VI. Shortening the Public Review Period of the Proposed Decision

In setting the briefing schedule on July 2, 2002, the ALJ asked parties to address if they would stipulate to shortening the time for review of the proposed decision pursuant to Section 311(g)(2). Several parties stated their support for this in their briefs; no party opposed the request. Parties will have another opportunity to address this issue in their oral argument before the Commission on August 8, 2002. We will consider the silence of a party on the issue to imply consent. If no objections are raised to the Commission shortening time for public review of the proposed decision at the oral argument, comments will be due on August 19, 2002 and the decision will be placed on the August 22, 2002 Commission agenda.

Findings of Fact

1. PG&E, SDG&E, and Edison are the respondent utilities in this proceeding.

2. On May 6, 2002, Edison filed a "Motion for an Interim Decision Granting Approval of Process for Early Procurement of Capacity." Edison's motion requests authority to enter into multi-year capacity contracts for a term of up to five years using the credit of the DWR until Edison regains its investment grade rating.

3. On May 15, 2002, the assigned Commissioner and ALJ issued a ruling finding that the authority sought by Edison should be considered in the hearings scheduled to commence shortly, and modified the hearing schedule to accommodate this.

4. At the hearings, held from June 10 through July 3, 2002, PG&E and SDG&E requested that they be granted the same transitional period authority as Edison is granted. In addition, PG&E requests it be granted authority to enter gas hedge contracts of the type currently authorized Edison under its Settlement Agreement with the Commission.

5. Interested parties to the proceeding generally support a more limited transitional authority that that requested by the respondent utilities; Ridgewood and Aglet recommend the request be denied.

6. SDG&E currently has an investment grade credit rating, and, therefore, a question exists as to whether the credit support of DWR should be provided, and if so, when SDG&E should assume financial and legal responsibility for the contracts from DWR. We find that SDG&E is creditworthy, its procurement needs are a small part of the market, and it can fully participate in the CAISO market. SDG&E may execute any contracts resulting from the authority granted today without DWR involvement. SDG&E may use the expedited review process

7. We will consider Edison's May 6^th motion in a manner that will not harm renewable generation in the final procurement plan.

8. We will be conservative in any authority we grant until a decision on allocation of the existing DWR contracts is final, both at the Commission and in any reviewing courts.

9. We should adjust PG&E's proposed capacity limit to reflect a comparable methodology to Edison's and PG&E's conservative low RNS forecasts.

10. We find merit in authorizing multi-year procurement. The prospect of signing multi-year procurement contracts will help attract suppliers to utility solicitations and will help attract capital investment in new generating projects.

11. It is reasonable to grant Edison, PG&E and SDG&E authority to procure up to 65% of its on-peak hourly RNS requirement reflected in a low-case RNS scenario for products with a contract duration up to one year and without self-provision of ancillary services included.

12. Given the uncertainty that exists surrounding final allocation of DWR contracts and the uncertain net effects of DWR contract renegotiation on the aggregate size and shape of DWR's supply portfolio over the next five years, we find it reasonable to adopt SDG&E's recommended 50/50 proposal. Therefore, we should authorize Edison, PG&E, and SDG&E authority to procure up to 50% of their authorized amount with contracts of up to a five year duration. This limit will ensure that a significant remainder of procurement requirements will be guided by future Commission decisions.

13. For purposes of addressing ORA's concern that Edison has failed to precisely define the term `capacity product', we adopt the following definition: A capacity contract is one in which the buyer has the right to take energy at a known price in exchange for a capacity or reservation charge. The energy charge could be fixed or indexed to gas prices. Under this type of contract, the buyer has the right, but not the obligation to schedule energy up to the maximum number of MWs provided for in the contract.

14. It is reasonable to grant Edison and PG&E authority to purchase:

(a) capacity contracts, as defined in this decision;

(b) forward energy products;

(c) transportation of the physical commodity portion to be delivered pursuant to authorized capacity and energy contracts;

(d) related fuel products, natural gas supply, transportation, and storage for specific authorized capacity or energy contracts;

(e) energy exchanges, such as energy for capacity transactions, peak for off-peak exchanges, and seasonal exchanges.

