Draft Decisions

In addition to the draft decision on the suspension of direct access, the
Commission has been issuing a series of draft decisions this week pertaining
to the Department of Water Resources' power purchase activities. These
decisions will be voted on at next week's meeting. Additonal proposed
decisions will probably follow later this week.

OPINION ADOPTING RATE AGREEMENT BETWEEN THE COMMISSION AND DWR

The opinion essentially adopts the draft rate agreement which was put out
for comment approximately a month ago, with a few minor modifications.
While the Commission acknowledges the parties' due process concerns with
respect to ensuring that the costs included in DWR's revenue requirement are
just and reasonable (especially given the irrevocable nature of the rate
agreement), the Commission states that "adoption of the Rate Agreement, as
modified today, is vital to California ability to pay for the excessive
wholesale costs that were charged by power suppliers during the electricity
crisis."

The decision states that there is no need for the rate agreement to contain
provisions detailing the procedures that DWR must sue to conduct the Section
451 process required by Water Code Section 8110. The decision notes that
under the statue DWR has exclusive authority to conduct and to determine the
reasonableness of its revenue requirement pursuant to Public Utilities Code
Section 451 -- "because DWR is a state agency that must act in the public
interest, we assume that DWR will establish those procedures necessary to
ensure that its revenue requirement is just and reasonable." (of course DWR
did not do that this first time around)

The Decision states that whenever DWR submits a revenue requirement to the
Commission, the Commission will provide an opportunity for interested
parties to participate in its proceedings to set the rates to recover the
revenue requirement. (of course such proceedings will be expedited because
under the rate agreement they must go into effect within 90 days of
submittal of the revenue requirement). The decision provides that all
information that the Commission receives from DWR with respect to its
revenue requirement will be made available to the public.

OPINION ADOPTING RATE INCREASE TO IMPLEMENT DWR'S REVENUE REQUIREMENT
(SDG&E)

The decision adopts a system average rate increaseof 1.46 cents/kWh (12.1%)
for SDG&E customers. The increase will take effect on or after September
15th but no later than October 1st. The monies collected will be used
solely to fund the DWR power purchase costs. In reaching its decision to
raise SDG&E rates, the Commission determine that neither the rate cap on
SDG&E small customers (AB 265) nor the rate freeze on large customers (ABX1
43) affects the requirement to increase rates to implement DWR's revenue
requirement. The proposed decision references another decision (yet to be
released) pursuant to which DWR will receive from SDG&E the revenues that
SDG&E collections on its behalf based on the a fixed DWR charge of 9.02
cents/kWh. The decision also states that the ordered rate increase will
stay in effect until further Commission order. In this regard, the decision
references the Commission 's intent to implement a revised DWR revenue
reqruiment based on a DWR update to be submitted on February 1, 2002. At
that time, the Commission will consider changes to SDG&E's rates.

With respect to revenue allocation and rate design for the rate increase,
the PD pretty much follows the concepts set forth in D. 01-05-064 (the
SCE/PG&E rate design case). In this regard, the PD does not adopt SDG&E's
proposal that separate average rate increases be established for small and
large customers based on the assumption that the costs of utility retained
generation are assigned solely to small customers.