Discussion

SCE submitted this application to bring rate relief to its customers as soon as its PROACT balance is recovered. The chief change between application and the Settlement Agreement, one which will make rate relief available sooner, is that while the application called for PROACT collection to be verified first, with rate relief following, the Settlement Agreement calls for a forecast of PROACT recovery. Because the forecast method will result in either no overcollection (an unavoidable occurrence under the other method), or a much smaller one, to be returned to ratepayers, the rate reductions are somewhat less under the forecast method.

The Settlement Agreement differs from the application in certain other respects - among them the resolution of SCE's Baseline Balancing Account, a modified treatment of the Direct Access Cost Responsibility Surcharge shortfall, and making post-PROACT rates effective for 12 full months - but is still consistent with implementing new rates that account for the reduction in SCE's generation revenue requirement that full recovery of PROACT makes possible.

In response to the timely comments filed by the SPI, and in accordance with the Commission's Rules of Practice and Procedure (Rule 51.7), the Commission modifies this settlement to create an electricity tariff for public school facilities that will return school rates to pre-energy crisis levels, that is, before the rate increases in 2001 of approximately 4.5 cents/kWh. SCE shall file the appropriately re-calculated tariffs for all customer classes with the Commission by Advice Letter within 10 days of this decision, as described below.

A. The Settlement Agreement with Modifications is Supported by the Record

The record contains the information necessary for the Commission to find the Settlement Agreement reasonable. In addition to its prepared testimony and the rate structure originally proposed, SCE produced additional rate scenarios, including those requested by the Assigned ALJ, based on stated assumptions different from those in the application. The Assigned ALJ admitted into evidence the following exhibits:

Exhibit 1 - SCE's Post-PROACT Ratemaking and Rate Design Proposal.

Exhibit 2 - SCE's Post-PROACT Proposed Preliminary Statements.

Exhibit 3 - The Settlement Agreement.

Exhibit 4 - SCE's response dated March 10, 2003, to the ALJ.

Exhibit 5 - SCE's response dated May 2, 2003, to the ALJ.

The rates set forth in the Settlement Agreement are consistent with the evidence and Commission decisions.

A. The Settlement Agreement with Modifications
is Consistent with Law

The terms of the Settlement Agreement comply with all statutes and prior Commission decisions.

C. The Settlement Agreement with Modifications
is in the Public Interest

The Settlement Agreement with the modifications described herein is a reasonable compromise of the Settling Parties' respective positions. The Settlement Agreement with modifications is in the public interest and the interest of SCE's customers. The Settlement Agreement with modifications avoids the cost and delay of further litigation and brings rate relief to customers in all rate groups. It does so while not unduly burdening the resources of any party, nor the Commission, whose resources are presently engaged in other proceedings, including SCE's 2003 GRC. Specifically, the modifications ordered by the Commission to the Settlement Agreement serve the public interest by providing much needed rate relief to the public school system of California in a time of fiscal crisis. This school system educates millions of Californians, employs hundreds of thousands of Californians, and this rate relief will allow this critical California infrastructure to function more productively to the benefit of the entire State.

In addition, unlike most businesses or industries, and unlike the California electrical system as a whole, public school facilities tend to have peak electrical usage during winter rather than summer months, which means they contribute less to system sizing and peak demand costs. Public schools, particularly K-12, are also not in a position to adjust the price of the service they provide based on increased costs of doing business (i.e., increased facility costs due to higher electricity rates), further justifying their need for rate relief.

There is a reduction of $1.249 billion to the bundled service customers. These customers will also be owed $325.6 million by Direct Access (DA) customers, due to the cap on the DA Cost Responsibility Surcharge (CRS), to be paid back to them when the cap can accommodate it.

The numbers in the following table (Table 1) show the current revenue by customer rate group and the settlement revenue by customer rate group, prior to the Commission's modifications. The SPI provided broad information on statewide school energy use (5 billion kWh per year) and cost savings from a school tariff ($200 million). The SPI proposal estimated that the requested rate relief would decrease other customer classes rate reductions by approximately 0.1 cent/kWh.⁷ The decreased rate relief to supplement the schools rate proposal was confined to large users (i.e., commercial, industrial and agricultural), the same general customer classes in which schools reside.⁸

In light of the changes to the Settlement Agreement brought about by adopting the SPI's proposal for a public school facilities tariff, the figures in Table 1 are illustrative only (but, given the slight changes to other customers' rates calculated by the SPI, are a reasonable approximation). The Commission can comfortably move forward on a policy basis using these approximate figures and effects on specific customer classes. However, we request that SCE re-file Table 1 based on the modifications proposed here in its comments on this decision in order to provide a more accurate picture of the exact effect of this proposal, to which parties may respond in their reply comments.

