DISCUSSION

The Commission decision authorizing EDR programs states that shareholders and ratepayers will split benefits derived from EDR programs, but that

ratepayers will be protected from costs.⁵ The decision specifically states that the allocated Competition Transition Charge (CTC) will come from SCE shareholders if EDR agreements do not generate enough revenue to cover cost plus allocated CTC.⁶

High energy prices beginning in Summer 2000 have made EDR agreements untenable. The discounts originally envisioned with these agreements have been eliminated as a result of EDR minimum charges exceeding OAT charges. This has occurred because OAT rates are protected by the rate freeze, with SCE at risk for unrecovered expenses. EDR agreements, however, are not covered by the rate freeze.

SCE believes that it is unfair for EDR customers to pay more than customers whose rates are not subject to an EDR discount. Therefore, SCE proposes that the minimum charge be capped. This would normally be unacceptable. The EDR minimum charge provision was established to ensure EDR customers are charged their cost of the service. D.96-08-025 specifically considered the eventuality of costs exceeding the OAT rate and created the minimum charge to protect ratepayers from a potential cost shift. As discussed more below, however, events in late 2000 and 2001 were not reasonably foreseeable, and now justify program modification.

In a real sense, EDR rates are no longer appropriate for today's markets. EDR tariffs were originally adopted in a time of excess capacity, and their purpose (i.e., to retain or increase load) was reasonable. The shortage of generation experienced in Summer 2000, uncertain balance in Summer 2001, and likely shortage in Summer 2002, undercut the justification for EDR tariffs. With recent initiatives encouraging load management, along with the California Independent System Operator seeking demand responsiveness, it is inappropriate to offer discounts in order to increase the load in California without demand responsive components. Therefore, the EDR tariffs should be closed to new customers.

SCE has interpreted minimum charge provisions in EDR tariffs as requiring SCE to charge customers no more than the rate in the OAT, and has billed EDR customers on that basis. SCE requests Commission approval of SCE's interpretation, along with authorization to revise the EDR agreements accordingly. The plain language of EDR tariffs, however, does not support SCE's interpretation. The rate sections of the EDR tariffs are clear, and contain no provision that would limit customer charges to the rate in the OAT.

Re-examination of the tariff language concerning minimum charges, however, reveals that the filed tariffs are not in compliance with D.96-08-025. That decision adopted the energy portion of the minimum charge as the lower of the PX price or SRAC. The tariffs rely solely on the PX price. Therefore, the tariffs are not in compliance with the decision. EDR customers should only be required to pay the rates adopted by the Commission, and should not be charged a filed rate that does not comply with the Commission's adopted program.

We will not cap EDR customers' rates at OAT rates, but we will require that they pay no more than the rates established in D.96-08-025. EDR customers signed an agreement that specifically required participants to pay a minimum charge provision. Since the calculation of the minimum charge contained in the EDR agreements is not in compliance with the Commission's adopted program, we will adjust the agreements. We will require SCE to file revised tariffs in compliance with the floor price discussion in D.96-08-025, and collect the amounts due under those tariffs. In addition, SCE should review all EDR customers' past bills and credit customers for periods when they were billed the minimum charge and that charge was based on a PX price higher than SRAC.

SCE is concerned with the situation of EDR customers, and has been billing them at the OAT rate for a period of time. We will require SCE to apply a minimum charge based on the lower of SRAC or the PX price when billing EDR customers for all service rendered after the effective date of today's Resolution. However, we will give SCE an additional option with regard to service rendered before the effective date of today's Resolution. Where the SRAC-based rate for that period would exceed the OAT rate, SCE may, if it wishes, depart from its previously authorized rates and charge these EDR customers at the OAT rate for that past period. However, if SCE chooses this option, the uncollected amount (the

difference between the billed amount and the amount due under the authorizing decision) must be absorbed by SCE (at shareholder expense) and that rate reduction must be extended to all of SCE's EDR customers. This option only applies to uncollected amounts, and does not apply to any overcollections due to EDR customers. Overcollections must be credited as discussed above. We will require SCE to file an advice letter informing us whether or not it has chosen to exercise this option.

By letter dated August 1, 2000, the Energy Division Director suspended for up to 120 days the revised tariff sheets included with Advice Letter 1461-E. SCE claims that the Director lacks authority to take such action. We disagree. We hereby ratify the Director's suspension of the tariff sheets attached to Advice Letter 1461-E, and determine that the advice letter and attached tariff sheets, as originally filed, never became effective.

⁵ "If discount sales gross revenues fail to exceed costs, which is highly unlikely, ratepayers will therefore not share in any expenses." (D.96-08-025, 67 CPUC2d 297, 324.)

⁶ "Customers participating in Edison's flexible pricing options should assume responsibility for any future CTC assignments, and shareholders should guarantee that no such CTC will be shifted to non-discount customers." (D.96-08-024, 67 CPUC2d 297, 338, Conclusion of Law 19.)