Background

SCE seeks authority to conduct a two-year pilot program. Under the pilot, SCE would enter into traditional power purchase agreements for electric energy and capacity with third-party sellers. SCE would bid all such purchases into the Power Exchange (PX) day-ahead and/or day-of markets, and/or into the ISO's imbalance or ancillary service markets, on behalf of ratepayers. SCE would limit its purchase agreements with third parties other than the PX and ISO to no more than 2000 MW.² SCE seeks authority to establish a new balancing account to record the costs and revenues associated with the power purchase agreements entered into under the pilot program. In lieu of reasonableness reviews of its purchases, SCE proposes that at the end of each month its shareholders share 5% of the negative or positive balance in the new balancing account. That balance would then be transferred to the Transition Revenue Account on a monthly basis. SCE would submit a report to the Commission on the results of the pilot program.

SCE identifies the following purposes of the pilot program in its application: to mitigate price spikes, to enable SCE to compete for potentially lower cost supplies, to encourage development of forward markets and forward contract types, to gather information about forward purchases to report to the Commission so that the Commission may evaluate the merits of such a program as a component of utility distribution company procurement after the rate freeze, and to enable forward purchases in the event implementation of the PX Block Forward is delayed.

A number of parties filed protests or responses to SCE's application. In protests, responses, and at the prehearing conference, parties argued that SCE's request conflicts with the Commission's Preferred Policy Decision. These parties contend that SCE's proposal fundamentally conflicts with the requirement adopted in that decision that SCE bid its generation units into the PX and procure the electric energy needed to supply its full service customers from the PX, the "buy/sell requirement." In addition, parties maintain that SCE's request does not comply with other aspects of the Preferred Policy Decision, conflicts with the FERC decision conditionally authorizing operation of the Independent System Operator and the PX, and question whether SCE's request complies with the requirements of AB 1890.

In the May 12, 1999, Scoping Memo and Ruling, the Assigned Commissioner and Administrative Law Judge (ALJ) required SCE and invited other parties to file briefs arguing whether and how SCE's application complies with this Commission's Preferred Policy Decision, the FERC orders, and AB 1890. The Assigned Commissioner and ALJ stated that they would recommend that the Commission deny the application without hearing if they concluded that SCE's request is not in compliance with these decisions and law. On May 20, 1999, concurrent opening briefs on compliance were timely filed.³ Concurrent Reply Briefs were filed on June 3, 1999.⁴