9. Contract Administration and Costs

ORA recommends that SCE file an advice letter so that the Commission can formally review the Third and Fourth Amendments to the Metro Water District (MWD) - Edison 1987 Service and Interchange Agreement (Exchange Agreement). SCE indicates that, as part of the present application, it filed copies of all settlement agreements and contract amendments that became effective during the record period, including the Third and Fourth Amendments to the Exchange Agreement. SCE requests that the Commission rule on the reasonableness of the contract amendments as part of the decision in this matter.

The Third Amendment became effective January 18, 2001 and terminated September 30, 2001. It established a new methodology to value the return of exchange energy to SCE. The new methodology uses an average of three publicly available published market price indices to value energy when returned to SCE. SCE indicates that the indices represent the price that SCE would have paid if it had been able to purchase energy from the market. SCE states that it was reasonable to enter into the Third Amendment because it was able to receive the outstanding amount of exchange energy owed to SCE at a value that represented market prices at the time of return. The Fourth Amendment became effective October 1, 2001 and will terminate on a thirty-day notice provided by either party to the other party. The Fourth Amendment continues the use of market price indices for valuing energy exchanged between the parties. SCE indicates that neither party has indicated a desire to terminate this arrangement.

We see no reason to require SCE to now file an advice letter for contract amendments that were signed in 2001, one of which has already expired. One of the purposes of the ERRA proceeding is to review the reasonableness of contract administration. SCE has included a section on contract administration in its testimony, which details activity related to each of its contracts during the record period. This is the appropriate forum in which to test the reasonableness of SCE's decisions in this regard. We do not see any advantage in addressing such concerns in an advice letter process rather than in the ERRA. There is certainly more time for parties to respond to reasonableness concerns in an application process than in an advice letter process.

SCE has substantially justified its actions regarding the Third and Fourth Amendments to the MWD Exchange Agreement, and we find SCE was reasonable in this regard for the record period in this proceeding. ORA can consider the reasonableness of continuing the use of market prices for valuing exchanged energy for subsequent record periods, in appropriate subsequent ERRA reviews.

This decision does not preclude the use of the advice letter process, or other processes, for approving future agreements or amendments to agreements. In some cases, prior Commission review and approval may be in the best interests of ratepayers and would provide certainty for the utility. However, in some cases, prompt action may be required to secure favorable opportunities and it may be in the ratepayers' best interests for the utility to act accordingly and justify the action in the subsequent ERRA.

ORA also identified an issue related to the termination option for a transition capacity contract, but included that issue in its least-cost dispatch testimony. As discussed earlier, we find the decision not to terminate the transition capacity contract during the record period to be reasonable.

In summary, SCE has provided testimony to support its contract administration and costs and we find them to be reasonable for the record period.