V. The Accounts

1. The Palo Verde NUIP

The Palo Verde NUIP provides a reward for the efficient operation of the Palo Verde nuclear generators. In D.01-09-041 (A.96-02-056), ORA agreed to the extension of the Palo Verde incremental costs ratemaking mechanism. SCE requests to recover $11,668,994⁴ of Palo Verde NUIP rewards. SCE requests that it be authorized to record Palo Verde incremental costs and Commission-approved Palo Verde NUIP rewards in SCE's Native Load Balancing Account, established pursuant to D.02-04-016.⁵ Balances in this account are cleared monthly to SCE's SRBA.

ORA claims that SCE recorded the Palo Verde NUIP rewards requested in this case in its TCBA prior to August 31, 2001, and that these rewards are therefore not recoverable. In fact, SCE has not recorded the Palo Verde NUIP rewards that it is seeking to recover in this proceeding in any regulatory mechanism. SCE's prior Palo Verde NUIP tariff that was effective through August 31, 2001 provided that SCE must receive Commission approval before any Palo Verde NUIP reward is recorded in any regulatory mechanism. Furthermore, it has been the Commission's practice since the NUIP was established that the Commission must approve any NUIP reward before the reward can be recorded for rate recovery purposes.

ORA has not challenged the amount of the requested reward. We have reviewed the workpapers and find the amount of $11,668,994 to be reasonable. It will be approved.

2. FOIMA Costs

ORA argues that SCE should be denied recovery of four categories of costs recorded in the FOIMA: the portion of delivery costs associated with unmarketable oil sludge at the bottom of some of the fuel oil tanks; a minor amount of costs incurred in mid-January 2001, but not recorded as adjustments until after the January 31 expiration date of the FOIMA; fuel oil carrying costs that the Commission initially denied, but that the California Court of Appeals⁶ subsequently directed the Commission to allow SCE to record; and interest recorded after January 31, 2001 on the costs incurred prior to that date. All these costs are legitimate and should be recovered.

Regarding the costs associated with the oily sludge, we provided a description of the purposes of the FOIMA in Resolution E-3649 (which extended the operation of the FOIMA to January 31, 2001): "The purpose of the FOIMA is 1) to record fuel oil inventory carrying costs; and 2) gains and losses on the sale of Edison's fuel oil inventory...." The FOIMA also provides an account for Edison to record its fuel oil related costs until the Commission reaches a final decision on the market valuation of these assets. Oily sludge is a combination of oil, dirt, and water that accumulates over many decades at the bottom of oil storage tanks from the normal impurities in the oil as a result of the normal operation of the tanks. As such, costs associated with its disposal are clearly "fuel oil related costs" under the wording of Resolution E-3649.

Regarding the costs that were incurred in mid-January 2001 but not recorded until after the end of that month, SCE says this is simply a matter of normal accounting practice. SCE observes that costs are recorded on a monthly basis, but that does not mean that all costs incurred in January are recorded in January. Some costs incurred may be recorded in a later month when the final vendors' invoices have been received. The January 31, 2001 expiration date of the FOIMA allows SCE to record costs incurred prior to the expiration date after that date in the normal course of accepted accounting practice.

The third category of costs are costs associated with the beginning date of the FOIMA that the Commission initially refused to allow SCE to record. However, the California Court of Appeal subsequently directed the Commission to allow SCE to record them in a decision dated December 29, 2000. SCE recorded these costs in February 2001. It is reasonable that the cost impact of a Court of Appeal decision issued on December 29, 2000 would be calculated and booked one month later. We will authorize SCE to recover this cost - both because the Court of Appeal directed us to allow SCE to record it, and because it was recorded as soon as was reasonably possible under the circumstances.

The fourth category of FOIMA costs is simply interest on the other amounts recorded in the account at that time. The FOIMA tariff specifically provided for the accrual of interest. ORA has not challenged the reasonableness of the requested costs. We have reviewed the workpapers and find reasonable the debit balance of $5.872 million. It will be allowed.

3. The Divestiture Memorandum Account

The purpose of the Increased Return on Equity on Divestiture Memorandum Account (IROEDMA) is to track the incentive return on common equity and income taxes associated wit the divestiture of SCE's fossil generation. To provide SCE an incentive to voluntarily divest its fossil generation capacity, D.95-12-063 authorized an increase in the rate of return of common equity of up to 10 basis points for each 10 percent of fossil generating capacity that SCE divests. The increased rate of return on common equity on remaining fossil generation rate base recorded in the IROEDMA ended on January 18, 2001.

SCE is seeking recovery of $1.607 million recorded in the IROEDMA as of January 18, 2001, including interest through the 2001 ATCP record period. SCE has requested cost recovery of amounts recorded in the IROEDMA prior to July 1, 2000, in SCE's last two ATCP applications (A.99-09-013 and A.00-09-014). SCE requests that these amounts be transferred to the SRBA as Recoverable Costs. SCE also proposes that this account be eliminated after such transfer since it will no longer be used.

ORA has not challenged the amount of the request. We have reviewed the workpapers and find the amount of $1.607 million to be reasonable. It will be approved.

4. STGCMA Costs

ORA says that SCE should not recover amounts recorded in its STGCMA ($633,000) because, (1) these costs are unrecoverable under the Settlement Agreement because they are pre-August 31, 2001 TCBA-related costs, (2) SCE failed to set the STGCMA account to zero effective January 1, 2001, and (3) SCE should have filed to recover the pre-December 31, 2000 STGCMA costs in an earlier proceeding under the language of the tariff, so they would have been recorded in the TCBA before August 31, 2001.

ORA's first argument fails because those costs were not recorded in the TCBA as of August 31, 2001, and thus are not excluded from rates under Section 2.8 of the Agreement. ORA's second argument fails because the STGCMA tariff specifically allows SCE to seek recovery from its customers of any debit balance recorded in the account as of December 31, 2000. Since there was a debit balance in the account as of that date, SCE is seeking to recover that balance in this proceeding as expressly authorized by the tariff. We are not persuaded by ORA's third argument, that SCE should have filed to recover pre-December 31, 2000 costs in an earlier proceeding. SCE filed the original application for this 2001 ATCP in September 2001, as required by Commission decisions that govern the timing of the annual ATCP filings. The record period for this case is July 1, 2000 through June 30, 2001. This record period closed just two months prior to the filing date. The STGCMA debit balance SCE seeks to recover is for costs incurred during the record period that pertains to this case, or between July 1 and December 31, 2000, pursuant to the terms of the tariff. The record period for the 2000 ATCP (the only "earlier proceeding" ORA could be referring to) was July 1, 1999 through June 30, 2000, which was prior to the time the costs requested in this proceeding were incurred. There was no "earlier proceeding" in which SCE could have requested recovery of these costs. ORA has not challenged the amount of the request. We have reviewed the workpapers and find the amount of $633,000 to be reasonable. It will be approved.