X. Comments on Decision

Under Pub. Util. Code Section 311(g)(3) and Rule 77.7(f)(9) of the Rules of Practice and Procedure, the Commission may determine on its own motion that public necessity requires reduction or waiver of the 30-day public review and comment period set by Pub. Util. Code Section 311(g)(1). We have weighed the interest in allowing the full comment period against the need to provide DWR with certainty about the minimum revenues that will be generated by the CPAs of the three utilities and the need for DWR to begin to receive revenue collected by the utilities for electricity DWR has sold to customers. We 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, this period is waived.

Findings of Fact

1. When retail end use customers being served by utilities take delivery of power procured by DWR, the retail end use customers are deemed to have purchased the power from DWR.

2. DWR power is to be allocated pro rata among all classes of customers to the extent possible.

3. The California Department of Water Resources (DWR) set forth in a letter to the Commission dated March 14, 2001, its views on how the Commission should determine the CPA.

4. Establishing the CPA is a critical element in the implementation of AB 1X.

5. Establishing the CPA is also important to any long-term or short-term financing.

6. DWR's power purchases and sales to retail end-use customers relieve utilities of the costs for the net short procured by DWR.

7. For the sale of net short energy to the customers of each utility, DWR should receive a per-kWh price equal to the applicable generation-related retail rate per kilowatt-hour established for each utility as in effect on January 5, 2001. This is not the sole source of revenue to which DWR may be entitled.

8. CPA is a set rate.

9. The Fixed DWR Set-Aside is portion of the utility's CPA that the Commission allocates to the DWR.

10. Calculation of the CPA does not alter DWR's right to recover any portion of its revenue requirement, which is not fully recovered through existing rates.

11. Upon the delivery of DWR power to retail end use customers, such customers are deemed to have purchased that power from the DWR.

12. Payment for any sale of DWR power is a direct obligation of the retail end use customer to DWR.

13. DWR's procurement of power and sale, at current rates, of such power to retail end use customers improves the financial stability of SDG&E, PG&E and Edison.

14. The CPA's generation related rate component (and in turn the CPA) is derived from rates in effect as of January 5, 2001.

15. The CPA's generation related rate component (and in turn the CPA rate) includes the 1-cent/kWh surcharge adopted by D.01-01-018.

16. For Edison and PG&E the generation-related component of retail rates should be equal to the total bundled electric rate (including 1 cent/kWh surcharge) less the following non-generation-related rates or charges:

17. For customers subject to SDG&E's rate ceiling of 6.5¢/kWh, the generation-related rate component is 6.5 cent/kWh.

18. For customers not subject to SDG&E's rate ceiling, the generation-related rate component is based on an estimate of wholesale prices.

19. Each utility's tariffs contain many different rate schedules resulting in different generation-related rate components for different schedules.

20. The company-wide average generation-related rate component for Edison is 7.277 ¢/kWh.

21. The company-wide average generation-related rate component for PG&E is 6.437 ¢/kWh.

22. The company-wide average generation-related rate component for SDG&E capped customers is 6.5 ¢/kWh for

23. The company-wide average generation-related rate component for SDG&E uncapped customers is 12.539 ¢/kWh.

24. A utility's CPA is calculated by dividing CPA-generated revenues by the company's total annual kWh.

25. Under AB 1X, the CPA serves to calculate the Fixed DWR Set-Aside and also the amount of bonds that DWR may issue.

26. Franchise fees, uncollectibles, direct access credits, restructuring implementation costs, employee-related transition costs, losses on sale and QF shareholder incentives, rate reduction bond revenues, nuclear incentive amounts, customer service and informational expenses and administrative and general (A&G) costs should be excluded from utility costs for the purpose of calculating the sum of the utility's own generation, qualifying facility contracts, existing bilateral contracts, and ancillary services pursuant to Pub. Util. Code Section 360.5.

27. The cost figures the utilities included in their workpapers are useful for the sole purpose of calculating CPA to permit DWR to determine the maximum amount of bonds it may issue.

