APPENDIX C & D TO FUKUTOME A0412014 I0505024
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ALJ/DKF/avs DRAFT Agenda ID # 5286

2/16/2006

Decision PROPOSED DECISION OF ALJ FUKUTOME (Mailed 1/17/2006)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) For Authority to, Among Other Things, Increase Its Authorized Revenues For Electric Service in 2006, And to Reflect That Increase in Rates.

Application 04-12-014

(Filed December 21, 2004)

Investigation on the Commission's Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Edison Company.

Investigation 05-05-024

(Filed May 26, 2005)

(See Appendix A for a List of Appearances.)

OPINION ON SOUTHERN CALIFORNIA EDISON COMPANY'S
TEST YEAR 2006 GENERAL RATE INCREASE REQUEST

TABLE OF CONTENTS

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OPINION ON SOUTHERN CALIFORNIA EDISON COMPANY'S TEST YEAR 2006 GENERAL RATE INCREASE REQUEST 22

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Findings of Fact 320320

Conclusions of Law 343343

ORDER 348348

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APPENDIX A List of Appearances
APPENDIX B List of Acronyms and Abbreviations

APPENDIX C SCE's 2006 CPUC Results of Operations

APPENDIX D SCE's Test Year 2006 GRC 2007 and 2008 Summary of Earnings

OPINION ON SOUTHERN CALIFORNIA EDISON COMPANY'S
TEST YEAR 2006 GENERAL RATE INCREASE REQUEST

1. Introduction

1.1 Summary of Decision

This decision addresses the general rate increase request of the Southern California Edison Company (SCE). SCE is authorized a revenue increase of $60,693,0001 for test year 2006 based on a base revenue requirement level of $3,699,766,00. The adopted methodology for calculating post test year revenue requirements results in additional revenue increases of $67,784,000 for post test year 2007 and $105,319,000 for post test year 2008. On a general rate case (GRC) revenue basis, the increases amount to 1.73% for 2006, 1.80% for 2007 and 2.68% for 2008. On a total system revenue basis, the increases amount to 0.61% for 2006, 0.67% for 2007 and 1.02% for 2008.

In brief summary, the decision also:

· Assumes a temporary shutdown of the Mohave Generating Station and reflects costs for this scenario, as forecasted by SCE. All costs will be booked to a two-way balancing account and will be subject to reasonableness review.

· Includes SCE's proposed Project Development Division in rates, but requires SCE to reflect development costs associated with proposed projects in its bid proposals and to credit such costs to ratepayers, whether the bid is successful or not.

· Approves a stipulation regarding Priority 5 maintenance activities. Such activities will continue to be performed on an opportunity basis, while SCE and the Commission's Consumer Protection and Safety Division work out the details to implement a new maintenance program.

· Assigns a 50%/50% sharing of costs between ratepayers and shareholders for the Results Sharing costs. This sharing is based on our determination of the relative benefits and costs of the program. A similar sharing is adopted for the Executive Incentive Compensation Plan.

· Adopts TURN's recommendation to recognize, for ratemaking purposes, the regulatory liability associated with plant removal costs that do not meet the definition of an Asset Retirement Obligation.

· Adopts ORA's proposed net salvage rates for calculating depreciation expense, with the exception of Account 364, distribution poles, towers and fixtures. For Account 364, the decision adopts a compromise net salvage rate proposed by SCE.

· Accepts SCE's forecasted plant additions for 2004 and 2005, subject to a truing up process if the recorded additions are less than forecasted. The truing up process will be performed in conjunction with the Capital Additions Adjustment Mechanism review that will be conducted later this year.

· Rejects proposals to determine the post test year revenue increases by applying a consumer price index factor to the adopted 2006 revenue requirement. The decision also rejects SCE's proposal to reflect its proposed capital budgets for 2007 and 2008 in determining the revenue increases for the post test years. Plant additions are instead determined by taking the adopted 2006 test year plant additions and escalating that amount to 2007 and 2008 post test year dollars.

