Edison

Edison requests that we determine that it has properly recorded the entries to the Revenue Account of the TCBA, the various subaccounts of the Current Cost Account, and the Post-2001 Eligible Costs Account during the record period. Edison also requests a determination that it has properly recorded costs and revenues in the going-forward memorandum accounts (Independent System Operator (ISO) Revenue, Power Exchange (PX) Revenue, Hydroelectric (Hydro) Generation, and Unavoidable Fuel Contract Costs) and other generation-related memorandum accounts.

Edison also requests that we find that the following costs and activities are justified: employee-related costs; qualifying facilities (QF) contract administration activities; interutility contract administration; coal contracts; and its natural gas fuel procurement and contract management activities. Finally, Edison requests that we adopt its Nuclear Unit Incentive Procedure (NUIP) award associated with Unit One of the Palo Verde Nuclear Generating Station.

ORA generally found the majority of Edison's actions reasonable. ORA recommended that the following adjustments be made:

1. $3.1 million in Franchise Fees and Uncollectibles (FF&U) plus related interest should be credited to the TCBA;

2. $2.37 million of QF shareholder incentive amounts should be disallowed;

3. $3.2 million in Employee-Related Transition Costs should be disallowed; and

4. $96.7 million PBOPs and $5.76 million in Long-Term Disability Regulatory Assets should be rejected at this time.

ORA also made additional recommendations that did not involve specific disallowances. Specifically, ORA recommended a credit to the TCBA to reflect savings related to Edison's long-term purchased power agreements; an adjustment to the TCBA related to pumped storage operations; an aggregation of going-forward revenues and costs related to fossil generation plants; a review of Edison's costs related to gas procurement and transportation contracts for the current record period; and Edison's delay of the release of its firm El Paso interstate pipeline capacity beyond the current record period.

Aglet served rebuttal testimony on employee transition costs addressed in PG&E's application. Aglet is a group whose members include one or more customers of Edison.

On July 6, Edison, ORA, and Aglet filed a motion for approval of the stipulation. At hearings, ORA and Edison presented a joint recommendation that contained a compromise settlement of their differences regarding Edison's request for a shareholder incentive for restructuring a QF contract. The only remaining issue to be litigated concerned the appropriate method for calculating Edison's pension and long-term disability regulatory assets.

A. Stipulation

In the stipulation, parties have agreed to resolve, litigate or recommend deferral of the following issues:

1. ORA and Edison agree that the appropriate calculation of FF&U associated with the transfer of balances from the interim TCBA and the Electric Revenue Adjustment Mechanism (ERAM) (including the ISO/PX Implementation Delay Memorandum Account) accounts to the TCBA should be litigated in A.98-05-053. These matters were considered in D.99-11-022, issued on November 4.

2. ORA does not contest the transfer of balances from the interim TCBA and nuclear-related accounts to the TCBA.

3. ORA does not contest the reasonableness of certain other generation-related memorandum accounts, but believes the Commission must address whether these balances should be recovered in the present proceeding.

4. ORA does not contest the reasonableness of Edison's administration of power purchase agreements between Edison and QFs, including Edison's claim of shareholder incentives related to all but one of Edison's restructured QF agreements. (The shareholder incentive related to Edison's restructuring of its QF agreement with Imperial Resource Recovery Associates is addressed by the joint recommendation discussed below).

5. ORA and Edison agree that Edison made the appropriate credit to the TCBA to reflect savings associated with Edison's long-term purchased power agreements.

6. ORA and Edison agree that Commission review of pumped storage operations at Edison's Eastwood Plant should be postponed until the 1999 ATCP.

7. ORA agrees that Edison's calculation of its NUIP award of $2,837,253 for Unit One of the Palo Verde Nuclear Generating Station is reasonable.

8. ORA does not dispute the aggregation of Edison's fossil-related going forward costs and revenues.

9. ORA does not contest Edison's gas procurement and contract administration activities during the record period.

10. ORA does not dispute that Edison's decision to delay release of its El Paso firm interstate pipeline capacity beyond the current record period was reasonable.

11. ORA does not oppose recovery of employee-related transition costs for redeployment events, employee absences, and payroll loading charges.

12. As a compromise, ORA, Aglet, and Edison recommend that Edison recover $2.184 million in employee-related transition costs for retention bonuses, after removing $895,000 plus interest from the Industry Restructuring Memorandum Account (IRMA) prior to transferring the balance to the TCBA.

We approve the stipulation. We find that the proposed stipulation for Edison is reasonable in light of the whole record, consistent with the law, and in the public interest. In addition, this settlement meets our criteria for approval of all-party settlements, as discussed above. ORA and Aglet were the only active parties to dispute any of the entries to Edison's TCBA and related memorandum accounts and subaccounts. The sponsoring parties reflect the affected interests. Edison represents the interests of both its employees and shareholders. ORA represents all ratepayers and Aglet represents residential ratepayers. Aglet joins in the stipulation only with regard to retention bonuses.

