Conclusions of Law

1. Rate design and ratemaking policies should:

a) provide for fair cost allocation among customers;

b) allow the utility adequate cost recovery while minimizing costs to customers;

c) accommodate customer-side distributed generation deployment; and

d) send proper price signals to prospective purchasers of distributed generation.

2. Customers should be able to enter into a contract to specify the capacity for which it will provide physical assurance.

3. Customers with onsite generation should not pay standby charges designed to recover the fixed costs associated with distribution service for the amount of capacity it provides to the utility with physical assurance.

4. It is appropriate for distribution infrastructure costs to be recovered from backup customers.

5. Supplemental power should continue to be priced according to the customer's otherwise applicable tariff.

6. Standby rates should appropriately reflect the reduced cost of providing services such as backup and maintenance service compared to supplemental service.

7. In order to recognize the cost difference between supplemental power and backup power needs, we should require the utilities to reflect diversity, where it actually exists, in the standby reservation charges.

8. Backup service should be allocated a greater share of costs than maintenance service because it is an on-demand service and has distribution infrastructure requirements associated with it.

Diversity factors should not be applied to distribution charges that recover fixed costs at this time.9.

10. The utilities should be required to separately calculate diversity factors for the transmission and distribution level interconnected generation as a result of this decision.

11. If costs associated with maintaining distribution and transmission facilities to serve diversified standby load are fixed, those costs are appropriately reflected in fixed reservation or demand charges.

12. To the extent that there are costs that do vary with usage, those costs should be reflected in a usage-based charge.

13. Standby customers with onsite generation who sign up for backup service should be charged a $/kW reservation charge for their reserved capacity.

14. The reservation charge should reflect the facilities-related distribution infrastructure costs that do not vary with usage.

15. Backup standby rates should include a volumetric rate, based on actual usage, that collects variable distribution costs, including peak demand-related costs.

16. We should continue to recover public purpose costs from standby customers through a $/kWh usage charge.

17. Maintenance customers and others whose use of the distribution system is on an as-available basis should be charged a volumetric rate, based on usage, that recovers variable distribution costs but does not include peak demand-related infrastructure costs.

18. Standby charges should be based on embedded, not incremental, costs of service, consistent with the manner in which rates are calculated for other distribution services.

19. Standby rates should remove any charges not associated with providing distribution standby service.

The utilities should develop an electricity procurement rate option, which may be a real time price, that will be paid by standby customers when the utility procures electricity on their behalf.

20. To the extent that transmission charges recover fixed costs, they should be recovered through reservation charges.

21. Variable transmission charges should be recovered through variable rate components.

22. To the extent a customer with distributed generation offers physical assurance, no fixed transmission costs should be recovered from that customer.

23. We should not support the CA ISO's gross load metering policy.

24. The utilities may propose non-firm standby rate options that recover only variable costs of distribution service from customers who offer physical assurance.

25. The diversity factor included in the unbundled standby rates we adopt today should account for lowered costs of distribution capacity deferred due to increased distributed generation deployment.

26. The utilities should review and revisit, if applicable, the costs allocated to standby customers as they develop rates consistent with this order.

27. The utilities should propose ratemaking approaches to address any temporal inequities associated with their recommended cost allocation.

28. We are not precluded from recognizing the ability of the proposed ICE-T to promote state policy goals as expressed in AB 970.

29. Adoption of the ICE-T will complement existing programs for solar generation and will be consistent with incentive programs proposed to implement AB 970.

30. Interconnection fees of up to $5,000 for solar distributed generation up to 1 MW that does not sell power to the grid should be waived.

31. Customer-generators must comply with the interconnection requirements spelled out in Rule 21 of each utility's tariff.

