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Author: OA2000
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Company: California Public Utilities Commission

RESTRUCTURING STATUS		updated 12/15/98

State of California	Public Utilities Commission
		San Francisco
M E M O R A N D U M
		www.cpuc.ca.gov

Date    :	December 3, 1998

To      :	Commissioners

From    :	Douglas Long/Gurbux Kahlon
	Electric Restructure Coordinators

Subject :	Status of Electric Restructuring Matters, and Upcoming Milestones, 
		for Commissioner Reports Discussion

	Attached to this cover memo is a status report on electric restructuring activity since the Commission Meeting held on November 19, including upcoming events and filings.

	This report has been significantly edited and altered compared to recent status reports.  Details from prior reports are available on the web site. 	

	In our continuing effort to provide more information to the public, this report will be placed on the Commission's Web site following the Commission conference at: 
http://www.cpuc.ca.gov/electric_restructuring/status/status_index.shtml.  

cc:	W. Franklin
	P. Arth
	L. Carew
	P. Clanon
	W. Meyer
             ERT

I. Ratesetting	
A. Revenue Adjustment Proceeding (RAP) (A.98-07-003, et. al.)	
B. Annual Transition Cost Proceedings (ATCP - A.98-09-003, et. al.)	
C. Performance-Based Ratemaking (PBR)	
II. Transition Costs	
A.  CTC:  A. 96-08-001 et. al.	
III. Divestiture Proceedings	
A. SDG&E Sec. 851 “Divestiture” Application 97-12-039	
B. PG&E, Sec, 851 "Divestiture" Application 98-01-008	
D. Southern California Edison, Sec. 851 "Divestiture" Application 96-11-046	
IV. Direct Access	
V. FERC‑Related Issues	
A. Challenge to Iowa “Net-metering” Program Threatens Similar California Statute	
B. CPUC Requests Clarification of FERC Order Granting Market-Based Rates for Ancillary Services to California Utilities	
C. FERC Sets Hearings in Must Run Cases After Settlement Discussions Deadlock	
D. PX Files Quarterly Reports Identifying Customers	
E. ISO Files Request for Extension of Current Grid Management Charge	
F. PG&E Asks FERC to Extend Authority to Pass the ISO’s GMC through to its Existing Wholesale Contract Customers through June 30, 1999	
G. ISO Makes Additional Compliance Filing Pursuant to September 11, FERC Order	
H. PX Files Amendment No. 5	
I. ISO Files to Delay Implementation of Firm Transmission Rights	
J. Recent FERC Decisions	
VI. Unbundling Cost of Capital	
VII.  Public Purpose Programs	
A. California Board for Energy Efficiency Programs (CBEE)	
B. Governing Board For Low-Income Programs (LIGB)	
VIII. Hedging Energy Costs	
IX. Small and Multi Jurisdictional Utilities	
XI. Reliability	
XII. Consumer Education	
A. The Commission’s Outreach Plan	
B.  The Electric Education Trust	
C. Consumer Protection	

I.	Ratesetting

A.	Revenue Adjustment Proceeding (RAP) (A.98-07-003, et. al.)

On July 1, PG&E, SDG&E and SCE filed applications in their first annual RAP proceedings.  The purpose of the RAP is to consolidate the revenue requirement adjustment associated with each utility's various proceedings and ratemaking mechanisms, verify the "headroom" to be transferred to the transition cost balancing account, streamline and eliminate unnecessary balancing accounts, and consider general rate design and revenue allocation issues.  Additional issues including the accuracy of the PX credit calculation will also be considered in the 1998 RAP proceedings.  After the September 9 PHC, ALJ Malcolm issued a scoping memo on September 16 setting forth the schedule in the proceeding.  In a supplemental scoping memo issued in September 24, the utilities were ordered to supplement their direct testimony on October 9 to address the issues of including post real time settlement costs in the PX credit, and the allocation of CARE discounts and surcharges.  

The schedule is as follows:

October 28			Intervenors serve direct testimony
November 18		Parties serve rebuttal testimony
December 1			Hearings Begin
January 5, 1999		Opening Briefs filed
January 15			Closing Briefs
February 26			Proposed Decision mailed
March 18			Comments on PD
March 23			Reply Comments

B.	Annual Transition Cost Proceedings (ATCP - A.98-09-003, et. al.)

On September 1, PG&E, SCE and SDG&E filed their first applications in their annual transition cost proceedings.  The purpose of the ATCP is to 1) review entries to the must-run and non-must-run memorandum accounts to ensure that excess revenues are properly credited to the TCBA, 2) adjust accelerated depreciation and account for the results of divestiture proceedings in the TCBA; 3) adjust the TCBA for generation capital additions and QF contract buyouts, and 4) review the reasonableness of costs and revenues from the ISO and PX, employee related transition costs, purchased power, and QF contract administration.  On October 7 Commissioners Conlon and Duque issued an Assigned Commissioner's Ruling which scheduled a prehearing conference for November 6, and requested additional information from the utilities on the interaction of the TCBA and proceeds from the issuance of the rate reduction bonds.  The utilities have requested a response date of November 6.  ALJ Minkin is assigned to this proceeding.