28. Determination of both the CPA and the annual revenues produced by the CPA are key steps in determining the maximum amount of bonds that may be issued.

29. PG&E and Edison apparently have not complied with the requirement in D.01-01-061 to segregate and transfer to DWR, consistent with D.01-01-061, the revenues received for charges paid by retail end use customers for energy sold by DWR.

30. For all power not covered by D.01-01-061, DWR is entitled to receive the company-wide average generation-related rate component for each kilowatt-hour that DWR supplies to the utility's retail end use customers.

Conclusion of Law

1. DWR should receive payment for power it purchases and sells to retail end-use customers.

2. . DWR is entitled to an amount equal to the number of kWh sold to retail end use customer multiplied by the relevant generation rate.

3. Monies other than the CPA may flow to DWR.

4. DWR retains title to all power sold by it to retail end use customers.

5. Utilities must deposit, in the DWR Electric Power fund, all money paid directly or indirectly to or for the account of DWR with respect to any sale of power acquired by DWR.

6. All money paid directly or indirectly to or for the account of DWR with respect to any sale of power acquired by DWR shall constitute property of DWR.

7. Utilities, on the terms and conditions established by DWR, must segregate any moneys received in the process of collection, and pending their transfer to DWR by the utility, must hold such monies in trust for the benefit of DWR.

8. It unreasonable for utilities to retain the revenue generated from DWR purchases of electricity that is sold to the utilities' retail end use customers, even though they are in financial distress. Until such time as schedule specific generation-related rates are calculated, the utilities should use the company-wide average generation-related rate for determining the sums they must transfer to DWR.

9. Until such time as schedule specific generation-related rates are calculated: Forty-five days after DWR supplies power to the utilities' retail end use customers the utility should remit to DWR an amount equal to the product of the number of kilowatt-hours that DWR provided 45-days earlier and the company-wide generation-related rate.

10. For all electricity supplied by DWR more than 45-days prior to the effective date of today's order the utility shall immediately segregate and hold in trust the funds owing to DWR.

11. SDG&E, Edison and PG&E should submit tariff schedule-specific generation-related rates so that each customer's bill will specifically identify the generation-related rate for DWR.

12. SDG&E, Edison and PG&E should determine the number of DWR supplied kilowatt-hours on each customer's bill to which this customer specific generation-related rate will be applied using the method set forth in this order.

13. The utility shall not have any right in and to DWR revenues and such revenues shall not be used by the utility as its own or commingled with its own monies. At all times such revenue shall constitute property of DWR only.

14. The payment mechanisms established in this decision is essential and necessary to accomplish the directives of Water Code Section 80112.

15. Edison and PG&E should comply with ordering paragraph 7 of D.01-01-061 by 9am on the day following the effective date of this decision. If Edison and PG&E are unable to calculate the amount owed to DWR pursuant to D.01-01-061, each utility shall pay DWR for the number of kWhs that DWR asserts it provided to that utility's retail end-use customers pursuant to SB 7X. Edison shall pay a rate of 6.277 cents for each such kWh. PG&E shall pay a rate of 5.437 cents for each such kWh.

16. The determination of the CPA rate and the annual revenues generated by the CPA should, upon acceptance in writing by the California Department of Water Resources (DWR), constitute an agreement between this Commission and DWR within the meaning of Water Code Section 80110, and as such should have the full force and effect of a financing order adopted in accordance with Article 5.5 (commencing with Section 840) of Chapter 4 of Part 1 of Division 1 of the Public Utilities Code.

17. The motions of Edison, PG&E and SDG&E to strike the comments of TURN should be denied.

INTERIM ORDER

IT IS ORDERED that:

1. Our determination in this order of the California Procurement Adjustment (CPA) rates for each utility and the annual revenues generated by the CPA shall, upon acceptance in writing by the California Department of Water Resources (DWR), constitute an agreement between this Commission and DWR within the meaning of Water Code Section 80110, and as such shall have the full force and effect of a financing order adopted in accordance with Article 5.5 (commencing with Section 840) of Chapter 4 of Part 1 of Division 1 of the Public Utilities Code. This ordering paragraph applies solely to our determination of the company-wide average CPA rates and the annual revenues generated by the CPA, and to no other provision of this decision.