15. It is not reasonable to grant the respondent utilities authority to use financially-settled hedging instruments because of the complexity in reviewing these transactions in an expedited manner.

16. We should deny PG&E's request for additional authority to procure gas hedging to hedge the fuel cost risks associated with its retained generation and qualifying facilities contracts because it goes beyond the scope of authority being considered under Edison's motion.

17. We find that granting transitional authority, under the terms and conditions adopted here, is beneficial for both the utilities and their customers. Edison and PG&E will benefit by being able to enter procurement contracts prior to regaining an investment grade credit rating and to demonstrate to the financial markets that they can successfully resume their full procurement responsibilities under the Commission's regulatory oversight. Customers of the utilities will benefit from the utilities receiving and exercising this authority in a manner that promotes reliable service at just and reasonable rates.

18. The Edison/DWR agreement proposed in Edison's May 6th Motion should be modified to meet the concerns expressed by DWR in its May 31st memo.

19. Edison, PG&E, and SDG&E have in their control how expedited the review and approval process will be based on the transitional procurement strategy they employ, the early and collaborative role they give staff and non-market participant parties in reviewing their analysis and recommendations, the contracts they chose to enter, the quality of the application package they submit, and their responsiveness to requests for additional information.

20. All products purchased under this authority should be purchased using a competitive process.

21. We cannot make a finding on this record that it is in the public interest to order the respondent utilities to enter contracts under the terms and conditions proposed by Ridgewood in its motion; therefore, we will deny this motion.

22. Renewable generators that operate in tandem with fossil facilities to provide needed products will be eligible for the same preference, provided that the net emissions of pollutants, as defined in this decision, do not exceed those of the fossil bid that is superseded.

23. In the all-source solicitation process, the respondent utilities, should collect the following information from bidders that are renewable generators renewable technology type, location, type of products available, bid price, production profile for 2001-2002, cost elements (fuel, O&M, debt/equity service, PGC funds), and, for facilities not presently on line, any potential interconnection or transmission issues that may impair their ability to begin generating in a timely manner. The renewable generators participating in the bidding should consider their submissions to be binding offers to produce power.

24. Within 30 days of an all-source solicitation process, the respondent utilities should submit the responses from renewable generators to the Commission, together with an analysis of the products and prices offered.

25. The respondent utilities should pursue contract extensions and amendments with renewable generators at prices less than or equal to the utility's short-run avoided cost, as defined by existing formula approved by this Commission.

26. At this time, we should not re-institute the utility obligation to enter SO1 contracts for qualifying facilities, as defined under the Public Utility Regulatory Policy Act of 1978, because such issues must be considered in the context of a full re-examination of our QF policies.

27. It would not be good public policy to grant a right of first refusal to QFs.

28. We expect utilities to take into consideration in their resource selection the mandates of Section 701.3 and AB 57 with an eye to including renewables in their resource mix.

29. The collection of information of renewables in the transition period will allow the Commission to better understand the present market for renewable generation in California, to inform the process of price benchmarking should it be pursued in later phases of this proceeding

30. This information will also position the utilities and the Commission to meet any unexpected resource shortfalls, resulting from DWR contract allocation, renegotiation or other factors, with renewable generation that can be made available quickly.

31. Existing facilities, with or without contracts, are free to sell excess energy into the ISO spot markets. As we lay the groundwork for the Procurement Plan solicitations in the coming months, we encourage existing facilities to take advantage of this potential market for their output.

Conclusions of Law

1. We need to develop a process that is balanced: one that meets the needs of the utilities for timely decisions that reduce regulatory uncertainties while at the same time ensuring that the Commission has exercised its statutory responsibilities to protect consumers from unreasonable costs through effective oversight and regulation.

2. The utilities should use a competitive process that provides wide dissemination of the request to members of the generation community, to include renewable resource suppliers. The specifications for a capacity or energy contract should not be fuel or technology specific.

3. We are not obligated to reinstitute SO1 contracts for QFs.

4. We are not obligated to provide a first right of refusal to qualifying facilities for solicitations conducted under the transitional authority granted here.

5. In order to ensure an adequate review period, the utilities should use an application process for nonstandard contract review and approval, especially as we undertake to quickly examine and provide, up-front reasonableness approval to electric procurement contracts that are represented to be quite complex multi-year transactions.

