10. Other Issues Raised by the Application

As part of reviewing this § 851 Application, ORA states that it examined the history of SCE fiber network, referred to by SCE as "SCENet." SCENet was originally built as an "automated monitoring and control network" for SCE's electric services, but was expanded to provide wholesale telecommunications services pursuant to D.98-12-083. In D.98-12-083, the Commission granted SCE authority to provide facilities-based telecommunications services in California, subject to certain conditions. SCE's fiber network has therefore been funded by both ratepayers and shareholders, and is now used for both regulated and non-regulated services. In anticipation of this co-mingling of SCE's regulated and non-regulated fiber assets and their usage, and the potential for cross-subsidy from ratepayers to shareholder-side activities, the Commission adopted "Cost Tracking and Allocation Rules for SCE's Telecommunications Services" in Appendix C of D.98-12-083.

D.98-12-083 requires SCE to file an annual monitoring report with information that allows the Commission to track SCE's implementation of its telecommunications services. In reviewing SCE's most recent annual monitoring report, which was filed on March 31, 2003, ORA states that it discovered two discrepancies between SCE's filing and the Commission's requirements in D.98-12-083. As described below, however, ORA discussed these issues with SCE, and was able to resolve them to ORA's satisfaction after SCE took corrective action and provided certain commitments.

10.1 Allocation Approach for Equipment

In Appendix C of D.98-12-083, the Commission specifies that "existing ratepayer equipment will remain in service exclusively for electric utility operation and new ratepayer-funded equipment will be added for normal growth and replacement purposes" (emphasis added). SCE's most recent monitoring report, however, has changed the word "exclusively" in this sentence to "principally."

In response to ORA's questions, SCE launched an investigation of actual usage of SCENet, the results of which are documented in a letter to ORA dated January 30, 2004. SCE states that it determined that more than 99% of the routes funded by ratepayers have complied with the Commission's directive. SCE found that a minor part of its ratepayer-funded equipment, in a route between Grand Terrace and Moreno Valley, was being used for commercial telecommunications. SCE also stated that it has taken corrective measure to install shareholder-funded equipment, and will switch its commercial usage to the new equipment as soon as installation and testing are complete. SCE further states that it will retrain its network designers and installers on the requirements for SCE's network contained in Appendix C of D.98-12-083.

10.2 Allocation Approach for Telecommunications Control Center

Appendix C of D.98-12-083 provides the following description about allocating TCC cost between ratepayers and shareholders:

The Telecommunications Control Center (TCC) is the operations hub for SCE's telecommunications network and is used to monitor and control network activity. Because it would be difficult to track actual incremental TCC costs associated with the telecommunications services business, as a proxy for those costs, TCC costs, including support systems and personnel, will be allocated between ratepayers and shareholders based on the percentage of total maintenance activity attributable to ratepayer-and-shareholder funded fiber optic cable and equipment. Maintenance activity will be determined from TCC written "trouble tickets" or other measures.⁵

In contrast, SCE's monitoring report described its allocation methodology for TCC as follows:

The TCC is the operations hub for SCE's telecommunications network and is used to monitor and control network activity. Incremental TCC costs associated with the telecommunications services business, including support systems and personnel, are identified separately between ratepayers and shareholders. ECS (shareholders) expenses are recorded to its non-utility functions for all upgrades due to the non-utility operation and all excess personnel not required for utility services are charged to shareholder activities.⁶

ORA contended that there appeared to be some discrepancy between the Commission direction and SCE execution with regard to allocating TCC costs. After investigating the matter, SCE submitted a letter to ORA noting that D.98-12-083 had required the use of written "trouble tickets" or other measures to allocate TCC cost under the belief that it would be difficult to track actual incremental TCC costs associated with the telecommunications services business. After the establishment of Edison Carrier Solution, however, SCE found that it was able to develop an accurate incremental cost accounting method to identify and track the actual incremental TCC costs associated with providing non-utility services. SCE therefore chose to use actual incremental TCC costs rather than using TCC trouble tickets as proxies. SCE states that that its current method has benefited ratepayers by $1.3 million since Edison Carrier Solution was established.

10.3 Resolution of Additional Issues

In general, ORA states that it is satisfied with SCE's prompt actions to look into the problems and to take corrective measures. The magnitude of the problem initially suggested by the first discrepancy, in which there was a question about whether ratepayer-funded equipment has been used "exclusively" for regulated activities, has been mitigated by SCE's investigation. ORA states that, while SCE was unable to ascertain how the discrepancy in language occurred, in light of SCE's current awareness of the issue and its prompt corrective action, it is unlikely that this problem will recur.

With respect to the second discrepancy, ORA acknowledges that the Commission required the use of "trouble tickets" or other measures to allocate TCC costs. This language appears to allow flexibility in the allocation method SCE should use. In fact, SCE's method for allocating TCC costs seems to more accurately reflect how the costs are incurred, and the end result actually benefits ratepayers. Therefore, at this time, ORA does not recommend reversion back to cost allocation using trouble tickets.

Finally, ORA notes that SCE has acknowledged that it should not have made a cost allocation change without consulting Commission staff. SCE has committed to refrain from making other changes to the Commission's Appendix C requirements without first discussing them with staff and determining whether the change is justified.