3. Summary of Joint Applicants' Requested Relief

The Joint Utilities seek limited exemptions from certain ATRs as adopted in Decision (D.) 06-12-029 in order to allow them to participate in planned activities of the STARS Alliance as equity owners, to achieve cost savings and other benefits. Without the Commission's order granting the specified limited exemptions, the Joint Utilities contend that the ATRs would preclude them from implementing proposed plans to achieve these benefits that are anticipated through the STARS Alliance.

The STARS Alliance objective is to increase efficiency and reduce costs in a manner that improves the operational and organizational effectiveness of its members' nuclear units. Equity members are needed for the limited liability corporation (LLC) to secure clearance from the Antitrust Division of the Department of Justice (DOJ) that the activities of the STARS Alliance are not anti-competitive.

The STARS Alliance will be formed by five equity and two non-equity members,² each of whom owns and/or operates nuclear reactors. While only five of the seven nuclear operators will be equity members, all seven will share equally in the management, with equal rights in the governance of the STARS Alliance. SCE and PG&E (the Joint Utilities) each plan to be a member and equity owner of the STARS Alliance,³ with each owning 20% of the STARS Alliance (with an equity contribution of $1,000 each). Whenever PG&E and/or SCE (or its holding company or a subsidiary) has 5% or more controlling interest in an entity, the ATRs apply. The Joint Utilities thus seek limited exemptions to remove restrictions that they claim prevent implementation of beneficial programs possible through the STARS Alliance. Specifically, the Joint Utilities seek limited exemption from the following rules adopted in D.06-12-029:

· Rule III.A., to the extent that the services provided by SCE or PG&E to the STARS Alliance are considered preferential treatment;

· Rules III.B.2. and III.B.6., to the extent they limit or condition the information, supplies, and services that SCE or PG&E may make available to the STARS Alliance;

· Rules III.E., IV.B., and IV.D., to the extent they further restrict or condition information sharing between SCE or PG&E and the STARS Alliance;

· Rules V.C., V.D. and V.E., to the extent they restrict the sharing of plant, facilities, cost, equipment, personnel, and information as well as restrict joint purchases;

· Rule V.F., to the extent it restricts the STARS Alliance from referring to either SCE or PG&E in materials it distributes in California;

· Rule V.G., to the extent it restricts the sharing of employees; and

· Rule V.H.5. and V.H.6., to the extent they apply to the pricing of goods and services between SCE or PG&E and the STARS Alliance.

3.1. STARS Alliance Purposes and Functions

The STARS Alliance has historically functioned as an informal entity and subset of the Utilities Services Alliance (USA), an electric operative engaged in many of the activities contemplated by the STARS Alliance. These activities include the sharing of resources, joint procurement of goods and services, and consolidation of internal functions. The USA was organized to provide the opportunity for operators of nuclear generation units at single sites to achieve the economies of scale available to utilities that own large fleets of nuclear units operating at multiple sites. The Joint Utilities are current members of the USA.

Certain members of the STARS Alliance, however, recently determined to form a legal entity, separate and distinct from the USA, to focus on improving overall performance without diluting its existing resources. The USA represents most nuclear operators that are not part of corporate fleets. The total of nuclear units that are part of corporate fleets total substantially more than half of the operating nuclear units in the country. In contrast, STARS Alliance members operate nuclear units at single sites with one-to-three units that are thus relatively smaller than other nuclear owners or operators that have large fleets. Consequently, individual STARS Alliance members do not wield the buying power of large fleet operators. The USA does not allow the STARS Alliance leadership to drive STARS Alliance-specific performance improvements. The STARS Alliance members can coordinate more optimally as compared to coordinating among the larger number of members in the USA. In addition, the nuclear generating stations owned or operated by STARS Alliance members share certain common characteristics that are not necessarily shared by the generating stations owned by the other members of the USA.

Collectively, the seven STARS Alliance members own or operate a total of 13 nuclear generating units, and thus expect to be able to replicate economies of scale of the larger nuclear utilities with several operating nuclear reactors by jointly procuring selected goods and services. Participation and formation of STARS Alliance represents an opportunity for SCE and PG&E to engage in the type of activities that they have been undertaking as part of the USA, but with the potential for achieving additional cost savings and other benefits.