C.	Performance-Based Ratemaking (PBR)

	On November 13, 1998 PG&E filed its application for approval of similar but separate PBR mechanisms for electric and gas utility distribution service with a proposed effective date of January 1, 2000.  Both the electric and gas proposals provide for an annual price setting mechanism using external benchmarks that automatically adjust for inflation, productivity and growth; a symmetric earnings sharing formula; symmetric financial rewards or penalties for performance in the areas of reliability, customer service, and employee safety; case-by-case adjustments for costs or savings from extraordinary events; and streamlining of regulation.  The electric PBR mechanism will function as a price cap for large customers and as a revenue per customer cap for small customers.  The gas mechanism will function as a revenue cap for all customers.

II.	Transition Costs
A.  CTC:  A. 96-08-001 et. al.
Transition costs are generation asset related uneconomic costs that utilities will have an opportunity to recover through the Competition Transition Charge (CTC).  The transition cost proceeding (A.96-08-001 et. al.) has addressed most transition cost and CTC terms and conditions issues in two phases and 5 decisions.

Recent Activity
1.  PG&E’s, SCE’s and SDG&E’s advice letters addressing their transition cost balancing account tariffs were approved in August.

2.  A.98-05-004, et. al.: A scoping memo was issued on July 10.  On July 20 the utilities amended their applications to address issues to be considered in Phase 1.  PG&E’s, SDG&E’s, and Edison’s applications address electric restructuring implementation costs pursuant to PU Code Section 376.  In their applications, the 3 utilities combined identify $98 million of capital and expense related electric restructuring implementation costs for 1997.  The combined utilities’ estimates of these costs for the entire period through 2001 total $980 million. 

3.  A.98-05-022, et. al.: .  Pursuant to D.97-11-074, PG&E, SCE and SDG&E filed applications to establish the principles necessary to appraise their retained assets and to report assessments of the materials and supplies inventories. A Pre-hearing conference was held on October 1. 

4.  A.98-09-003, et. al.: On September 1, 1998, PG&E, SCE and SDG&E  filed their applications in the first annual transition cost proceeding.

Upcoming Events
A.96-08-001, et. al.: ALJ Minkin’s proposed decision and Commissioner Conlon’s alternate on the applicability of CTC charges to new customer load pursuant to PU Code Section 369 are on the agenda for the 11/5/98 Commission meeting. 

A.98-05-004, et. al.:  The schedule set forth in the scoping memo is:  ORA testimony August 26; Intervenor testimony Sept 9; Hearings Oct 21 to Nov 3; PD March 1999; Decision April ’99.

III.	Divestiture Proceedings  
A.	SDG&E Sec. 851 “Divestiture” Application 97-12-039

SDG&E filed its divestiture application on December 19, 1997 to divest all of its fossil plants, its 20% interest in SONGS nuclear power plant as well as all of its long term power purchase contracts. The following is a summary of information regarding the resources that SDG&E is planning to divest:
•	South Bay fossil plant:  693 MW with a net book value of $64.1 million
•	Encina fossil power plant:  951 MW with  a net book value of $ 90.4 million
•	17 combustion turbines:  with an approx. capacity of 253 MW—net book vale-$4.4 million.
•	SONGS:  SDG&E’s share- 430 MW—book value $ 562.2 million
•	11 long term power purchase contracts totaling approx. 208 MW

Protests or responses were filed by the City of Carlsbad, the California Cogeneration Council, and the Independent Energy Producers Association in February, 1998.  SDG&E filed a reply on February 17, 1998.  SDG&E filed direct testimony on February 26, 1998.  An ALJ Ruling was issued March 9, 1998, which permitted interested parties to file a response on or before April 6, 1998.  A prehearing conference was held on April 30, 1998, and a scoping memo was issued.  The matter has been re-assigned to Judge Barnett.
B.	PG&E, Sec, 851 "Divestiture" Application 98-01-008
Recent Activity 
•	November 24^th:  PG&E announced successful winners in the auction of its second batch of plants.  The four plants included in this auction have a combined capacity of 4289 MW with a book value of $592 million.  The winning bids for all of these plants total $1.014 billion.  The successful bidder for the Pittsburg, Contra Costa and Potrero plants (total of 2022MW)  is Southern Energy, Inc. that bid $801 million.  For the Geysers plants located in Sonoma and Lake counties (total of 1224 MW), FPL Energy was the highest bidder ($213 million).
•	The MW capacity of  various plants is as follows:
•	Potrero Hill		           429 MW
•	Pittsburg plant		2002 MW
•	Contra Costa  plants	680 MW
•	14 Geysers plants		1224 MW
•	Hunters Point power plant (429 MW) originally was also included in the auction but was later withdrawn following an agreement with the City and County of San Francisco.
•	An interim decision (D. 98-07-092) was issued by the CPUC on July 23, 1998.   Among other things, this decision authorized the use of the break-up fee in light of the right of first refusal. Upon sale, the plants that are designated by the ISO as must-run must enter into a must-run contract with the ISO.  All plants must enter into a two-year  Operation and Maintenance Agreement pursuant to AB 1890. SAEJ has filed a petition for rehearing.   
•	Earlier, PG&E sold Morrow Bay (1002 MW),  Moss Landing (1478 MW) and Oakland Power Plant (165 MW)- a total of 2645 MW of capacity to Duke Power Services for $501 million.  The net book value of these plants was $390 million. Of these three plants, two (Moss Landing and Oakland) are designated as must-run and are required for the reliable operation of the electrical system.  Pursuant to Code Section 362, the Commission must ensure that such plants remain available and operational.  

