II. Background

On October 2, 2001, SCE and the Commission entered into a Settlement Agreement, settling the matters at issue in Southern California Edison Company, Plaintiff, vs. Loretta M. Lynch, et al., then pending before the United States District Court for the Central District of California in Case No. 00-12056-RSWL (Mcx).

The Settlement Agreement lays out a framework for the restoration of SCE's investment grade credit rating. As part of that framework, the Settlement Agreement identified the need to mitigate procurement-related obligation risks. Section 2.4 of that Settlement Agreement states:

In order to facilitate SCE's restoration to investment grade creditworthiness by making the rate at which Procurement related Obligations are recovered more predictable, SCE intends to apply to the CPUC for its approval of SCE incurring up to $250 million in Recoverable Costs during the Rate Repayment Period to acquire financial instruments and engage in other transactions intended to hedge fuel cost risks associated with SCE's Utility Retained Generation (URG) and Qualifying Facilities (QF) and interutility contracts. The CPUC has indicated that it will reasonably promptly schedule proceedings and consider such request on an expedited basis. Pending such determination by the CPUC, SCE shall record such costs in a tracking account.

On October 5, 2001, the District Court entered judgment approving the Settlement Agreement. On that same date and pursuant to the Settlement Agreement, SCE filed Advice Letter 1579-E to establish RMMA for tracking costs incurred from hedging 2002 and 2003 fuel cost risks. On October 17, 2001, SCE clarified its proposed RMMA tariff via Advice Letter 1579-E-A. These RMMA advice letters became effective October 5, 2001, pursuant to the Commission's November 29, 2001 Resolution E-3761.