6. In the all-source solicitations they conduct, in the respondent utilities should favor renewable generators, as defined in this decision, in the evaluation of bids otherwise equal in terms of cost and electrical product offered.

7. This order should be effective today in order to allow the utilities to expeditiously begin the all-source solicitation process, described herein.

INTERIM ORDER

IT IS ORDERED that:

1. The May 6^th, 2002 motion of Southern California Edison is granted, with the modifications set forth in this decision.

2. The respondent utilities shall file by compliance letter the terms under which they will enter contracts in participation with the California Department of Water Resources (DWR), revised to address the concerns stated by DWR in its May 31, 2002 memo, within five days of the effective date of this order.

3. We adopt the following process to approve contracts for transitional procurement:

a. Application. Edison, PG&E, or SDG&E file an application that conforms to the quantities, products, terms and conditions we discuss earlier for transitional procurement. The application should demonstrate it meets our standard for approval by a showing that entering into the contract(s) should result in favorable and stable rates for ratepayers relative to alternative options. An application may contain all winning contracts from a single RFP solicitation. SDG&E cannot use DWR's credit to undertake transitional procurement. Bids from renewable generators that provide the required product, but at a cost above fossil generation, shall be forwarded to the Commission with each utility's application.

b. Master Data Request. We find the master data request proposal by ORA to be beneficial and will adopt it. The application must contain all information required under our adopted master data request. The specifics of this are attached to this decision as Appendix D. Each application should include documentation of the steps followed for each transaction, such as including at a minimum the risk management package presented to senior utility management, the specific approvals and conditions given by management, and the rationale and procedures of the selection process undertaken. The respondent utilities must also respond to all data requests within five working days, either by producing the requested material or by filing an objection under our Law and Motion procedures.

c. Procurement Review Group (PRG). Use of the PRG recommended in the Joint Principles. This group would meet prior to the application being filed and should be convened early on to assess any proposed RFP process before it is implemented. The PRG would meet again to assess the resulting bids, the winning procurement contracts, and reasonableness criteria with each respondent utility. The group would be open to parties designated under our Protective Order to review confidential information and would include representatives of the Commission's Energy Division and ORA as ex officio members.

d. Protests. A 30-day protest period with replies due in five days.

e. Workshop. A workshop will be held approximately 40 days after the application is filed. After the workshop, the assigned ALJ, in consultation with the assigned Commissioner, shall issue a ruling designating whether there are issues of substantial controversy or importance to require the scheduling of hearings. The ruling shall also state whether the ALJ intends to prepare a draft decision which meets the criteria set forth in Public Utilities Code Section 311(g)(2) of being an uncontested matter in which the decision grants the relief requested, a criteria that allows the 30 day public review period to be reduced or waived.

f. Current Filings. The requirement that each respondent utility shall have only one application pending at a time. However, if the assigned ALJ issues a ruling stating that the ALJ intends to prepare a draft decision that meets the criteria of 311(g)(2) and that will not be issued for public review and comment, then another application may be filed.

g. Denial. If the Commission rejects a proposed contract or procurement process, it should not designate any alternative procurement choices that would be recoverable by the IOU for ratemaking purposes without further reasonableness review.

h. Reasonableness Review. In its decision on an application, the Commission shall apply the same reasonableness standards it used in the ECAC proceedings and prudency of contract administration shall be at issue over the life of the contract. Similar to the gas EAD process, which provided an expedited procedure for reasonableness review of gas contracts, approval of the contracts shall be dispositive of all prudence questions which might arise at a later date regarding the contracts, absent a showing of: (a) misrepresentation or omission of material facts of which the utility is aware in connection with the utility's request for contract approval; and (b) imprudence in the utility's performance under the negotiated contract.

4. Any contract under which a respondent utility is seeking pre-approval must be filed by application within 30 days of signing or selection. The utilities shall carefully monitor and report any cost premiums paid for pre-approval.

5. Within 30 days of an all-source solicitation process, the respondent utilities shall submit the responses from renewable generators to the Commission, together with an analysis of the products and prices offered.

6. The June 12, 2002 motion of Ridgewood Olinda, LLC is denied.

This order is effective today.