D. Southern California Edison, Sec. 851 "Divestiture" Application 96-11-046

Edison offered all of its 12 oil/gas fired power plants for sale through an open auction process approved by the CPUC.  10 of these plants were sold in November of 1997.  The sale was approved by the CPUC on  December 16, 1997 (D. 97-12-106). The two remaining units - Long Beach and Ormond Beach power plants were sold earlier this year. The total capacity of all 12 of these plants was 9562 MW.  The first 10 plants sold for a total of $ 1.115 billion which was 2.65 times the net book value of those plants. Long Beach (530 MW) plant was sold to NRG Energy and Destec Energy for $29.9 million. Ormond Beach was purchased by Houston industries for $40 million.  The   net book value for this plant was $125 million. The following is a brief summary of the sales.

1. 	Alamitos (2083 MW), Huntington Beach (563 MW) and Redondo Beach (1310 MW)  together (a total of 3956 MW) were sold to the AES Corporation for $781 million.  Combined book value of these plants was $228.716 million.
2. 	Cool Water (628 MW) was sold to Houston Industries for $186 million.  Its book value was $79.204 million.
3. 	Mandalay (570 MW), Ellwood (48 MW) and Etiwanda (1030 MW) with a total capacity of 1648 MW also purchased by Houston Industries.  The purchase price was $51 million. The book value for these plants was $47.399 million.
4. 	El Segundo (1020 MW) was purchased by NRG Energy and Destec Energy for $ 87.75 million.  The book value on this plant was $70.821 million.
5. 	Highgrove (154 MW) and San Bernadino (126MW) with  a total capacity of 280 MW were sold to Thermo Ecotec for $ 9.5 million.  The book value on these plants was a negative number of $ 6.012 million.
6. 	Long Beach (530 MW) was sold to NRG Energy and Destec Energy for $29.9 million which is approximately 30 % of its book value.
7. 	Ormond Beach (1500 MW) was purchased by Houston Industries for $40 million, along with a 50 acre parcel of land adjacent to the Cool Water facility for $3 million.  The net book value for the Ormond Beach plant was $125 million.

IV.	Direct Access
 
Activity Since Last Update

•	Pursuant to D.97-12-090 (Retail Settlements and Information Flow), the Final Report of the “Data Quality and Integrity” (DQI) Working Group will be issued on November 20^th.

•	Pursuant to D.97-10-086 (Load Profiling), Ordering Paragraph 9, a report will be issued by the UDCs as follows:  “The UDCs shall apprise the Commission of the independent system operator’s efforts to control unaccounted for energy (UFE) losses, and shall develop plans to place more meters at strategic points in the transmission and distribution system so as to detect losses attributable to UFE.”  The report should be mailed to Electric Restructuring Service List on November 20^th.

•	The structure of the Rule 22 (Direct Access Tariff) Review Group is described in greater detail in this Update.  See below.

Ongoing Direct Access Implementation Activity

November 3^rd:  The “Rule 22 Tariff Review Group” held its monthly meeting.  The next monthly meeting is scheduled for December 3, 1998.

November 15^th:  Direct Access Implementation Activity Reports were filed by PG&E, Edison, and SDG&E.  These reports are filed on the 15th of every month.  Check the following URL for electronic copies:  
http://www.cpuc.ca.gov/divisions/energy/Direct_Access/direct_main_page.htm

Load Profiling (D.97-10-086)

Status of Proceeding

The Commission’s Load Profiling Decision ordered the Energy Division to hold a number of workshops and issue reports with recommended policy changes or refinements.  The section below summarizes activity to date, and identifies next steps.

Topic | Date of Workshop | Energy Division Report Issued | Comments Filed | Next Steps
Technical Methodologies | 1/26/98 | 9/9/98 | 10/9/98 | CPUC Decision or Ruling to order refinements
Segmentation | 2/9/98 | Goal:  11/24/98 | |
Agricultural | 2/10/98 | Goal:  11/24/98 | |
Data and Information | 2/11/98 | 9/9/98 | 10/9/98 | CPUC Decision or Ruling to order refinements
Metering requirements for 20 to 50 kW | 9/25/98 | 10/2/98 | 10/23/98 | CPUC Decision by year-end

Documents related to the load profiling workshops may be obtained at:
http://162.15.5.2:80/wk-group/dai/lp/

Tariffs and Service Agreements for Direct Access (D.97-10-087)

Status of Proceeding

Most discussion related to the Direct Access tariffs and service agreements takes place in the monthly meetings of the “Rule 22 Tariff Review Group”, held at the Commission on the first Tuesday of every month.

Participants at the monthly meetings have decided to form a number of “sub-groups” to resolve specific issues between meetings.  These groups operate under the umbrella of a group called the “Operating Coordinating Committee” (OCC).  The sub-groups are listed below
1.	DASR Consistency/ Account Maintenance
2.	Meter Specific
3.	Billing Business Rules
4.	Meter Usage
5.	Operations Manual
6.	Revenue Assurance

Monthly meeting notes and other documentation may be obtained at the website http://162.15.5.2:80/wk-group/dai/tariff/

Recent Activity

November 3^rd:  The “Rule 22 Tariff Review Group” held its monthly meeting.  The next monthly meeting is scheduled for December 3, 1998.

Meter and Data Communication Standards (D.97-12-048)

Status of Proceeding

The Permanent Standards Working Group (PSWG) was established by the Meter and Data Communication Standards (D.97-12-048).  Parties met together as the “Permanent Standards Working Group” (PSWG) and submitted their report in July.  Next step will be a Commission decision by year-end, addressing the recommendations made in the PSWG report.

