STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

June 14, 2001 Agenda Item No. H-3a

Meeting Date 6/28/01

TO: PARTIES OF RECORD IN R.99-10-025

Enclosed is Item H-3a Alternate Proposed Decision of Commissioner Wood to the Proposed Decision of Administrative Law Judge (ALJ) Cooke previously mailed to you. This item, is on the Commission's agenda for June 28, 2001.

When the Commission acts on this agenda item, it may adopt all or part of it as written, amend or modify it, or set aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

As set forth in Rule 77.6, parties to the proceeding may file comments on the enclosed alternate at least seven days before the Commission meeting or no later than June 21, 2001. Reply comments should be served by June 26, 2001. An original and four copies of the comments and reply comments with a certificate of service shall be filed with the Commission's Docket Office and copies shall be served on all parties on the same day of filing. The Commissioners and ALJ shall be served separately by overnight service.

/s/ LYNN T. CAREW

Lynn T. Carew, Chief

Administrative Law Judge

LTC: mnt

Enclosure

COM/CXW /SAW/mnt H-3a 6/28/01

Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER WOOD (Mailed 6/14/01)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

(See Appendix A for List of Appearances)

TABLE OF CONTENTS

Page

INTERIM DECISION ADOPTING STANDY RATE DESIGN POLICIES 1

1. Summary 21

2. Background 31

3. Procedural History 51

4. Standby Rates Today 71

5. Positions of the Parties 121

5.1 Pacific Gas and Electric Company 121

5.2 Southern California Edison Company 151

5.3 San Diego Gas & Electric Company 181

5.4 Sierra Pacific Power Company 201

5.5 Federal Executive Agencies 211

5.6 Office of Ratepayer Advocates 231

5.7 The Utility Reform Network et al. 251

5.8 State Consumers 271

5.9 California Independent System Operator 291

5.10 Enron Energy Service Inc. and Enron North America Corp. 311

5.11 Capstone Turbine Corp., Inc. et al. 321

5.12 Cogeneration Association of California/ Energy Producers and Users Coalition 331

5.13 City and County of San Francisco 351

6. Major Issues 361

6.1 Nature of Costs to Serve Standby Customers 361

6.2 Types of Standby Service 371

6.3 Diversity and Reliability 401

6.4 Should Distribution Costs be Recovered through Fixed or Variable Charges? 461

6.5 Should Standby Rates Reflect Embedded or Incremental Costs? 481

6.6 Transmission Charges/Gross Load Metering 501

6.7 Interruptible or Non-Firm Standby Rates 511

6.8 Valuation 541

7. Discussion and Summary of Adopted Standby Rate Design Framework 551

8. Independent Clean Energy Tariff 681

8.1 Background 681

8.2 Discussion 711

9. Comments on Proposed Decision 751

Findings of Fact 771

Conclusions of Law 801

INTERIM ORDER.................................................................................83

INTERIM DECISION ADOPTING STANDBY RATE DESIGN POLICIES

1. Summary

This decision is part of a broader consideration of rules and policies affecting the deployment of onsite generation facilities. Such facilities are "onsite" in the sense that they are located on or in close proximity to the property of the customer or customers whose load the facilities are designed to serve. Here, we adopt interim standby rate design policies for onsite generation facilities that are interconnected to and operate in parallel with the distribution system in accordance with Rule 21.

During the pendency of this proceeding, the context for setting standby rates has changed in several fundamental ways. Most basic has been the continually-expanding disaster in wholesale electric markets, permanently altering our expectations for the functioning of electric markets, and shaking many of the assumptions underlying the record in this proceeding.

In addition, the Legislature has spoken decisively by establishing short term policy for the application of standby charges to onsite generation. Most onsite generators going into operation in the next two years are exempt from standby charges for at least the next ten years.¹ The exceptions are diesel-fired generators and facilities with capacity in excess of five megawatts (MWs).

Further, the Legislature has expanded the previously more-limited net metering program to apply to renewable onsite generators of one MW or less, in all customer classes. This not only allows such customers to net unneeded power against power supplied by the utility at retail prices, but also shields those customers from the imposition of any additional charges, including standby fees.

We are left with the need to implement these legislative directives and to define a broader policy to apply to those facilities not included within the statutory exemption due to size, fuel choice, or date of initial operation.

We direct the utilities to file standby rate design applications consistent with the interim policy guidelines within 60 days; we will adopt permanent rates within utility-specific proceedings. The rate design policy we approve today provides guidelines for rate design of the standby rates charged to non-exempt customers employing onsite generation to cover all or some portion of their load. These policies will apply to any non-exempt onsite generation facility requiring some level of standby service, whether for supplemental, backup, or maintenance purposes. Such facilities include self-generation, cogeneration, microcogeneration, and qualifying facilities (QFs). We also adopt the Independent Clean Energy Tariff (ICE-T) proposal recommended by the California Solar Energy Industry Association (CalSEIA). Respondent utilities are directed to submit advice letters to implement the ICE-T proposal within 15 days of the effective date of this order. While consistent with the Legislature's recent expansion of the net metering program, ICE-T extends the protection from standby charges to solar generators not taking advantage of net metering.