· Rejects the proposal of San Diego Gas & Electric Company to establish a Cost Control Incentive Mechanism for the San Onofre Nuclear Generating Station (SONGS).

· Approves a settlement regarding a Reliability Investment Incentive Mechanism.

· Approves a settlement regarding bill calculation services for submetered mobile home parks.

· Reflects SCE's 2006 cost of capital as authorized Decision (D.) 05-12-043.

1.2 Procedural Background

On December 21, 2004, SCE filed Application (A.) 04-12-014 requesting a $370,403,0002 revenue increase for test year 2006, based on a proposed base revenue requirement level of $4,060,932,000. Based on its proposed methodology for calculation post test-year revenue requirements, SCE estimated revenue increases of $159,447,000 for post test year 2007 and $121,522,000 for post test year 2008. During the course of this proceeding, SCE has reduced its forecast of the 2006 base revenue requirement level and reflected its 2005 authorized rate increase. SCE now seeks a $324,876,0003 revenue increase for test year 2006, based on a proposed base revenue requirement level of $3,963,949,000, and additional post test year increases of $108,485,000 for 2007 and $113,015,000 for 2008. On a GRC revenue basis, the requested increases amount to 8.93% for 2006, 2.69% for 2007 and 2.67% for 2008. On a total system revenue basis, the requested increases amount to 3.26% for 2006, 1.07% for 2007 and 1.09% for 2008.

On May 26, 2005, Investigation (I.) 05-05-024 was instituted to allow the Commission to hear proposals other than those of SCE and to enable the Commission to enter orders on matters not proposed by SCE. Application (A.) 04-12-014 and I.05-05-024 were consolidated for these purposes.

Prehearing Conferences were held on February 18, 2005, May 6, 2005 and June 6, 2005. During May, 2005, public participation hearings were held in Rosemead, Fullerton, San Bernardino, Palm Springs and Visalia. There were 23 days of evidentiary hearings held from June 7, 2005 to July 14, 2005. An additional day of hearing was held on September 12, 2005. Opening briefs were filed on August 12, 2005 and reply briefs were filed on September 2, 2005. An evidentiary update hearing was held on October 11, 2005. Update related briefs were then filed on October 21, 2005. The proceeding was submitted for decision on November 30, 2005 after replies to comments on a stipulation regarding a reliability investment incentive mechanism were received.

In addition to SCE, the active parties in this proceeding were the Office of Ratepayer Advocates (ORA),4 Aglet Consumer Alliance (Aglet), The Utility Reform Network (TURN), San Diego Gas & Electric Company (SDG&E), the Coalition of California Utility Employees (CUE), The Greenlining Institute (Greenlining), Pacific Gas & Electric Company (PG&E), the Alliance for Retail Energy Markets (AReM), the Direct Access Customer Coalition (DACC), the Western Power Trading Forum (WTPF), the Independent Energy Producers Association (IEPA), and the Western Manufactured Housing Community Association (WMA). The positions taken by the parties are described throughout this opinion.

With the exception of WMA, the parties have taken positions that affect the forecast of SCE's base rate revenue requirement. As set forth in the August 2005 Joint Comparison Exhibit (Exhibit 899), ORA's base rate revenue requirement recommendation for 2003 is $3,592,407,000 or $387,482,000 less than SCE's request at that time.5 ORA was the only party, other than SCE, to make a full revenue requirement presentation. Due to the complexities of calculating revenue requirements reflecting parties' positions on the various underlying components, the Joint Comparison Exhibit does not include a calculation of the revenue requirement recommendations associated with the positions of parties other than ORA and SCE.

1 This is a net increase that includes a $139,559,000 reduction for 2006 to account for a PBOP overcollection.

2 Id.

3 Id.

4 As of January 2006, ORA is now the Division of Ratepayer Advocates.

5 This does not reflect SCE's final recommendation as set forth in the October 5, 2005 update testimony (Exhibit 171), because that exhibit does not include an updated calculation of ORA's revenue requirement recommendation. However, we expect the final difference between SCE's and ORA's recommendations to be similar to the $387 million difference calculated in August 2005.

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