SCE shall file, within 10 days of this decision, an Advice Letter implementing the Settlement Agreement with the modifications made by the Commission. Specifically, SCE shall create a separate rate class for public school facilities, which will receive a rate decrease of 4.5 cents/kWh and which will come, on an equal cents per kWh basis, from the three broad customer classes indicated in the SPI proposal and outlined above.

Table 1 shows the current revenue by customer rate group and the settlement revenue by customer rate group, with totals, prior to Commission modification of the Settlement Agreement.

Southern California Edison
Post-PROACT Present and Adopted Average Rates for Bundled Service Customers
	Current			Adopted
	Average Rates - ¢/kWh	Revenue ($million)		Average Rates - ¢/kWh	Revenue ($million)	Average Rate Percent Change	Revenue change ($million)
CARE	8.899	366		8.899	366	0.0%	0
Non-CARE	14.664	3,105		13.512	2,835	-7.9%	(271)
Total Residential	13.726	3,472		12.655	3,201	-7.8%	(271)
GS-1	17.493	736		14.293	601	-18.3%	(135)
TC-1	12.735	17		10.957	15	-14.0%	(2)
GS-2	15.268	2,963		13.314	2,584	-12.8%	(379)
TOU-GS-2	14.622	70		12.157	58	-16.9%	(12)
Total LSMP	15.627	3,785		13.448	3,258	-13.9%	(528)
TOU-8-Sec	13.974	1,000		11.476	821	-17.9%	(179)
TOU-8-Pri	13.487	666		11.287	557	-16.3%	(109)
TOU-8-Sub	10.830	400		8.044	297	-25.7%	(103)
Total Large Power	13.086	2,065		10.614	1,675	-18.9%	(390)
PA-1	15.323	87		13.587	77	-11.3%	(10)
PA-2	11.039	59		9.914	53	-10.2%	(6)
AG-TOU	10.200	88		8.233	71	-19.3%	(17)
TOU-PA-5	9.524	71		7.781	58	-18.3%	(13)
Total Ag.&Pump.	11.247	305		9.557	260	-15.0%	(46)
Total Street Lights	17.181	93		14.506	79	-15.6%	(15)
System	14.180	9,722		12.357	8,472	-12.9%	(1,249)

The balance in SCE's Baseline Balancing Account to be amortized over 12 months is $105.9 million.

The Settlement Agreement does not identify a separate 10% reduction during the period governed by the post-PROACT rates. The Settlement Agreement maintains the AB 1X rate protections for consumption up to 130% of Baseline by reducing Tier 1 and 2 rates by 10%. This interim change would leave bills unchanged for residential users consuming up to 130% of Baseline. The Settling Parties agree that the issue of whether or not to continue the 10% bill reduction credit for SCE customers will be addressed in Phase 2 of SCE's 2003 GRC. The Settlement Agreement does not resolve this issue and the proposed rates do not assume either the ultimate continuation or expiration of the credit after these post-PROACT rates are no longer in place. The Settling Parties have not waived their positions on this issue as it pertains to other utilities or Phase 2 of SCE's 2003 GRC.

The Settlement Agreement proposes the termination of the surcharges imposed on SCE by D.01-01-018 and D.01-05-064. The post-PROACT settlement rates build rates from the bottom up, including DWR charges, which results in the immediate $1.249 billion reduction to bundled service customers, plus an obligation by DA customers to pay $325.6 million to bundled service customers when the DA CRS cap can accommodate this.

SCE currently bills DA customers and bundled service customers in the same manner using bundled service rates, and then credits DA customers in the amount of the generation component of those rates. Under the Settlement Agreement, SCE will continue to do so until September 1, 2003, although under the Settlement Agreement SCE starts with lower bundled service rates and will have a lower generation rate to be credited to DA customers. Beginning September 1, 2003, SCE will move to "bottoms-up" billing under which DA customers will be charged, and their bills will reflect, only the services they receive and the DA CRS. The current DA crediting methodology will be changed at that time.