PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3765

JANUARY 23, 2002

RESOLUTION

Resolution E-3765. Southern California Edison seeks to establish the Procurement Related Obligations Account and associated ratemaking structure, to be effective on September 1, 2001. Seven protests were filed. This Resolution grants the request with modifications.

By Advice Letter 1586-E, Filed on November 14, 2001.

__________________________________________________________

SUMMARY

By Advice Letter (AL) 1586-E, Southern California Edison (SCE) requests to establish the Procurement Related Obligations Account (PROACT) and the associated ratemaking structure to be effective on September 1, 2001. SCE states that its request is consistent with the October 2, 2001 Settlement Agreement (Settlement) with the California Public Utilities Commission (CPUC).

The Settlement defines PROACT as "the Account for Recovery of Procurement Related Obligations established pursuant to Section 2.1(a)."¹ "The Procurement Related Obligations" are defined as "the costs recorded in the Procurement Related Obligation Account together with interest thereon as calculated in Section 2.1(c)."² The Settlement provides that "the opening balance thereof will be the excess of SCE's Procurement Related Liabilities as of August 31, 2001 over SCE's cash and cash equivalents on hand as of such date, less $300 million" ³ as verified by the CPUC.

The Settlement is based on the informed belief that current rates, including surcharges, provide enough revenue to pay off the procurement related obligations that are recorded in the PROACT. Specifically, that deducting CPUC authorized costs from existing rates would create a "Surplus" sufficient to defray the recorded amounts in the PROACT by year-end 2005, or the end of the "Recovery Period." "Surplus" is defined as "the difference, positive or negative, if any, of SCE's revenues from retail electric rates (including surcharges) during the Recovery Period over SCE's Recoverable Costs for the same period."⁴ As a result of the Settlement, SCE proposes several changes to its Preliminary Statements and accounting mechanisms, and a ratemaking structure in order to implement the PROACT aspect of the Settlement by Advice Letter 1586-E, to be effective on September 1, 2001⁵.

On December 4, 2001, the Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), Aglet Consumer Alliance (Aglet), California Industrial Users (CIU), California Large Energy Consumer Association (CLECA), and California Manufacturers &Technology Association (CMTA) filed timely protests to Advice Letter 1586-E, raising several issues. Some of the main issues raised in the Protests are: the vehicle for implementing the Settlement, the "catch up"⁶ surcharge, and the intent of the "foregone dividends."⁷

Kroger Company filed a protest on November 27, 2001 contesting the inclusion of the Power Exchange (PX) credits in the PROACT as procurement related liabilities or indebtedness.

This Resolution grants SCE's request with several modifications in order to avoid judging other issues pending in proceedings before the CPUC, and to ensure adherence to the language of the Settlement.

BACKGROUND

Introduction

On November 14, 2001, SCE filed Advice Letter 1586-E, which states that on October 2, 2001, SCE entered into a Settlement Agreement with the CPUC in Case No. 00-12056-RSWL (Mcx). SCE further states that on October 5, 2001, the Settlement was approved by the United States (U.S) District Court. SCE believes the Settlement, among other things, establishes "Settlement Rates" and new ratemaking mechanisms, which SCE has proposed to be effective September 1, 2001. The Settlement, filed as a part of the Advice Letter 1586-E filing, provides that the CPUC will establish the PROACT by order. SCE therefore filed AL 1586-E requesting certain tariff modifications and ratemaking structural changes needed to implement the PROACT. On December 18, 2001, SCE filed substitute tariff sheets and an amended Advice Letter to correct errors contained in its filing based on Energy Division's recommendation.

SCE states that it believes the filing makes the advice letter required by Ordering Paragraph No. 1 of D.99-10-057 unnecessary due to the establishment of "Settlement Rates" by the Settlement. The advice letter filing would propose tariff modifications and provide calculations of post rate-freeze rates. SCE further asserts that the implementation of "Settlement Rates" and the PROACT ratemaking structure would make the determination of residual "headroom" revenues for recovery of uneconomic generation costs, as calculated in the Transition Revenue Account (TRA), no longer necessary. It adds that pursuant to Section 2.8 of the Settlement, balances in the Transition Cost Balancing Account (TCBA) as of August 31, 2001 shall have no further impact on SCE's retail electric rates, Surplus or Recoverable Costs. SCE proposes that the following PROACT structure and operation replace AB 1890 accounting mechanisms. Furthermore, SCE recommends that the CPUC implement several aspects of the Post Transition Ratemaking (PTR) decision (D.99-10-057). Likewise, SCE contends that the CPUC should adopt other pending proposals before the CPUC, subject to a final decision.

PROACT Structure and Operation

The Settlement provides that the opening balance in the PROACT "will be the excess of SCE's Procurement Related Liabilities as of August 31, 2001 over SCE's cash and cash equivalent on hand as of such date, less the sum of $300 million." SCE proposes the following accounting structure for the PROACT required by the Settlement:

_ Debit the opening balance⁸ in the PROACT.

Debit or credit the following as required by the Settlement:

_ "Surplus" - The difference, positive or negative, if any, of SCE's revenues from Settlement Rates during the Recovery Period over SCE's Recoverable Costs for the same period.

_ Refunds - All refunds actually realized by SCE during the period September 1, 2001, through December 31, 2005. These refunds include PX Billing Claims, and SCE's Seller Claims, as defined in Section 3.3 of the Settlement.

_ Securitization Proceeds - Proceeds derived from securitizing the remaining balance of PROACT, if needed, to reduce the impact of the remaining balance on retail rates.

_ Interest Expense - Interest expense calculated using a rate of interest based on interest paid on the actual amount of outstanding Procurement Related Liabilities, net of interest earned on SCE's cash position.

The debit or credit entry for "Surplus" will be calculated monthly, similar to the old TRA mechanism, before the amount is recorded in the PROACT.

Calculation of Monthly "Surplus"

In order to calculate the "Surplus", SCE proposes the following items it believes the Settlement requires to be debited/credited to the PROACT:

· Credit amount of recorded revenues (i.e., billed revenues) from frozen "Settlement Rates" or "gross electric retail rates (including surcharges) in effect on date of this Agreement...."⁹

· Debit or Credit unbilled revenues, which are revenues earned during a month because service has been provided but not billed due to the existence of 30-day billing cycles that span a portion of the following month.

· Credit from the Imputed Trust Transfer Amount (TTA) and 10% rate reduction.

· Debit "Recoverable Costs."

The Settlement defines "Recoverable Costs" as "the amounts SCE is authorized by the CPUC to recover in retail electric rates, but not including Procurement Related Obligations."¹⁰ SCE proposes the following recoverable cost items.¹¹

"Recoverable Costs" Items

SCE proposes that "Recoverable Costs" include cost items related to generation and distribution under CPUC jurisdiction, transmission under Federal Energy Regulatory Commission (FERC) rate regulation, and any other revenue requirements or costs approved by the CPUC. These CPUC-approved cost items, addressed in the Post-Transition Ratemaking proceeding (PTR), would include the Performance Based Ratemaking (PBR) Exclusions, Public Purpose Programs (PPP), Nuclear Decommissioning revenue requirement, and any future authorized costs by the Commission such as those pending in the Utility Retained Generation (URG) proceeding. SCE also wants to establish four new accounts necessitated by the Settlement and Employee Related Balancing Account for inclusion in the calculation of Recoverable Costs. SCE therefore, proposes five new accounts. Each of these proposals is discussed in detail below.

I. Balancing Accounts Adopted in PTR Decision

In D.99-10-057, the CPUC authorized SCE to implement new balancing account mechanisms after the rate freeze period to ensure the continued proper recovery of various revenue requirements and other expenses. In that PTR proceeding, SCE proposed five major accounts that were adopted by the CPUC. SCE requests to implement three of the five accounts by Advice Letter 1586-E. These are:

_ PBR Exclusions Distribution Adjustment Mechanism (PBR EDAM) Balancing Account. The purpose of PBR EDAM is to record certain CPUC- approved cost items that are excluded from SCE's Distribution PBR mechanisms "Update Rule".

_ Nuclear Decommissioning Adjustment Mechanism (NDAM) Balancing Account. The purpose of the NDAM is to record the difference between authorized revenue requirements (or expenditures) and recorded revenues (or expenditures) for Nuclear Decommissioning, SONGS 1 Shutdown O&M, Department of Energy Decontamination & Decommissioning Fees, and the Spent Nuclear Fuel Storage Fees Mechanism.

_ Public Purpose Programs Adjustment Mechanism (PPPAM) Balancing Account. Entries in the PPPAM comprise mainly of legislatively mandated funding levels as well as recovery of costs recorded in several miscellaneous balancing and memorandum accounts (e.g., intervenor compensation costs).

A. PBR EDAM Balancing Account:

Several cost items make up the PBR EDAM Balancing Account. SCE's testimony in the PTR proceeding asked for nine cost items to be included in the PBR EDAM balancing account. SCE's proposal now includes thirteen cost items. SCE is proposing to debit or credit the following thirteen cost items to the PBR EDAM Balancing Account either monthly or annually:

1. Reduced Cost Recovery Amount (RCRA), and Incremental Return

2. Non-Utility Affiliate Credits

3. Optional Pricing Adjustment Clause (OPAC) Balancing Account

4. Hazardous Substance Cleanup & Litigation Cost (HSCLC) Recovery

5. Catastrophic Event Memorandum Account (CEMA) Mechanism

6. PBR Distribution Revenue Sharing Memorandum Account

7. PBR Distribution Rate Performance Memorandum Account (PBRDRPMA)

8. Affiliate Transfer Fee Memorandum Account

9. Demand Side Management (DSM) Earnings Memorandum Account

10. Restructuring Implementation

11. Demand Responsiveness

12. Telecommunications Lease Revenue Memorandum Account

13. Secondary Land Use Memorandum Account

The above thirteen cost items include eight (Nos. 1-8) of the original nine cost items (excluding the Electric and Magnetic Fields Experimental Research Memorandum and Balancing Account), two temporary accounts (Secondary Land Use Memorandum Account or #13 and Telecommunications Lease Memorandum Account or #12), and the following three cost items listed below:

9. DSM Earnings Memorandum Account

10. Restructuring Implementation

11. Demand Responsiveness

SCE requests that the Preliminary Statements of seven of these thirteen cost items, including memorandum and balancing accounts, be modified so that their balances can be closed to the PBR EDAM balancing account. SCE also requests permission to close the Secondary Land Use Memorandum Account and the Telecommunications Lease Memorandum Account balances to PBR EDAM and eliminate these accounts thereafter. A review of SCE's testimony in Application (A.) 00-03-047, the Regulatory Account Balance Transfer (RABT) proceeding, shows that SCE requested the seven account balances be transferred to the TRA for recovery. This RABT proceeding is still open. The memorandum and balancing accounts are:

3. Optional Pricing Adjustment Clause (OPAC) Balancing Account

4. Hazardous Substance Cleanup and Litigation Costs Balancing Account

5. Catastrophic Event Memorandum Account (CEMA) Mechanism

6. PBR Distribution Rate Performance Memorandum Account

7. PBR Distribution Revenue Sharing Memorandum Account

8. Affiliate Transfer Fee Memorandum Account

9. DSM Earnings Memorandum Account

SCE also included the Electric and Magnetic Fields Experimental Research Memorandum and Balancing Account, Secondary Land Use Memorandum Account and Telecommunication Lease Memorandum Account in its balance transfer request in A.00-03-047. SCE proposes to eliminate these accounts after the transfer of their balances to the PBR EDAM. D. 01-01-019 (the Revenue Adjustment Proceeding) approved the elimination of the Electric Magnetic Field Balancing and Memorandum Account after transferring the account balance to the TRA. The Energy Division subsequently approved the advice letter requesting the amount transferred to the TRA. In conclusion SCE proposes to close the 13 cost items to the PBR EDAM.

Appendix A to this Resolution provides a listing of cost items SCE proposes to add, modify, modify and eliminate, eliminate, or not change at all. A column is added to reflect the disposition of the various items by this Resolution.

B. PPPAM Balancing Account:

Several cost items make up the proposed PPPAM Balancing Account. SCE's testimony in the PTR proceeding asked for seventeen cost items to be included in the PPPAM balancing account. SCE requests that sixteen from its original proposal be included in the PPPAM balancing account. SCE is also proposing to exclude the DSM Earnings Memorandum Account from its original request in the PTR proceeding. This account would now be included in the PBR EDAM balancing account. SCE adds the Energy Efficiency Demand Side Management (EEDSM) Memorandum Account that was not previously included. SCE is proposing to debit or credit the following seventeen cost items to the PPPAM Balancing Account either monthly or annually:

1. Energy Efficiency

2. Research, Development, and Demonstration (RD&D)

3. Renewables

4. Low Income Energy Efficiency

5. California Alternate Rates for Energy (CARE) Administration Costs

6. RD&D (SCE)

7. Research, Development, and Demonstration Adjustment Clause (RD&D)

8. Intervenor Compensation Cost

9. Demand Side Management Adjustment Clause (DSMAC)

10. Electric Vehicle Adjustment Clause (EVAC)

11. Electric Vehicle (EV) Memorandum Account

12. Energy Efficiency Program Adjustment Mechanism (EEPAM)

13. Low Income Energy Efficiency Program Adjustment Mechanism (LIEEPAM)

14. Economic Development Adjustment Clause (EDAC)

15. Research, Development, and Demonstration Royalties (RDDR) Memorandum Account.

16. ENVEST SCE Pilot Program Adjustment Mechanism (EPPAM)

17. Energy Efficiency Demand Side Management (EEDSM) Memorandum Account

SCE proposes to modify the Preliminary Statements of eleven cost items, including memorandum and balancing accounts, to transfer their balances to the PPPAM Balancing Account. SCE also proposes to modify the California Alternate Rates for Energy (CARE) preliminary statement to eliminate tracking of discount and surcharge.

