Appendix C & D
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ALJ/DKF/avs Mailed 5/17/2006

Decision 06-05-016 May 11, 2006

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) For Authority to, Among Other Things, Increase Its Authorized Revenues For Electric Service in 2006, And to Reflect That Increase in Rates.

Application 04-12-014

(Filed December 21, 2004)

Investigation on the Commission's Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Edison Company.

Investigation 05-05-024

(Filed May 26, 2005)

(See Appendix A for a List of Appearances.)

OPINION ON SOUTHERN CALIFORNIA EDISON COMPANY'S
TEST YEAR 2006 GENERAL RATE INCREASE REQUEST

TABLE OF CONTENTS

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OPINION ON SOUTHERN CALIFORNIA EDISON COMPANY'S TEST YEAR 2006 GENERAL RATE INCREASE REQUEST 22

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Distribution Operations Supervision & Operations 7575

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Findings of Fact 339339

Conclusions of Law 363363

ORDER 369369

OPINION ON SOUTHERN CALIFORNIA EDISON COMPANY'S
TEST YEAR 2006 GENERAL RATE INCREASE REQUEST

1. Introduction

1.1 Summary of Decision

This decision addresses the general rate increase request of the Southern California Edison Company (SCE). For test year 2006, SCE is authorized a revenue requirement of $3,749,292,000, which reflects an increase of $333,115,000 or 9.75% over the previously authorized level of $3,416,177,000. The adopted methodology for calculating post-test year revenue requirements results in additional revenue requirement increases of $143,350,000 (3.82%) for post-test year 2007 and $192,573,000 (4.95%) for post-test year 2008. On a general rate case (GRC) revenue basis, when reflecting the effect of increased sales for the test year and post-test years, the revenue increases amount to $273,455,000 (7.87%) for 2006, $73,541,000 (1.93%) for 2007 and $104,055,000 (2.61%) for 2008. On a total system revenue basis, the revenue increases amount to 2.74% for 2006, 0.72% for 2007 and 1.00% for 2008. For test year 2006, this decision also reflects a one-time $139,559,000 reduction for an overcollection in post-retirement benefits other than pensions (PBOPs).1

In brief summary, the decision also:

· Assumes a temporary shutdown of the Mohave Generating Station (Mohave) and reflects costs for this scenario, as forecasted by SCE. All costs will be booked to a two-way balancing account and will be subject to reasonableness review.

· Orders SCE to establish a Mohave Sulfur Credit Sub-Account to accumulate revenues from the sale of any sulfur credits created by the December 31, 2005 Mohave closure. Funds should not be disbursed from this sub-account without specific Commission authorization to do so. The issue of the distribution of revenues accumulated in the Mohave Sulfur Credit Sub-Account will be addressed in a separate proceeding when more information on the future operating status of Mohave is known.

· Excludes costs for SCE's proposed Project Development Division in rates, but allows SCE to establish a memorandum account to track those costs that support new generation and are not associated with proposed projects. SCE can then seek to include those supportive costs in future rates.

· Approves a stipulation regarding Priority 5 maintenance activities. Such activities will continue to be performed on an opportunity basis, while SCE and the Commission's Consumer Protection and Safety Division work out the details to implement a new maintenance program.

· Modifies SCE's Results Sharing request by requiring SCE to credit ratepayers for any difference between the authorized level for Results Sharing and the Recorded level.

· Adopts The Utility Reform Network's (TURN) recommendation to recognize, for ratemaking purposes, the regulatory liability associated with plant removal costs that do not meet the definition of an Asset Retirement Obligation.

· Adopts the Division of Ratepayer Advocates' (DRAs) proposed net salvage rates for calculating depreciation expense, with the exception of Account 364, distribution poles, towers and fixtures. For Account 364, the decision adopts a compromise net salvage rate proposed by SCE.

· Accepts SCE's forecasted plant additions for 2004 and 2005, subject to a truing up process if the recorded additions are less than forecasted. The truing up process will be performed in conjunction with the Capital Additions Adjustment Mechanism review that will be conducted later this year.

· Rejects proposals to determine the post-test year revenue increases by applying a consumer price index factor to the adopted 2006 revenue requirement. The decision also rejects SCE's proposal to reflect its proposed capital budgets for 2007 and 2008 in determining the revenue increases for the post-test years. Plant additions are instead determined by taking the adopted 2006 test year plant additions and escalating that amount to 2007 and 2008 post-test year dollars.

· Rejects the proposal of San Diego Gas & Electric Company (SDG&E) to establish a Cost Control Incentive Mechanism (CCIM) for the San Onofre Nuclear Generating Station (SONGS).