2. The company-wide average generation related rates are 7.277 cents per kWh for Edison, 6.437 cents per kWh for PG&E, 6.5 cents per kWh for SDG&E capped customers, and 12.539 cents per kWh for SDG&E uncapped customers.

3. Until such time as schedule specific generation-related rates are calculated, the San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (Edison) and Pacific Gas and Electric Company (PG&E) must use the company-wide average generation-related rate established in the ordering paragraphs of this decision for determining the sums they must transfer to DWR, pursuant to ordering paragraphs 4 and 5 except as otherwise provided by ordering paragraph 8.

4. Forty-five days after DWR supplies power to the retail end use customers of SDG&E, Edison and PG&E, the utility shall remit to DWR an amount equal to the product of the number of kilowatt-hours that DWR provided 45 days earlier and the company-wide average generation-related rate.

5. For all electricity supplied by DWR more than 45 days prior to the effective date of today's order, SDG&E, Edison and PG&E shall immediately segregate and hold in trust the funds owing to DWR, except as otherwise provided in Ordering Paragraph 8.

6. Within 30 days of today's order, each utility shall file the tariff changes necessary to implement the more precise billing methodology set forth in this decision and shall implement billing under this more precise methodology within 30 days of the approval, by the Commission or its staff, of the tariff changes.

7. The utility shall not have any right in and to DWR revenues and such revenues shall not be used by the utility as its own or commingled with its own monies. At all times such revenue shall constitute property of DWR only. The utilities shall provide, by letter to the Commission's Executive Director, and to the Director of the Department of Water Resources, listing the numbers of the accounts [containing DWR funds held in trust], the names of the financial institutions where the accounts are located, and the amounts deposited therein. Such letter shall be delivered by fax no later than 1:00 p.m. on March 28, 2001.

8. Edison and PG&E shall pay DWR by 9am on the day following the effective date of this decision the sums owed pursuant to Ordering Paragraph 7 of D.01-01-061. If Edison and PG&E are unable to calculate the amount owed to DWR pursuant to D.01-01-061, each utility shall pay DWR for the number of kWhs that DWR asserts it provided to that utility's retail end-use customers pursuant to SB 7X. Edison shall pay a rate of 6.277 cents for each such kWh. PG&E shall pay a rate of 5.437 cents for each such kWh.

9. The motions of Edison, PG&E and SDG&E to strike the comments of TURN are denied.

This order is effective today.

Dated , at San Francisco, California.

ATTACHMENT A

DEPARTMENT OF WATER RESOURCES (Letterhead)

March 14, 2001

Commissioners Public Utilities Commission

505 Van Ness Avenue

San Francisco, California 94102

Dear Commissioners:


360.5 The commission shall determine that portion of each electrical corporation's retail rate effective on January 5, 2001, that is equal to the difference between the generation related component of the retail rate and the sum of the costs of the utility's own generation, qualifying facility contracts, existing bilateral contracts, and ancillary services. That portion of the retail rate shall be known as the California Procurement Adjustment. The commission shall further determine the amount of the California Procurement Adjustment that is allocable to the power sold by the [D]epartment. That amount shall be payable, by each electrical corporation, upon receipt by the electrical corporation of the revenues from its retail end use customers, to the [D]epartment for deposit in the Department of Water Resources Electric Power Fund, established by Section 80200 of the Water Code. The amount determined pursuant to this subdivision shall be known as the Fixed Department of Water Resources Set-Aside.

For compelling and practical reasons, the Commission's determination of the California Procurement Adjustment (the "CPA") is a critical element in the implementation of ABX1-1. It is the initial step in establishing an important revenue source for the Department in meeting its power purchase responsibilities. It is also important to any long-term or short-term financing by the Department.