Ongoing Activity

The Energy Division’s “Meter Service Provider Certification Unit” has been reviewing applications and provisionally certifying MSPs to install meters for ESPs in the UDC service territories.  Twelve MSPs have been certified to date.  A list of certified MSPs may be obtained from the Commission’s website  http://www.cpuc.ca.gov/electric_restructuring/msp_registration/meter_providers.htm

Retail Settlements and Information Flow (D.97-12-090)

Status of Proceeding

The Retail Settlements and Information Flow (RSIF) decision established three working groups to address certain issues regarding the information flows that will be required for the new electric market structure to function.  The status of each working group is summarized below:

The “Data Quality and Integrity” Working Group (DQIWG) filed an “Interim Report” with the CPUC on August 21^st.The Working Group was formed at a workshop conducted by the Energy Division on February 27^th, 1998 and has been meeting since that time.  A final report will be filed on November 20, 1998.

The Interim Report and other DQIWG materials are available at the following website: http://162.15.5.2:80/wk-group/dai/dqi/

The “Distribution Loss Factors” Working Group (DLFWG) filed its final report with the Commission on August 11^th, 1998
 
V.	FERC‑Related Issues

A.	Challenge to Iowa “Net-metering” Program Threatens Similar California Statute

A midwest utility, MidAmerican Energy Co., has filed a challenge at FERC to the state of Iowa’s “net-metering” statute and orders implementing it.  The petition alleges that the “net-metering” program is pre-empted by the Federal Power Act (“FPA”) and/or by PURPA because it forces the utility to purchase power from its customers in what should be considered a wholesale transaction, and forces the utility to pay retail rates for the power purchased.  California has a similar net metering statute, Public Utilities Code § 2827, which could be pre-empted under the theory alleged in the petition.  Section 2827 was amended in 1998 by AB 1755 to provide that ESP’s as defined in AB 1890, as well as utilities, must offer net-metering to eligible customer-generators, and to make small commercial customers as defined in AB 1890 eligible.  Protests and Interventions are due to FERC by December 3.
B.	CPUC Requests Clarification of FERC Order Granting Market-Based Rates for Ancillary Services to California Utilities 

On November 27, 1998, the CPUC filed a Request for Clarification, or in the alternative, Rehearing, of FERC’s October 28 Orders granting market-based rates for Ancillary Services to the California utilities.  The CPUC requested that FERC clarify the October 28 Orders to (1) limit its reliance on the CPUC’s retail rate freeze as a mitigating factor supporting market-based pricing for the IOUs; (2) affirm the viability of the utilities’ buy/sell requirement; and (3) commit to ensure that monitoring and mitigation are effective to ensure that market-based rates in the Ancillary Services markets are just and reasonable.
C.	FERC Sets Hearings in Must Run Cases After Settlement Discussions Deadlock

After settlement discussions deadlocked in cases involving Must Run agreements as a result of a preliminary finding of the ISO’s Market Surveillance Committee (“MSC”), and pursuant to a prehearing conference held on November 13, 1998, FERC’s Chief ALJ issued an Order setting various Must Run cases for hearing, and ordered other procedures.  Docket Nos. ER98-441-001, et al.  A settlement conference before a FERC ALJ is set for December 8, 1998.  Prior to that date the ISO and its MSC must provide certain information to FERC and the parties.  Edison’s Non-Rate Terms and Conditions case is set for hearing 7/13/99.  Edison’s Must Run Rate Case is set for hearing 9/28/99.  SDG&E’s case is set for hearing 9/21/99.  PG&E’s case is set for hearing 8/23/99.

D.	PX Files Quarterly Reports Identifying Customers 

On October 30, 1998, the PX filed quarterly reports identifying each customer that is subject to a PX Participation Agreement and each customer that is subject to a PX Meter Services Agreement, updated through the calendar quarter ending September 30, 1998.  Docket No. ER99-___.   The reports identify 44 PX Participants, including ten participants added since June 30, 1998.

E.	ISO Files Request for Extension of Current Grid Management Charge

On October 28, 1998, the California Independent System Operator Corporation filed a request to extend for six months the current grid management charge (“GMC”) formula and assessment provisions which are part of the settlement offer filed on April 7, 1998, and accepted by the Commission on June 1, 1998, in ER98-211-000, et al.  The extension request was given Docket No. ER99-473-000.

F.	PG&E Asks FERC to Extend Authority to Pass the ISO’s GMC through to its Existing Wholesale Contract Customers through June 30, 1999

On October 30, 1998, Pacific Gas and Electric Company (PG&E) tendered for filing a request to extend FERC’s October 2, 1998 Order through June 30,1999.  An October 2, 1998 Order approved PG&E's California Independent System Operator's (ISO) Grid Management Charge (GMC) Pass-Through to existing wholesale contract customers for 1998.  PG&E seeks an extension of this pass-through authority under the same terms and conditions through June 30, 1999.  PG&E also seeks to add the City and County of San Francisco and the Northern California Power Agency to revised rate sheets for this tariff

G.	ISO Makes Additional Compliance Filing Pursuant to September 11, FERC Order

On September 28, 1998, the California Independent System Operator Corporation (ISO), tendered for filing a compliance filing in the above-referenced docket which includes a revision to the ISO Tariff, Docket No. ER98-3760.  The filing makes various changes to comply with the FERC’s September 11, 1998, Order in this docket, 84 FERC ¦ 61,217 (1998).