SCE's testimony in Application (A.) 00-03-047, the RABT proceeding, shows that SCE requested three of these account balances to be transferred to the TRA. The RABT proceeding is still open. These memorandum and balancing accounts are:

10. Electric Vehicle Adjustment Clause (EVAC)

11. Electric Vehicle (EV) Memorandum Account

15. Research, Development, and Demonstration Royalties (RDDR) Memorandum Account.

C. NDAM Balancing Account

Several cost items make up the NDAM Balancing Account. SCE's testimony in the PTR proceeding asked for four cost items to be included in the NDAM balancing account. SCE requests that all four cost items in its original proposal be in included in the NDAM balancing account. SCE is proposing to debit or credit the following four cost items to the NDAM Balancing Account either monthly or annually:

1. Nuclear Decommissioning

2. SONGS 1 Shutdown Operation & Maintenance (O&M)

3. Department of Energy (DOE) Decontamination & Decommissioning (D&D) Fees

4. Spent Nuclear Fuel Storage Fees

According to SCE, these are cost items that comprise the existing nuclear decommissioning revenue requirement recorded in the TRA.

Lastly, SCE requests to dispose of the balance in the Streamline Residual Account (SRA) to PBE EDAM, PPPAM, and NDAM as appropriate. The disposal of the balance in this account is pending in A.00-03-047.

II. SCE URG Proceeding Proposal

SCE proposes to implement its URG accounting mechanisms proposal, subject to a final decision in that proceeding, in order to enable it to calculate the monthly recoverable cost amount needed for the "Surplus" calculation. SCE asserts that it has the following accounts before the CPUC for its approval in A.00-11-038:

A. SCE Utility Retained Generation Balancing Account (SCE URGBA)

B. SCE Contracts Balancing Account (SCECBA)

C. Net Short Procurement Costs Balancing Account (NSPCBA)

D. DWR Procurement Costs Balancing Account (DWR PCBA)

SCE proposes to change the ISO Charges Account and Procurement Balancing Account proposed in the URG proceeding to the Net Short Procurement Costs Balancing Account (NSPCBA) and DWR Procurement Costs Balancing Account (DWR PCBA), respectively. The intent in establishing these accounts has not changed. SCE proposes that similar accounts be established in the recoverable cost calculation so that the monthly balances of the above accounts are part of that calculation.

Furthermore, SCE proposes to modify the Preliminary Statements of the accounts listed below so that their balances can be transferred to SCE URGBA, pending Commission approval in the URG decision:

1. Increased Return on Equity on Divestiture Memorandum Account

2. Non-Nuclear Generation Capital Additions Memorandum Account

3. Fuel Oil Inventory Memorandum Account (FOIMA)

4. Short-Term Generation Capacity Memorandum Account (STGCMA)

5. PX Credit Audit Memorandum Account

SCE also proposes to eliminate the Block Forward Market Memorandum Account after its balance is transferred to SCEBA.

In A.00-03-047 SCE has requested that four of the above account balances (excluding the Short-Term Generation Capacity Memorandum Account or STGCMA), and the Block Forward Market Memorandum Account be transferred to the TCBA and the TRA, respectively.

III. Other Cost Items Proposed

A. Current TRA Cost Items

SCE proposes to include approved cost items currently in the TRA. These approved costs consist of SCE's transmission revenue requirement established in the FERC proceedings, PBR Distribution revenue requirement, and the TTA amount.

B. Proposed New Accounts

SCE proposes to create five new accounts in its calculation of a monthly recoverable cost and for tracking purposes. Four of the five accounts are necessitated by the Settlement, and the fifth account is a continuation of recovery allowed under AB 1890, regarding employee transition cost. The accounts are:

1. Commission Directed Costs Tracking Account: This would track Recoverable Costs that are incurred by SCE as directed by the CPUC in accordance with Section 2.1(d) of the Settlement to determine if an increase to Settlement Rates is needed.

2. California Department of Water Resources (CDWR) Charges and Net Short Procurement Costs Tracking Account: This would track the difference between Stabilized CDWR Charges and the sum of SCE's Net Short Procurement Costs and CDWR Charges to determine if an increase or decrease to Settlement Rates is needed.

3. Capital Additions Tracking Account: This would track the recorded amount of capital expenditures (up to $900 million in a calendar year) that exceeds the level of capital expenditures reflected in the rates currently authorized by the CPUC, in accordance with section 2.6 of the Settlement.

4. Hedging Costs: This would track hedging-related costs. The Settlement requires SCE to request CPUC approval of costs in the account in a CPUC proceeding where the hedging activity is reviewed. Resolution E-3761, approved on November 8, 2001, established the account.

5. Employee Related Balancing Account (ERBA): This account would provide for the recovery of employee-related transition costs through December 31, 2006. SCE states that employee-related transition costs were authorized pursuant to P.U. Code Section 375, subject to adjustment after CPUC review.

Other Advice Letter Proposals

Gross Electric Rate

Settlement Rates are defined as "gross electric retail rates (including surcharges)." Several provisions also give the CPUC discretion to change rates under specified circumstances. (Section 1.1(w)). SCE proposes to define "gross electric retail rates" to mean the system average rate.

SCE states that defining gross electric retail rates as the system average rate provides two major benefits: (1) This definition will allow the CPUC to revise revenue allocation among rate groups so long as such revisions do not result in a decline in SCE's system average rate. In addition, it will allow the CPUC to achieve the principal objective of the Settlement, which is to recover the PROACT balance as quickly as possible. (2) The system average rate allows the CPUC to adopt rate design changes to implement its policy objectives. SCE states that increases or decreases in some rate components, adjustments of rates and service offerings in detailed rate schedules within a rate group, and addition and deletion of tariff elements such as bill and rate limiters are all changes that can be achieved if its definition is approved.

PROACT Reporting

SCE proposes to send the Energy Division a monthly report, showing the operation of the PROACT within 30 days of the end of each month. This proposed monthly report will show the determination of "Surplus" and replaces the current TCBA/TRA/EPSBA monthly reports that SCE sends the Energy Division.

Accounts Proposed for Elimination and "No Change Required" Tariffs

SCE proposes to eliminate a certain number of accounts believing that they are no longer necessary because of the Settlement and that they have a zero balance. Many of these accounts were proposed for elimination in the PTR proceeding and the CPUC ordered their elimination. Appendix A to this Resolution provides a listing of the accounts SCE proposes to eliminate.

SCE requests that because of the closure of the Power Exchange (PX) and with CDWR procuring energy on behalf of SCE customers, it should not establish the Procurement Electric Cost Account (PECA) ordered by D.99-10-057.

SCE also believes the Generation Asset Balancing Account (GABA) is no longer necessary because it has proposed in the URG proceeding to recover the book value of its assets including hydro facilities over their useful life.

SCE proposes in Appendix B to its advice letter filing that several tariffs require no change due to the Settlement at this time.

One of the accounts, which SCE proposes to eliminate, is its Transition Cost Balancing Account ("TCBA"). In D.01-03-082, the CPUC transferred all of SCE's underrecovered procurements costs to its TCBA, which provided for their full recovery but correspondingly reduced on a dollar-for-dollar basis SCE's recovery of its transition or stranded costs. This left a large balance of underrecovered stranded costs in SCE's TCBA. Section 2.8 of the Settlement eliminates the balance in SCE's TCBA as of August 31, 2001. Thus, SCE had already recovered its procurement costs through the revenue credits in the TCBA, and the effect of the Settlement is to recover the large stranded cost balance in the TCBA. Therefore, in essence, SCE's stranded costs will now be recovered in SCE's PROACT account under the Settlement's catch-all name of "Procurement Related Obligations", because the TCBA balance has been eliminated. For this reason, there is no longer any need for SCE's TCBA.

NOTICE

Notice of AL 1586-E was made by publication in the CPUC's Daily Calendar. Southern California Edison states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.

PROTESTS

On December 4, 2001, the Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), Aglet Consumer Alliance (Aglet), California Industrial Users (CIU), California Large Energy Consumer Association (CLECA), and California Manufacturers &Technology Association (CMTA) filed timely protests to Advice Letter 1586-E, raising several issues. Kroger Company also filed its protest on November 27, 2001. On December 7, 2001, SCE responded to the protests. SCE, however, did not respond to CMTA's protest until it was told of the protest and it did so on December 21, 2001.

The following is a more detailed summary of the major issues raised in the protests.

Common Issues

1. Settlement Implementation via Advice Letter Inappropriate

ORA, Aglet, CIU, CLECA, CMTA, and TURN propose that the Advice Letter process is inappropriate for Commission implementation of the Settlement ratemaking structure. Their common concern is that the major rate structure changes contemplated by the Settlement dictate that the Commission employ the more comprehensive review of an application proceeding rather than the short form advice letter implementation sought by SCE. They ask that the advice letter be rejected.

In its response, SCE states that prior to submission of Advice 1586-E, it consulted with the Energy Division regarding the appropriate procedural vehicle, and collectively it was agreed that the advice letter process was the correct course of action. In addition, SCE states that there is no rate change proposed in Advice 1586-E. It argues that its requests merely implement issues that have been decided or are pending before the CPUC that parties have already litigated. SCE states that the CPUC should issue a resolution for its advice letter request with modifications if the CPUC believes its proposal is not "faithful to the terms and intent" of the Settlement in response to additional issue s raised by ORA. SCE requests that its advice letter request be adopted.

2. Treatment Of Suspended Dividends

ORA, Aglet, and TURN contend that the planned ratemaking structure fails to incorporate or reflect the dividend suspension provisions of the Settlement. Their argument is that the advice letter contains no mechanism to pass through suspended dividends to the PROACT. Furthermore, Aglet believes that the interaction between capital-related costs and the dividend suspension is unclear. ORA argues that pre-tax earnings must be used to determine the effect of the dividend suspension on cash. It believes the PROACT must be modified to provide explicitly for surplus cash attributable to dividend suspension. ORA further states that a tracking account to reconcile actual and authorized earnings should be used to calculate amounts available to pay down procurement-related liabilities.

SCE responds that these parties do not understand the agreed-upon use for the dividends retained during the dividend suspension period. The cash that would have been used to pay common dividends will instead be used to pay creditors, but this in no way affects ratepayers' obligations to pay the PROACT balance.

SCE asserts that the PROACT balance may be reduced: (1) by the application of Surplus, and (2) by Refunds in respect of Procurement Related Liabilities. SCE states that dividends obviously are not "Refunds" as defined by the Settlement. Therefore, the protesting parties must show that suspended dividends are explicitly part of "Surplus" as defined.

SCE further argues that the only ratemaking concept that is related to dividends is return on equity (ROE), which produces earnings that can be a source of dividends. It points out that ORA admits that ROE is a Recoverable Cost, because the Commission has authorized SCE to recover that return in rates. "Surplus" is therefore calculated after recovery of the authorized ROE. SCE adds that TURN appears to recognize this when it suggests that the way to ensure that suspended dividends are used to reduce the PROACT is to reduce SCE's ROE to zero. SCE shows that TURN's proposal is problematic in two ways: (1) ROE is not the same as dividends and therefore TURN's proposal does not implement TURN's intent that the cash that would have been used to pay dividends be applied instead to the PROACT; and (2) This is not the appropriate vehicle to change SCE's ROE. SCE argues that these protest arguments should be rejected.

SCE argues that the parties incorrectly suggest that Section 2.5 of the Settlement requires that suspended dividends be credited to the PROACT as part of "Surplus" calculation. Section 2.5 however, states that "cash generated from Surplus [should] be used to reduce Procurement Related Liabilities" (emphasis added). SCE states that Procurement Related Liabilities and Procurement Related Obligations are terms defined by the Settlement. The two are distinct and different from each other. SCE further argues that Section 2.5 means that SCE will use cash that it would otherwise have used to pay dividends to pay its creditors instead. SCE believes that this is a significant contribution by SCE's shareholders to the recovery plan, given that common shareholders will not receive dividends for an extended period, as such money is being used to pay procurement-related liabilities.

SCE agrees with TURN's statement that foregone dividends, accumulated prior to September 1, are being used to reduce the PROACT balance. SCE, however, does not agree with TURN that future foregone dividends must also be used to reduce the PROACT. SCE further argues that TURN's assertion that the PROACT balance will be reduced (citing a Commission press release) by dividends is wrong because there is no such indication in the Settlement.

3. Implementation of Capital Additions Tracking Account

TURN, ORA, and Aglet state that the proposed capital additions tracking account contains ambiguity. TURN questions whether the $900 million is the limit on SCE's capital additions that may be recovered through both current rates and the new tracking account, or whether SCE is allowed to recover an additional $900 million through the tracking account alone, on top of what is already in current rates. SCE agrees to modify the language in its Capital Additions Tracking Account to clarify that the $900 million represents the total amount of capital expenditures that may be recovered in a calendar year.

ORA states that SCE has not included tariff language in its Capital Additions Tracking Account that specifies the dollar amount of capital expenditures that are reflected in current rate levels. ORA recommends that the CPUC specify an expeditious process to define the level of capital expenditures included in current rates. SCE agrees with ORA and promises to make a proposal in the near future and work with ORA in establishing such a process.

Aglet contends that the Capital Additions Tracking Account and underlying Settlement regarding capital additions are meaningless because Aglet believes all capital additions costs are included in rates. SCE disagrees with Aglet's assumption. SCE argues that all capital expenditures may not be included in currently effective rates and authorized amounts need to be determined.

4. URG accounts/balance not PUC approved

ORA and Aglet contend that the advice letter implements URG balancing accounts and associated ratemaking not yet approved by the CPUC. SCE states that it is correct that it proposes to use its ratemaking proposals set forth in the URG proceeding, but only on an interim basis until a final Commission Decision is issued. SCE believes it has proposed to make all necessary adjustments so that the PROACT balance equals what the balance would have been if SCE had implemented the final CPUC decision in the URG Proceeding on September 1, 2001.

5. Securitization of PROACT balance

CMTA and CLECA contend that the CPUC should thoroughly evaluate the possibility of securitization that would permit a rate reduction at the outset, perhaps a substantial rate reduction, by directing SCE to provide a securitization plan.

SCE responds that the intent of the advice letter is to implement "a number of the regulatory components" included in the Settlement Agreement, not all components. SCE argues that the Settlement provides for a securitization plan in the future; therefore, the issue is not ripe for consideration at this time.

6. PROACT Report

TURN and CMTA state that SCE fails to discuss what level of detail will be provided in the PROACT report. TURN further states that the monthly PROACT report should be generally modeled after the TCBA/TRA reports and that all interested parties should receive copies monthly. TURN adds that it would like the report on the CPUC's verification of the PROACT beginning balance made available to parties upon request.