In their filings in this proceeding, the electrical corporations make the unwarranted assertion that, in enacting ABX1-1, the Legislature not only afforded relief to the utilities with respect to procurement of the so-called "net short," but that the Legislature also granted them, in effect, a rate increase on the portion of the power which they continue to supply. The clear meaning of ABX1-1 is very different. Section 360.5 was intended to address important changes in circumstances that arose from the enactment of ABX1-1. Through the enactment of Section 360.5, the Legislature recognized that a significant portion of the electrical corporation's costs intended to be recovered in established generation rates were no longer being borne by the electrical corporations to the extent that the Department purchased the "net short" and that an appropriate adjustment in generation rates was therefore required. Section 360.5 was also clearly intended to provide financial assurance to the Department for its power purchases pursuant to ABX1-1 by making available to the Department (to the extent of the Commission-determined "Fixed Department of Water Resources Set-Aside") the portion of the rate applicable to each corporation that was intended to be applied by the corporation to pay for the "net short" being purchased by the Department.

In order to address these changes in circumstances, ABX1-1 envisions that for the Department's sale of "net short" energy to the customers of each electrical corporation, the Department will initially receive (i) a per-kWh price equal to the applicable generation-related retail rate per kilowatt-hour established for each electrical corporation as in effect on January 5, 2001 plus (ii) a Commission-determined portion of the January 5, 2001 rate for power the electrical corporation continues to sell. Consequently, ABX1-1 provides that each electrical corporation will continue to receive-on a per-kWh basis-only (i) the components of the January 5, 2001 rate attributed at the time of original rate-making to power that the corporation will continue to sell to its retail end use customers, (i.e., native generation, qualifying facility contracts, existing bilateral contracts and ancillary services) plus (ii) a Commission-determined portion of the January 5, 2001 rate for power the electrical corporation continues to sell, (i.e., the portion of such rate which is not determined to be part of the Fixed Department of Water Resources Set-Aside. Nothing in ABX1-1 suggests that the electrical corporations are to retain any revenues attributable to power furnished by the Department and to allow them to do so was certainly not the intent of ABX1-1.

As Section 360.5 states, the CPA is a portion of a "retail rate effective on January 5, 2001." Therefore the CPA itself is a rate, to be expressed in terms of cents per kilowatt-hour (as Section 80130 of the Water Code also requires, as discussed below). Section 360.5 calls for the following determinations and calculations with regard to each electrical corporation:

Section 360.5 requires that each electrical corporation pay to the Department, upon receipt of payment by each of its end use customers for power sold by the electrical corporation (as opposed to power deemed sold to such user by the Department), all or a portion of an amount equal to the product of (i) the number of such kilowatt-hours purchased by the user from the electrical corporation, multiplied by (ii) the electrical corporation's CPA. That portion of the CPA to be paid to the Department is the Fixed Department of Water Resources Set-Aside. Please note that the Department is not requesting that the Commission determine the Fixed Department of Water Resources Set-Aside at this time.

Following is an example which illustrates the CPA calculation methodology required by ABX1-1. Assume that (i) a hypothetical utility delivers to its retail end use customers 100 kWh annually, half of which is power derived from the utility's own generation, qualifying facility contracts, existing bilateral contracts, and ancillary services, and the other half of which is "net short" power. Further assume that the hypothetical utility's Total Generation Related Rate is 5¢ per kWh, which took into account and consisted of an imputed cost of the utility's own generation, qualifying facility contracts, existing bilateral contracts, and ancillary services of 2¢ per kWh at the time the Total Generation Related Rate was determined and the cost of the "net short" power of 8¢ per kWh at the time the Total Generation Related Rate was determined. (The 2¢ per kWh imputed cost of 50 kWh ($1.00) and the 8¢ per kWh imputed cost of the other 50 kWh ($4.00) result in an average blended cost of 5¢ per kWh for all 100 kWh. In other words, the "Total Generation Related Rate" for the hypothetical utility is 5¢ per kWh.) In the example, the difference between the 5¢ per kWh Total Generation Related Rate and the 2¢ imputed cost of the power which the utility will continue to sell from the utility's own generation, qualifying facility contracts, existing bilateral contracts, and ancillary services equals a CPA of 3¢ per kWh. In this example, the CPA of 3¢ per kWh would be subject to further allocation by the Commission to determine the Fixed Department of Water Resources Set-Aside.

