----- Forwarded by Elizabeth Sager/HOU/ECT on 02/09/2001 05:03 PM -----

	"Pat Boylston" <pgboylston@stoel.com>
	02/09/2001 12:55 PM
		 
		 To: elizabeth.sager@enron.com
		 cc: 
		 Subject: Fwd: FW: State Restructuring: CA PUC Adopts DWR 
Regulations,Re-Regula tes Utility Generation


Date: Fri, 09 Feb 2001 10:22:05 -0800
From: "James Paine" <JCPAINE@stoel.com>
To: PGBOYLSTON@stoel.com
Subject: Fwd: FW: State Restructuring: CA PUC Adopts DWR 
Regulations,Re-Regula tes Utility Generation
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Pat----unbelievable emergency rule.  PG&E and Edison will not be happy.  
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From: "Lynch, Kevin" <Kevin.Lynch@PacifiCorp.com>
To: "Paine, James (Stoel)" <jcpaine@stoel.com>
Subject: FW: State Restructuring: CA PUC Adopts DWR Regulations, Re-Regula 
tes Utility Generation
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Does this answer some of your questions?
-----Original Message-----
From: Norman Jenks [mailto:NJenks@eei.org]
Sent: Thursday, February 08, 2001 2:34 PM
To: State Restructuring Service Members List Serve
Cc: Lawrence Logan; Maria Veiga
Subject: State Restructuring: CA PUC Adopts DWR Regulations,
Re-Regulates Utility Generation


California PUC Adopts DWR Regulations, Re-Regulates Utility Generation
DWR power to go only to SCE and PG&E customers, for now
Obligates SCE and PG&E to make DWR whole for its unrecovered costs
Re-regulates all generation retained by the 3 IOUs
Each to file cost-based rates
Rate base to be net depreciated book value, less recovered stranded costs
The California PUC adopted emergency regulations for the delivery and
payment mechanisms the state*s Department of Water Resources (DWR) will use
in fulfilling its electric purchase and sale obligations under emergency
bill AB 1X.  Under the provisions of AB 1X, which the PUC apparently had
confidence would be enacted without significant change, the PUC requires the
DWR to sell the power it purchases directly to the retail end use customers
of Southern California Edison (SCE) and Pacific Gas & Electric (PG&E).
Since the law requires the PUC to ensure that DWR recovers all of the costs
of its power purchase program and yet also limits the recovery to only an
allocable portion of the utilities* currently frozen energy charges, the PUC
recognizes the possibility that DWR*s costs may not be fully recovered at
certain times.  The PUC makes SCE and PG&E liable to pay any shortfalls to
ensure DWR recovers its costs on as current a basis as possible, but
suggests it is open to further consideration of this policy.
URG Assets Re-Regulated
The PUC orders the three utilities to each make *Advice Letter* filings to
establish cost-based rates for their URG.  The rate set will be made
retroactive to whenever the utility stopped bidding its retained generation
into to the PX, which SCE and PG&E said they stopped doing on 12/28/00.  The
two utilities said they stopped participating in the PX day-of and day-ahead
markets on 01/19/01.
The PUC directs the utilities to calculate their cost of capital-related
revenue requirements using the amounts in their respective Transition Cost
Balancing Accounts (TCBA) as the rate base.  The TCBA reflects the net book
value of utility generation assets less the recovery of those assets*
stranded costs.  The PUC will allow utilities to record in a memorandum
account the difference between this reduced rate of return component of
revenue requirements and their last PUC authorized rate of return for the
same assets, for possible future use in adjusting the TCBA-based rates.  The
amounts in these memorandum accounts will represent the difference between
their current allowed returns and what they *may have earned had these
generation costs been recovered under traditional cost of service ratemaking
in place prior to restructuring.*  The cost-based rates so determined, the
PUC says, would comply with the principle that ratepayers pay just and
reasonable rates, and as costs change would be subject to adjustment.
The PUC decides that SCE, PG&E, and San Diego Gas & Electric (SDG&E) should
use their *utility retained generation* (URG) in the following order, to: 1)
serve their existing customers at cost-of-service based rates; 2) sell power
at cost-based rates to other California investor-owned utilities; and 3)
sell or barter excess power from URG to minimize future costs.  The PUC
directs that if any surplus generation exists, it should first be offered to
other California IOUs at cost-based rates, with any net proceeds to benefit
in-state ratepayers.  URG consists of utility-owned generation and long-term
purchased power contracts.
Since the December 15, 2000 order from the Federal Energy Regulatory
Commission (FERC) ending the investor-owned utilities* obligation to sell
all of their energy produced through the Power Exchange (PX) and buy all of
their energy requirements from the PX (the so-called *buy/sell
requirement*), utilities had no regulatory direction for using and pricing
their retained generation.  In lieu of an evidentiary hearing, because of
the need to protect the public interest during this time of nearly
continuous Stage 3 supply emergencies, the PUC now provides this direction.
The PUC makes SDG&E a party to the URG aspects of its order, while the PUC
does not apply the DWR delivery and pricing rules to SDG&E, at this time.
The AB 1X law does not exclude SDG&E*s retail customers from receiving DWR
power, but the PUC opts not to require DWR power to go them at this time.

