COST OF CAPITAL TRIGGER MECHANISM

The PBR Cost of Capital Trigger Mechanism (Trigger Mechanism) automatically adjusts SCE's authorized ROE for changes in interest rates, and in-turn adjusts the PBR distribution rates to account for changes in the authorized ROE. The Trigger Mechanism uses an index that tracks changes in the AA utility bond rate. SCE uses the Moody's Long Term Corporate Bond Yield Average for AA public utilities which is reported in the "Moody's Credit Perspectives." The Trigger Mechanism is triggered if the AA Utility Bond Rate average for the 12 months from October through September increases or decreases by 100 basis points or more from the adopted benchmark value; SCE receives an ROE adjustment of half the amount of this change.

The Commission adopted a trigger value of 7.5% as the benchmark for the AA Utility Bond Rate. In Advice Letter 1345-E-A, SCE reports a AA Bond rate of 7.0% for the 12-month period ending September 1998. The Trigger Mechanism therefore is not triggered since the reported AA Bond rate is less than 100 basis points from the adopted benchmark of 7.5%.