ALJ/RAB/sid DRAFT 6/27/2002

Agenda ID #656

Decision PROPOSED DECISION OF ALJ BARNETT (Mailed 5/21/2002)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Verification, Consolidation, and Approval of Costs and Revenues in the Transition Revenue Account.

Application 98-07-003 (Post PX Direct Access Credits) (Filed July 1, 1998)

SOUTHERN CALIFORNIA EDISON COMPANY'S HISTORICAL PROCUREMENT CHARGE PROPOSAL

(See Appendix A for a list of appearances.)

TABLE OF CONTENTS

Title Page

OPINION AUTHORIZING THE PROPOSAL OF SOUTHERN
CALIFORNIA EDISON COMPANY TO ESTABLISH A HISTORICAL PROCUREMENT CHARGE 2

I. Introduction and Summary 2

II. Background 3

A. Rate Freeze 3

B. The Avoided Cost Credit 4

III. History of the DA Credit 4

A. Zero Minimum Bill Provision 4

B. Escalation of PX Prices 5

C. Going Forward Procurement Surcharges 6

IV. SCE'S Procurement Related Liabilities 6

A. Equivalence of Impact on SCE's Liabilities 7

B. The Settlement Agreement 10

C. Securitization 15

V. HPC Proposal 16

A. Calculation of HPC 16

B. Modification to the Energy Credit 18

C. Overcollection 20

VI. Comments on Proposed Decision 22

Findings of Fact 22

Conclusions of Law 23

ORDER 24

APPENDIX A - List of Appearances

OPINION AUTHORIZING THE PROPOSAL OF

SOUTHERN CALIFORNIA EDISON COMPANY TO

ESTABLISH A HISTORICAL PROCUREMENT CHARGE

I. Introduction and Summary

On October 2, 2001, this Commission and Southern California Edison Company (SCE) reached a Settlement Agreement in Federal District Court Case No. 00-12056-RSWL (Mcx) that allows SCE to recover its past procurement cost undercollections as measured by the starting balance in SCE's Procurement Related Obligation Account (PROACT). That balance was $3.577 billion as of August 31, 2001. The Settlement Agreement was approved by the Federal District Court on October 5, 2001. SCE asserts that direct access (DA) and bundled service customers made equivalent contributions to the unrecovered procurement costs, because the credit that direct access (DA) customers received under past ratemaking was a perfect parallel to what bundled service customers were charged for procurement related costs. Under the current ratemaking framework; however, the surcharges adopted in 2001 are reflected in the generation rate component and DA customers' bills are credited with the entire generation rate component. SCE assert that this approach means that only bundled service customers are contributing to the recovery of the PROACT balance. SCE proposes to establish a Historical Procurement Charge (HPC), and to adjust the credit that DA customers receive so that DA and bundled service customers make equivalent contributions to the recovery of SCE's past procurement cost undercollections.

The California Large Energy Consumer Association (CLECA) and other parties assert that DA customers did not contribute to the undercollection in the same manner as bundled customers nor did many DA customers benefit from the undercollection. The Utility Reform Network (TURN), and others, support SCE.¹ Public hearings were held before Administrative Law Judge Barnett and the matter was submitted.

We conclude that SCE should be authorized to establish a HPC and apply it to DA customers by reducing the DA customers' generation credit by 2.5¢/kWh.