III. History of the DA Credit

A. Zero Minimum Bill Provision

Because the DA credit was based on the market price from the PX, it was possible that the credit would exceed either the generation rate component or the entire bill. If the PX credit exceeded the generation rate component, there was a negative CTC, i.e., no contribution to recovery of stranded costs. If the PX credit exceeded the entire amount of the bill, meaning that the PX credit was greater than the sum of the generation, distribution, transmission, public purpose, and the other rate components, there would be a negative bill. In other words, the DA customer would receive a credit for the entire utility bill. This is also known as a "credit" bill.

Prior to June 1999, under the adopted tariffs, DA customers receiving the PX credit could experience, at a minimum, a monthly bill of $0. In D.99-06-058, the Commission approved a stipulation between SCE, Western Power Trading Forum, and Enron and eliminated the zero minimum bill provision. The elimination of the zero-minimum bill provision allowed DA customers to receive the entire PX credit even if it resulted in a negative (credit) bill. Prior to market dysfunctions in mid 2000, PX credits in excess of total monthly charges were generally carried over to succeeding months and were netted against positive bills.

B. Escalation of PX Prices

The rise of market energy prices in the summer of 2000 resulted in numerous occurrences of negative CTC entries. As PX credits in excess of total bundled services charges became the norm, DA customers enjoyed consistent credits for the entire bill. On January 5, 2001, SCE stopped making payments to DA customers utilizing ESP consolidated billing for credit bills resulting from the application of the DA credit. Prior to that time, SCE generally paid these DA customers for their credit bills upon request by the customer, or with the closing of an account. SCE states that the payment of these credit bills as well as the need to finance the costs of procuring energy for bundled service customers contributed to the deterioration of its cash and credit position. The credit bills for DA customers utilizing UDC consolidated or dual billing were carried forward and were netted out against any positive bills even after SCE became non-creditworthy.

C. Going Forward Procurement Surcharges

On May 27, 2001, the Commission issued D.01-05-064, which adopted new rate levels for SCE customers, adding roughly 4¢/kWh to the frozen generation rate component. The new surcharge was comprised of the then existing 1¢/kWh emergency procurement surcharge (EPS) plus an additional 3¢/kWh authorized in D.01-03-082: the 3¢ surcharge did not apply to DA customers. The Commission did not state whether the EPS was applicable to DA customers. SCE had billed the 1¢/kWh surcharge to DA customers, but stopped after D.01-03-082 was issued. SCE began billing the new rates on June 3, 2001. At this point SCE's method was to credit DA customers with the generation rate of their otherwise applicable tariff (OAT). This approach resulted in DA customers avoiding surcharges adopted by the Commission in year 2001 on a prospective basis.