Dated , at San Francisco, California.

APPENDIX A is in 128607

Joint Principle Proposed Review Process

PUC's Advice Letter Approval Process

Day

Days to Complete Task

Tasks

Days to Complete Task

Tasks

Days in advance of Application Filing Date

15

Review Group to assess proposed contracts and provide written comments to IOU before IOU submits contract(s) to PUC.

No limit

IOU internally plans, designs, and prepares AL to be filed with PUC

0

0

Advice Letter Filed by IOU including proposed contract(s), procurement processes, and Review Group recommendations

0

Advice Letter filed by IOU for purpose allowed under GO-96A or as specifically ordered by the PUC

7

7

Protests due within seven days of AL filing.

10

3

Replies to protests due within three days of protest.

20

20

Protests due within 20 days of AL filing

27

5 Bus Days

Replies to protests due within 5 business days of protest

30

30

PUC rules on Advice Letter. Approval constitutes a determination that cost incurred under contracts and/or contracts conforming to procurement process are reasonable and prudent. If PUC rejects proposed contract or procurement process, it would designate alternatives that would not be subject to further reasonableness review. Approval would constitute determination that cost incurred under the contracts itself and/or under contracts conforming to procurement process are reasonable and prudent.· IOU administration of contracts would remain subject to reasonableness review by the CPUC under reasonableness criteria or incentive ratemaking, as appropriate.

30

Section 455 of PU Code authorizes the PUC to "enter upon a hearing concerning the propriety of the rate...." for those ALs not resulting in a rate increase. The PUC may suspend the AL pursuant to Section 455 and the guidelines set forth in D.02-02-049 pending the dispostion of a Resolution to be prepared on the AL. Suspensions can last up to 10 months, i.e., for an initial period of 120 days, plus an additional six month period if the AL is not resolved. ALs not resulting in a rate increase become effective 30 days after filing if not suspended or otherwise disposed of by the CPUC or its staff. If it is determined that the AL will lead to a rate increase, Section VI of GO-96-A calls for the rate increase to be filed by formal application and for the PUC to make a finding (i.e., adopt a Decision) on whether the increase is justified. Requests for rate increases may be filed by AL under circumstances where the rate increase is minor in nature. Requests for approval of rate increases, or other tariffs that may result in rate increases, are not subject to Section 455, and thus may under Section 454 not go into effect on a default basis in the absence of a CPUC order.

31-59

Less than 30 days

PU Code Section 311(g) generally requires the PUC to circulate draft decisions for public review and comment at least 30 days before voting on the decision. Pursuant to 311(g)(2), the required public review period for Resolutions or Decisions (called for in 311(g)) can be reduced or waived under four conditions: (1) due to unforeseen emergency situation; (2) upon stipulation of all parties in a proceeding; (3) for uncontested matter in which the decision grants the relief requested; or (4) for an order seeking injunctive relief. Rule 81 of the Rules of Practice and Procedure defines unforeseen emergency circumstances. The Rule states that a rate increase is not an unforeseen emergency situation.

60+

30+

If the AL requires a Resolution or PUC Decision, and if the section 311(g)(2) conditions for reducing or waiving public review period either do not apply or are not exercised, under Section 311(g) the Resolution/Decision must be served on parties and subject to at least 30 days review and comment prior to PUC vote. 60 days is generally the quickest turnaround the PUC can provide on Resolutions (assuming the PUC has a public meeting scheduled close to the end of the review period). Often times, Resolutions will take longer than 60-days due to staff's need to conduct thorough analysis or because PUC public meeting dates do not match up with the end of the 30-day review period.

(END OF APPENDIX B)

APPENDIX C

Procurement Contract Review Process

Day

Days to Complete Task

Tasks

Days in advance of Application Filing Date

No Limit

Utility internally develops risk management plans for transitional procurement. Utility also meets with Procurement Review Group (PRG) recommended in the Joint Principles. This group would meet prior to the application being filed and should be convened early on to assess any proposed RFP process before it is implemented. The PRG would meet again to assess the resulting bids, the winning procurement contracts, and reasonableness criteria with each respondent utility. The group would be open to parties designated under our Protective Order to review confidential information and would include representatives of the Commission's Energy Division and ORA as ex officio members.

