V. Legal Authority for Imposing Cost
Responsibility Surcharges

Any charges we impose in this decision must be consistent with the law. Various parties representing DL interests generally argue that the Commission lacks jurisdiction over the right to engage in Customer Generation and the charges associated with CG. EPUC/KCC/GAG also claimed that such charges are prohibited by law and contrary to principles of cost causation. Various parties also claimed that explicit State and federal policies encouraging the development of Customer Generation would be frustrated by the imposition of any CRS on DG load.

We conclude that the Commission has the requisite legal authority to authorize and implement cost responsibility surcharges on Customer Generation load. This authority is clearly set forth in Assembly Bill No. 117 ("AB 117"), which clarified the Legislature's intent concerning the implementation of AB 1X (which enacted various sections in the Water Code), and the recovery of DWR-related costs from retail end-use customers. (AB 117, Stats. 2002, ch. 838.)¹⁰ AB 117, which was signed into law September 24, 2002, the Legislature enacted Public Utilities Code Section 366.2(d)(1) which makes all end-use customers who took bundled service on or after February 1, 2001 responsible for a fair of costs incurred by DWR. This statutory provision provides:

"It is the intent of the Legislature that each retail end-use customer that has purchased power from an electrical corporation on or after February 1, 2001, should bear a fair share of the [DWR's] electricity purchase costs, as well as electricity purchase contract obligations incurred. . . that are recoverable from electrical corporation customers in commission-approved rates. It is further the intent of the Legislature to prevent any shifting of recoverable costs between customers." (Pub. Util. Code, §366.2, subd.(d)(1).)

Thus, AB 117 gives the Commission the authority for imposing a "fair share" of cost responsibility on customers, including Customer Generation Departing Load, that took utility service on or after February 1, 2001. The determination of what the "fair share" should be is left to the Commission's determination in its exercise of this authority.

As stated in AB 117, the "fair share" is to be determined in manner so as to prevent any shifting of costs between customers. In order to comply with this requirement, we impose a "fair share" of costs on Customer Generation Departing Load as required to prevent cost shifting and hold them responsible for the costs they caused to be incurred.

In implementing the "fair share" called for AB 117, however, we are cognizant of other statutes, including the legislative intent codified in these statutes, that were enacted at the same time and in response to the electricity problems confronting California. For example, Public Utilities Code Section 353.2 provides:

"In establishing rates and fees, the commission may consider energy efficiency and emissions performance to encourage early compliance with air quality standards established by State Air Resources for ultra-clean and low-emission distributed generation." (Public Utilities Code Section 353.2, subd. (b).)

To the extent that the language in AB 117 might be construed as imposing surcharges that counteract the effects of incentives to promote energy efficient and low emission generation, we make further provision to reconcile any apparent economic counteractions. Accordingly, although we comply with AB 117 herein by establishing appropriate cost responsibility on Customer Generation, we also make provision for determination in a separate proceeding of what further rate design or other incentives may be warranted to encourage ultra clean and low emission distributed generation in accordance with Public Utilities Code Section 353.2(b).

Therefore, consistent with the statutory provisions set forth in AB 117 and AB 1X, Customer Generation load must be held responsible for a fair share of the DWR revenue requirements. To the extent that customers departed from bundled utility service to be served by Customer Generation after DWR began buying power on January 17, 2001, such customers consumed power that had been purchased by DWR. The DWR costs for which customers bear responsibility include both previously incurred costs as well as an ongoing cost component. We address the more specific applicability of each respective charge in our review of parties' positions in relation to the Settlement Agreement, as discussed below.