In this interim order adopted on 01/31/01, the PUC says it does not end the
rate freeze, set an interim valuation, or otherwise provide a basis for
ending the rate freeze.  As far as it addresses the pricing and use of
utilities* retained generation, the order only sets an interim basis for
pricing the power utilities continue to produce and provide to their
customers since the effectively defunct PX no longer fulfills this function.

Residual Pricing of DWR Power
Because of the provisions of AB 1X, which was enacted the day after the PUC
adopted its order, the PUC must price DWR power residually, or as a
percentage of what each SCE and PG&E retail end use customer currently pays
them for energy.  The utilities* energy charges are currently frozen at
different levels for each utility and each customer class.  The percentage
is calculated by dividing (1) the amount of power provided by DWR and
delivered by the utility, by (2) the total amount of power generated or
purchased by the utility and the amount of power in item (1).  The amount of
power purchased by the utility includes purchases from QFs and others for
resale, as well as any energy they purchase in the ISO*s real time market.
This percentage or ratio will be calculated daily.
The PUC provides the following example, if a utility generates and purchases
750 MWh of power and delivers along with it 250 MWh of DWR power for a total
of 1,000 MWh, each customer owes DWR 25% of the energy charge in their rates
for the power they used that day.
Utilities will collect these amounts from customers on behalf of DWR and
hold the amounts in trust for DWR.
As the law requires the calculation of the amounts to be collected on the
basis of the megawatt hours DWR actually purchases and delivers, while
calculating the amounts it is entitled to recover from utilities* retail
customers in dollars of costs, there is a built in potential for DWR*s costs
to be under recovered, depending on how the actual price DWR pays for each
MWh matches up with the utilities* existing, frozen energy charges.
The PUC says that making the utilities liable for any shortfall in the
recovery of DWR*s costs *satisfies the legislative concern that the State
recover the funds expended.*  If the two cash-strapped, nearly bankrupt
utilities are liable for substantial amounts to make DWR whole, these
amounts would likely only add to the approximately $12 billion in unpaid,
overdue purchased power costs they have already accumulated.
Following the provisions of AB 1X, the PUC sets the DWR price of power upon
resale as equal to DWR*s purchased power costs, plus administrative costs,
transmission and scheduling costs, and other related costs, less any
overpayments DWR may subsequently recover from suppliers.
Again following the provisions of AB 1X, the PUC directs DWR to retain title
to its power until sold to the utilities* retail end use customers, and
reminds that under the new statute *neither the full faith and credit nor
the taxing power of the State of California may be pledged for the payment
for any obligation.*  The PUC orders the two cash-strapped utilities to
deliver DWR power to retail customers and directs the utilities to take no
ownership or other interest in DWR power, acting only in an administrative
capacity as billing agents for DWR.
The PUC*s interim order is posted on its web site at:
http://www.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/4867.htm
For your convenience, attached is an MS Rich Text Format file containing
this analysis and full summary.
Citation: The PUC approved its interim order, Decision 01-01-061, adopting
emergency regulations on the delivery and payment mechanism for DWR power
and directing utilities on the use and pricing of utility retained
generation on January 31, 2001, in SCE and PG&E*s consolidated rate
stabilization cases, Application numbers 00-11-038 and 00-11-056, of which
SDG&E is a party.


 - TEXT.htm
 - CAPUCAdoptsDWRRegulationsFulSum.rtf