I. Introduction

Today's decision adopts policies and mechanisms to implement cost responsibility surcharges applicable to "Departing Load" served by "Customer Generation" within the service territories of California's three major electric utilities: Southern California Edison Company (SCE), Pacific Gas and Electric Company (PG&E), and San Diego Gas & Electric Company (SDG&E). As the basis for this order, we reject the Settlement Agreement offered jointly by a number of parties to this phase of the proceeding as explained herein. We do, however, provide an exemption for customer generation eligible for net metering an clean & ultra-clean distributed generation to encourage compliance with air quality standards established by the State Air Resource Board.

"Departing load" (DL), as used in this order, refers to that portion of the utility customer's electric load for which the customer: (a) discontinues or reduces its purchase of bundled or direct access service from the utility; (b) purchases or consumes electricity supplied and delivered by "Customer Generation" to replace the utility purchases; and (c) remains physically located at the same location or elsewhere within the utility's service territory as of the date on which this Commission decision becomes effective. Reduction in load qualifies as DL as referenced in this order only to the extent that such load is subsequently served with electricity from a source other than the utility. This definition generally conforms to utility tariffs. This order does not address Departing Load served by municipal utilities.

"Customer Generation" as used in this order refers to cogeneration, renewable technologies, or any other type of generation that (a) is dedicated wholly or in part to serve a specific customer's load; and (b) relies on non-utility or dedicated utility distribution wires rather than the utility grid, to serve the customer, the customer's affiliates and/or tenant's, and/or not more than two other persons or corporations. Those two persons or corporations must be located on site or adjacent to the real property on which the generator is located. Parties also use the terms "distributed generation," "onsite and over-the-fence generation," and "self-generation" as being interchangeable with "Customer Generation."

The surcharges to be implemented pursuant to this decision are required to hold DL served by Customer Generation responsible for its share of the categories of costs set forth herein, and to prevent such costs from being unlawfully and unfairly shifted to bundled utility customers. The surcharge categories addressed in today's order cover the following:

1. Costs associated with procurement of power by the California Department of Water Resources (DWR), with separate charges for:

(a) Historic shortfalls financed through a Bond Charge; and

(b) Forward costs associated with the ongoing power charges

2. Costs associated with the Historic Procurement Charge (applicable to the SCE service territory only) pursuant to Decision (D.) 02-07-032.

3. Tail" Competition Transition Charge pursuant to Pub. Util. Code § 367(a).

As a context for resolving the issues addressed herein, we review the background leading to this order. This proceeding was opened to address issues relating to the suspension of Direct Access (DA). We suspended DA pursuant to legislative directive, as set forth in Assembly Bill (AB) No. 1 from the First Extraordinary Session (AB 1X ). (See Stats. 2002, Ch. 4.) This emergency legislation was enacted to respond to the serious situation in California when PG&E and SCE became financially unable to continue purchasing power due to extraordinary and unforeseen increases in wholesale energy prices.

The Governor's Proclamation of January 17, 2001,¹ and AB 1X required that DWR procure electricity on behalf of the customers in the service territories of the California utilities. As part of its provisions to deal with California's energy crisis, AB 1X also called for the suspension of DA, as set forth in Section 80110 to the Water Code.

In compliance with this mandate, the Commission ultimately issued D.01-09-060, suspending the right to acquire DA after September 20, 2001. In D.01-09-060, we stated, however, "that we may modify this order to include the suspension of all direct access contracts executed or agreements entered into on or after July 1, 2001." (D.01-09-060, pp. 8-9.)

On January 14, 2002, the instant Rulemaking (R.) 02-01-011 was initiated to consider among other things, whether a suspension date earlier than September 20, 2001 should apply to DA.² On March 27, 2002, we issued D.02-03-055, determining that the DA suspension date should remain in effect as "after September 20, 2001." In D.02-03-055, we also required that bundled service customers not be burdened with additional costs due to cost shifting from the significant migration of customers from bundled to DA load between July 1, 2001 and September 21, 2002. We subsequently clarified that prevention of cost shifting meant that "bundled service customers are indifferent.³"

Proceedings were initiated to implement the necessary charges on DA load to prevent such cost shifting. 4 At the prehearing conference (PHC) held on February 22, 2002, certain parties advocated that cost responsibility should also include consideration of "Departing Load" customers. An administrative law judge (ALJ) ruling issued on March 29, 2002, prescribed that the scope of issues in this proceeding be expanded to include cost responsibility relating not only to DA, but also to DL.

In pleadings and testimony of parties in this proceeding, a variety of terms have been used to refer to the charges to be imposed pursuant to D.02-03-055. These terms have included expressions such as "nonbypassable charge," forward or ongoing costs, and "exit fee." For the sake of uniformity and clarity, and consistent with D.02-11-022, we shall use the term "cost responsibility surcharge" (CRS) as an umbrella term taking into account all of the various charge components at issue in this proceeding that are applied to Customer Generation load as discussed in this order.

Although the criteria and basis for determining the applicability of a CRS to Customer Generation is based on the record in this phase of the proceeding, the determination of specific cost elements relies upon certain methodologies set forth in D. 02-11-022 applicable to DA customers, in conjunction with companion proceedings in A.00-11-038 et al.

² The administrative record relating to these specific issues in Application (A.) 98-07-003 et al. was incorporated into this rulemaking. Judicial notice was also taken of specific information in the DWR Revenue Allocation Proceeding A.00-11-038 et al. (See Letter of January 25, 2002, to the parties that accompanied the Draft Decision of ALJ Barnett.)

³ D.02-04-067, pp. 4-5.