· Approves a settlement regarding a Reliability Investment Incentive Mechanism.

· Approves a settlement regarding bill calculation services for submetered mobile home parks.

· Reflects SCE's 2006 cost of capital as authorized Decision (D.) 05-12-043.

1.2 Procedural Background

On December 21, 2004, SCE filed Application (A.) 04-12-014 requesting a $568,773,000 revenue requirement increase for test year 2006, based on a proposed base revenue requirement level of $4,060,932,000. Based on its proposed methodology for calculation post-test year revenue requirements, SCE estimated revenue requirement increases of $224,829,000 for post-test year 2007 and $207,273,000 for post-test year 2008. On a GRC revenue basis, the request reflected an increase of $509,962,000 for 2006, $159,448,000 for 2007 and $121,521,000 for 2008.2 During the course of this proceeding, SCE has reduced its forecast of the 2006 base revenue requirement level and reflected its 2005 authorized rate increase. SCE now seeks a $524,048,000 revenue requirement increase (15.23%) for test year 2006, based on a proposed base revenue requirement level of $3,963,902,000, and additional post-test year increases of $178,155,000 (4.49%) for 2007 and $201,321,000 (4.86%) for 2008. On a GRC revenue basis, the requested increases now amount to $464,388,000 (13.27%) for 2006,3 $108,346,000 (2.69%) for 2007 and $112,803,000 (2.67%) for 2008. On a total system revenue basis, the requested increases amount to 4.65% for 2006, 1.07% for 2007 and 1.09% for 2008.

On May 26, 2005, Investigation (I.) 05-05-024 was instituted to allow the Commission to hear proposals other than those of SCE and to enable the Commission to enter orders on matters not proposed by SCE. A.04-12-014 and I.05-05-024 were consolidated for these purposes.

Prehearing Conferences were held on February 18, 2005, May 6, 2005 and June 6, 2005. During May, 2005, public participation hearings were held in Rosemead, Fullerton, San Bernardino, Palm Springs and Visalia. There were 23 days of evidentiary hearings held from June 7, 2005 to July 14, 2005. An additional day of hearing was held on September 12, 2005. Opening briefs were filed on August 12, 2005 and reply briefs were filed on September 2, 2005. An evidentiary update hearing was held on October 11, 2005. Update related briefs were then filed on October 21, 2005. The proceeding was submitted for decision on November 30, 2005 after replies to comments on a stipulation regarding a reliability investment incentive mechanism were received. Final oral argument before the Commission was held on April 4, 2006.

In addition to SCE, the active parties in this proceeding were the DRA,4 Aglet Consumer Alliance (Aglet), TURN, SDG&E, the Coalition of California Utility Employees (CUE), The Greenlining Institute (Greenlining), Pacific Gas and Electric Company (PG&E), the Alliance for Retail Energy Markets (AReM), the Direct Access Customer Coalition (DACC), the Western Power Trading Forum (WPTF), the Independent Energy Producers Association (IEPA), and the Western Manufactured Housing Community Association (WMA). The positions taken by the parties are described throughout this opinion.

With the exception of WMA, the parties have taken positions that affect the forecast of SCE's base rate revenue requirement. As set forth in the August 2005 Joint Comparison Exhibit (Exhibit 899), DRA's base rate revenue requirement recommendation for 2003 is $3,592,407,000 or $387,482,000 less than SCE's request at that time.5 DRA was the only party, other than SCE, to make a full revenue requirement presentation. Due to the complexities of calculating revenue requirements reflecting parties' positions on the various underlying components, the Joint Comparison Exhibit does not include a calculation of the revenue requirement recommendations associated with the positions of parties other than DRA and SCE.

1 This results in a reduced revenue increase of $133,896,000 for 2006 (3.85% on a GRC revenue basis or 1.34% on a total system revenue basis). Since it is a one-time reduction, there would be a corresponding revenue increase in 2007.

2 Reflection of the PBOP overcollection results in an increase of $370,403,000 in 2006.

3 Reflection of the PBOP overcollection results in an increase of $324,829,000 in 2006, which is 9.28% on a GRC basis and 3.26% on a total system basis.

4 As of January 2006, the Office of Ratepayer Advocates (ORA) became the DRA.

5 This does not reflect SCE's final recommendation as set forth in the October 5, 2005 update testimony (Exhibit 171), because that exhibit does not include an updated calculation of DRA's revenue requirement recommendation. However, we expect the final difference between SCE's and DRA's recommendations to be similar to the $387,482,000 difference calculated in August 2005.

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