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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3795

RESOLUTION

Resolution E-3795. Resolution Approving Southern California Edison Company's Request to Amend its Qualified and Non-Qualified Nuclear Decommissioning Trust Agreements to Reflect the Appointment of Mellon Bank, N.A. as the Trustee and to Revise the Trustee Fee Schedule. Request approved.

By Advice Letter 1648-E filed on September 6, 2002.

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SUMMARY

This Resolution approves the requested amendments of the Southern California Edison Company [Edison] to its Commission-approved qualified and non-qualified nuclear decommissioning trust agreements to reflect the appointment of Mellon Bank, N.A. [Mellon] as the trustee to replace the Northern Trust Company [Northern], to revise the trustee fee schedule to reflect Mellon's lower proposed fees, and to make certain clarifications and to incorporate standardized text required by Mellon in its trust agreements. Request approved.

BACKGROUND

In its Order Instituting Investigation No. 86 [OII 86], the Commission conducted an extensive investigation into the recovery of costs of decommissioning nuclear power plants owned by the California utilities. In Decision [D.] 87-05-062, the Commission adopted externally managed trust funds as vehicles for accruing decommissioning funds. In that Decision, the Commission also established guidelines for preparing these trust agreements.

In response to D.87-05-062, Edison established two trust funds: one to hold contributions which qualify for an income tax deduction under Section 468A of the Internal Revenue Code [qualified trust], and another to hold the remaining funds [non-qualified trust]. On November 25, 1987, the Commission approved Edison's trust agreements in Resolution E-3057.

Section 3.01 of both trust agreements provides for oversight by a Committee consisting of five members, at least three of whom cannot be employees, officers, directors, or agents of Edison. The Committee is required, among other things, to evaluate the performance of the trustee annually, and to evaluate potential substitute trustees at least once every three years.

The triennial trustee evaluation was recently conducted by Edison's investments staff and their findings were presented to the Committee at its meeting on May 6, 2002. The Committee unanimously approved the appointment of Mellon Bank as trustee of the Trusts and Mellon's proposed fee schedule. The Committee also authorized amendment of the trust agreements to reflect those changes.

The Commission has set forth its limitations on the nuclear utilities' trust funds in a series of decisions. Ordering paragraph 6 of D.95-07-055 provides for the agreements to be approved through the Commission's advice letter process. Sections 2.12 and 2.10 of qualified and non-qualified trust agreements, respectively, require Commission approval of amendments to the trust agreements.

By this advice letter, Edison is requesting Commission approval of the appointment of Mellon Bank as trustee of the Trusts, Mellon's proposed fee schedule, and various amendments and restatements of the text of the trust agreements to reflect the standardized language that Mellon uses in its trust agreements.

NOTICE

Notice of Advice Letter [AL] 1648-E was made by publication in the Commission's Daily Calendar. Edison states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.

PROTESTS

Advice Letter AL 1648-E was not protested.

DISCUSSION

The trust agreements state that a review of the trustee must be done at least every three years. To fulfill these requirements, Edison sent a letter and an extensive questionnaire to the following firms who provide trustee services to decommissioning trusts.

Edison states that responses were carefully evaluated and that phone contact and personal interviews were made with candidates to clarify outstanding issues and questions.

All candidates, according to Edison, had ample trust experience and dedicated resources to decommissioning trust services. They were all competent to provide the basic level of trustee service. The Committee therefore focused on the ability of the candidates to calculate after-tax returns, nuclear decommissioning trust experience, and their proposed fee schedules that are summarized below

The Committee next evaluated the candidates for their after-tax returns methods. The methods and processes used by Mellon and Northern were found to be superior to those of the others. Therefore, these two were chosen and evaluated for other factors such as quality and quantity of people in the area of interest, accounting and tax support systems, and commitment to nuclear decommissioning trust business.

Based on these considerations, Edison's investment staff has concluded that the Northern Trust Company be replaced by Mellon as trustee of both qualified and non-qualified Trusts.

Edison's investment staff has also concluded that continued use of Northern would pose the following risks

The Energy Division has reviewed AL 1648-E and determined that the Agreement is in compliance with the applicable Commission requirements and the proposed fee schedules comply with those ordered in D.87-05-062 and subsequently in D.95-07-055. Accordingly, the Energy Division recommends approval of Edison's request.

COMMENTS

This is an uncontested matter in which the resolution grants the relief requested. Therefore, pursuant to PU Code Section 311(g)(2), the otherwise applicable 30-day period for public review and comment is waived.

FINDINGS

THEREFORE IT IS ORDERED THAT:

1. Southern California Edison Company's request in Advice Letter AL 1648-E is approved.

This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on December 5, 2002; the following Commissioners voting favorably thereon:

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