SCE agrees with TURN's suggestion to provide the report to interested parties, model the report after the monthly TCBA/TRA report and the corresponding detail, and make the verification of the PROACT beginning balance report available upon request.

7. Definition of "Gross Electrical Rates"

CMTA and ORA argue that SCE's definition of the system average rate is not the same as "settlement rate" as defined in the Settlement. They believe that SCE's definition or interpretation changed the meaning and may potentially lead to changes in the relative responsibility of customer classes for paying off the PROACT beginning balance. They add that there is no mention in the Settlement of any changes in cost allocation or rate design.

SCE responds that with respect to the structure of the "Settlement Rates" the Settlement is silent. SCE believes that its proposed definition does not undermine the CPUC's rights and its ability to change rate structures.

California Industrial Users (CIU)

1. "Settlement Rates" Exclude Certain Surcharges

CIU contends that SCE failed to exclude from the Settlement Rates the additional limited duration revenues approved by the Commission in D.01-05-064. It believes that continued application of that mechanism beyond June 3, 2002, would present SCE's ratepayers with a substantial rate burden. CIU also believes that if a rate decrease is not implemented on June 4, 2002, SCE will realize a "sizable and totally unjustified windfall."

SCE responds that the Settlement Rates are clearly defined in the Settlement as those retail rates (including surcharges) in effect on the date of the Settlement. It therefore contends that "Settlement Rates" certainly include the "catch-up" surcharge adopted by the Commission in D.01-05-064, since this surcharge was in effect on October 2, 2001, the date of the Settlement.

SCE disagrees with the idea of a "windfall" because all "Surplus" will be used for the sole purpose of reducing procurement-related obligations recorded in the PROACT consistent with terms of the Settlement.

Aglet Consumer Alliance (Aglet)

1. Definition of URG

Aglet suggests that the Settlement adopts a definition of URG that may not be entirely consistent with the Public Utilities Code. Aglet contends that according to the Settlement, URG is limited to generating plants owned by SCE. PU Code 360.5 however, includes qualifying facilities and contract costs within the generation-related component of retail rates, and the URG phase of A.00-11-038 has considered all three elements of URG costs.

SCE responds that this issue is beyond the scope of its advice letter filing. It states that regardless of whether QF and contract costs are defined as URG costs or not, under the Settlement, if these are found reasonable by the Commission, they become "Recoverable Costs." SCE concludes that Aglet's contention is irrelevant.

2. Effective Date of PROACT

Aglet protests the proposed September 1, 2001 effective date. Aglet contends that it is contrary to retroactive ratemaking principles and fair treatment of SCE's customers because it would allow post-rate freeze recovery of costs incurred during SCE's rate freeze.

SCE disagrees because the effective date is provided by the Settlement and not by SCE.

Kroger Company

1. PX Credits not part of Procurement-Related Liabilities

Kroger contends that SCE's proposal to include PX customer credits in the PROACT despite the fact that they are not procurement-related liabilities or indebtedness should be rejected.

SCE argues that Kroger's complaint is moot and should be rejected as it raises an issue irrelevant to the consideration of its advice letter. It states that the issue of recovery of the PROACT balance and responsibility of Direct Access customers for "procurement-related liabilities" is currently before the Commission in A.98-07-003. SCE states that Kroger is free to raise its objections to relevant SCE proposals in that proceeding.

California Manufacturers & Technology Association (CMTA)

1. Modification of Prior Commission Decisions

CMTA argues that SCE's proposed request by advice letter process would modify one or more prior CPUC decisions (such asD.99-10-057), which were subject to evidentiary hearings, in violation of PU Code Section 1708.5 (f). CMTA believes that the Commission must provide evidentiary hearings prior to rescinding or modifying earlier decisions, which were based on evidentiary hearings.

SCE states that CMTA is incorrect because Section 1708.5 authorizes petitions to adopt, amend or repeal regulations. SCE cites the legislative intent of this provision, that `regulations' "not be construed to refer to all orders and decisions of the Public Utilities Commission but, rather, be construed as a general reference to rules of general applicability and future effect." SCE concludes that CMTA's statutory concern is without merit and therefore should be rejected.

The Utility Reform Network (TURN)

1. The Legality of the Settlement

TURN proposes that the CPUC reject the PROACT implementation advice letter because the agency lacked authority to enter into the underlying Settlement.

SCE responds that it is not responding to this issue because it goes to the very nature of the compromise of claims made in the Settlement or its process. SCE adds that these issues are currently on appeal to the Ninth Circuit Court of Appeals by TURN.

2. The Commission has Authority to Reduce Rates

TURN proposes that the definition of "Settlement Rates" clearly contemplates that the CPUC retains the authority to reduce rates. TURN states that although SCE acknowledges the fact that the Commission may lower rates "under specific circumstances" it does so without explaining the conditions that would bring about lower rates.

SCE disagrees with TURN's contention. SCE acknowledges that "Settlement Rates" can change, up or down, in three specific instances as stated by the Settlement. SCE states that TURN's confusion relates to Section 2.2(a) of the Settlement Agreement, which states that the Commission agrees to maintain retail electric rates at no less than "Settlement Rates."

3. CDWR Charges

TURN contends that SCE should include as a "Recoverable Cost, " under the Settlement, CDWR amounts based on a CDWR adopted rate (cents/kWh) multiplied by the amount of kWh supplied by CDWR, as opposed to a fixed revenue requirement.

SCE agrees that it will use whatever calculation or revenue requirements adopted by the Commission now or in the CDWR Revenue Requirement proceeding.

4. Clarification of TCBA Balance

TURN contends that the sentence in the advice letter which implies that the sum of the balances in the Generation Asset Balancing Account, the Emergency Procurement Surcharge Balancing Account, the ISO Revenue Memorandum Account, the PX Revenue Memorandum Account, the Unavoidable Fuel Contract Costs Memorandum Account and the Hydro Generation Memorandum Account equals the TCBA balance is not true. SCE agrees to delete this sentence.

5. Cash on hand not applied to PROACT

TURN contends that to the extent that any amount of SCE's "cash on hand" is derived from surcharge revenues it may not be applied to the Utility's "procurement related liabilities". TURN adds that "any failure to protect excess surcharge revenues from being used to pay for purposes not identified in the previous decisions would violate both the protections against retroactive ratemaking and Section 1708". TURN argues that revenues derived from surcharges approved in year 2000 cannot be used for payment of past procurement cost undercollections and any of those revenues not used for payment of going forward procurement costs should be refunded to customers.

SCE argues that TURN's refunding scheme is in direct conflict with various provisions of the Settlement Agreement.

6. Recovery of PROACT

TURN argues that since all direct access customers contributed to SCE's procurement debts, they should be required to bear a share of the PROACT balances.

SCE responds that this issue is beyond the scope of its advice letter filing. SCE states that TURN is incorrect in stating that SCE's implementation of the Settlement exempts Direct Access (DA) customers from paying their fair share of the PROACT balance. SCE further states that in the A.98-07-003 proceeding, it has proposed that these customers be provided a credit equal to the generation rate of their applicable tariff less their contribution to the recovery of the PROACT balance and any relevant CDWR costs.

TURN also contends that the Commission should adopt a PROACT line item for Edison's bills, and appropriate explanatory language.

SCE disagrees.

7. The Impact of DA Customer Movement on the PROACT

TURN argues that under current ratemaking procedures, the amount a customer pays to SCE will change when the customer moves from bundled service to direct access or vice-versa. TURN believes such movement will impact the system average rate (SAR) in the case of an individual customer. Customers moving to direct access would lower the SAR, and customers returning to bundled service would increase the SAR. TURN states that SCE must be required to address how this situation will be handled under its proposal.

SCE responds that it defines its SAR as if all customers were on bundled service. SCE indicates that it designs its bundled rate levels based on its total functionalized revenue requirements and total load of its customers whether served through bundled service or DA. SCE adds that it does not subtract the revenues and load lost to Direct Access when calculating SAR. SCE concludes that TURN's concern that SAR changes, as Direct Access load varies is moot.

8. Treatment of Rate Reduction Bonds

TURN argues that AL 1586-E contains certain contradictions and ambiguities with respect to the treatment of rate reduction bond (RRB) transactions. TURN believes that the description of the RRB in Footnote 11 on page 11 of the advice letter contradicts the RRB description in the Summary of the Operation of PROACT set forth in Appendix C. TURN believes, "...that the description in the text is correct, and that the RRB credits should continue to be recorded in the surplus calculation until the RRB Memo Account balance reaches zero, regardless of the date on which that event occurs."

TURN also states that Footnote 12 on page 14 is confusing. TURN argues that the footnote, which states that the RRB Memo Account will track the difference between the 10% bill credit given to small customers and the actual amount of the RRB proceeds recorded, should say that the RRB Memo Account will only track the balance until the RRB Memo Account reaches zero.

SCE agrees with TURN and promises to make the necessary corrections to state that Footnote 11 on page 11 is the correct interpretation.

9. Restructuring Implementation Costs

TURN contends it is not clear why restructuring implementation costs would continue to be incurred after the end of the AB 1890 transition period. TURN requests that the item be justified or removed.

SCE states that as long as it continues to have DA customers, there will continue to be restructuring implementation costs as defined in the Section 376 Proceeding. SCE argues that to the extent the Commission finds that any restructuring implementation costs are found not to be "Recoverable Costs" it will make all the appropriate adjustments.

10. California Alternate Rates For Energy (CARE) Discount and Surcharge

TURN shows that SCE's Preliminary Statement, Part O, CARE Adjustment Account is not clear as to how the difference between the discounts provided to CARE customers and the surcharge revenues collected to recover those discounts will be reconciled in PROACT ratemaking. TURN contends that if the intent is to put SCE at risk for its forecast of CARE discounts, it argues that this would represent a poor public policy and that it would create an incentive for SCE to minimize the number of customers receiving the discount, contrary to the CPUC's goal of improving CARE program outreach and participation.

SCE agrees that additional language should be added to Preliminary Statement Part O, to clarify how the reconciliation between the discounts and surcharge revenues will take place under PROACT ratemaking.

11. PROACT Collection Risk

TURN argues that SCE should be required to state with specificity its understanding of the cost collection risks, if any, it bears. TURN contends that it is unclear whether a failure to fully recover the balance under the Settlement by December 31, 2005 would violate the Settlement, if rate increases could be ordered for this purpose, or if SCE is at risk for less than full recovery.

SCE points to the language in Section 2.2(b) of the Settlement stating that the unrecovered portion of the PROACT balance as of December 31, 2003 will be ratably amortized in rate levels to be recovered fully by no later than December 2005. SCE believes there is no risk of under-recovery of the PROACT balance by December 31, 2005.

Office of Ratepayer Advocates (ORA)

1. PROACT Without Associated Ratemaking Structure

ORA contends that the establishment of the PROACT can be accomplished with only minimal tariff changes. ORA argues that the Settlement does not change the accounting for public purpose programs and therefore the new Public Purpose Program Adjustment Mechanism is unnecessary. ORA states that the PROACT can be established as a substitute for the TCBA and proposes that the TRA be renamed and be used to calculate "Surplus."

SCE agrees that the Settlement does not change the accounting for various costs such as public purpose programs and it is not proposing any such changes in its filing. SCE believes that the Settlement does establish a new ratemaking term called "Recoverable Costs."

2. Risk Management Tools Memorandum Account

ORA argues that the Risk Management Tools Memorandum Account (RMTMA) should not be terminated at this time because the proper RMTMA procedure may not have been followed and additional amounts may be due to ratepayers.

SCE disagrees. SCE responds that the purpose of the RMTMA was to record the monthly amortization of SCE's net out-of-pocket costs of acquiring risk management tools under PUC Section 368(c) until the Commission performed a review. SCE believes that it has demonstrated proper compliance with the procedures established for the account before the Commission through the TCBA proceedings and there is no further need for the account.

3. Recovery of Generation Costs Incurred Prior to September 1, 2001

ORA contends that SCE seeks to include in the "Recoverable Costs" certain generation-related costs incurred prior to August 31, 2001. ORA contends that this is contrary to Section 2.8 of the Settlement Agreement¹². ORA lists specific generation related costs¹³ it would want the Commission to deny.

SCE responds that ORA's recommendation is based on its interpretation of Section 2.8 of the Settlement. SCE contends that all of the account balances identified by ORA were incurred on or before August 31, 2001, but were not included in the TCBA balance as of that date. SCE contends that in any event, the Commission can specifically authorize costs incurred prior to August 31, 2001 if it wishes to do so. SCE indicates that it will not recover the amounts identified by ORA unless the Commission authorizes such recovery. It adds that, for example, the balance in SCE's Fuel Oil Inventory Memorandum Account is currently pending Commission approval in both the 2000 and 2001 Annual Transition Cost Proceedings (ATCPs). Furthermore, SCE believes that ORA mistakenly argues that the Hazardous Substance Memorandum account is a generation related cost. SCE agrees with ORA that the items listed in its protest are not procurement-related liabilities, but contends that they qualify as recoverable costs for the calculation of "Surplus."

DISCUSSION

The Energy Division has reviewed SCE's advice letter 1586-E, the protests, and SCE's responses. By Advice Letter (AL) 1586-E, SCE requests to establish the PROACT and the associated ratemaking structure for implementation as of September 1, 2001. SCE believes its request is consistent with the October 2, 2001, Settlement with the CPUC. The Energy Division agrees with SCE's request, with modifications.

Procurement Related Obligations Account (PROACT) Structure and Operation

SCE proposes to establish PROACT as required by the Settlement to calculate "Surplus" as defined by the Settlement (page 10), and "Recoverable Costs" as an entry to the "Surplus" calculation. The resulting balance from the "Surplus" calculation is applied monthly to the PROACT. In addition, SCE proposes that the "Recoverable Costs" include all authorized costs of service that are approved by the CPUC. SCE therefore requests to make tariff changes to ensure that these costs are captured for purpose of the calculation.

Energy Division recommends approval of the structure and operation of the PROACT with the modifications described below. Energy Division agrees with ORA that a new account similar to the TRA should be created because of the new ratemaking processes mandated by the Settlement. Consequently, Energy Division recommends that a new account titled Settlement Rate Balancing Account (SRBA) be created in conjunction with the establishment of the "PROACT" as defined by the Settlement. These two accounts would function similarly to the TRA and TCBA. All authorized debits and credits regarding "Recoverable Costs" and "Settlement Rates" revenues would be included in the SRBA. The residual positive or negative monthly balance from the SRBA would be posted to the PROACT (see Section 1.1(aa) of Settlement).