Confirmation that the Legislature's intended construction of Section 360.5 is consistent with the CPA calculation methodology described above can be found in Section 80114 of the Water Code, enacted as part of ABX1-1, which provides as follows:


80114. The commission shall take those actions necessary to ensure that all, or a portion of, the component rates that are available to electrical corporations for the purchase of their net short position of electricity are used to recover the revenue requirements established pursuant to this division.

Consistent with the language of ABX1-1, since the January 5, 2001 retail rate-and, therefore, the components of the CPA-took into account historical costs, the CPA is fixed and immutable. It is not affected by any change in the costs of any generation resource of any electrical corporation that was not reflected in the January 5, 2001 rate at the time such rate was originally determined. On the other hand, the calculation of the CPA, in and of itself, does not alter the right of the Department to recover any portion of its revenue requirements which is not fully recovered through the application of the portion of the CPA equal to the Fixed Department of Water Resources Set-Aside (nor does it affect any right of the Commission to allow additional cost recovery to the utilities for the portion of the power for which they remain responsible, subject, to applicable law and Commission proceedings). Further, the calculation of the CPA does not quantify the division of the CPA as between the Department and any electrical corporation (i.e., the determination of the Fixed Department of Water Resources Set Aside). The Department requests that Commission effectuate that division through a later determination and requests that the Commission's determination at this time be limited to the determination of the California Procurement Adjustment.

ABX1-1 also enacted Division 27 (commencing with Section 80000) of the Water Code. Division 27 established in the State Treasure the Department of Water Resources Electric Power Fund (the "Fund") and authorized the Department to issue bonds, notes, and other evidences of indebtedness (collectively, "Bonds") for certain limited purposes, including:

· paying the costs of electric power and transmission, scheduling, and other related expenses, or to reimburse expenditures from the Fund for those purposes.

· repaying to the General Fund certain advances made to the Department for the power purchase program; and

· establishing or maintaining reserves in connection with the Bonds and paying certain costs incidental to the issuance, payment and security of the Bonds.

Section 80130 of the Water Code (the "Bond Cap"), enacted as part of ABX1-1, provides in relevant part as follows (emphasis added):


In no event shall the [D]epartment authorize the issuance of bonds ... in an aggregate amount greater than the amount calculated by multiplying by a factor of four the annual revenues generated by the California Procurement Adjustment, as determined by the [C]ommission pursuant to Section 360.5.

During the Legislature's consideration of ABX1-1, the bill's author communicated to the Legislature his expectation that the amount of the Bond Cap that would result from the application of Section 80130 would approximate $10 billion. Many Legislators cited the $10 billion figure during the floor debate of ABX1-1. The phrase "generated by" - used in Section 80130-is further evidence that the CPA is a rate to be expressed in terms of cents per kilowatt-hour and not a dollar amount of revenues. Consistent with Section 80130 of ABX1-1, the Department will determine the Bond Cap by calculating the dollar amount of the annual revenues which would be generated by the applicable CPA (as determined by the Commission) in each electrical corporation's service area, adding such dollar amounts and multiplying the resulting sum by four.

The Department requests that the Commission (i) determine, as part of an order, the CPA of each electrical corporation pursuant to Section 360.5 and in accordance with the methodology discussed above, and (ii) acknowledge that the Department may rely upon such determination for the purposes of Section 80130 of the Water Code.

In addition, we request that the order provide that, upon its acceptance by the Department in writing, the order will constitute an agreement between the Department and the Commission within the meaning of Section 80110 of the Water Code and that, pursuant to Section 80110, the order will have the full force and effect of a financing order.

Thank you for your assistance and attention to this important matter. We will be submitting additional information and requests to the Commission relating to the Department's power purchase program and financing plans and appreciate your continuing cooperation.

Sincerely,

/s/ THOMAS M. HANNIGAN

Thomas M. Hannigan

Director

(END OF ATTACHMENT A)

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