount of the net short revenue stream as it relates to the CPA calculation and allocation is still under consideration by this Commission. DWR itself has yet to set a revenue requirement and notify us of it. However, DWR has notified this Commission of the need for these assurances by its February 16, 2001 letter, which is Attachment A. The letter states that Commission action is necessary in order to negotiate favorable terms with sellers of power and to also provide assurances to prospective lenders of DWR's ability to recover revenues from the sale of power to retail end use customers. Water Code Section 80003(a) notes the DWR purchasing program is an essential governmental purpose. Section 80003(b) states that the provisions added by AB X1 "shall be construed in a manner so as to effectuate the purposes and objectives thereof." Water Code Section 80016 directs all state agencies to give DWR reasonable assistance or other cooperation in carrying out the purposes of AB X1. It is our duty to facilitate DWR's purchases of power so it may carry out its responsibilities under AB X1. Therefore, we believe it appropriate to provide these assurances.

It is our intent to establish an interim CPA and interim allocation as soon as possible consistent with due process. At that time we will segregate revenues as requested by DWR. However, the DWR may recover, and the Commission shall approve and impose, either as part of the CPA or as additional rates, rates sufficient to enable DWR to recover its revenue requirements and the provisions of this sentence shall constitute an agreement within the meaning of Section 80110.

Finally, we shall stay action on implementation of the suspension of direct access under Water Code Section 80110 until further order.

Comments on Alternate Decision

Pub. Util. Code Section 311(e) provides for public review and comment of alternate decisions; however, this period may be reduced under certain circumstances. Under Rule 77.7(f)(9) of its Rules of Practice and Procedure, the Commission may determine on its own motion that public necessity requires reduction of this 14-day period. We have weighed the interest in allowing the full comment period against the need to provide certainty about our implementation of these aspects of AB X1, and conclude that the public interest in providing certainty at an early date, especially in the current energy crisis, outweighs the interest in allowing a full comment period. Therefore, we shall reduce this period. Comments shall be filed on March 2, 2001. Reply comments shall be filed on March 5, 2001.

Findings of Fact

1. On February 1, 2001, Governor Davis signed Assembly Bill No. 1 from the First Extraordinary Session (AB X1) in an effort to alleviate the energy crisis in California.

2. Pub. Util. Code Section 360.5, as added by AB X1, requires the Commission to calculate a CPA, which then becomes a portion of the retail rate.

3. The statute and this Commission recognize that headroom may exist and be used to finance DWR purchases.

4. Water Code Section 80110 mandates that "any just and reasonable review under Section 451 shall be conducted and determined by the department."

5. Water Code Section 80114 requires the Commission to ensure that "all, or a portion of, the component rates that are available to the electrical corporations for the purchase of their net short position of electricity are used to recover the revenue requirements" that DWR sets.

6. DWR has notified this Commission of the need for these assurances by its February 16, 2001 letter, which is Attachment A. The letter states that Commission action is necessary in order to negotiate favorable terms with sellers of power and to also provide assurances to prospective lenders of DWR's ability to recover revenues from the sale of power to retail end use customers.

7. Under Rule 77.7(f)(9) of its Rules of Practice and Procedure, the Commission may determine on its own motion that public necessity requires reduction of the public review and comment period for alternate decisions.

8. We have weighed the interests in allowing the full comment period against the need to provide certainty about our implementation of these aspects of AB X1, and determined that the balance favors providing certainty at this time.

(1) The amounts necessary to pay the principal of and premium, if any, and interest on all bonds as and when the same shall become due. (2) The amounts necessary to pay for power purchased by it and to deliver it to purchasers, including the cost of electric power and transmission, scheduling, and other related expenses incurred by the department, or to make payments under any other contracts, agreements, or obligations entered into by it pursuant hereto, in the amounts and at the time the same shall become due. (3) Reserves in such amount as may be determined by the department from time to time to be necessary or desirable. (4) The pooled money investment rate on funds advanced for electric power purchases prior to the receipt of payment for those purchases by the purchasing entity. (5) Repayment to the General Fund of appropriations made to the fund pursuant hereto or hereafter for purposes of this division, appropriations made to the Department of Water Resources Electric Power Fund, and General Fund moneys expended by the department pursuant to the Governor's Emergency Proclamation dated January 17, 2001. (6) The administrative costs of the department incurred in administering this division.