Modified "Surplus" and "Recoverable Costs" Calculations

Energy Division agrees with SCE's proposed entries for the calculation of "Surplus" because they are in compliance with the Settlement. Because the Energy Division recommends that a SRBA be established, all entries for authorized "Recoverable Costs" shall be recorded in the new account.

Energy Division believes that the three accounts adopted in the PTR decision- (1) Public Purpose Programs Adjustment Mechanism (PPPAM) balancing account, (2) PBR Exclusions Distribution Adjusting Mechanism (PBR EDAM), and (3) Nuclear Decommissioning Adjustment Mechanism (NDAM) balancing accounts should be included as line items in the SRBA, with proper sub-accounts as necessary to ensure adequate verification trail. Energy Division believes that these three accounts are appropriate because of the new ratemaking processes mandated by the Settlement.

SCE has requested that certain memorandum and balancing account Preliminary Statements be modified so that their balances can be included in the calculation of a recoverable cost, either monthly or annually, and to close them to the PBR EDAM and PPPAM accounts. Energy Division agrees with SCE's approach with significant modifications. Energy Division notes that the application to transfer some account balances to other major accounts is pending in A.00-03-047 before the CPUC. Rather than approving SCE's proposal to transfer these account balances in this AL, we will consider the disposition of these accounts in the pending application proceeding. SCE should modify its testimony in that proceeding. Accordingly, as to those accounts that are pending in the RABT, we will not approve at this time the proposed tariff changes that would close out those accounts and transfer their balances for purposes of interim calculation, and subject to further revision, we will allow SCE to record each of these items in the appropriate line item in calculating the "Surplus." We leave open the possibility that in the RABT proceeding we may reduce or eliminate some or all of these line items. If we should do so, SCE will be required to recalculate the "Surplus" for the relevant period.

Specifically, nine of the 13 cost items SCE requests to include in the PBR EDAM are already pending in A.00-03-047. These are:

1. Optional Pricing Adjustment Clause (OPAC) Balancing Account

2. Hazardous Substance Cleanup & Litigation Cost (HSCLC) Recovery

3. Catastrophic Event Memorandum Account (CEMA) Mechanism

4. PBR Distribution Revenue Sharing Memorandum Account

5. PBR Distribution Rate Performance Memorandum Account (PBRDRPMA)

6. Affiliate Transfer Fee Memorandum Account

7. Demand Side Management (DSM) Earnings Memorandum Account

8. Telecommunications Lease Revenue Memorandum Account

9. Secondary Land Use Memorandum Account

Consequently, the Energy Division recommends that SCE's request to include the nine above items in the PBR EDAM be granted so that the recorded amounts in the accounts can be used for the recoverable cost calculation pending their disposition in the RABT proceeding.

Additionally, the: (1) Reduced Cost Recovery Amount (RCRA) and Incremental Return, (2) Non Utility Affiliate Credits, and (3) Restructuring Implementation costs are currently recorded in the TRA. Energy Division recommends that these cost items be included in the SRBA as recoverable costs.

The last of the thirteen cost items is Demand Responsiveness. SCE states in Appendix B of the advice letter filing that Advice Letters 1532-E and 1583-E are pending approval with respect to Demand Responsiveness tariffs. Energy Division recommends that Demand Responsiveness revenue requirements or costs be allowed in the SRBA for the calculation of recoverable costs, subject to revision and depending on the precise outcome of the details included in SCE's implementation advice letters.

In addition, Energy Division believes that 14 of the 17 cost items SCE requests to comprise PPPAM balancing account should be included as recoverable costs and their tariff changes are hereby recommended for approval, except the tariffs of those cost items pending in A.00-03-047. These are:

1. Electric Vehicle Adjustment Clause (EVAC)

2. Electric Vehicle (EV) Memorandum Account

3. Research, Development, and Demonstration Royalties (RDDR) Memorandum Account.

Energy Division recommends that the recorded amounts for the above items be used in the recoverable costs calculation. The tariff changes related to these three accounts are denied until the disposition of the accounts in the RABT proceeding.

SCE asks that its balancing account mechanisms pending in the URG proceeding be implemented through the PROACT advice letter. SCE proposes to modify its request when a CPUC decision is issued. Energy Division agrees with ORA and Aglet that SCE should not implement the proposed balancing account mechanisms until the pending accounts, and associated cost items, are approved in the URG proceeding. Energy Division recommends that SCE's tariff change requests be denied pending the resolution of these issues in the URG proceeding. Energy Division recommends in the interim that SCE record its currently authorized costs for the URG pending the CPUC decision in the URG proceeding for the calculation of the "Surplus" and the PROACT. The PROACT should be adjusted subsequent to the issuance of a URG decision to reflect the authorized URG costs. The PROACT opening balance "shall be subject to equitable adjustment in the event that pending proceedings related to SCE's Utility Retained Generation result in amortization periods of less than ten years for the regulatory assets that represent SCE's ownership in nuclear power plants." SCE shall file the revised SRBA and PROACT reports with the Energy Division within 10 days of the revisions to these reports for review and approval by filing an advice letter.

SCE also proposes tariff changes to specific balancing accounts in the URG proceeding, in order to transfer amounts previously recorded in the TCBA to the proposed account. We deny SCE's request without prejudice because these amounts have not been authorized by a CPUC decision or the Settlement. These amounts should not be recorded in the SRBA as recoverable costs at this time.

Energy Division believes that some cost items currently recorded in the TRA should be included in the SRBA because they are already recoverable costs. Energy Division recommends that CPUC - approved PBR Distribution requirements, approved FERC transmission requirements, and the relevant TTA charges should be recorded in the SRBA. In addition, Energy Division recommends that the first three accounts below be separate line items in the SRBA for the recoverable cost calculation. The last two accounts are also approved for tracking purposes only. SCE shall file tariffs to implement the tracking accounts.

1. Commission Directed Costs Tracking Account: This would track Recoverable Costs that are incurred by SCE as directed by the CPUC in accordance with Section 2.1(d) of the Settlement to determine if an increase to Settlement Rates is needed.

2. Hedging Costs: This would track hedging-related costs. The Settlement requires SCE to request CPUC approval of the costs in the account in a CPUC proceeding where the hedging activity is reviewed. Resolution E-3761, approved on November 8, 2001, established the account.

3. Employee Related Balancing Account (ERBA): This account would provide for the recovery of employee-related transition costs through December 31, 2006. SCE states that employee-related transition costs were authorized pursuant to P.U. Code Section 375 subject to adjustment after CPUC review.

4. Capital Additions Tracking Account: This would track the recorded amount of capital expenditures (up to $900 million a in calendar year) that exceeds the level of capital expenditures reflected in the rates currently authorized by the CPUC, in accordance with section 2.6 of the Settlement.

5. California Department of Water Resources (CDWR) Charges and Net Short Procurement Costs Tracking Account: This would track the difference between Stabilized CDWR Charges, and the sum of SCE's Net Short Procurement Costs and CDWR Charges to determine if an increase or decrease to Settlement Rates is needed.

Protest Issues

CPUC Authority

Energy Division disagrees with the protesting parties that the advice letter process is not the appropriate vehicle to implement the PROACT required by the Settlement. The quick implementation of the PROACT, via the AL, supports one of the purposes of the Settlement, which is to "... restore the investment grade creditworthiness of SCE as rapidly as reasonably practical so that it will be able to provide reliable electric service as a state regulated entity...." (Settlement Agreement at page 3) The advice letter process is a reasonable tool to implement the decision of the Federal District Court that adopted the Settlement. Energy Division recommends that the parties' protests be denied.

Suspension of Dividends

ORA, TURN, and Aglet argue that "foregone dividends" should be treated in the PROACT to reflect the intent of the Settlement. Energy Division believes that SCE's interpretation of the treatment of "foregone dividends" is in compliance with the Settlement. Indeed, the Energy Division reads the Settlement as requiring SCE to use the "foregone dividends" to pay down its outstanding debt so as to improve its creditworthiness, but not requiring SCE to reduce the amount it recovers from ratepayers by the amount of the "foregone dividends." This is reflected in the Settlement where the dividend suspension is tied to reducing "Procurement Related Liabilities " (i.e., outstanding debt) and not to the "Procurement Related Obligations" that are included in the PROACT. (See Section 2.5 of the Settlement; cf Sections 1.1(k), (l), 2.1(a).) Energy Division recommends that no entry should be made for "foregone dividends" in the PROACT, because it is not explicitly or implicitly required by the Settlement language. Energy Division recommends that the protest of ORA and TURN be denied.

Securitization

The issue of securitization is not ripe for consideration. There is an existing provision in the PROACT to accommodate this option. Energy Division recommends that the protest of CMTA and CLECA be denied without prejudice.

PROACT Report

SCE agrees with TURN and CMTA that a monthly PROACT report should be provided to interested parties upon request, similar to the TRA/TCBA reports. Energy Division agrees with this request with some minor adjustment. Energy Division recommends that SCE should provide monthly PROACT and SRBA reports, with similar detail as TRA and TCBA. Energy Division also recommends that reports include monthly and year to date number for each line item. Energy Division should verify any entries in the reports as needed. Energy Division recommends that the requests of CMTA and TURN be granted with the above modification.

Gross Electric Rates

SCE proposes to define "gross electric rates" as the system average rate. CMTA and ORA disagree because this definition would give SCE the discretion to shift costs to other customers. Energy Division believes that adopting SCE definition would not permit SCE to shift any cost without CPUC approval but would as the Settlement intended, preserve the CPUC's flexibility on rate design and cost allocation options. ORA's and CMTA's protests should be denied.

Catch-up Surcharge

CIU argues that the "catch-up" surcharge approved in D.01-05-064 should expire as required by that decision. Energy Division agrees with CIU that the surcharge should not continue indefinitely because of the language¹⁴ in Ordering Paragraph (OP) 2 of D.01-05-064. Although Section 1.1 (w) of the Settlement defines "Settlement Rates' as gross electric rates (including surcharges) in effect on the date of this Agreement...." the catch-up surcharge in effect on the date of the Settlement is one that expires after a period of 12 months. Thus, the Settlement does not authorize SCE to continue collecting that surcharge, designed to amortize a specific amount, beyond its pre-existing expiration date. The Energy Division recommends that SCE be required to file an advice letter to remove the catch-up surcharge upon its already scheduled expiration date of June 3, 2002. SCE's request to continue collecting the "catch-up" surcharge revenue beyond that date is denied.

Definition of URG

Aglet argues that the definition of URG in the Settlement is inconsistent with the PU Code and the definition adopted in CPUC decisions. Energy Division agrees with SCE's response to Aglet's protest on this matter. The term URG is defined differently in the Settlement than it is in the PU Code. We will implement the Settlement according to its own terms to avoid confusion with the use of that term in other situations.

PROACT Effective Date

Aglet also argues that the effective date of the PROACT is retroactive ratemaking. This issue goes to the merit of the Settlement¹⁵, which is not the subject of SCE's advice letter. Energy Division recommends that Aglet's protest on these matters be denied.

PX Credits

Kroger asserts that PX credits are not procurement-related liabilities or indebtedness for inclusion in the PROACT. Energy Division disagrees with Kroger's assertion. SCE is correct that Schedule 1.1 of the Settlement shows that PX credits are part of Procurement Related Liabilities. Energy Division recommends that Kroger's protest be denied.

Legality of Settlement

TURN questions the legality of the CPUC's resolving issues by a Settlement in

Federal District Court. TURN's allegation is beyond the scope of the advice letter request by SCE. TURN has exercised its rights by appealing the Settlement to the United States Ninth Circuit Court of Appeals. Although the Ninth Circuit initially stayed the Settlement for a brief period, there is no longer a stay in effect. Energy Division recommends that TURN's protest be denied.

CPUC Authority to Change Rates

TURN alleges that SCE wants "...the CPUC to adopt the position that under no circumstances would there be any decline in the "system average rate" until the Rate Repayment period has ended." Indeed, the Settlement expressly provides the CPUC the ability to change the rates under specified circumstances. The Energy Division recommends that TURN's protest be denied.

Cash on Hand

TURN contends that to the extent that any amount of SCE's "cash on hand" is derived from surcharge revenues, it may not be applied to SCE's "Procurement Related Liabilities" because of the limited purpose of the surcharges. This issue argues the merits of the Settlement, which the Energy Division believes are beyond the scope of SCE's advice letter. Energy Division recommends that TURN's protest be denied.

Direct Access/PROACT Line Item and PROACT Collection Risks

TURN also contends that Direct Access (DA) customers should pay their share of the PROACT balances because they contributed to the procurement debts. It also argues that SCE should be required to establish a PROACT line item on customer's bills. SCE agrees with TURN except for the requirement to have a line item on customers' bills to recover the PROACT. SCE's request in the advice letter does not exempt direct access (DA) customers from bearing their share of the PROACT balances and the issue of DA PROACT responsibility may soon be considered in a CPUC proceeding. This issue is beyond the scope of SCE's AL.

We believe it may be desirable to include a line item for the PROACT on customer bills similar to the line item for the competition transition charge (CTC) under AB 1890. There are significant amounts to be used in the calculation of the PROACT, such as allowable amounts for the URG, that have not been established with sufficient certainty to make such a line item on customer bills informative and accurate. Accordingly, we will not require SCE to implement a PROACT line item at this time on customer bills, but may do so as the procurement calculation of the PROACT is established in further proceedings (URG or possibly RABT). TURN's protest on a PROACT line item is rejected at this time.

TURN also argues that SCE must be required to state with specificity its understanding of the collection risks, if any, it bears under the Settlement since TURN believes the Settlement does not provide explicit guarantees of full recovery. Since the Settlement provides clear language on this subject, we reject TURN's contention.

Restructuring Implementation Costs

TURN questions the need for restructuring implementation costs after the end of the AB 1890 transition period. Because costs for implementing direct access would continue to be under CPUC review (currently in the Revenue Adjustment Proceeding (RAP)), the Energy Division recommends that TURN's protest be denied.

