II. Background

On September 4, 2001, SCE filed its application in this 2001 Annual Transition Cost Proceeding (ATCP) seeking to recover $20,000,000 in its Transition Cost Balancing Account (TCBA) and other generation-related memorandum accounts. On October 2, 2001, SCE and the Commission entered into a Settlement Agreement in the so-called Federal Filed Rate Doctrine litigation¹ which, among other things, established Settlement Rates and new ratemaking mechanisms, including the Procurement Related Obligations Account (PROACT), that became effective as of September 1, 2001. The Commission approved the PROACT ratemaking structure on January 23, 2002 in Resolution E-3765.²

Due to the Commission's implementation of the Settlement Agreement, SCE believed that testimony related to most issues in its September 4, 2001 ATCP filing became moot. Therefore, on February 22, 2002, SCE filed an amended application and revised testimony which it believes is consistent with the terms of the Settlement Agreement. The revised testimony sets forth the operation of three memorandum accounts and the Palo Verde Nuclear Unit Incentive Procedure (NUIP), and requests that the Commission authorize SCE to recover the balances in the three accounts, plus the NUIP reward, as Recoverable Costs in the Settlement Rates Balancing Account (SRBA). Specifically, SCE seeks recovery for amounts associated with the following ratemaking mechanisms:

1. Palo Verde Nuclear Generating Station Nuclear Unit Incentive Procedure (NUIP): $11,669,000;

2. Fuel Oil Inventory Memorandum Account (FOIMA): $5,872,000;

3. Increased Return on Equity on Divestiture Memorandum Account (IROEDMA): $1,567,000; and

4. Short-Term Generation Capacity Memorandum Account (STGCMA): $633,000.

The Office of Ratepayer Advocates (ORA) opposes recovery of the amounts SCE requests. ORA did not conduct a review of the reasonableness of the amounts, but asserts that:

1. Some of the requested amounts are contrary to SCE's tariff language or Commission-approved accounting;

2. Certain amounts requested are not costs;

3. The amounts requested are ineligible for post-December 31, 2001 recovery.

Public hearing was held on July 29, 2002, before Administrative Law Judge (ALJ) Barnett, who raised the issue regarding whether or not the Settlement Agreement had subsumed the costs and incentives SCE has requested to recover in this case, and whether SCE, in the release attached to the Settlement Agreement, waived its right to request recovery of these amounts.