VI. Assignment of Proceeding

Michael R. Peevey is the Assigned Commissioner and Michael J. Galvin is the assigned ALJ in this proceeding.

Findings of Fact

1. SCE's application was filed in response to the Commission's directives in D.02-10-062 and D.02-12-074.

2. All parties have been noticed of the NUIP rewards issue and no party objected to that issue at the PHCs.

3. ORA recommends an alternative $15.1 million in NUIP rewards, $5.1 million less than the $19.2 requested by SCE.

4. All power not supplied by SCE during the NUIP rewards period would have been supplied by DWR with an energy portfolio based on long and short-term purchased energy, only a portion of which was purchased through CAISO.

5. D.01-09-041 set a limit of five-cents-per-KWh limit on replacement power cost.

6. DWR energy cost is subject to a true up in A.00-11-038, et al.

7. The interest rate for ERRA balances is the three-month commercial paper rate as reported in the index.

8. SCE estimates its actual cost of short-term financing in 2003 to be 4.48%, more than 300 basis points over the three-month commercial paper rate applicable to ERRA balances.

9. OII No. 56 addressed the use of actual financing cost.

10. D.91269 adopted a three-month commercial paper rate to be applied uniformly on a company wide basis for over- and under-collected balances, except for SDG&E.

11. In D.91269 SDG&E was authorized a 50 basis point premium to the three month commercial paper rate for over- and under-collected balances.

12. SCE agreed at the July 18, 2003 PHC, which ORA participated in, that it would confine its interest rate proposal to the ERRA balancing account only.

13. SCE has not been able to issue commercial paper since December 2000 and its current BB credit rating precludes it from issuing commercial paper.

14. SCE's short-term loan carries an interest rate of the LIBOR plus 300 basis points.

15. SCE's revolving line of credit carries a commitment fee of 50 basis points on the unused portion of the loan and an interest rate of LIBOR plus 250 basis points on the amount actual drawn at any time.

16. D.02-10-062 provides for SCE to file an application proposing to establish annual fuel and purchased power forecasts.

17. Finding of Fact 25 in D.02-10-062 states that an annual update process should be adopted for forecasts and another proceeding to review balancing accounts, URG expenses, contract administration and least-cost dispatch.

18. SCE and ORA agree that two forecast proceedings should be allowed in SCE's 2003 transition year.

19. SCE's annual energy estimates in its official budget do not change.

20. SCE filed A.03-10-022 seeking approval of its revenue requirement forecast for 2004 and a reasonableness review of its costs from September 1, 2001 through June 30, 2003.

21. The inputs used to derive SCE's forecast of its 2003 ERRA revenue requirement are based on SCE's load forecast, the forecast of resources to meet its load, and the costs of the various resources.

22. In order to derive the 2003 ERRA revenue requirement, the calculation has to take into account the above-market portion of the QF and PPA expenses, which are eligible for ongoing CTC treatment.

23. Details of SCE's 2003 revenue requirement forecast are set forth in Exhibit 1 and sealed Exhibit A.

24. D.02-10-062 requires the establishment of an ERRA trigger mechanism with a 4% trigger and 5% threshold amount to be set each year based on SCE's prior year's actual energy cost.

Conclusions of Law

1. SCE's $19.2 million NUIP rewards should be adopted subject to a true up in A.00-11-038.

2. SCE should be allowed to deviate from the three-month commercial paper rate applicable to ERRA undercollections because it is not able to recover its actual cost of financing undercollections.

3. Any deviation to the three-month commercial paper rate should balance the interest of shareholders and ratepayers.

4. SCE's ERRA schedule should provide for only one forecast and one reasonableness review each year.

5. SCE should use its October ERRA applications for its annual energy forecasts. However, two forecasts should be allowed in SCE's 2003 ERRA transition year.

6. SCE should use its April ERRA applications for its annual reasonableness reviews.

7. SCE should seek a reasonableness review of its actual energy costs from July 1, 2003 through December 31, 2003 in its April 2004 ERRA application. Reasonableness reviews for subsequent April ERRA applications should be from January 1st through December 31st of the prior year.