CARE

SCE wants to amend its CARE Preliminary Statement to remove the references to surcharge and discounts. TURN opposes the idea because SCE might discontinue vigorous participation in the program. Energy Division agrees with TURN. This AL is not the appropriate place for these policy issues. Energy Division recommends that SCE continue to track the discounts and surcharge until the CPUC decides otherwise.

Capital Additions

SCE agrees to work with ORA and other parties to develop the capital additions amount embedded in existing rates. Energy Division believes that the amount of capital additions currently embedded in rates must be determined in order to calculate how much to include in the capital additions tracking account and that this development is in compliance with the Settlement. We expect SCE to make its proposal known either through an application or advice letter as soon as this Resolution is approved. No amount should be included in the tracking account until the CPUC determines the amount that is embedded in current rates.

Generation Costs Incurred Prior to August 31, 2001

ORA alleges that there are certain costs included in SCE's proposed tariff changes that are not explicitly authorized by the Settlement. Energy Division agrees with ORA. Section 2.8 of the Settlement states in part that, "Balances in SCE's TCBA as of August 31, 2001 shall have no further impact on SCE's retail electric rates, Surplus or Recoverable Costs except to the extent the CPUC authorizes the recovery after such date of costs previously recorded in the TCBA...". This language states that these costs should not be authorized without any further consideration by the CPUC. Although the CPUC may have discretion to allow the recovery of such costs this AL is not the appropriate place to decide this issue. Energy Division recommends that SCE's tariff request changes be denied at this time without prejudice.

Accounts for Elimination

Energy Division agrees that SCE should eliminate those accounts that have been explicitly approved for elimination in D.99-10-057 and do not conflict with its request in A.00-03-047. Energy Division agrees with ORA that the Risk Management Tools Memorandum Account should not be eliminated because of issues that may be raised, specific to this account, in the pending 2001 ATCP. ORA's request is granted.

We recognize that D.01-01-019 (the Revenue Adjustment Proceeding) eliminated the Electric Magnetic Field Balancing and Memorandum Account after the amount in the account was transferred to the TRA.

We agree that the Settlement makes the TCBA and GABA accounts irrelevant. Since the balance in the accounts shall have no further impact on rates, the TCBA and GABA are hereby eliminated.

"No Change Required" Tariffs

Energy Division believes it is reasonable not to pass any judgment at this time on those items SCE has identified as not requiring change.

D.99-10-057 Advice Letter Compliance

D. 99-10-057 requires SCE, Pacific Gas and Electric Company (PG&E), and San Diego Gas & Electric Company (SDG&E0) to file an advice letter three months prior to the earliest forecasted date that the rate-freeze will end or September 2001 if the rate-freeze does not end early. It adds that the advice letter shall propose tariff modifications and calculations of proposed post rate -freeze rates. SCE states in its advice letter filing that it is no longer necessary to comply with the Ordering Paragraph (OP) 1 of D.9910-057 because the Settlement establishes the "Settlement Rates" and other provisions.

Energy Division agrees the establishment of "Settlement Rates" by the Settlement makes this requirement moot.

Modification of Prior Commission Decisions

CMTA believes that SCE's advice letter filing would change one or more prior CPUC decisions that were based on evidentiary hearings, in violation of PU Code Section 1708.5 (f). Energy Division disagrees with CMTA because this provision does not require that every prior CPUC decision be subjected to evidentiary hearings before it can be rescinded, modified, or repealed. Furthermore, this protest issue argues the legality of the Settlement, which is beyond the scope of SCE's AL. CMTA's protest is denied.

Conclusions

This Resolution recommends that:

· SCE's request with respect to the structure and operation of the PROACT is approved as modified herein, particularly by the creation of a new account called Settlement Rate Balancing Account (SRBA). The items included in the "PROACT" are in compliance with the Settlement.

· SCE's separate calculations for "Settlement Rates" revenues and "Recoverable Cost" be modified so that Settlement Rates revenues are recorded as credits and Recoverable Costs are recorded as debits, respectively in the SRBA.

· The proposed electric retail revenue calculation is reasonable.

· The Public Purpose Programs Adjustment Mechanism (PPPAM) balancing account, PBR Exclusions Distribution Adjusting Mechanism (PBR EDA), and Nuclear Decommissioning Adjustment Mechanism (NDAM) balancing accounts should be included in the recoverable cost calculation with their associated cost items as proposed by SCE and as modified in the text of this Resolution. For cost items requested in the RABT proceeding actual recorded costs should be used to calculate recoverable costs until a CPUC decision is issued in the proceeding. These items must be specifically identified in the SRBA to enable an audit trail. All tariff changes related to those accounts pending in the RABT proceeding are denied without prejudice at this time. SCE should modify its testimony in the RABT proceeding.

· The URG balancing account tariffs proposals in this AL filing are denied without prejudice and may be reviewed after a decision in the URG proceeding is rendered. SCE's currently authorized URG costs are to be recorded as Recoverable Costs in the SRBA for the calculation of "Surplus" and the PROACT in the interim pending a CPUC decision in the URG proceeding. Subsequent revisions to the PROACT and SRBA are allowed subject to Energy Division's review and approval by filing an advice letter. Each entry should provide an audit trail.

· With the exception of Demand Responsiveness costs, cost items not pending in the RABT proceeding should be included in the PBR EDAM, PPPAM, and NDAM as discussed in the body of this Resolution for purposes of calculating Recoverable Costs. In addition, the tariff changes requested for these cost items should be granted.

· The three new accounts proposed by SCE for inclusion in the calculation of Recoverable Costs and the two tracking accounts should be approved. SCE should file tariffs to implement the tracking accounts.

· At this time, the amounts previously recorded in the TCBA should not be used for the recoverable cost calculation. Neither the Settlement nor a CPUC decision has specifically approved or authorized such costs or amounts in the recoverable cost calculation.

· SCE should eliminate those accounts whose elimination has been explicitly approved in the D.99-10-057, and where elimination is consistent with SCE's request in A.00-03-047.

· No action is taken with regard to tariffs for which SCE has not sought a change or modification.

· Further compliance with OP 2 of D.99-10-057 should not be required given the establishment of "Settlement Rates" by the Settlement.

· TCBA and GABA should be eliminated.

· We recognize that the Electric Magnetic Field Balancing and Memorandum Account has been eliminated by D.01-01-019 (the Revenue Adjustment Proceeding) after the transfer of the account balance to the TRA.

· Energy Division recommends that TURN's protest regarding the legality of the CPUC resolving issues by a Settlement in Federal District Court be denied.

· CIU's protest of extension of the "catch up" surcharge should be granted. SCE should remove this surcharge from rates upon its expiration on June 3, 2002.

· The Settlement is specific with regard to SCE's PROACT collection risks and we should therefore reject TURN's protest on this issue.

· Because costs for implementing direct access would continue to be under CPUC review (currently in the Revenue Adjustment Proceeding (RAP)), the Energy Division recommends that TURN's protest be denied.

· SCE shall provide monthly PROACT and SRBA reports to Energy Division. SCE shall provide copies of these reports to interested parties on request. The reports shall be detailed to include monthly and year to date numbers for each line item. Energy Division shall verify the reports when it is necessary.

· We find that SCE's request in the advice letter does not exempt direct access (DA) customers from bearing their share of the PROACT balances. The issue of DA PROACT responsibility should be considered in an appropriate CPUC proceeding. This issue is beyond the scope of SCE's AL.

· All protests not specifically addressed above should be dismissed.

COMMENTS

Public necessity requires that the 30-day comment period of Public Utilities Code section 311(g) be slightly reduced in order to implement the PROACT and associated ratemaking provisions of the Settlement reached between SCE and the CPUC on the litigation that was before the federal court, to restore SCE to investment grade creditworthiness to the benefit of SCE's customers and the California economy. We have balanced the public interest in avoiding harm to the public welfare flowing from delay in considering this resolution against the public interest in having the full 30-day period for review and comment as required by Rule 77.7(f)(9). We conclude the former outweighs the latter. We conclude that failure to adopt a decision before the expiration of the 30-day review and comment period would cause significant harm to the public welfare. Accordingly we reduce the comment period for this Resolution from 30 days to 26 days.

The Draft Resolution was mailed for comment on December 28, 2001 and comments were due and received on January 15, 2001. ORA, TURN, SCE, and Aglet filed timely comments on January 15, 2002. Certain issues merit our attention as discussed below.

Actual Recorded URG Costs

We agree with Aglet that there is ambiguity regarding "actual recorded URG costs" for capital-related costs. We have modified the Resolution to reflect that SCE should record currently authorized URG costs pending the Commission's URG decision in the proceeding. Subsequent to such a URG decision resolving cost of service accounting issues, SCE will "true-up" its accounts to reflect authorized URG costs.

TURN raises the issue of what costs SCE is to record in connection with San Onofre Nuclear Generation (SONGS) plant on an interim basis before a decision in the URG proceeding. TURN requests that this Resolution expressly provide that, pending issuance of a decision in the URG proceeding, "actual recorded costs" rather than the incremental pricing incentive (ICIP) revenue requirement adopted in 1996 be used to calculate costs for SONGS. TURN seeks in essence to have its proposal from the URG proceeding - that ICIP be replaced with actual recorded costs - imposed on SCE during the interim between the effective date of this Resolution and implementation of a URG decision that resolves cost of service accounting issues.

We decline at this time to alter the status quo respecting what costs SCE may record in connection with SONGS, and defer any charges in accounting for SONGS in its entirety to the URG proceeding. The Resolution, as modified in response to Aglet's comments, requires that SCE record "currently CPUC authorized costs" in connection with URG pending the outcome of the URG proceeding. Should the Commission in the URG proceeding choose to adopt TURN's proposal that adoption would carry over to treatment of SONGS costs under this Resolution and SCE will true up costs for the interim period to reflect the Commission's URG decision.

Suspension of Dividends

Both TURN and ORA assert that the Settlement requires that SCE shareholders' foregone dividends be credited against the PROACT balance. They argue that the Resolution as drafted does not contain such a requirement. We are unconvinced by TURN's and ORA's arguments that a requirement that dividends be credited against the PROACT balance is necessary for ratepayers to receive the Settlement's publicized benefits.

TURN correctly states that, under the Resolution, "foregone dividends [are] used to pay down the utility's outstanding debt." TURN errs, however, in concluding that this "does not reduce the amount recovered from [] ratepayers." (TURN `s January 15, 2002 Comments, p. 3). We explain TURN's error here.

The Settlement defines Procurement Related Liability in section 1.1(k) as "the procurement related liabilities and indebtedness listed on Schedule 1.1 attached hereto, totaling approximately $6.354 billion." The Settlement defines Procurement Related Obligations in section 1.1(l) as "the costs recorded in the Procurement Related Obligations Account together with interest thereon as calculated in Section 2.1 (c)." The opening balance of the PROACT is as set forth in section 2.1 (a) of the Settlement, which provides that "the opening balance thereof will be the excess of SCE's Procurement Related Liabilities as of August 31, 2001 over SCE's cash and cash equivalents on had as of such date, less the sum of $300 million." The interplay of these definitions means that a reduction in Procurement Related Liabilities reduces the opening balance of the PROACT, and hence a reduction in what ratepayers pays as Procurement Related Obligations. Consequently, use of foregone dividends to pay Procurement Related Liabilities does in fact reduce the amount that ratepayers must ultimately pay under the Settlement, contrary to TURN's assertions otherwise.

Indeed, TURN's comment that "all [foregone dividends] should go to reduce the PROACT balance" is one with which we agree, and a concept embodied in the Resolution. As noted above, application of pre-September 1, 2001 foregone dividends to the Procurement Related Liabilities serves to reduce the PROACT balance. Similarly, dividend suspension after September 1, 2001 will increase cash available (that would otherwise go to pay dividends) to pay off obligations recorded in the PROACT thereby accelerating recovery of Procurement Related Obligations.¹⁶

We believe that rather than imputing some arbitrary amount to SCE as "foregone dividends" it is appropriate to simply look at SCE's accumulated cash on hand in the aggregate and subtract it from the PROACT balance ab initio, since payment of any dividend would necessarily have come from this pool of funds under any scenario. In a similar vein, it is impossible to predict with any accuracy what future dividends would have been. Because we know for certain that any dividend must come out of cash on hand, our goal is to use the cash available during the dividend suspension period to pay down the obligations recorded in the PROACT. There is no need to separately deem an arbitrary amount as "foregone dividends" to be credited to the PROACT. Resolution's treatment of foregone dividends is consistent with the Settlement. ORA has requested that "cash from suspended dividends" is treated as part of surplus, and will lead "to a direct and commensurate reduction in PRO, and in the PROACT." This approach is contrary to the Settlement language regarding suspended dividend treatment after September 1, 2001.

Cash On Hand

TURN seeks to exclude from the definition of "cash on hand" amounts that SCE recovered "from the surcharges adopted in D.01-01-018, D.01-03-082, and D.01-05-064." We view TURN's argument on this issue as academic. If, as TURN requests, we exclude such amounts from the definition of "cash on hand," we initially would increase the balance in the PROACT account. The funds set aside would serve ultimately only to increase Surplus, and thereby decrease the PROACT balance by the same amount that it increased when we excluded such funds from the definition of "cash on hand" in the first place.

CPUC Authority

TURN objects to use of the advice letter process for implementing the Settlement. The thrust of TURN's argument is that, having denied recovery of the costs that SCE now seeks to recover; the Commission cannot allow recovery through the advice letter process. We reiterate that time was and is of the essence in restoring SCE to creditworthy status. TURN further expresses dissatisfaction with the denial of its motion "without prejudice." The expression "without prejudice" was used here as a term of art, meaning TURN could renew its argument at a future date. Thus TURN's arguments concerning the "prejudice" that the resolution inflicts are misplaced. In order to eliminate any confusion, however, and to better establish the finality of our decision, we are removing the language "without prejudice" from finding No. 13. We decline to respond to the various rhetorical questions concluding TURN's comments on this issue.

FINDINGS

1. On November 14, 2001, Southern California Edison (SCE) filed Advice Letter 1586-E.

2. ORA, TURN, CMTA, CIU, CLECA, Aglet, and Kroger filed timely protests to Advice Letter 1586-E.

3. Advice Letter 1586-E seeks to establish the Procurement Related Obligations Account (PROACT) and associated ratemaking structure to be effective September 1, 2001. SCE's request is generally consistent with the October 2, 2001 Settlement with the California Public Utilities Commission. SCE's request should be approved with modifications.