INTERIM ORDER

Therefore, IT IS ORDERED that:

1. Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE) shall file applications within 60 days of the effective date of this decision proposing standby rates that implement the policies set forth herein. Specifically, the utilities shall file applications that:

a) propose a Form Contract for Physical Assurance;

b) allow customers using onsite generation to pay no fixed standby charges if they sign a contract providing the utility with physical assurance;

c) propose on-demand backup rates that recover facilities-related distribution costs through a $/kW reservation charge and variable distribution costs, including peak demand-related costs, through a $/kWh usage charge;

d) propose scheduled maintenance rate options that recover only variable costs of distribution service, excluding peak demand-related costs, from customers who offer physical assurance;

e) ensure that proposed standby rates separately identify any charges associated with electricity procurement;

f) propose an electricity procurement rate option, which may be a real time price, that will be paid by standby customers when the utility procures electricity on their behalf;

g) report on the extent of distribution level diversity and propose a diversity factor, if appropriate;

h) price supplemental power at the otherwise applicable tariff rate;

i) allow customers to elect a reservation capacity. Use by the customer in excess of the elected capacity will result in an immediate upward adjustment of the reservation capacity for a term of one year;

j) establish standby rates using embedded costs consistent with the manner in which rates for other distribution services are calculated;

k) propose standby rates that allow customers to take service at transmission or distribution voltages;

l) propose standby rates that recover fixed transmission costs through reservation charges and variable transmission costs through usage based charges;

m) reflect in the proposed standby rates that solar generating units up to 1 MW that do not export power to the grid are not subject to standby rates; and

n) collect public purpose costs from standby customers on a $/kWh usage basis, consistent with how it is collected from other distribution service customers.

o) Allocate costs to standby customers consistent with the policies adopted herein and propose ratemaking approaches to address any temporal inequities associated with the recommended cost allocation;

2. The applications may also propose non-firm standby rate options that recover only variable costs of distribution service, excluding peak demand-related costs, from customers who offer physical assurance.

3. Within 15 days of the effective date of this order, PG&E, SDG&E, and SCE shall:

a) submit an advice letter to revise Rule 21 to reflect that interconnection fees for solar generating units up to 1 MW that do not export power to the grid will be waived up to $5,000. The Advice Letter will be effective on the date filed if Energy Division finds it in compliance with this order; and

b) Notify solar generating units up to 1 MW that do not sell power to the grid that they will be served under the otherwise applicable tariffs for customers of their size and that any standby charges will no longer apply.

This order is effective today.

Dated July 12, 2001, at San Francisco, California.

LORETTA M. LYNCH

President

HENRY M. DUQUE

RICHARD A. BILAS

CARL W. WOOD

GEOFFREY BROWN

Commissioners

I will file a written concurrence.

/s/ RICHARD A. BILAS

Commissioner

Commissioner Bilas, concurring:

At today's Commission meeting, I voted in favor of both the Proposed Decision and the Alternate Decision. The Alternate, which was successful, differed in only one respect from the Proposed Decision - the application of a diversity factor to distribution level voltages. Both the Proposed Decision and the Alternate would adopt a standby rate design policy that: 1) is consistent among all California utilities; 2) better reflects the actual cost imposed on the utilities' systems by individual standby customers; and 3) requires the utilities to include a diversity factor for transmission level voltages in the calculation of the standby charges. Both the Proposed Decision and Alternate also adopt the independent Clean Energy Tariff proposed by the California Solar Energy Industry Association. I proposed these changes and I continue to fully support them.

The only difference between the Proposed Decision and the Alternate is the application of the diversity factor to distribution level voltages. While the Proposed Decision finds that there are well-supported arguments that the presence of multiple distributed generation units on the system reduces transmission and distribution requirements and that the record supports a finding that diversity does exist on both the transmission and distribution systems of the utilities, the Alternate states that there is no diversity on the distribution system at this time. I do not believe this conclusion accurately reflects the record in the proceeding and therefore I cannot support that portion of the Alternate. I believe that the debate over specific diversity levels should be deferred to the utility-specific rate design applications.

Taken as an entire package, I support today's decision. My hope and expectation is that this action, combined with other actions taken by the Governor and the Legislature will increase the amount of distributed generation on the system and that the utilities' standby rate design applications will appropriately reflect this increase.

/s/ RICHARD A. BILAS

RICHARD A. BILAS

Commissioner

San Francisco, California

July 12, 2001