The STARS Alliance plans to engage in resource sharing activities focused on enhanced operational performance that goes beyond activities previously performed under the auspices of the USA, but which is also considered to be pro-competitive. For example, the STARS Alliance plans to coordinate the sharing of best practices relating to nuclear plant operations among its members for purposes of improving nuclear safety and plant performance.

The stated purposes for the new STARS Alliance include:

1) sharing existing resources including personnel, parts, equipment, tools, and expertise;

2) jointly procuring selected goods and services where economies of scales can be achieved; and

3) coordinating joint planning and operational activities, including sharing of project experience for significant plant modifications or licensing activities such as obtaining license renewal and associated plant aging management programs.

Consistent with the prior practice of the USA, STARS Alliance members will continue to share existing resources, including personnel, parts, equipment, tools, and expertise to the extent feasible. Members are expected to reciprocate under the same terms and provide resources when other members require additional resources. Such an arrangement results in efficiencies and better utilization of skilled employees among members of the STARS Alliance. STARS Alliance members also intend to engage in cooperative activities focused on enhancing operational performance, joint planning and coordination regarding nuclear safety, and obtaining license approvals from the United States Nuclear Regulatory Commission

3.2. Conditions on Approval of Applications

The Joint Utilities voluntarily agree to comply with certain conditions as the basis for an order granting the limited exemptions sought, as modeled on conditions adopted in D.05-09-006, in a proceeding similar to this one where PG&E had requested exemptions from certain ATRs. The ATRs that were the basis of proceeding (Application (A.) 04-11-013) were subsequently revised by the Commission in D.06-12-029. Although the currently effective rules (as adopted in D.06-12-029) are slightly different from those applied in D.05-09-006, the Joint Utilities in this Application seek a limited exemption from generally the same rules. The Joint Utilities believe that the conditions placed upon PG&E in D.05-09-006 are reasonable for use in this proceeding, and agree to similar conditions for approval of the present application.

In that previous proceeding (A.04-11-013), PG&E and two other utilities jointly formed and owned Fuelco, expressly created to assist in transactions to secure nuclear products and services for use at the member utilities' nuclear power generators. PG&E had a 4% interest in Fueleo through its wholly-owned affiliate, Pacific Energy Fuels Company (PEFCO). PG&E's ownership interest in Fuelco was below the 5% threshold at which the ATRs take effect, but PG&E sought to increase its ownership interest and thus requested the limited exemptions from the ATRs. Through a settlement with DRA, PG&E agreed to the following three conditions as a basis for approval:

· PG&E would report in its annual Energy Resource Recovery Account (ERRA), and in the format laid out in Appendix A to the Settlement Agreement, on the activities and operating costs associated with the interaction between PG&E/PEFCO and Fueleo;

· PG&E's ratepayers would receive 100% of any net nuclear fuel cost savings generated by Fuelco for PG&E; and

· PG&E's ratepayers would receive the PG&E/PEFCO share of any net proceeds on the sale or dissolution of Fuelco, except to the extent that PG&E/PEFCO had infused capital for which it had not sought recovery (if any).

In D.05-09-006, the Commission adopted these three conditions and also imposed the following two additional conditions:

· Upon issuance by the DOJ, PG&E would provide to the Commission a copy of the anti-trust safe harbor ruling for Fuelco; and

· PG&E would expand the information reported in Appendix A to the Settlement Agreement to include any activities undertaken outside the scope of Fuelco's general purposes so that the Commission could monitor the full impact on ratepayers of PG&E's participation in Fuelco.

² Non-equity memberships are being created so that two of the STARS Alliance members, the South Texas Project Nuclear Operating Company and the Wolf Creek Nuclear Operating Company, can comply with state law requirements unique to their organizations.

³ The STARS Alliance members (and their associated nuclear units) are Ameren (1 unit), Arizona Public Service (3 units) Luminant (2 units), PG&E (2 units), SCE (2 units), South Texas Project Nuclear Operating Company (2 units), and Wolf Creek Nuclear Operating Company (1 unit).