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STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

June 26, 2003

TO: PARTIES OF RECORD IN APPLICATION 03-01-019

Enclosed is the Alternate Draft Decision of Commissioner Loretta Lynch to the Draft Decision of Administrative Law Judge (ALJ) Robert Barnett previously mailed to you.

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

Public Utilities Code Section 311(g)(1) requires that an alternate to a draft decision be served on all parties, and be subject to public review and comment prior to a vote of the Commission. Rule 77.6(d), provides that comments on the alternate draft decision be filed at least seven days before the Commission meeting. Comments are due on July 3 and reply comments are due on July 8, 2003.

Pursuant to Rule 77.3 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. Please also provide an electronic copy of the comments to Aaron Johnson at ajo@cpuc.ca.gov.

   

Angela Minkin, Chief

Administrative Law Judge

ANG:epg

Enclosure

COM/LYN/epg ALTERNATE DRAFT Agenda ID # 2437

Decision ALTERNATE DRAFT DECISION OF COMMISSIONER LYNCH
(Mailed 6/26/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authority to Lower and Adjust Retail Electric Rates for All Customer Classes Upon Completion of Full Recovery of Procurement Related Obligations Account.

Application 03-01-019

(Filed January 17, 2003)

DECISION APPROVING A SETTLEMENT
LOWERING SOUTHERN CALIFORNIA EDISON'S
RETAIL ELECTRIC RATES BY $1.25 BILLION

TABLE OF CONTENTS

TITLE PAGE

DECISION APPROVING A SETTLEMENT LOWERING SOUTHERN CALIFORNIA EDISON'S RETAIL ELECTRIC RATES BY $1.25 BILLION 22

Findings of Fact 2222

Conclusions of Law 2626

APPENDIX A

DECISION APPROVING A SETTLEMENT
LOWERING SOUTHERN CALIFORNIA EDISON'S
RETAIL ELECTRIC RATES BY $1.25 BILLION

Background

In early 2001, the Commission authorized rate surcharges to address the financial upheaval resulting from the energy crisis of 2000-2001. (Decision (D.) 01-03-082 and D.01-05-064.) On October 5, 2001, the United States District Court approved a settlement between Southern California Edison (SCE) and the Commission that, among other things, established the Settlement Rates and new ratemaking mechanisms effective as of September 1, 2001 (the federal settlement).

On November 14, 2001, SCE filed Advice 1586-E to establish the Procurement Related Obligations Account (PROACT) and an associated ratemaking structure consistent with the federal settlement. On January 23, 2002, the Commission issued Resolution E-3765 approving, with modifications, the structure and operation of the PROACT. Under the Commission-approved PROACT ratemaking structure, the difference between SCE's revenues from Settlement Rates and SCE's Recoverable Costs (this difference is defined as Surplus) is determined on a monthly basis through the operation of the Settlement Rates Balancing Account (SRBA). The amount of Surplus determined in the SRBA is used during the Rate Repayment Period to recover the PROACT balance. In accordance with the federal settlement and Resolution E-3765, SCE established the PROACT on September 1, 2001, with an initial balance of $3.578 billion. The balance in the PROACT was $2.641 billion at December 31, 2001, and $686 million on November 30, 2002. SCE in its application projected that it could recover the remaining PROACT balance as early as July 2003, which would result in the termination of Settlement Rates.

SCE's federal settlement calls for the rate surcharges to be removed once the balance in SCE's PROACT has been fully recovered. In this application SCE seeks authority to lower its retail electric rates by approximately $1.25 billion upon full recovery of its PROACT balance. SCE seeks advance approval for post-PROACT rates in order that reduced rates may become effective as soon as possible once the PROACT balance has been recovered. In this application SCE estimated new rates would be effective September 1, 2003.

The application as filed proposed (1) a net change in revenues of zero for the domestic (residential) rate group overall, and an average 8% bill reduction for high-use residential customers, i.e., those in Tiers 4 and 5, through the elimination of those two tiers; and (2) lower rates for all other retail rate groups.

