PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

CA-17

ENERGY DIVISION RESOLUTION E-3751

AUGUST 23, 2001

RESOLUTION

Resolution E-3751. Southern California Edison Company requests approval of its Qualified Nuclear Decommissioning Trust Investment Management Agreement with Pacific Investment Management Company. Request granted.

By Advice Letter 1554-E, filed on June 29, 2001.

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SUMMARY
This Resolution approves the investment management agreement [Agreement] between Southern California Edison Company [Edison] Nuclear Facilities Decommissioning Master Trust Committee [Committee] and Pacific Investment Management Company [PIMCO].

BACKGROUND
In the 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 the means 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 trusts, 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 the establishment of a Nuclear Facilities Decommissioning Master Trust Committee. Subject to the Commission approval, the Committee is authorized to appoint one or more investment managers to direct investments of all or part of the trust assets.

To direct the investments for the Qualified Trust, the Commission has so far approved investment agreements with STW Fixed Income Management, RCM Capital Management, Bankers Trust, Pan Agora Asset Management, Black Rock Financial Management, Inc., and Stanford C. Bernstein & Co. To direct the investment of the Nonqualified Trust, to-date the Commission has approved investment agreements with Bankers Trust, RCM Capital Management, Pan Agora Asset Management, and Black Rock Financial Management, Inc.

The Commission has set forth its limitations on the nuclear utilities' trust fund investments in a series of decisions. Most recently, ordering paragraph 6 of D.95-07-055 provides for the Agreements to be approved through the Commission's advice letter process.

At its meeting of May 3, 2001, the Committee approved the appointment of PIMCO as a fixed income [i.e., non-equity] investment manager of the Qualified Trust by a 5-0 vote. The Agreement was executed on June 21, 2001, following approval by the Committee.

By Advice Letter [AL] 1554-E, Edison is requesting the Commission approval of the Agreement to add PIMCO as an investment manager for the Qualified Trust.

NOTICE
Notice of AL 1554-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 1554-E was not protested.

DISCUSSION
According to Edison, PIMCO is one of the world's largest fixed income managers with a long record of producing superior investment results with an excellent team of investment professionals. PIMCO's strengths include a disciplined investment process, strong taxable and municipal fixed income capability, and experience with taxable accounts. Edison believes that PIMCO's investment style will fit well with, and complement, those of existing investment managers.

The size of the Qualified Trust's fixed income accounts has grown substantially over the years and will continue to grow with additional contributions and investment returns. It is the Energy Division's view that hiring an additional investment manager will provide for that future growth and provide the ability to act in a timely fashion in the event that the recent merger of fixed income manager Stanford Bernstein with Alliance, or changes at other investment managers, start to have an adverse effect on the Trust's performance.

The Energy Division has reviewed AL 1554-E and determined that the Agreement is in compliance with 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 the request.

Although this advice letter filing requests that the information submitted be treated as confidential and not disclosed to third parties [cf. PU Code 583], the public may request this information and records in the possession of the Commission by using General Order 66-C as a vehicle for that purpose.

COMMENTS
This is an uncontested matter, 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
1. Southern California Edison Company filed Advice Letter 1554-E on June 29, 2001, requesting approval of its investment management agreement with Pacific Investment Management Company [PIMCO].

2. D.87-05-062 requires externally managed trust funds to finance the decommissioning of nuclear power plants.

3. D.95-07-055 requires that all trust investment management agreements be approved by the Commission through the advice letter process.

4. In its meeting of May 3, 2001, Edison's Nuclear Facilities Decommissioning Master Trust Committee, in a 5-0 vote, approved the appointment of PIMCO as a fixed-income investment manager of its Qualified Trust.

5. The proposed Agreement with PIMCO is in compliance with applicable Commission requirements and should be approved.

THEREFORE IT IS ORDERED THAT:
1. Southern California Edison Company's request in Advice Letter 1554-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 August 23, 2001; the following Commissioners voting favorably thereon:

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WESLEY M. FRANKLIN

Executive Director

SUMMARY This Resolution approves the investment management agreement [Agreement] between Southern California Edison Company [Edison] Nuclear Facilities Decommissioning Master Trust Committee [Committee] and Pacific Investment Management Company [PIMCO].

NOTICE Notice of AL 1554-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 1554-E was not protested.

COMMENTS This is an uncontested matter, 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.

SUMMARY
This Resolution approves the investment management agreement [Agreement] between Southern California Edison Company [Edison] Nuclear Facilities Decommissioning Master Trust Committee [Committee] and Pacific Investment Management Company [PIMCO].

NOTICE
Notice of AL 1554-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 1554-E was not protested.

COMMENTS
This is an uncontested matter, 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.