4. We establish a new account titled Settlement Rate Balancing Account (SRBA) in addition to the Settlement defined "PROACT

5. The PROACT and the SRBA would function together in a similar fashion as the TRA and TCBA. All authorized debits and credits regarding "Recoverable Costs" and "Settlement Rates" revenues would be included in the SRBA. The residual positive or negative monthly balance from the SRBA shall be recorded in the "PROACT".

6. The opening balance in the PROACT as of September 1, 2001 shall be the amount approved in a letter signed by the Energy Division Director on November 2, 2001.

7. SCE's separate calculations for "Settlement Rates" revenues and "Recoverable Cost" should be modified so that revenues items are recorded as credits while recoverable cost items are recorded as debits in the SRBA.

8. The proposed electric retail revenue calculation is reasonable.

9. It is reasonable to include the Public Purpose Programs Adjustment Mechanism (PPPAM) balancing account, PBR Exclusions Distribution Adjusting Mechanism (PBR EDA), and Nuclear Decommissioning Adjustment Mechanism (NDAM) balancing accounts should be included in the recoverable cost calculation with their associated cost items as proposed by SCE and as modified in the text of this Resolution. For cost items requested in the RABT proceeding actual recorded costs should be used to calculate recoverable costs until a CPUC decision is issued in the proceeding. These items must be specifically identified in the SRBA to enable an audit trail. All tariff changes related to those accounts pending in the RABT proceeding are denied without prejudice at this time. SCE should modify its testimony in the RABT proceeding.

10. With the exception of Demand Responsiveness programs, it is reasonable to allow certain cost items not pending in the RABT proceeding to be included in the PBR EDAM, PPPAM, and NDAM for recoverable cost calculation. In addition, the tariff changes request should be granted. SCE states in Appendix B of the advice letter filing that Advice Letters 1532-E and 1583-E are pending approval with respect to Demand Responsiveness tariffs. The Demand Responsiveness revenue requirements or costs are allowed in the SRBA for the calculation of recoverable costs, subject to revision and depending on the precise outcome of the details included in SCE's advice letters 1532-E and 1583-E.

11. The three new accounts proposed by SCE for inclusion in the calculation of Recoverable Costs and the two tracking accounts should be approved. SCE should file tariffs to implement the tracking accounts.

12. The URG balancing account tariffs proposals in this AL filing are denied without prejudice and may be reviewed after a decision in the URG proceeding is rendered. SCE's currently authorized URG costs are to be recorded as Recoverable Costs in the SRBA for the calculation of "Surplus" and the PROACT in the interim pending a CPUC decision in the URG proceeding. Subsequent revisions to the PROACT and SRBA are allowed subject to Energy Division's review and approval by filing an advice letter. Each entry should provide an audit trail.

13. The protest of TURN, ORA, CIU, CLECA, and CMTA that the advice letter process is not the appropriate vehicle to implement the PROACT is denied.

14. The protest of TURN and ORA on the interpretation of the treatment of "foregone dividends" should be denied.

15. CIU and CLECA protest request for immediate rate reduction by Securitization should be denied without prejudice.

16. SCE shall provide monthly PROACT and SRBA reports to Energy Division. SCE shall provide copies of these reports to interested parties on request. The reports shall be detailed to include monthly and year-to -date numbers for each line item. Energy Division shall verify the reports when it is necessary.

17. SCE's proposal to define "gross electric rates" as the system average rate is granted. This definition would give the CPUC the flexibility it would need on rate design and cost allocation options.

18. TURN's protest regarding the legality of the CPUC resolving issues by a Settlement in Federal District Court should be denied.

19. CIU's protest of extension regarding the "catch up" surcharge is granted. SCE shall remove this surcharge upon its expiration on June 3, 2002.

20. We disagree with CMTA that the PU Code Section 1708.5 (f) requires that every prior CPUC decision be subjected to evidential hearings before it is rescinded, modified or repealed. CMTA's protest should be denied.

21. Aglet's protest regarding the URG definition should be denied

22. Aglet's claim that the effective date of the PROACT raises retroactive ratemaking issues should be denied.

23. Kroger's protest on PX credits should be denied.

24. TURN's protest on the treatment of "cash on hand" pertaining to Procurement Related-Liabilities prior to September 1, 2001, and the surcharges ordered by the CPUC should be denied.

25. We find that SCE's request in the advice letter does not exempt direct access (DA) customers from bearing their share of the PROACT balances. The issue of DA customer responsibility for PROACT balances may be considered in an appropriate CPUC proceeding. TURN's protest is denied without prejudice.

26. TURN's proposal that SCE provide a PROACT line item on its customer bills should be denied without prejudice.

27. We find that the Settlement is specific with regard to SCE's PROACT collection risks and therefore reject TURN's protest.

28. TURN's protest regarding the treatment of CARE discounts and surcharge should be granted. SCE should continue to track the discounts and surcharge as approved by the CPUC.

29. ORA's protest that Section 2.8 of the Settlement has not explicitly approved or authorized of SCE's request to recover amounts previously recorded in the TCBA should be granted.

30. SCE should eliminate those accounts whose elimination has been explicitly approved in the D.99-10-057, and where elimination is consistent with SCE's requests in A.00-03-047.

31. Because costs for implementing direct access would continue to be under CPUC review (currently in the Revenue Adjustment Proceeding (RAP)), the Energy Division recommends that TURN's protest to remove this cost item be denied and SCE's request be approved.

32. ORA's protest regarding the Risk Management Tools Memorandum Account should be granted because issues pending in the 2001 ATCP may affect this account.

33. There is no need for SCE to file an advice letter in compliance with the requirement of OP 1 of D.99-10-057.

34. The TCBA and GABA should be eliminated consistent with the Settlement.

35. We recognize that D.01-01-019 eliminated the Electric Field Magnetic Balancing and Memorandum Account after the transfer of the account balance to the TRA.

36. SCE should work with ORA, TURN, and Aglet to determine the appropriate process to comply with the capital additions provision of the Settlement immediately after the approval of this Resolution.

37. SCE should make all the necessary corrections it has agreed to in its response to protests when it files a compliance advice letter for this Resolution.

38. We recommend no action with regard to tariffs for which SCE has not sought a change.

39. A failure to adopt a decision before the expiration day of the 30-day review period and comment period would cause a significant harm to the public welfare and therefore the comment period should be reduced from 30 days to 26 days.

Therefore it is ordered that:

1. Southern California Edison Company (SCE) shall establish the Procurement Related Obligations Account (PROACT) and associated ratemaking structure to be effective September 1, 2001 by Advice letter (AL) 1586-E. SCE's request is approved with modifications.

2. The opening balance in the PROACT as of September 1¹⁷, 2001 shall be $3,577.63 million, approved by the Energy Division Director on November 2, 2001.

3. SCE shall establish a new account titled Settlement Rate Balancing Account (SRBA) in addition to the Settlement-defined "PROACT."

4. SCE's separate calculations for "Settlement Rates" revenues and "Recoverable Costs" are modified so that revenue items are recorded as credits while recoverable cost items are recorded as debits in the SRBA.

5. The PROACT and the SRBA shall function in a similar fashion as the TRA and TCBA. All authorized debits and credits regarding "Recoverable Costs" and "Settlement Rates" revenues shall be included in the SRBA. The residual positive or negative monthly balance from the SRBA shall be recorded in the "PROACT."

6. The items that SCE has proposed for calculating for the electric retail revenue calculation are reasonable.

7. It is reasonable to include the Public Purpose Programs Adjustment Mechanism (PPPAM) balancing account, PBR Exclusions Distribution Adjusting Mechanism (PBR EDA), and Nuclear Decommissioning Adjustment Mechanism (NDAM) balancing accounts should be included in the recoverable cost calculation with their associated cost items as proposed by SCE and as modified in the text of this Resolution. Actual recorded costs of cost items requested in the RABT proceeding shall be used to calculate Recoverable Costs until a decision is issued in the proceeding. These items must be specifically identified in the SRBA to enable an audit trail. All tariff changes related to those accounts pending in the RABT proceeding are denied without prejudice at this time. SCE shall modify its testimony in the RABT proceeding.

8. With the exception of Demand Responsiveness programs, it is reasonable to allow cost items not pending in the RABT proceeding for inclusion in the PBR EDAM, PPPAM, and NDAM for the calculation of Recoverable Costs. The tariff changes that request these items are granted. We shall allow the Demand Responsiveness revenue requirements or costs in the SRBA for the calculation of Recoverable Costs, subject to revision and depending on the precise outcome of the details included in SCE's advice letters 1532-E and 1583-E.

9. The three new accounts proposed by SCE for inclusion in the calculation of Recoverable Costs and the two tracking accounts are approved. SCE should file tariffs to implement the tracking accounts.

10. The URG balancing account tariffs proposed in this Advice Letter filing are denied without prejudice, and the proposals may be renewed after a decision in the URG proceeding is rendered. In the interim, SCE's shall use its currently authorized URG as Recoverable Costs in the SRBA for the calculation of "Surplus" and the PROACT pending a CPUC decision in the URG proceeding. Subsequent revisions to the PROACT and SRBA are allowed subject to Energy Division's review and approval by filing an advice letter not later than 10 days after a URG decision. Each entry should provide an audit trail.

11. We deny the protest of TURN, ORA, CIU, CLECA, and CMTA that the advice letter process is not the appropriate vehicle to implement the PROACT.

12. We deny the protest of TURN and ORA on the interpretation of the treatment of "foregone dividends."

13. We deny without prejudice CIU's and CLECA's protest request for immediate rate reduction by securitization.

14. SCE shall provide monthly PROACT and SRBA reports to Energy Division. SCE shall provide copies of these reports to interested parties on request. The reports shall be detailed to include monthly and year -to -date numbers for each line item. Energy Division shall verify the reports when it is necessary.

15. We grant SCE's proposal to define "gross electric rates" as the system average rate.

16. We deny TURN's protest regarding the legality of the CPUC resolving issues by a Settlement in Federal District Court.

17. We grant CIU's protest of extension of the "catch-up" surcharge. SCE shall remove this surcharge from rates upon its expiration on June 3, 2002.

18. We deny CMTA's protest that PU Code Section 1708.5 (f) requires that every prior CPUC decision be subjected to evidential hearings before it is rescinded, modified or repealed.

19. We deny Aglet's protest regarding the URG definition.

20. We deny Aglet's claim that making the effective date of the PROACT September 1, 2001 constitutes retroactive ratemaking.

21. Kroger's protest regarding inclusion of PX credits in the calculation of "Recoverable Costs" is denied.

22. We deny TURN's protest regarding the treatment of "cash on hand" pertaining to Procurement Related Liabilities prior to September 1, 2001, and the energy surcharges.

23. SCE's request in the Advice Letter filing does not exempt direct access (DA) customers from bearing their share of the PROACT balances. We will address DA customer responsibility for PROACT balances in an appropriate CPUC proceeding. TURN's protest is denied without prejudice.

24. We deny without prejudice TURN's request that SCE provide a PROACT line item on its customers' bills.

25. TURN's protest that the Settlement is not specific with regard to SCE's PROACT collection risks is denied.

26. We grant TURN's protest of the CARE discounts and surcharge. SCE shall continue to track the discounts and surcharge.

27. ORA's protest that Section 2.8 of the Settlement has not explicitly approved or authorized of SCE's request to recover amounts previously recorded in the TCBA is granted.

28. SCE shall eliminate those accounts whose elimination has been explicitly approved in the D.99-10-057, where elimination is consistent with SCE's requests in A.00-03-047.

29. We deny TURN's protest regarding implementation costs, since these costs may not be recovered without proper authorization from us.

30. ORA's protest regarding the Risk Management Tools Memorandum Account is granted because issues pending in the 2001 ATCP may affect this account.

31. SCE shall not file an advice letter to comply with the requirement of Ordering Paragraph 1 of D.99-10-057.

32. The TCBA and GABA are hereby eliminated consistent with the Settlement.

33. We agree that D.01-01-019 eliminated the Electric Magnetic Field Balancing and Memorandum Account.

34. SCE shall work with ORA, TURN, and Aglet to determine the appropriate process to comply with the capital additions provision of the Settlement within 20 days after the approval of this Resolution.

35. SCE shall make all the necessary corrections it has agreed to in its response to protests when it files a compliance advice letter for this Resolution.

36. A failure to adopt a decision before the expiration day of the 30-day review period and comment period would cause a significant harm to the public welfare and therefore the comment period is reduced from 30 days to 26 days.

37. SCE shall file an advice letter to implement the orders in this Resolution ten days after the approval of the Resolution. The Advice Letter shall be effective upon approval by the Energy Division.