0

0

Edison, PG&E, or SDG&E file a complete application that conforms to the quantities, products, terms and conditions we discuss earlier for transitional procurement. The application should demonstrate it meets our standard for approval by a showing that entering into the contract(s) should result in favorable and stable rates for ratepayers relative to alternative options. An application may contain all winning contracts from a single RFP solicitation. The application shall include information responsive to the adopted master data request.

30

30

Protests due within 30 days of Application filing.

35

5

Replies to protests due within five business days of protest. (See rules of pp

40

1

A workshop will be held approximately 40 days after the application is filed.

41+

As required

After the workshop, the assigned administrative law judge (ALJ), in consultation with the assigned Commissioner, shall issue a ruling designating whether there are issues of substantial controversy or importance to require the scheduling of hearings. The ruling shall also state whether the ALJ intends to prepare a draft decision which meets the criteria set forth in Public Utilities Code Section 311(g)(2) of being an uncontested matter in which the decision grants the relief requested, a criteria that allows the 30 day public review period to be reduced or waived.

41-59

Less than 20

If the ruling states that the ALJ intends to prepare a draft decision which meets the requirements of Section 311(g)(2), the decision when drafted will be placed on the next Commission agenda.

60+

30+

If the ruling states that the application does not meet the criteria of Section 311(g)(2), a draft decision will be served on parties and subject to at least 30 days public review and comment prior to a PUC vote. If the ruling states that there are issues of substantial controversy or importance to require the scheduling of hearings, such hearings will be held and a proposed decision served on parties and subject to at least 30 days review and comment prior to a PUC vote.

Note: Approval of the contracts will also contain a decision on reasonableness, with prudency of contract administration being at issue over the life of the contract. During the transitional period, if the Commission rejects a proposed contract, it will not designate any alternative procurement choices.

(END OF APPENDIX C)

APPENDIX D

ADOPTED MASTER DATA REQUEST

· Identification of the ultimate decision maker(s) up to the Board level, approving the contract.

· The briefing package provided to the ultimate decision maker.

· A summary of any issues and questions raised by the decision maker.

· The process used to obtain capacity contract offers.

· The quantitative process used to rank offers.

· Relative cost-effectiveness of the offer.

· The contract.

· The break-even spot price equivalent to the contract.

· A copy of the software used by the utility to analyze the contract.

· An electronic copy of any data or forecasts used by the utility to analyze the contract.

(END OF APPENDIX D)

Appendix A - Service List to R.01-10-024 Walwyn Comment Dec.