The settlement contravenes no statute or applicable Commission precedent. In addition, the settlement informs us of the circumstances the settlement addresses and the basis on which parties agreed. As with SDG&E's proposed settlement, the public interest is served because the active parties agreed on a mutually beneficial outcome, while representing the major interests in the proceeding. The settlement is a reasonable compromise that fairly serves the interests of Edison, its shareholders, customers, and employees. Edison's settlement is set forth in Appendix C.

B. Joint Recommendation

In its testimony, Edison requested approval of a shareholder incentive of $2.37 million for restructuring a QF contract with Imperial Resource Recovery Associates. The restructured contract was executed on May 6, 1996, prior to the December 27, 1996 effective date of Edison's QF contract restructuring shareholder incentive memorandum account (QFCRSI). ORA initially opposed this incentive, arguing that because the restructured contract was executed before the proper account was in place, Commission approval would constitute retroactive ratemaking. ORA and Edison have reached a compromise and now agree that we should approve a QF contract restructuring shareholder incentive of $1.18 million (1999$). ORA and Edison ask that we authorize Edison to reverse the $2.37 million entry recorded in Edison's QFCRSI, plus accumulated interest and record the $1.18 million negotiated incentive, which would then accrue interest at the three-month commercial paper rate, beginning on the date the negotiated amount is recorded.

The joint recommendation represents a departure from our recent actions in D.99-06-089, in which we denied PG&E's request for $2.47 million in shareholder incentives for restructuring 25 QF contracts during PG&E's 1996 Energy Cost Adjustment Clause (ECAC) record period. All of these contracts were executed prior to the December 30, 1996 effective date of PG&E's QFCRSI account. We concluded that PG&E's tariff language had not been authorized and denied the incentives.

Edison distinguishes its request from the facts recited in D.99-06-089. Edison contends that the shareholder incentives apply to contracts renegotiated on or after December 20, 1995, as long as the modification is approved by the Commission and that it did not record the incentive in its QFCRSI until, in fact, that account had been approved. Edison explains that it filed A.96-07-011 requesting approval of the restructured Imperial contract, but deferred requesting the shareholder incentive in that application. At the time, Edison and the Division of Ratepayer Advocates (DRA, ORA's predecessor) disagreed on how the incentive should be calculated. The issue of whether the shareholder incentive should be calculated based on estimated or actual ratepayer savings was determined in D.99-02-085.

Not withstanding this issue, DRA supported approval of the buyout. The Commission subsequently issued D.97-02-013. Edison requests recovery of incentives associated with several restructured contracts in the instant proceeding; ORA challenged only the Imperial contract. Edison believes there was an understanding as to how the shareholder incentive would be implemented, and that the only issue in dispute was how the incentive should be calculated.

ORA now states that the stipulated agreement is the result of substantial discussions between the parties. No party has opposed this recommendation. The joint recommendation is a reasonable compromise of this dispute and the parties agree that this a fair resolution of their differences. We are satisfied that Edison has avoided the retroactive ratemaking concerns we expressed in D.99-06-089. We will approve the joint recommendation as reasonable in light of the whole record, consistent with the law, and in the public interest.

C. Litigated Issues

The only issues remaining to be litigated in Edison's application relate to Edison's net pension regulatory liability and long-term disability regulatory asset. ORA contends that the identified pension amounts are improperly calculated and are not consistent with the transition obligation defined in D.97-11-074. While Edison claims that the Statement of Financial Accounting Standards No. 87 (SFAS 87) was used to derive Edison's cost recovery proposal for pensions, ORA explains that D.97-11-074 excluded SFAS 87 costs. ORA contends that since SFAS 87 was rejected as a method for ratemaking purposes, these costs cannot be included as transition costs for regulatory assets, which by definition must be included in rates prior to December 20, 1995 (§ 367). ORA also recommends that we exclude Edison's long-term disability obligation from recovery as transition costs, because it is not a regulatory asset, pursuant to our finding in D.97-11-074.

Edison claims that the identified pension amounts are properly calculated and are consistent with D.97-11-074. Edison explains that it is requesting a one-time credit to ratepayers for a net regulatory liability associated with its pension costs. The net liability consists of two components: 1) a regulatory liability (resulting in a credit of $51.585 million) arising from the fact that Edison's authorized ratemaking pension costs have exceeded its financial reporting pensions expense calculated pursuant to SFAS 87 and 2) a regulatory asset (resulting in a charge of $38.1 million that partially offsets the credit) for an unrecorded regulatory asset for the unamortized portion of the original 1987 pension transition obligation not yet collected in rates as of January 1, 1998. The net result is a credit of $13.485 million that is then multiplied by 24 percent to derive the generation-related portion ($3.236 million) to be credited to the TCBA. This approach is consistent with D.97-11-074 and will be adopted. (D.97-11-074, mimeo. at 152-153 and Finding of Fact 109 at 198.)

In D.97-11-074, we authorized transition cost recovery for the long-term disability regulatory asset only for those claims made prior to 1998. We required Edison to recover the amount recorded as of December 31, 1997 and to amortize the amount ratably over the 48-month transition period. We precluded Edison from using the pay-as-you-go methodology. Edison has demonstrated that it has complied with these orders. We approve the recovery of the long-term disability regulatory asset ($121,000 per month).