STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 21, 2002 6/27/2002

Agenda ID #656

TO: PARTIES OF RECORD IN APPLICATION 98-07-003

This is the proposed decision of Administrative Law Judge (ALJ) Barnett, previously designated as the principal hearing officer in this proceeding. It will be on the Commission's agenda at the next regular meeting, which is scheduled for June 27, 2002. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180 a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days before hand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.

The Commission may act at the regular meeting on June 27, 2002, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on communications.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ ANGELA K. MINKIN

Angela K. Minkin

Asst. Chief

Administrative Law Judge

ANG: sid

ALJ/RAB/sid DRAFT 6/27/2002

Agenda ID #656

Decision PROPOSED DECISION OF ALJ BARNETT (Mailed 5/21/2002)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Verification, Consolidation, and Approval of Costs and Revenues in the Transition Revenue Account.

Application 98-07-003 (Post PX Direct Access Credits) (Filed July 1, 1998)

SOUTHERN CALIFORNIA EDISON COMPANY'S HISTORICAL PROCUREMENT CHARGE PROPOSAL

(See Appendix A for a list of appearances.)

TABLE OF CONTENTS

Title Page

OPINION AUTHORIZING THE PROPOSAL OF SOUTHERN
CALIFORNIA EDISON COMPANY TO ESTABLISH A HISTORICAL PROCUREMENT CHARGE 2

I. Introduction and Summary 2

II. Background 3

A. Rate Freeze 3

B. The Avoided Cost Credit 4

III. History of the DA Credit 4

A. Zero Minimum Bill Provision 4

B. Escalation of PX Prices 5

C. Going Forward Procurement Surcharges 6

IV. SCE'S Procurement Related Liabilities 6

A. Equivalence of Impact on SCE's Liabilities 7

B. The Settlement Agreement 10

C. Securitization 15

V. HPC Proposal 16

A. Calculation of HPC 16

B. Modification to the Energy Credit 18

C. Overcollection 20

VI. Comments on Proposed Decision 22

Findings of Fact 22

Conclusions of Law 23

ORDER 24

APPENDIX A - List of Appearances

OPINION AUTHORIZING THE PROPOSAL OF

SOUTHERN CALIFORNIA EDISON COMPANY TO

ESTABLISH A HISTORICAL PROCUREMENT CHARGE

I. Introduction and Summary

On October 2, 2001, this Commission and Southern California Edison Company (SCE) reached a Settlement Agreement in Federal District Court Case No. 00-12056-RSWL (Mcx) that allows SCE to recover its past procurement cost undercollections as measured by the starting balance in SCE's Procurement Related Obligation Account (PROACT). That balance was $3.577 billion as of August 31, 2001. The Settlement Agreement was approved by the Federal District Court on October 5, 2001. SCE asserts that direct access (DA) and bundled service customers made equivalent contributions to the unrecovered procurement costs, because the credit that direct access (DA) customers received under past ratemaking was a perfect parallel to what bundled service customers were charged for procurement related costs. Under the current ratemaking framework; however, the surcharges adopted in 2001 are reflected in the generation rate component and DA customers' bills are credited with the entire generation rate component. SCE assert that this approach means that only bundled service customers are contributing to the recovery of the PROACT balance. SCE proposes to establish a Historical Procurement Charge (HPC), and to adjust the credit that DA customers receive so that DA and bundled service customers make equivalent contributions to the recovery of SCE's past procurement cost undercollections.

The California Large Energy Consumer Association (CLECA) and other parties assert that DA customers did not contribute to the undercollection in the same manner as bundled customers nor did many DA customers benefit from the undercollection. The Utility Reform Network (TURN), and others, support SCE.¹ Public hearings were held before Administrative Law Judge Barnett and the matter was submitted.

We conclude that SCE should be authorized to establish a HPC and apply it to DA customers by reducing the DA customers' generation credit by 2.5¢/kWh.