12. Audit Issues

During evidentiary hearings, SCE and ORA resolved their differences on four audit issues, as discussed below.¹⁹

12.1. CDWR Settlement Payment Authorization

ORA had recommended that, for ratemaking purposes, SCE's December 2002 CDWR settlement payment should be amortized over a 12-month period, consistent with SCE's treatment of the Portland General Electric (PGE) Termination Agreement. In rebuttal, SCE stated that it did not amortize the PGE Termination Agreement. Unlike the payment made to CDWR, which was made in one lump sum amount, monthly payments were actually made to PGE, consistent with the Termination Agreement. SCE argued that the impact of ORA's proposal would result in a disallowance on a settlement agreement that the Commission has found to be reasonable, since SCE would have to bear the financing costs caused by the timing difference between when the payment was made and when the total amount is included in the balancing account.

After further review and discussion with SCE, ORA now agrees that SCE's ratemaking treatment of the CDWR settlement payment is appropriate and has withdrawn its recommendation. Based on the evidence, SCE's accounting for the CDWR settlement payment is reasonable.

12.2. ISO Expense Adjustment

ORA has recommended exclusion of SCE's September 2001 adjustment of $2.85 million for ISO related costs, since those costs were included in the beginning balance of SCE's Procurement Related Obligations Account (PROACT).

After a review of ORA's findings SCE now believes that its September 2001 adjustment is inconsistent with the provisions of the PROACT settlement agreement and agrees to credit the ERRA in the amount of $2.85 million. ORA's recommended adjustment is reasonable and should be reflected in SCE's ERRA.

12.2. Refinancing Transaction Fees

ORA has recommended that SCE amortize the transaction fees over the life of the loans that SCE acquired to refinance its procurement liabilities.

SCE agrees that ORA's recommendation is consistent with Generally Accepted Accounting Principles (GAAP). The SCE and ORA agreement that the ERRA should be credited in the amount of $9.398 million to reflect the unamortized transaction fees as of July 31, 2003, and debited in the amount of $9.367 million to reflect the amount of fees amortized during the remaining life of the loans, August 1, 2003 through December 19, 2003, is reasonable and should be implemented.

12.4. Employee Related Costs

ORA recommends that SCE not be allowed recovery of $1.386 million in retraining costs for certain San Onofre Nuclear Generation Station (SONGS) employees who were involved in the "bumping" process, as a result of the effects of industry restructuring. Employees who were bumped remained employed at SONGS until such time as the bumping employee are trained and qualified to work at SONGS. The estimated training program duration is anywhere from 30 to 170 weeks. During that time, the bumped employee is still eligible to receive any and all job required training. ORA stated that it is unreasonable for ratepayers to pay for training costs of SONGS employees who were bumped as well as the employees who did the bumping. ORA also argues that SCE's utility retained generation (URG) rates include costs for training and SCE ratepayers should only be responsible for 80% of qualifying training costs, since SCE only owns 80 % of SONGS.

In its rebuttal, SCE stated that to comply with federal law, existing SONGS employees must remain in their current positions while the new employees complete their training. The existing employees are not bumped or severed until the new employees are fully qualified. SCE indicates there is no double counting of training costs in that it is only requesting the initial training costs for employees who are allowed to bump existing employees, all other training costs are included in URG rates, including requalification and other ongoing training that existing employees must receive. SCE also states that the agreement between SCE and the SONGS owners allows SCE to bill the co-owners for their share of normal operating costs. There are no provisions in that agreement that would allow SCE to bill the co-owners for retraining costs associated with the employees bumping into positions at SONGS.

Due to the nature of the costs at issue and the philosophical differences between ORA and SCE regarding their recovery, both parties agreed to mitigate their litigation risk, by agreeing to recovery of 50% of the requested amount.

Both SCE and ORA provide support for their respective positions on this issue. Whether all training costs for both the employees bumping into, as well as the employees being bumped from, positions at SONGS are necessary to ensure the plant is maintained safely and efficiently is a matter of judgment. Whether SCE ratepayers should pay 100% of the retraining costs rather than the normal 80% ownership share is also a judgment matter. Based on the evidence, the parties' proposal to include 50% of the disputed retraining costs in rates is reasonable. SCE should therefore credit the ERRA in the amount of $0.693 million.