8. The ALJ assigned to SCE's October 2003 ERRA application should have latitude in deciding whether that proceeding should be bifurcated to address reasonableness of SCE's energy costs through June 30, 2003.

9. Information placed under seal should remain sealed because, if disclosed, it would provide competitors an insight to SCE's energy procurement strategy and place SCE and its ratepayers at a disadvantage in seeking future energy contracts.

10. SCE's 2003 ERRA revenue requirement forecast should be adopted.

11. SCE's calculated 2003 trigger and threshold amounts should be adopted.

12. This decision should be effective immediately so that SCE's ERRA can be implemented expeditiously.

ORDER

IT IS ORDERED that:

1. The 2003 forecast of Southern California Edison Company (SCE) regarding its load, the resources available to meet its load, fuel costs, and costs for the various resources are adopted.

2. All information placed under seal shall remain sealed for a period of two-years from the effective date of this order except upon the execution of a mutually acceptable nondisclosure agreement or on further order or ruling of the Commission or the Administrative Law Judge then designated as the Law and Motion Judge. If SCE believes that further protection of sealed information is needed beyond two years after the effective date of this order, it may file a motion stating the justification for further withholding of the sealed information from public inspection, or for such other relief as the Commission may provide. This motion shall be filed no later than 30 days before the expiration of this ordering paragraph.

3. SCE shall debit its Energy Resource Recovery Account (ERRA) with $19.2 million of Nuclear Unit Incentive Procedure rewards. That amount shall be subject to true up in SCE's semiannual ERRA application to be filed after the completion of a Department of Water Resources 2001-2002 energy cost true up in Application (A.) 00-11-038.

4. The interest rate applicable to ERRA undercollections shall be set at the three-month commercial paper rate as reported in the Federal Reserve Statistical Release H-15 (index) plus a premium of three-fourths the spread between the index and SCE's actual cost of short-term financing until that spread is 50 basis points or less or until SCE is able to issue commercial paper, whichever occurs first. This premium on the index shall not be precedent setting. At that time the interest rate for undercollections shall revert to the index rate. The interest rate for overcollections shall be set at the index rate.

5. Two forecasts shall be approved for SCE in its 2003 ERRA transition year, a 2003 forecast shall be approved in this order and a 2004 forecast shall be approved in a decision addressing its October 2003 application.

6. SCE shall file its annual energy forecast in its October ERRA applications or revised date that may be adopted by the Commission in a pending decision in the Generation Procurement OIR (R.01-10-024) proceeding.

7. SCE shall file its annual ERRA reasonableness review in its April ERRA applications beginning in 2004. The April applications shall also be used to consolidate all Commission-authorized revenue requirements and unbundled rate levels to recover those revenue requirements.

8. SCE's April 2004 ERRA application shall cover the reasonableness of its actual energy costs from July 1, 2003 through December 31, 2003. The reasonableness review for subsequent April ERRA applications shall cover the period from January 1st of the prior year through December 31st of the prior year.

9. SCE is authorized to record the above-market costs of Qualifying Facilities and power purchase agreements in its ERRA and also track the costs in its Direct Access Cost Recovery Surcharge Tracking Account as proposed in its application.

10. The trigger mechanism that SCE used to develop its trigger and threshold amounts shall be adopted.

11. SCE's 2003 ERRA revenue requirement shall be $2.505 billion, trigger amount shall be $228.593 million, and threshold amount shall be $285.741 million until further adjustment as provided by an ERRA application or Advice Letter Filing.

12. SCE shall file a yearly Advice Letter on February 1st to update its ERRA trigger and threshold amounts as set forth in the body of this order. If the first day of February falls on a Saturday, Sunday, or Commission holiday, the date shall be extended to the first day thereafter.

13. A.03-04-022 is closed.

This order is effective today.

Dated January 22, 2004, at San Francisco, California.

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