H.	PX Files Amendment No. 5

On September 21, 1998, the California Power Exchange Corporation (PX) filed an application to amend the PX Operating Agreement and Tariff (including Protocols) (PX Tariff) and a motion for waiver of the 60-day notice requirement.  The PX proposes amendments to the PX Tariff and Protocols involving (i) the establishment of a Suspense Account; (ii) notification of changes to the PX Payments Calendar; (iii) clarification of permissible banking arrangements between the PX and PX Participants; (iv) inclusion of PX Participants' ISO Adjustment Bids in the PX's data requirements; (v) clarification of billing and settlement operations; (vi) implementation of negative Market Clearing Prices; (vii) deletion of provisions requiring Meter Data to indicate whether it is an hourly value or a profiled value; (viii) removal of requirements that PX Participants flag whether their Meter Data is estimated or calculated; (ix) the inclusion of provisions to allow the PX to provide new value added services at the request of PX Participants; (x) deletion of the Options Addenda from the PX Participation Agreement; and (xi) flexibility in allocating new ISO charges and prior day ISO charges.

I.	ISO Files to Delay Implementation of Firm Transmission Rights

On September 29, 1998, the ISO filed an application to delay implementation of Firm Transmission Rights (“FTRs”) by three months, from January 1, 1999 to April 1, 1999, Docket No. ER98-3594.  FERC had ordered the ISO to implement FTRs by January 1.  Pacific Gas & Electric Company, 80 FERC ¶ 61,128 at p. 61,427 (1997).  In its motion the ISO stated that it will be unable to develop the software necessary to implement FTRs by January 1.  The request has drawn strong objection from some market participants.  

J.	Recent FERC Decisions

1.		FERC Accepts Alturas Intertie Project Interconnection and Operation and Maintenance Agreement

In an Order dated November 30, 1998, FERC accepted for filing, effective December 1, 1998, the Alturas Intertie Project Interconnection and Operation and Maintenance Agreement (Project and Agreement, respectively) between Sierra Pacific, the Bonneville Power Administration (Bonneville) and Pacificorp (Pacificorp).  Sierra Pacific Power Company, 85 FERC ¶ 61,314; Docket No. ER99-28-000.  The Project involves Sierra Pacific's construction of a 200 mile, 345 kV transmission line (Alturas line) between Sierra Pacific's North Valley Road Substation, near Reno, Nevada, and its new Hilltop Substation near Alturas, California.  The Project will interconnect the new Alturas line with Bonneville's Malin-Warner transmission line, near Malin, Oregon, just north of the California-Oregon border.  When the Alturas line is placed in service, this interconnection will allow Sierra Pacific to transfer 300 MW of power from Malin, Oregon, across the northeast corner of California, and into Nevada.  Numerous parties protested the filing, claiming that the Project's demand on the existing California-Oregon Intertie (“COI”) system would reduce the interregional transfer capability of the California utilities to schedule power on the COI system on a megawatt for megawatt basis.  They also claimed that the Agreement is inconsistent with the Commission's prior allocation of interregional transfer capability and unreasonably interferes with the pre-existing rights of the parties to the Coordinated Operations Agreement (“COA”) under which the COI is operated.  FERC ordered the parties to work closely together in an ongoing WSCC process to establish planning and/or operating procedures that ensure that the operation of the project does not jeopardize the reliability of the neighboring systems or diminish their ability to utilize their systems, including the Northwest AC Intertie.  FERC also emphasized that utilities that choose to construct new interconnections bear the responsibility to exercise all appropriate measures to resolve operational problems on a mutually acceptable basis.

2.		FERC Orders the ISO and PX to File New, Compliant By-Laws Within 45 Days and Orders the ISO to Seat Woychik

In an Order dated November 24, 1998, FERC reaffirmed its prior conclusion that a permanent role for the Oversight Board in the appointments, governance, or operations of the ISO and PX, or appellate review of ISO Board decisions, as that role is currently reflected in the ISO Bylaws, conflicts with FERC’s jurisdiction under the Federal Power Act and undermines the independence of the ISO and PX Governing Boards.  FERC thus required the ISO and PX to file revised bylaws within 45 days, and denied a request for a public conference on the role of the Oversight Board.  In addition, FERC directed the ISO to seat Eric Woychik as a Governing Board member immediately. California Power Exchange, et al., 85 FERC ¶ 61, 263.  Docket Nos. EC96-19-028, ER96-1663-029, EC96-19-029, ER96-1663-030, EL98-51-000.

3.	FERC Issues Notice Of Intent To Consult With State Commissions Regarding Whether And How FERC Should Use Its Authority Under Section 202(A) Of The Federal Power Act

On November 24, 1998, FERC issued a “Notice of Intent to Consult” with State Commissions regarding whether and how FERC should use its authority under § 202(a) of the Federal Power Act (“FPA”).  Docket No. RM99-2-000.  The purpose of this initial consultation is, as part of a broader inquiry concerning FERC’s policies on independent system operators (ISOs) and other regional transmission organizations (RTOs) in the electric utility industry, to afford State commissions a reasonable opportunity to present their views and recommendations with respect to dividing the country into regional districts for development of independent regional transmission organizations.  A conference or conferences will be scheduled for late January or February.   FERC currently envisions that one representative from each State commission would attend the proposed conference(s) and discuss questions that would include, but not necessarily be limited to, the following:

(1) 	What criteria and policy considerations should be used to establish the boundaries for effective RTOs if the Commission later decides to do so?
(2) 	Are there factors that make it appropriate for the utilities in your state to belong in a specific region?      
(3) 	What is the appropriate role of the States in the formation of RTOs?
(4) 	What is the appropriate role of the States in the governance of RTOs?

