Discussion

SCE submitted this application to bring rate relief to its customers as soon as its PROACT balance is recovered. The chief change between application and the Settlement Agreement, one which will make rate relief available sooner, is that while the application called for PROACT collection to be verified first, with rate relief following, the Settlement Agreement calls for a forecast of PROACT recovery. Because the forecast method will result in either no overcollection (an unavoidable occurrence under the other method), or a much smaller one, to be returned to ratepayers, the rate reductions are somewhat less under the forecast method.

The Settlement Agreement differs from the application in certain other respects - among them the resolution of SCE's Baseline Balancing Account, a modified treatment of the Direct Access Cost Responsibility Surcharge shortfall, and making post-PROACT rates effective for 12 full months - but is still consistent with implementing new rates that account for the reduction in SCE's generation revenue requirement that full recovery of PROACT makes possible.

A. The Settlement Agreement is Supported by the Record

The record contains the information necessary for the Commission to find the Settlement Agreement reasonable. In addition to its prepared testimony and the rate structure originally proposed, SCE produced additional rate scenarios, including those requested by the Assigned ALJ, based on stated assumptions different from those in the application. The Assigned ALJ admitted into evidence the following exhibits:

Exhibit 1 - SCE's Post-PROACT Ratemaking and Rate Design Proposal.

Exhibit 2 - SCE's Post-PROACT Proposed Preliminary Statements.

Exhibit 3 - The Settlement Agreement.

Exhibit 4 - SCE's response dated March 10, 2003, to the ALJ.

Exhibit 5 - SCE's response dated May 2, 2003, to the ALJ.

The rates set forth in the Settlement Agreement are consistent with the evidence and Commission decisions.

A. The Settlement Agreement is Consistent with Law

The terms of the Settlement Agreement comply with all statutes and prior Commission decisions.

C. The Settlement Agreement is in the Public Interest

The Settlement Agreement is a reasonable compromise of the Settling Parties' respective positions. The Settlement Agreement is in the public interest and the interest of SCE's customers. The Settlement Agreement avoids the cost and delay of further litigation and brings rate relief to customers in all rate groups. It does so while not unduly burdening the resources of any party, nor the Commission, whose resources are presently engaged in other proceedings, including SCE's 2003 GRC.

There is a reduction of $1.249 billion to the bundled service customers. These customers will also be owed $325.6 million by Direct Access (DA) customers, due to the cap on the DA Cost Responsibility Surcharge (CRS), to be paid back to them when the cap can accommodate it.

Table 1 shows the current revenue by customer rate group and the settlement revenue by customer rate group, with totals.

Southern California Edison
Post-PROACT Present and Adopted Average Rates for Bundled Service Customers
	Current			Adopted
	Average Rates - ¢/kWh	Revenue ($million)		Average Rates - ¢/kWh	Revenue ($million)	Average Rate Percent Change	Revenue change ($million)
CARE	8.899	366		8.899	366	0.0%	0
Non-CARE	14.664	3,105		13.512	2,835	-7.9%	(271)
Total Residential	13.726	3,472		12.655	3,201	-7.8%	(271)
GS-1	17.493	736		14.293	601	-18.3%	(135)
TC-1	12.735	17		10.957	15	-14.0%	(2)
GS-2	15.268	2,963		13.314	2,584	-12.8%	(379)
TOU-GS-2	14.622	70		12.157	58	-16.9%	(12)
Total LSMP	15.627	3,785		13.448	3,258	-13.9%	(528)
TOU-8-Sec	13.974	1,000		11.476	821	-17.9%	(179)
TOU-8-Pri	13.487	666		11.287	557	-16.3%	(109)
TOU-8-Sub	10.830	400		8.044	297	-25.7%	(103)
Total Large Power	13.086	2,065		10.614	1,675	-18.9%	(390)
PA-1	15.323	87		13.587	77	-11.3%	(10)
PA-2	11.039	59		9.914	53	-10.2%	(6)
AG-TOU	10.200	88		8.233	71	-19.3%	(17)
TOU-PA-5	9.524	71		7.781	58	-18.3%	(13)
Total Ag.&Pump.	11.247	305		9.557	260	-15.0%	(46)
Total Street Lights	17.181	93		14.506	79	-15.6%	(15)
System	14.180	9,722		12.357	8,472	-12.9%	(1,249)

The balance in SCE's Baseline Balancing Account to be amortized over 12 months is $105.9 million.

The Settlement Agreement does not identify a separate 10% reduction during the period governed by the post-PROACT rates. Because there is no separate 10% credit during this period, the Settlement Agreement maintains the AB 1X rate protections for consumption up to 130% of Baseline by reducing Tier 1 and 2 rates by 10%. This interim change would leave bills unchanged for residential users consuming up to 130% of Baseline. The Settling Parties agree that the issue of whether or not to continue the 10% bill reduction credit for SCE customers will be addressed in Phase 2 of SCE's 2003 GRC. The Settlement Agreement does not resolve this issue and the proposed rates do not assume either the ultimate continuation or expiration of the credit after these post-PROACT rates are no longer in place. The Settling Parties have not waived their positions on this issue as it pertains to other utilities or Phase 2 of SCE's 2003 GRC.

The Settlement Agreement proposes the termination of the surcharges imposed on SCE by D.01-01-018 and D.01-05-064. The post-PROACT settlement rates build rates from the bottom up, including DWR charges, which results in the immediate $1.249 billion reduction to bundled service customers, plus an obligation by DA customers to pay $325.6 million to bundled service customers when the DA CRS cap can accommodate this.

SCE currently bills DA customers and bundled service customers in the same manner using bundled service rates, and then credits DA customers in the amount of the generation component of those rates. Under the Settlement Agreement, SCE will continue to do so until September 1, 2003, although under the Settlement Agreement SCE starts with lower bundled service rates and will have a lower generation rate to be credited to DA customers. Beginning September 1, 2003, SCE will move to "bottoms-up" billing under which DA customers will be charged, and their bills will reflect, only the services they receive and the DA CRS. The current DA crediting methodology will be changed at that time.