	Joint Principle Proposed Review Process			PUC's Advice Letter Approval Process
Day	Days to Complete Task	Tasks	Days to Complete Task	Tasks
Days in advance of Application Filing Date	15	Review Group to assess proposed contracts and provide written comments to IOU before IOU submits contract(s) to PUC.	No limit	IOU internally plans, designs, and prepares AL to be filed with PUC
0	0	Advice Letter Filed by IOU including proposed contract(s), procurement processes, and Review Group recommendations	0	Advice Letter filed by IOU for purpose allowed under GO-96A or as specifically ordered by the PUC
7	7	Protests due within seven days of AL filing.
10	3	Replies to protests due within three days of protest.
20			20	Protests due within 20 days of AL filing
27			5 Bus Days	Replies to protests due within 5 business days of protest
30	30	PUC rules on Advice Letter. Approval constitutes a determination that cost incurred under contracts and/or contracts conforming to procurement process are reasonable and prudent. If PUC rejects proposed contract or procurement process, it would designate alternatives that would not be subject to further reasonableness review. Approval would constitute determination that cost incurred under the contracts itself and/or under contracts conforming to procurement process are reasonable and prudent.· IOU administration of contracts would remain subject to reasonableness review by the CPUC under reasonableness criteria or incentive ratemaking, as appropriate.	30	Section 455 of PU Code authorizes the PUC to "enter upon a hearing concerning the propriety of the rate...." for those ALs not resulting in a rate increase. The PUC may suspend the AL pursuant to Section 455 and the guidelines set forth in D.02-02-049 pending the dispostion of a Resolution to be prepared on the AL. Suspensions can last up to 10 months, i.e., for an initial period of 120 days, plus an additional six month period if the AL is not resolved. ALs not resulting in a rate increase become effective 30 days after filing if not suspended or otherwise disposed of by the CPUC or its staff. If it is determined that the AL will lead to a rate increase, Section VI of GO-96-A calls for the rate increase to be filed by formal application and for the PUC to make a finding (i.e., adopt a Decision) on whether the increase is justified. Requests for rate increases may be filed by AL under circumstances where the rate increase is minor in nature. Requests for approval of rate increases, or other tariffs that may result in rate increases, are not subject to Section 455, and thus may under Section 454 not go into effect on a default basis in the absence of a CPUC order.
31-59			Less than 30 days	PU Code Section 311(g) generally requires the PUC to circulate draft decisions for public review and comment at least 30 days before voting on the decision. Pursuant to 311(g)(2), the required public review period for Resolutions or Decisions (called for in 311(g)) can be reduced or waived under four conditions: (1) due to unforeseen emergency situation; (2) upon stipulation of all parties in a proceeding; (3) for uncontested matter in which the decision grants the relief requested; or (4) for an order seeking injunctive relief. Rule 81 of the Rules of Practice and Procedure defines unforeseen emergency circumstances. The Rule states that a rate increase is not an unforeseen emergency situation.
60+			30+	If the AL requires a Resolution or PUC Decision, and if the section 311(g)(2) conditions for reducing or waiving public review period either do not apply or are not exercised, under Section 311(g) the Resolution/Decision must be served on parties and subject to at least 30 days review and comment prior to PUC vote. 60 days is generally the quickest turnaround the PUC can provide on Resolutions (assuming the PUC has a public meeting scheduled close to the end of the review period). Often times, Resolutions will take longer than 60-days due to staff's need to conduct thorough analysis or because PUC public meeting dates do not match up with the end of the 30-day review period.


	Procurement Contract Review Process
Day	Days to Complete Task	Tasks
Days in advance of Application Filing Date	No Limit	Utility internally develops risk management plans for transitional procurement. Utility also meets with Procurement Review Group (PRG) recommended in the Joint Principles. This group would meet prior to the application being filed and should be convened early on to assess any proposed RFP process before it is implemented. The PRG would meet again to assess the resulting bids, the winning procurement contracts, and reasonableness criteria with each respondent utility. The group would be open to parties designated under our Protective Order to review confidential information and would include representatives of the Commission's Energy Division and ORA as ex officio members.
0	0	Edison, PG&E, or SDG&E file a complete application that conforms to the quantities, products, terms and conditions we discuss earlier for transitional procurement. The application should demonstrate it meets our standard for approval by a showing that entering into the contract(s) should result in favorable and stable rates for ratepayers relative to alternative options. An application may contain all winning contracts from a single RFP solicitation. The application shall include information responsive to the adopted master data request.
30	30	Protests due within 30 days of Application filing.
35	5	Replies to protests due within five business days of protest. (See rules of pp
40	1	A workshop will be held approximately 40 days after the application is filed.
41+	As required	After the workshop, the assigned administrative law judge (ALJ), in consultation with the assigned Commissioner, shall issue a ruling designating whether there are issues of substantial controversy or importance to require the scheduling of hearings. The ruling shall also state whether the ALJ intends to prepare a draft decision which meets the criteria set forth in Public Utilities Code Section 311(g)(2) of being an uncontested matter in which the decision grants the relief requested, a criteria that allows the 30 day public review period to be reduced or waived.
41-59	Less than 20	If the ruling states that the ALJ intends to prepare a draft decision which meets the requirements of Section 311(g)(2), the decision when drafted will be placed on the next Commission agenda.
60+	30+	If the ruling states that the application does not meet the criteria of Section 311(g)(2), a draft decision will be served on parties and subject to at least 30 days public review and comment prior to a PUC vote. If the ruling states that there are issues of substantial controversy or importance to require the scheduling of hearings, such hearings will be held and a proposed decision served on parties and subject to at least 30 days review and comment prior to a PUC vote.
Note: Approval of the contracts will also contain a decision on reasonableness, with prudency of contract administration being at issue over the life of the contract. During the transitional period, if the Commission rejects a proposed contract, it will not designate any alternative procurement choices.