4.	FERC Accepts APX’s Revised Rate Schedule

On November 16, 1998, FERC issued an Order accepting the Automated Power Exchange, Inc.'s (APX) revised rate schedule to become effective on April 1, 1998, as requested. Automated Power Exchange, Inc, 85 FERC ¦ 61, 232 (1998), Docket No. ER98-1033-004.  The order also dismisses as unnecessary APX's standard terms and conditions of service and standard form contract since the order finds that APX's revised rate schedule, without more, fully complies with Section 205(c) of the Federal Power Act.  Therefore, the order does not address APX's request for confidentiality.  The order also directs APX to file an updated APX Participant index within 30 days of the commencement of service to an APX Participant.

5.	FERC Grants Extension of Time for PG&E and Laguna Irrigation District to File Interconnection Agreement

On November 16, 1998, FERC granted an extension of time to PG&E and Laguna Irrigation District for the filing of an Interconnection Agreement to and including December 1, 1998.  The filing had been due November 16 pursuant to FERC’s September 16, 1998, Order in this docket, No. EL98-46.  A joint motion of PG&E and Laguna for the extension reported significant progress in developing a form of interconnection agreement that will be broadly applicable to all Irrigation Districts seeking Interconnection.  Fresno and South San Joaquin Irrigation Districts are participating in the negotiations and supported the request for the extension of time.

6.	FERC Grants Market-based Rates for Ancillary Services to SDG&E, Edison, and PG&E

In two orders dated October 28, 1998, the FERC granted market-based rate authority for all sellers of Ancillary Services and Replacement Reserve Services within California, effective Monday November 2, 1998.  AES Redondo Beach, et al., 85 FERC ¶ 61,123, slip. op. at 1-2 (1998), Docket No. ER98-2843 et al; Sempra Energy Trading Corp., 85 FERC ¶ 61,122 (1998), Docket No. ER98-4497 et al..  The decisions give market-based rate authority to all three of the large California IOUs.  FERC also extended the ISO’s interim authority to limit the prices it will pay for Ancillary Services, and directed the ISO to submit a proposal for redesigning the Ancillary Services markets.  The CPUC had filed comments in the Sempra case opposing market-based rates for SDG&E.

7.	FERC Accepts Some Changes to ISO Bylaws Regarding Governance  and Defers Action on Others

In an order dated October 28, 1998, FERC accepted certain proposed changes to the California Independent System Operator Corporation's (ISO) Bylaws, filed on August 31, 1998, and deferred action on other Bylaws compliance issues to a separate future order.  California Independent System Operator Corporation, 85 FERC ¦ 61,131, Docket Nos. EC96-19-029 and ER96-1663-030.  Notably, FERC accepted the ISO’s proposed extension of the term of the initial Board of Governors to November 30, 1999, or 120 days following the final resolution of the Oversight Board’s pending appeal to the Washington federal appellate court regarding the Oversight Board’s role in the ISO’s governance, whichever comes first.  However, FERC noted that the ISO’s filing filing did not include the changes required by FERC’s order issued March 4, 1998 related to Oversight Board function and the California residency requirement. California Independent System Operator Corporation, 82 FERC ¦ 61,223 (1998), appeal pending sub nom California Independent System Operator Corp., et al. v. FERC, U.S. Court of Appeals for the D.C. Circuit, Docket Nos. 98-1225 and 98-1226.  FERC will address these compliance issues, and the ISO's request for a public conference,  as well as the vigorous objections to the ISO’s filings by several parties, in a future order.

8.	FERC Accepts the ISO’s Compliance Filings Revising Amendment No. 10 and Orders a Further Compliance Filing

On October 16, 1998, FERC accepted the ISO’s August 5, August 17, August 20 and August 21, 1998, compliance and clarification filings, which related to Amendment No. 10.  FERC also ordered a further compliance filing.  California Independent System Operator Corporation, 85 FERC ¶ 61,061 (1998), Docket Nos. EC96-19-035, EC96-19-041, ER96-1663-036 and ER96-1663-042.  Amendment 10 permits Ancillary Services to be provided from resources located outside the ISO control area, and specifies penalty provision exemptions.

9.	FERC Accepts and Suspends Must Run Rate Schedules filed by Duke Energy and Sets the Cases for Hearing

On October 14, 1998, FERC accepted for filing, suspended, and set for hearing, revised reliability must run rate schedules filed by two Duke affiliates which have purchased divested PG&E units: Duke Energy Oakland, LLC and Duke Energy Moss Landing. Duke Energy Oakland, LLC, 85 FERC ¶ 61,047 (1998), Docket Nos. ER98-4296 et al.

10.	FERC Conditionally Accepts PX Amendment No. 3 and Orders Compliance Filing

On September 28, 1998 FERC conditionally accepted the PX’s Amendment No. 3, subject to certain modifications, and ordered a compliance filing.  California Power Exchange Corp., FERC ¶ 61,___ (1998), Docket Nos. ED96-19-037, ER96-1663-038.  Amendment No. 3 proposed modifications to the Hour-Ahead market, primarily addressing overgeneration and adjustment bids for use in congestion management; and modifications to the PX Registration and Certification process which are not related to the Hour-Ahead market.  The PX made a compliance filing pursuant to the order on October 13, 1998.