This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on January 23, 2002, the following Commissioners voting favorably thereon:

_____________________

WESLEY M. FRANKLIN

Executive Director

LORETTA M. LYNCH

President

HENRY M. DUQUE

RICHARD A. BILAS

CARL W. WOOD

GEOFFREY F. BROWN

Commissioners

Appendix A

Balancing Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
1		Gross Revenue Sharing Mechanism (GRSM)	Records the customer's share of Certain Other Operating Revenue (OOR).	D.99-09-070	G	No Change	Bill Credit (through EDRA)	-----	No Action
2		Income Tax Component of Contribution Provision	Sets forth determination of Income Tax Component of Contribution (ITCC).	D.87-09-026	M	No Change	-----	-----	No Action
3		Electric Deferred Refund Account (EDRA)	The EDRA records & consolidates electric disallowances and amounts resulting from settlement of reasonableness disputes ordered by the CPUC or FERC for direct refund to customers.	D.96-12-025 AL 1208-E	EE	No Change	Bill Credit	------	No Action
4		Employee Related Balancing Account (ERBA)	Provides for the recovery of employee related transition costs through December 31, 2006.	D.97-06-060 D.97-11-074 D.97-12-039	J	Add	Generation	D.99-10-057	Approved
5		Nuclear Decommissioning Adjustment Mechanism (NDAM)	Records the difference between the authorized revenue requirements (or expenditures) and recorded revenues (or expenditures) for Nuclear Decommissioning, SONGS 1 Shutdown O&M, Department of Energy Decontamination & Decommissioning Fees, and Spent Nuclear Fuel Storage Fees Mechanism.	D.99-10-057	K	Add	Nuclear Decommissioning	D.99-10-057	Approved
6		SCE Contracts Balancing Account (SCECBA)	Records revenues and costs associated with SCE's Qualified Facilities, Interutility Contracts, bilateral contracts and block forward market contracts. 1/	Settlement AL 1534-E Withdraw Advice Letter	MM	Add	Generation	Pending URG Decision	Denied
7		SCE Utility Retained Generation Balancing Account (SCEOGBA)	Records capital-related and O&M costs associated with SCE's owned-generation facilities.	Settlement AL 1534-E Withdraw Advice Letter	NN	Add	Generation	Pending URG Decision	Denied
Balancing Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
8		DWR Procurement Costs Balancing Account (DWR PCBA)	Records the DWR revenue requirement.	Settlement	RR	Add	Generation	-----	Denied
9		Procurement Related Obligations Account (PROACT)	Provides for the recovery of unrecovered wholesale electricity procurement costs and other indebtedness.	Settlement Agreement approved by Federal Court	UU	Add	Generation	-----	Approved w/ Modifications
10		Net Short Procurement Costs Balancing Account (NSPCBA)	Records net short procurement costs including ISO charges, but excludes (1) SCE generation owned as 10/2/2001, (2) SCE contracts entered into prior to 10/2/2001, (includes QF, IU and bilateral), and (3) DWR payments.	Settlement	OO	Add	Generation	Pending URG Decision	Denied
11		Performance Based Ratemaking (PBR) Exclusion Distribution Adjustment Mechanism (PBR EDAM)	Records the difference between the authorized revenue requirements (or expenditures) and recorded revenues (or expenditures) for RCRA, Non-utility Affiliate Credits, and Direct Access Costs. In addition the following accounts will transfer to the PBR EDAM: · PBR Distribution Rate Performance Memo Account · Affiliate Transfer Fee Memorandum Account · Hazardous Substance Cleanup & Litigation Cost Recovery Mechanism · Catastrophic Event Memorandum Account · PBR Distribution Revenue Sharing Memorandum Account · Optional Pricing Adjustment Clause Balancing Account	D.99-10-057	L	Add	PBR Exclusion	D.99-10-057	Approved w/ Modifications
Balancing Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
12		Public Purpose Programs Adjustment Mechanism (PPPAM)	Records the difference between the authorized revenue requirements (or expenditures) and recorded revenues (or expenditures) for mandated programs (Energy Efficiency, Research, Development and Demonstration, Low Income Energy Efficiency, and Renewables), California Alternate Rate for Energy (CARE) Admin Costs, Intervenor Payments and RD&D (SCE). In addition the following accounts will transfer to the PPPAM: · Energy Efficiency Program Adjustment Mechanism · Energy Efficiency Demand Side Management Memorandum Account · DSM Adjustment Clause · ENVEST Pilot Program Adjustment Mechanism · RD&D Adjustment Clause · RD&D Royalties Memorandum Account · Low Income Energy Efficiency Program Adjustment Mechanism · Economic Development Adjustment Clause · Electric Vehicle Adjustment Clause and Memorandum Account	D.99-10-057	FF	Add	Public Purpose Programs	D.99-10-057	Approved w/ Modifications
13		Economic Development Adjustment Clause (EDAC)	Records Commission authorized funding (reflected in distribution rates) versus recorded expenditures for the Economic Development program. Any unspent funds to be carried over/forward through the end of the PBR cycle.	D.96-01-011 D.94-12-045 D.96-09-092 AL 1149-E D.97-08-056 D.97-11-073 AL 1245-E-B AL1245-E-C	Y	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
14		Optional Pricing Adjustment Clause (OPAC) Balancing Account	Records adjustment to reflect the adopted ratemaking treatment that ensures ratepayers and shareholders will share 50-50 all net incremental revenues from increased sales associated with adopted Flexible Pricing Options.	D.95-06055 AL 1114-E-D.96-08-025 AL 1178-E	P	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057	Denied
Balancing Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
15		Demand Side Management Adjustment Clause (DSMAC)	Records the difference between the authorized expenditures associated with Demand Side Management programs and recorded expenditures.	D.90-08-068 D.94-10-059 D.96-01-011 AL 1164-E	Q	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
16		Envest SCE Pilot Program Adjustment Mechanism (EPPAM)	Records the authorized funding, recorded expenditures and customer payments associated with the Envest Pilot program. Any unspent funds remaining upon termination of the last contract shall be refunded to customers.	Res. E-3337	S	Modify	-----	D.99-10-057	Approved
17		Electric Vehicle Adjustment Clause (EVAC)	The EVAC one-way balancing account was established for SCE's support of EVs in California and permits recovery of recorded O&M-related EV program costs in the year following expenditures. Effective 01/01/96 -12/31/2002.	D.95-11-035 AL 1142-E D.01-06-039 AL1558-E -(Approval pending of one-year extension)	U	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Denied
18		Hazardous Substance Cleanup & Litigation Cost (HSCLC) Recovery Mechanism	Tracks ratepayers' share of costs and related recoveries associated with cleaning up certain properties contaminated with hazardous substances.	D.94-05-020	V	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057 ABX1-6	Denied
19		Research, Development and Demonstration Adjustment Clause (RD&D)	Records the difference between the authorized expenditures associated with RD&D and the recorded expenditures associated with RD&D programs.	D.87-12-066 D.96-01-011 AL 1148-E D.01-06-039 AL1574-E (Approval pending of one-year extension)	X	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
20		Energy Efficiency Program Adjustment Mechanism (EEPAM)	The EEPAM tracks the Public Purpose Program Charge (PPPC) funds allocable to the energy efficiency programs and the energy efficiency programs expenses.	D. 97-12-103 AL. 1288-E D. 98-05-018	GG	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
Balancing Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
21		Low Income Energy Efficiency Program Adjustment Mechanism (LIEEPAM)	The LIEEPAM tracks the Public Purpose Programs Charge (PPPC) funds allocable to the low-income energy efficiency programs, and the low-income energy efficiency programs expenses.	D. 97-12-103 AL. 1288-E D.98-05-018	HH	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
22		California Alternate Rates for Energy (CARE) Adjustment Account	Sets forth the California Alternate Rates for Energy Surcharge.	D.89-07-062 D.89-09-044	O	Modify to eliminate	Public Purpose Programs (through PPPAM)	D.99-10-057	Denied
23		Competition Transition Charge (CTC) Responsibility	The CTC is designed to recover retail transition costs and applies to all existing & future SCE bundled customers, all Direct Access customers and all Departing load customers	D.97-06-060/ D.97-11-074 & D.97-12-039 AL 1274-E D.98-12-067 AL 1359-E	W	Eliminate	------	------	Denied
24		Transition Revenue Account (TRA)	Determines the amount of CTC residual revenues by matching the amount of billed revenues against the amount of separated revenue requirements and Commission-approved obligations.	D.97-10-057 Res. E-3514 AL 1255-E-A	R	Eliminate	------	D.99-10-057	Approved
25		Generation Asset Balancing Account (GABA)	Records the estimated market value of SCE's non-nuclear generation assets, excluding jointly owned facilities.	D.00-02-048 D.00-06-044	I	Eliminate	-------	Settlement	Approved
26		Transition Cost Balancing Account (TCBA)	Provides for the recovery of uneconomic costs associated with the transition to a restructured electric industry in California.	D.97-06-060/ D.97-11-074/ D.97-12-039	JJ	Eliminate	-----	-----	Approved
27		Emergency Procurement Surcharge Balancing Account (EPSBA)	Records Emergency Procurement Surcharge revenues and on-going electricity procurement costs incurred after January 4, 2001.	D.01-01-018/	KK	Eliminate	-----	Pending URG Decision	Denied
Balancing Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
28		Purchased Power Balancing Account (PPBA)	Records the difference between all surcharge revenues and power purchase costs beginning March 27, 2001 until URG balancing accounts are approved by the Commission.	D.01-03-082 AL1528-E (Pending approval)	LL	Eliminate	-----	Pending URG Decision	Denied
29		Public Purpose Adjustment Mechanism (PPAM)	The PPAM (1) reflects the collection in rates, through the application of the nonbypassable Public Purpose Programs Charge (PPPC), the state mandated authorized Public Purpose Programs revenue requirements and (2) insures that the authorized Public Purpose Program funding levels are transferred to the appropriate agency for administration of Public Purpose Programs	D.97-09-117	II	Eliminate	-----	D.99-10-057	Approved
30		PBR Distribution Rate Adjustment Mechanism/PBR Distribution Rate Performance Mechanism//Cost of Capital Trigger Mechanism	Provides for the annual PBR Distribution Rate adjustment, the calculation of rewards and penalties, and the authorized return on equity adjustment.	D.96-09-092	BB/CC/DD	See N.25 and N26 below	See N.25 and N26 below	See N.25 and N26 below	N/A
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
1		Demand Responsiveness and Self-Generation Programs Memorandum Account	Tracks incremental program costs and distribution revenue requirement associated with SCE's Small Commercial Demand Responsiveness Pilot Program and Self-Generation Pilot	D.01-03-073 D.01-07-028 AL 1532-E AL 1583-E (Pending approval)	N.3	No Change	-----	-----	Approved w/ modifications
2		Income Tax Component Of Contribution Memorandum Account (ITCCMA)	Records the difference between any income taxes associated with a taxable transaction of assets transferred to SCE and all funds received from QFs specifically for use in paying such income tax.	D. 94-06-038	N.14	No Change	Generation	-----	No Action
3		Local Area Revenue Mechanism (LARM) Memorandum Account	Records costs from gas user's tax assessed by City of El Segundo to be passed through to El Segundo ratepayers as a local area surcharge.	Res. E-3143	N.6	No Change	-----	D.97-09-049	No Action
4		SONGS 2&3 Shutdown O&M and Unamortized Fuel Expense	Records reasonable Shutdown O&M and Unamortized Nuclear Fuel expense in the event that any unit shuts down before 2013.	D.96-04-059	N.34	No Change	Generation Rate	-----	No Action
5		Palo Verde Shutdown O&M and Unamortized Fuel Expense	Records reasonable Shutdown O&M and Unamortized Nuclear Fuel expense in the event that any unit shuts down before 2011.	D.96-12-083/ Petition to modify pending	N.36	No change	Generation Rate	-----	No Action
6		Rate Reduction Bond Memorandum Account (RRB)	Records the difference between the Rate Reduction Bond Savings Amount and the 10% Rate Reduction Amount provided to residential and small commercial customers.	D.97-09-056 AL. 1253-E	N.30	No Change	RRB Balance Rate when the memo. account reaches zero	D.99-10-057/ D.00-06-034	Approved w/ Modifications
7		Transmission Revenue Requirement Reclassification Memorandum Account (TRRRMA)	Records the transmission revenue requirement associated with costs requested by the Company for recovery in Transmission rates that the Federal Energy Regulatory Commission (FERC) does not allow to be included in transmission rates.	AL1298-E A. 01-02-030	N.48	No Change	-----	-----	No Action
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
8		Direct Access Discretionary Services Costs (DADSC) Memorandum Account	Records costs incurred by SCE directly related to direct access for Discretionary Billing, Metering and Meter Reading Services requested by customers and the interim fees billed for those services.	D.97-10-087 AL1264-E	N.52	No Change	-----	D.01-01-019	No Action
9		Hourly Pricing Implementation (HPIC) Memorandum Account	Records incremental costs resulting from the usage of actual hourly data for the calculation of the PX Energy Credit pursuant to Section 367.7.	AL1430-E	N.59	No Change	-----	-----	No Action
10		Voluntary Power Reduction Credit Memorandum Account (VPRCMA)	Records administrative cots of the Voluntary Power Reduction program and incentive payment to participating customers. The Demand Bidding Program replaces this program.	Res E-3650 AB 970 AL 1418-E	N.60	No Change	-----	-----	No Action
11		Applicant Installed Trench Inspection Memorandum Account (AITIMA)	Tracks nonrefundable inspection amounts.	D.99-09-034 AL 1405-E	N. 61	No Change	-----	-----	No Action
12		Air Conditioner Cycling Memorandum Account (ACCMA)	Records costs associated with customer recruiting and administration of SCE's Air Conditioner Cycling program.	AB 970 AL 1464-E-A	N.62	No Change	-----	-----	No Action
13		Nuclear Claims Memorandum Account (NCMA)	Records assessment, premiums and costs associated with claims by workers or third parties of exposure to nuclear radiation.	D.96-04-059 AL 1478-E	N.65	No Change	-----	-----	No Action
14		Interruptible Programs Excess Energy Charges Memorandum Account (IPEECMA)	Records excess energy charges incurred by customers for interruption events from October 1, 2000 through January 25, 2001.	D.01-01-056 AL 1517-E	N.66	No Change	-----	-----	No Action
15		Interruptible Load Programs (ILP) Memorandum Account	Track costs and revenues associated with interruptible load and curtailment programs where costs are in excess of the costs authorized in current rates.	D.01-07-025 D.01-07-028 AL 1560-E	N. 67	No Change	-----	-----	No Action
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
16		Real Time Energy Metering (RTEM) Memorandum Account	Record incremental O&M and capital costs associated with Real Time Energy Metering less CEC reimbursement.	AL 1549-E-A	N.72	No Change	-----	-----	No Action
17		Distributed Energy Resources Generation Memorandum Account	Records the waived Standby Charges applicable to any customer billed on a time-of use rate schedule using electric generation technology.	AL 1551-E (Approval pending)	N.73	No Change	-----	-----	No Action
18		Electric Distribution Revenue Adjustment Memorandum Account	Records the Distribution PBR revenues and costs pursuant to D.01-06-038.	D.01-06-038 AL1575-E (Approval pending)	N. 74	Modify	PBR Exclusion (through PBR EDAM)	Pending ERAM Decision	Denied
19		Risk Management Memorandum Account	Records costs related to SCE's hedging fuel costs risk associated with Utility Retained Generation (URG), QFs, and Interutility contracts.	Al 1579-E-A	N.75	Modify	Generation	-----	Approved
20		PX Credit Audit (PXCA) Memorandum Account	Records audit costs associated with independent audits of SCE's PX calculation.	D.99-06-058/ AL 1387-E	N.57	Modify	-----	D.99-10-057	Denied
21		Short-Term Generation Capacity Memorandum Account (STGCMA)	Records expenses associated with SCE's lease and operation of the Riverside Canal (formerly Highgrove) station.	Res. E-3686 Al 1468-E-B	N.63	Modify	Generation	-----	Denied
22		Increased Return of Equity on Divestiture Memorandum Account	Tracks the increased differential in return as each 10% of fossil generating capacity is divested.	D.97-11-074 AL. 1275-E	N.44	Modify	Generation	-----	Denied
23		Non-Nuclear Generation Capital Additions (NGCA) Memorandum Account	Tracks the return component and related taxes of the revenue requirement associated with Non-nuclear generation capital additions recorded for 1996, 1997 and a portion of 1998.	D.98-01-051 AL.1287-E	N.47	Modify	Generation	-----	Denied
24		Affiliate Transfer Fee Memorandum Account	Records transfer fees received by SCE from covered affiliates when an employee is transferred, assigned or otherwise employed by the affiliate.	D.97-12-088 AL. 1289-E	N.53	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057	Denied
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
25		Fuel Oil Inventory Memorandum Account (FOIMA)	Records carrying cost and gains and losses on sales of fuel oil inventory that were held as of December 31, 1997. Sunset Date of January 31, 2001.	E-3606	N.54	Modify	Generation	-----	Denied
26		Energy Efficiency Demand Side Management (EE DSM) Memorandum Account	Records SCE's portion for studies conducted by the CEC. Currently balance is transferred to the EEPAM at the end of each year.	D.99-12-053/ AL 1448-E	N.55	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
27		PBR Distribution Revenue Sharing Memorandum Account	Records all revenues, which exceed (+) or (-) 600 basis points in the Distribution Base Revenue Sharing Mechanism.	D.96-09-092	N.25	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057	Denied
28		PBR Distribution Rate Performance Memorandum Account (PBR DRPMA)	Records the ratepayer portion of revenue sharing resulting from the distribution base rate revenue sharing mechanism and all rewards and penalties resulting from application of the: (1) customer satisfaction; (2) average customer minutes of interruption; (3) outage frequency; (4) employee health & safety performance mechanisms.	D. 96-09-092 D. 97-10-057	N.26	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057	Denied
29		Catastrophic Event Memorandum Account (CEMA)	Records all costs incurred by SCE associated with a Catastrophic event for: 1) restoring utility service to SCE's customers; 2) repairing, replacing, or restoring damaged utility facilitates; and 3) complying with governmental agency orders.	Res. E-3238 AL 912-E	N.4	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057 ABX1-6	Approved with modification
30		Research, Development, And Demonstration Royalties (RDDR) Memorandum Acct.	Records all royalties, licensing fees, and other revenues resulting from the Company's RD&D programs.	D. 91-12-076	N.10	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Approved
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
31		DSM Earnings Memorandum Account	Records and amortizes into rates earned incentives authorized by the Commission in the Annual Earnings Assessment Proceeding (AEAP).	D.94-12-021 D.95-12-054 D.96-12-079 D.98-03-063 D.99-06-052 D.00-09-038	N.15	Modify	PBR Exclusion (through PBR EDAM)	D.99-10-057	Denied
32		Electric Vehicle (EV) Memorandum Account	Records the revenue requirement associated with the Capital Program Area expenditures for SCE's EV Program.	D. 95-11-035 AL 1142-E	N.17	Modify	Public Purpose Programs (through PPPAM)	D.99-10-057	Denied
33		Telecommunication Lease Revenue (TLR) Memorandum Account	Records revenues from lease agreements between the Company and other parties for use of parts of SCE's fiber optic cable space and facilities.	D.96-11-058 D.96-10-071 AL 1202-E	N.22	Modify to eliminate	-----	D.99-07-070	Denied
34		Secondary Land Use Revenue (SLUR) Memorandum Account	Records the ratepayers' share (50%) of lease revenues from certain secondary land use lease agreements recorded in Other Operating Revenue Accounts.	D.96-12-024 AL 1214-E	N.27	Modify to eliminate	-----	D.99-07-070	Denied
35		Reduced Return on Equity Memorandum Account (RROE)	Tracks the difference in authorized revenue requirements stemming from the difference in the return on equity adopted in the 1997 Cost of Capital and the reduced return on equity adopted in the CTC Phase 2 Decision.	D.97-09-056 D.97-11-074 AL. 1243-E	N.29	Modify to eliminate	-----	D.99-10-057	Denied
36		Streamlining Residual Memorandum Account (SRA)	Records miscellaneous non-generation related costs, not being recorded in other Commission-approved balancing or memorandum accounts, previously authorized in ERAM or ECAC.	D.97-10-057 Res. E-3514 AL 1255-E-A	N.50	Modify to eliminate	-----	D.99-10-057	Denied
37		Block Forward Market Memorandum Account (BFMMA)	Records costs to participate in PX Block Forward Market and near-term, and medium-term bilateral contracts that are not directly billed to SCE.	D.00-08-023/ AL 1478-E-A	N.56	Modify to eliminate	-----	D.99-10-057	Denied
38		Interim PX Market Clearing Price (IPXMCP) Memorandum Account	Tracks information associated with one-time election by QFs to receive energy payments based on PX market clearing prices.	D.99-11-025/ AL 1419-E	N.58	Modify to eliminate	------	D.99-10-057	Denied
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
39		Near-Term Bilateral Contracts (NTBC) Memorandum Account	Records costs and revenues associated with SCE's participation in Near-Term Bilateral Contracts.	D.00-08-023 AL 1478-E-A	N.64	Modify to eliminate	-----	D.99-10-057	Denied
40		Santa Catalina Island Diesel Fuel (SCIDF) Memorandum Account	Records the costs of diesel fuel burned for electrical generation in the operation of the Pebbly Beach Generating Station at Santa Catalina Island.	D.97-11-073 AL1316-E	N.49	Eliminate	-----	D.01-03-027 & Pending URG Decision	Denied
41		Industry Restructuring Memorandum Account (IRMA)	Records costs incurred by SCE prior to 1/1/98 to implement restructuring which are not being tracked in previously established memo accounts associated with restructuring or recovered through other mechanisms.	D.96-12-077 AL 1210-E D.97-03-069 AL. 1229-E D.97-05-040 AL. 1236-E	N.24	Eliminate	-----	D.99-10-057	Denied
42		Risk Management Tools Memorandum Account (RMTMA)	Records the amortization of the Utility's net out of pocket costs of acquiring risk management tools under PU Code 368 (c).	Res. E-3511	N.31	Eliminate	-----	D.99-10-057	Denied
43		Flexible Pricing Options (FPO)/Competition Transition Charge (CTC) Memorandum Account (FPO/CTC)	Tracks the amount of discounted CTC resulting from customers receiving service under a business retention FPO approved by the Commission in D.96-08-025.	D.97-08-056 AL 1245-E-B	N.32	Eliminate	-----	D.99-10-057	Denied
44		SONGS 2&3 Property Tax Memorandum Account	Records the annual difference between the maximum SONGS 2&3 property taxes and recorded property taxes.	D.96-04-059 D.01-06-041 AL 1559-E (approval pending)	N.35	Eliminate	-----	ABX1-6	Denied
45		California Public Utilities (PU) CODE "SECTION 376" - Restructuring Implementation Tracking Memorandum Account	Tracks the extent to which generation-related transition costs may be collected after 12/31/01 if an undercollection exists in the TCBA due to displacement by 376 costs collected through rates.	D.97-06-060 AL. 1275-E	N.37	Eliminate	-----	D.99-10-057	Denied
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
46		California Public Utilities (PU) CODE "SECTION 381 (d)" - Renewable Program Tracking Memorandum Account	Tracks the extent to which generation-related transition costs may be collected after 12/31/01 if an undercollection exists in the TCBA due to displacement by 381 (d) revenues collected through rates.	D.97-06-060 AL. 1275-E	N.38	Eliminate	-----	D.99-10-057	Denied
47		Independent System Operator (ISO) Revenue Memorandum Account	Records the difference between going-forward costs and ISO/PX revenues for must-run fossil generation. Only credit balances may be transferred to the Unavoidable Fuel Contracts Costs Memorandum Account.	D.97-11-074 AL. 1275-E	N.40	Eliminate	-----	Pending URG Decision	Denied
48		Power Exchange (PX) Revenue Memorandum Account	Records the difference between going-forward costs and ISO/PX revenues for non must-run fossil generation. Only credit balances may be transferred to the Unavoidable Fuel Contracts Costs Memorandum Account.	D.97-11-074 AL. 1275-E	N.41	Eliminate	-----	Pending URG Decision	Denied
49		Unavoidable Fuel Contract Costs Memorandum Account	Tracks net unavoidable fixed fuel transportation and fuel supply expenses.	D.97-11-074 AL. 1275-E	N.42	Eliminate	-----	Pending URG Decision	Denied
50		Hydro Generation Memorandum Account	Records the difference between the Hydro Generation Revenue Requirement and ISO/PX revenues. Only credit balances may be transferred to the TCBA.	D.97-11-074/ D.97-12-102	N.43	Eliminate	-----	Pending URG Decision	Denied
51		Independent System Operator (ISO) Memorandum Account	Records certain costs incurred by SCE on and after July 17, 1996 associated with the establishment of the ISO.	D.96-10-044 D.96-08-038 AB 1890 AL 1203-E AL 1181-E	N.18	Eliminate	-----	D.99-10-057	Denied
52		Power Exchange (PX) Memorandum Account	Records certain costs incurred by SCE on and after July 17, 1996 associated with the establishment of the Power Exchange.	D.96-10-044 D.96-08-038 AB 1890 AL 1203-E AL 1181-E	N.19	Eliminate	-----	D.99-10-057	Denied
Memorandum Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
53		Transition Cost Audit (TCA) Memorandum Account	Records SCE's share of all invoiced auditor costs relating to audits of transition costs.	D.96-09-032 AL 1183-E	N.20	Eliminate	-----	D.99-10-057	Denied
54		Divestiture of Fossil Generation (DFG) Memorandum Account	Records all costs and activities associated with the divestiture of fossil fueled units, including costs associated with the development of the Divestiture Public Utilities Code Section 851 Application, the Proponents Environmental Assessment, and those activities associated with divestiture of the fossil fuel units including workforce management costs and the divestiture auction process.	D.95-12-063 D.96-01-009 AL 1179-E	N.21	Eliminate	-----	D.99-10-057	Denied
55		Competition Transition Charge Exemption (CTCE) Memorandum Account	Records the CTC costs that would have been recovered if not for exemptions set forth in the California Public Utilities Code. Costs recorded shall be tracked in four sub accounts to ensure that the unrecovered costs resulting from the exemptions are tracked according to the customer class where the exemption is granted pursuant to the "Fire Wall" provision.	CPU Code Sections 369, 372, 373, and 374 AL 1209-E	N.23	Eliminate	-----	D.99-10-057	Denied
56		Medium-Term Bilateral Contracts Memorandum Account	Records costs and revenues associated with SCE's participation in Medium-Term Bilateral Contracts.	D.00-08-023 AL 1507-E (Approval pending)	N.68	Eliminate	-----	D.99-10-057	Denied
57		Rate of Return Memorandum Account (RORMA)	Tracks the difference in authorized revenue requirements between the fully authorized rate of return on SCE's generation assets and the reduced rate of return adopted in D.97-11-074.	D01-01-061 AL 1521-E (Approval pending)	N.69	Eliminate if URG adopts full rate of return. If not, no change	Generation	Pending URG Decision	Denied
Tracking Accounts
Account Name			Current Function/Purpose	Authority For Establishment	Prelim. Stmt. Part	SCE Proposal	Rate Component	Authority for Change	Resolution Recommendation
1		Revenue Sharing Tracking Account (RSTA)	Tracks and reports the recorded revenue (including other operating revenue) that is subject to the PBR distribution net revenue sharing mechanism included in the Preliminary Statement, Part CC, PBR Distribution Rate Performance Mechanism (PBR DRPM).	D.96-09-092	CC.4	No change	-----	-----	No Action

