XV. Conclusion

Our scenario analysis finds that the base case estimates adjusted for increases in natural gas prices-Scenario 3-is reasonable for determining the cost-effectiveness of the SGRP. And we find that the SGRP is cost-effective, both with and without a GHG adder. To place reasonable bounds on ratepayer risk and provide a reasonable assurance that the SGRP will remain cost-effective, however, we will conduct a reasonableness review if costs exceed $680 million. In which case, the entire SGRP cost shall be subject to reasonableness review. In addition there is cost cap of $782 million. The Commission also retains its right, if it later finds that it has reason to believe the costs may be unreasonable regardless of the amount, to conduct a reasonableness review of the entire SGRP cost.

Our estimates for O&M costs and capital additions are shown in Attachment A. The O&M cost estimate used in our base case is equal to the amount that SCE represents reasonably bounds the uncertainty inherent in its forecasts. The capital additions estimate used in our base case is slightly greater (3%) than the amount SCE states reasonably bounds the uncertainty inherent in its forecasts. These amounts for O&M and capital additions are 10% and 25% higher, respectively, than the SCE's base case estimates, which are based on its 2006 GRC. SCE's base case estimates are, in turn, higher than the base case amounts originally used in its application.

Since the O&M and capital additions estimates we use herein are higher than SCE's base case estimates, these estimates should limit the risk of future cost increases between ratepayers and shareholders. In future SCE ratemaking proceedings that determine the revenue requirement associated with SONGS O&M costs and capital additions, the amounts authorized may exceed those shown in Attachment A. Because these costs may be subject to change, we decline to place a cap on our estimates.

The O&M costs and capital additions shown in Attachment A are expressed in 2004 dollars. They will have to be converted to future year dollars in proceedings such as GRCs where revenue requirements and rates are set. An inflation adjustment will be necessary to accomplish this.52 We intend that the inflation adjustment be made based on reliable publications such as the Consumer Price Index published by the U.S. Bureau of Labor Statistics. Since this issue was not addressed in the record, the selection of the appropriate inflation adjustment applicable to the costs shown in Attachment A will be considered in proceedings such as GRCs where revenue requirements and rates are set.

For the reasons discussed herein, we will approve the SGRP.53 Our approval is subject to the conditions imposed herein, including SCE's performance of the SGRP utilizing the environmentally superior alternative, and in compliance with the mitigation measures identified in the Final EIR. SCE's compliance will be overseen by the Commission's Executive Director.

SCE has incurred costs related to the SGRP, and continues to do so. It is possible that the SGRP could be cancelled in the future. The reasonableness of costs incurred to date has not been addressed in this proceeding. If SCE cancels the SGRP for any reason at any time, and requests recovery of any of the incurred costs from ratepayers, the Commission retains the discretion to conduct a reasonableness review of the costs incurred, including cancellation costs, and to determine the appropriate ratemaking treatment, if any, of incurred SGRP costs.

52 The inflation adjustment for O&M costs may be different from the inflation adjustment for capital additions.

53 Our approval means that we find it reasonable at this time based on the information in the record at this time. This does not mean that subsequent developments could not make it unreasonable to continue with the SGRP.

Previous PageTop Of PageNext PageGo To First Page