11.	FERC ALJ Certifies Long Beach Settlement to the Commission

On September 25, 1998 a FERC ALJ certified a settlement in the rate case for Long Beach Generation, LLC, Docket No. ER98-2537.  Long Beach is a new owner of a divested Edison facility.

12.	FERC Accepts ISO Amendment No. 11

On September 17, 1998, FERC accepted the ISO’s Amendment No. 11.  California Independent System Operator Corporation, 84 FERC ¶ 61,234, Docket No. EC96-19-039, ER96-1663-040.  Amendment 11 proposed to modify the ISO tariff to increase the capacity available in the Ancillary Services markets by: (1) making downward regulation capacity accepted by the ISO available to later reserve markets; (2) permitting units bid into the regulation market to be rampable within 30 minutes rather than 10 minutes; (3) permitting the ISO to procure regulation in excess of 5% of aggregate scheduled demand.  FERC accepted each of these changes, permitted them to become effective not later than September 21, 1998, and ordered the ISO to post the decision on its web site.  However, FERC chastised the ISO for implementing the expanded ramping period for regulation prior to filing the proposed tariff amendment with FERC.  

13.	FERC Issues Proposed Order Directing PG&E to  Interconnect with Laguna Irrigation District

On September 16, 1998 FERC issued a proposed order directing PG&E to interconnect with Laguna Irrigation District (“Laguna”) under section 210 of the Federal Power Act (“FPA”), and ordered further proceedings.  Laguna Irrigation District, 84 FERC ¶ 61,226 (1998), Docket No. EL98-46.  Laguna sought interconnection with PG&E’s distribution system at 16 points, which would enable Laguna to serve 19 retail customers.  FERC rejected PG&E’s argument that Laguna’s proposal was a “sham” transaction designed to circumvent section 212 of the FPA’s bar on FERC ordering retail wheeling.  FERC distinguished its 1996 decision in the Palm Springs case (76 FERC ¶ 61,127), holding that here, Laguna does propose to install, own, and control distribution lines necessary to deliver power from the interconnection points to Laguna’s retail customers.  The FPA requires that before the FERC issue a final order under section 210, it issue a proposed order setting a reasonable time for the parties to agree to terms and conditions for carrying out the order.  Thus FERC gave PG&E and Laguna 45 days to negotiate an interconnection agreement, and ordered the two parties to file briefs by November 16, 1998, addressing any outstanding issues.

VI.	Unbundling Cost of Capital
 
Unbundling the cost of capital involves developing appropriate rates of return for regulated utilities when these utilities are also providing unregulated services.

Upcoming Events

November 6 Opening Briefs
October 20 Late filed exhibits
September 28- October 14, 1998 Hearings
 
VII.  Public Purpose Programs
A.	California Board for Energy Efficiency Programs (CBEE)

For information on the Board’s current activities and background, see the CBEE website at http://www.cbee.org.

B.	Governing Board For Low-Income Programs (LIGB)

For information on the Board’s current activities and background, see the LIGB’s website at http://www.ligb.org

See the Commission’s Daily Calendar for CBEE and LIGB meeting dates and information at  http://www.cpuc.ca.gov/calendars/current/table_of_contents.htm
under Public Meetings and Workshops.

VIII.	Hedging Energy Costs

PG&E  claims its gas transmission facilities are subject to substantial risk during the Gas Accord period.  PG&E is concerned that this risk is exacerbated during the Gas Accord period because the Accord sets a cap on the rates PG&E can charge for gas transmission and storage services, yet leaves PG&E's ability to recover the costs associated with providing those services fully exposed to market forces.  PG&E has filed an application for authority to use gas-related financial instruments to manage this risk.
PG&E and SDG&E contend that they need to hedge their costs of power generation and power procurement in order to protect themselves from unforeseen increases in the cost of gas, fuel oil and electricity.  They have concerns that increases in power costs could limit their recovery of transition costs by reducing headroom.  The utilities have filed applications for authority to use energy-related financial instruments (derivatives) to manage gas and electric price volatility during the rate freeze period.  These financial instruments include all financial instruments whose values change relative to a change in an underlying commodity or commodity transportation cost, including forward contracts, futures, options, and swaps.  The Energy Division has concerns with these ex parte applications, specifically with potential impacts on debt costs, market power issues, violations of the mandatory buy/sell requirement and because granting the applications unconditionally would result in modifications of the Preferred Policy Decision.

Recent Activity
September 25, 1998 PG&E responded to September 1, 1998 ALJ Ruling requesting additional information. 
September 1, 1998 ALJ  ruling  requested additional information on the mechanics of the proposed transactions, market power, and the interaction of authorized limits for various hedging programs in A.98-04-008.

IX.	Small and Multi Jurisdictional Utilities 

D.97-12-093 in A.97-05-011, et. al.  “Order Addressing the Application of AB 1890 to Smaller and Multi-Jurisdictional Utilities” clarified and specified the applicability of AB 1890 to the small and multi jurisdictional utilities (SMJUs) which sell electricity to California customers.  These utilities include Southern California Water Company’s Bear Valley Electric, Kirkwood Gas & Electric, PacifiCorp, and Sierra Pacific Power Company.  In D.97-12-093, the Commission required each of these companies to unbundle their rates into components that reflect the underlying cost for generation, transmission, distribution and public purpose programs.  Additionally, the Commission concluded that companies seeking to recover any uneconomic cost of generations, i.e., PacifiCorp and SPPC, must reflect the resulting transition charges on its bills to all customers, track its collection of transition costs in a balancing account, undergo a market valuation process, surrender control of its jurisdictional transmission facilities to the Independent System Operator (ISO), freeze its rates at June 10, 1996 levels and provide a 10% rate reduction for residential and small commercial customers.  The Commission also ordered PacifiCorp, SPPC, and Bear Valley to provide their customers with direct access to competitive energy services and to accommodate third-party meters and metering services in a manner consistent with D.97-05-039, and required Kirkwood to file a general rate case application by December 31, 1998.