¹ Settlement Agreement at page 7

² Id. page 7

³ Id. page 11

⁴ Settlement Agreement at page 10

⁵ Id. Section 2.1(c)

⁶ SCE's response to protest at page 7

⁷ TURN's protest at page 9

⁸ SCE indicates that the Commission is reviewing the beginning balance of the PROACT for verification. By a letter to SCE, dated November 2, 2001, the Energy Division Director approved the expected balance in the PROACT as of October 1, 2001 to be $3,277.63 million after deducting $300 million.

⁹ Settlement Agreement at page 9

¹⁰ Settlement Agreement at page 8

¹¹ "Cost Items" means memorandum and balancing accounts and costs comprising the revenue requirement approved by the Commission.

¹² Section 2.8 provides in pertinent part that "Balances in SCE's TCBA as of August 31, 2001 shall have no further impact on SCE's retail electric rates, Surplus or Recoverable Costs, except to the extent the CPUC authorizes the recovery after such date of costs previously recorded in the TCBA (e.g., accelerated amortization of SCE's investment in nuclear plants). Recoverable Costs incurred after August 31, 2001, which would otherwise have been recorded in the TCBA, shall be recovered in rates in accordance with further orders of the CPUC, whether or not the CPUC chooses to continue to have such costs recorded in the TCBA."

¹³ "QF shareholder incentives, Hazardous substance memo account, Increased ROE on divestiture, Non-nuke gen cap adds, Fuel oil inventory, Block forward memo, PX credit audit memo, Short term gen cap memo, and Earned nuclear unit incentives."

¹⁴ "PG&E and Edison shall amortize the revenue associated with applying the ... over a 12 month period beginning with the date utilities begin collecting the surcharge."

¹⁵ See Settlement, e.g., 1.1(aa), 1.1(q), and 2.1(b).

¹⁶ We note that Settlement section 2.5 provides that "it is the intent of the foregoing [dividend suspension] that cash generated from Surplus be used to reduce Procurement Related Liabilities." This explains the different treatment afforded pre- and post- September 1, 2001 foregone dividends. The former are used to reduce Procurement Related Liabilities, per section 2.5. However, after September 1, 2001, Procurement Related Liabilities are replaced by Procurement Related Obligations.

¹⁷ The Energy Division Director letter dated November 2, 2001 states that the expected balance in the PROACT is $3,277.63 million after deducting $300.00 million.