On February 4, 1998 Kirkwood changed its name to Mountain Utilities.

Recent Activity
On September 24 Sierra Pacific filed a petition to modify D.97-12-093 requesting balancing account treatment for revenues foregone due to the 10 % rate reduction to residential and small commercial customers.
On June 24 Sierra Pacific Power filed application A.98-06-046 requesting authority to issue rate reduction bonds of up to $25 million to recover the cost of the 10% rate reduction. 

Upcoming Events
Kirkwood is expected to file its first GRC application in November. 

X . CEQA Issues Related to Divestiture of Fossil Generation

These issues relate to the application of the California Environmental Quality Act (CEQA) to the fossil-fueled generation plants being divested by the utilities as part of electric restructuring.  Environmental assessments of the sale of the plants under CEQA were accomplished in 1997 for some plants.  The Energy Division released a Draft Environmental Impact Report (DEIR) on PG&E’s second divestiture application (A.98-01-008) for public comment in August 1998.  The comment period closed on September 21, 1998.  The Division responded to all comments received on the document in the Final EIR which was released on November 16, 1998.   The Commission voted to adopt the Final EIR at its business meeting on November 19, 1998.

The Division released a Draft Mitigated Negative Declaration for public comment in October 1998 which analyzed SDG&E’s divestiture application (A.97-12-039).  The comment period closed on November 12, 1998.  A Final Mitigated Negative Declaration was released on November 23, 1998 and will be considered for adoption at the next Commission business meeting on December 3, 1998.

Recent Activity 
See http://www.cpuc.ca.gov/environ.html, or http://www.pgedivest.com/ or http://www.scedivest.com/ or http://www.sdgedivest.com for more information.

XI.	Reliability 

The project includes analysis of outage data, utility maintenance (including tree trimming), and work on interstate issues.  Remaining work for AB 1890 includes ongoing participation in the ISO’s reliability study, adoption of standards for electric emergencies, and pursuing an interstate compact for reliability.

 	No up-date at this time.

 XII.	Consumer Education

The utilities’ customer education program mandated by AB1890 and approved by the Commission in D.97-08-064 concluded on May 31, 1998. A Near-Term Education Plan (see below) implemented by the Commission’s Consumer Services Division began on September 15, 1998. The Electric Education Call Center continues to serve residential and small business customers in 11 languages, with further language support available when necessary, providing customer service operators to answer questions and forward printed materials. Consumers may also access the consumer education website at www.knowledgeispower.org.

English/Consumers	800-253-0500
English/Businesses	800-789-0550
Spanish			800-365-0550
Chinese/Mandarin		800-940-3883
Chinese/Cantonese		800-957-8558
Vietnamese			800-474-5335	
Hmong			800-462-3749
Lao				800-442-2489	
Cambodian			800-465-6543
Japanese			800-210-7933
Tagalog			800-683-8448	
Korean			800-930-9559	
Thai				800-462-1244	
TDD				800-933-3119

Knowledge is Power website   The Knowledge is Power website may be accessed at: http://www.knowledgeispower.org/.  The website is another resource for consumers to learn more about how the coming changes to the electric industry will affect their energy choices. Help topics provides answers to consumers’ frequently asked questions and invites consumers to e-mail questions for an e-mail response.  Links to the CPUC and the CEC website are also provided.

Recent Activity 
Near Term Education Plan 
The Near-Term Education plan submitted by the Consumer Services Division was approved by an Assigned Commissioner Ruling on September 14, 1998. The goal of the near-term program is to bridge the gap between the Joint Customer Education Program which ended on May 31 and the efforts of the Electric Education Trust, which are expected to begin in late Spring 1999. CSD’s Near-Term Education Plan will use direct mail, print and radio ads, and community-based organizations to reach customer groups that have a low awareness of electric restructuring issues. 

A.	The Commission’s Outreach Plan
The Commission’s own Outreach Plan builds upon the Commission’s unique resources and expertise to assist and educate consumers about the changes taking place in the electric industry.  

Throughout 1998, the Commission is participating in Town Hall meetings in legislative districts statewide. The Town Hall meetings are designed to assist legislators in providing their constituencies with information about electric industry restructuring. 

B.	 The Electric Education Trust
D.97-08-064 directed the EET to work with community-based organizations to focus its educational efforts on customer groups and communities where understanding of the changes to the electric industry is low.  The Commission authorized a total of $13 million to the EET; $10 million is to be distributed to community-based organizations (CBOs). The EET expects to distribute CBO grants by Spring 1999.  Decision expected before year-end on EET's proposed education efforts.

C.	Consumer Protection 
The Commission issued its decision on Consumer Protection at the March 26 meeting. Pursuant to Senate Bill 477, the Commission adopted rules to protect consumers from unfair or abusive marketing practices by electric service providers.

 	No up-date at this time.