The Utility Reform Network (TURN) and the Office of Ratepayer Advocates (ORA) filed protests to the application. In February, 2003, the Assigned Administrative Law Judge (ALJ) directed to submit a different allocation of the reduction in SCE's generation revenue requirement. SCE submitted this additional evidence. TURN and other parties also submitted data requests to SCE, requesting that SCE make assumptions different from those in the application and show the resulting rate levels under those differing assumptions. SCE responded to those data requests. A prehearing conference (PHC) was held on March 21, 2003, at which additional rate scenarios were requested of SCE, which SCE has provided. A second PHC was held April 8, 2003.

This application arises during the pendency of SCE's 2003 General Rate Case (GRC) and during the pendency of several other proceedings bearing on SCE's retail rates, including but not limited to the Baseline Order Instituting Rulemaking (OIR) (R.01-05-047), the Direct Access Cost Responsibility Surcharge (DACRS) ODR (R.02-01-011) and the Demand Response OIR (R.02-06-001). As those proceedings are not concluded, resolution of this post-PROACT application, absent a settlement, would cause the Commission to make assumptions about the outcome of those proceedings.

It is apparent that fully litigating the application would delay the effective date for lowering retail customer rates, perhaps by many months, to a date well beyond the date at which SCE has fully recovered its PROACT balance. Alternatively, we could issue an interim decision to be modified after the application was heard on a complete record. All parties recognize that the implementation of interim rates to be modified at a later date would promote retail rate volatility, which is undesirable. Because of these concerns, the parties began settlement discussions which culminated in a duly noticed settlement conference on April 17, 2003, where the parties entered into a settlement agreement.

On April 23, 2003, SCE moved the Commission (1) to find reasonable and approve the Settlement Agreement attached to the motion, and (2) to shorten to 15 days the 30-day comment period otherwise provided for in Rule 51.4. SCE asks for approval of the settlement because rate reduction is in the public interest and the settlement reflects the concerted efforts of many participating parties. It says the Settlement Agreement is reasonable in light of the whole record, consistent with law, and in the public interest. SCE asks for shortening of the 30-day comment period in order to facilitate the Commission's issuance of a decision in time for lower rates to become effective as early as July 1, 2003. SCE believes no prejudice will result from this request because no party has spoken against the settlement or stated an intention to oppose it. As of the date it submitted the Settlement Agreement, SCE had received no written indication whatsoever that any party would oppose the Settlement Agreement.

In addition to removal of the surcharges, this settlement sets forth SCE's unbundled revenue requirements for 2003 - a total system average reduction of nearly 12.9% for bundled service customers - an allocation of those revenue requirements to various rate groups, and proposes a rate design to recover those revenue requirements.

The Settlement Agreement does the following.

1. Reduces rates by approximately $1.25 billion for the 12 months beginning July 1, 2003, if PROACT is projected in June to be fully recovered in June.

2. Establishes the process by which SCE will forecast when PROACT has been fully recovered;

3. Allocates SCE's estimated post-settlement revenue requirements to the various rate groups;

4. Proposes new rate levels and structures for those various rate groups;

5. Establishes a procedure to address the possibility of a forecasting error.

On June 9, the State Superintendent of Public Instruction (SPI) filed a motion to intervene in this proceeding and included timely comments on the draft decision. The SPI pointed to the widely reported crisis in education funding and impending teacher layoffs due to financial shortfalls in the State budget. Given this crisis, and the subsequent effect on the children of California, the SPI recommended that the Commission reduce rates for schools to pre-energy crisis levels - a reduction of approximately 4.5 cents/kWh - before giving a reduction to other customers. The SPI suggests this could be accomplished by creating a rate class for schools and that the effect minor on the other rate classes would be relatively minor, many of which currently have lower rates than schools.

The SPI states that the specific rate relief requested is in the public interest and will benefit California as a whole by enabling schools to save as many as 3,000 jobs for the coming academic year. The SPI proposal is consistent with California's efforts to make education a priority, as demonstrated by recent public statements by the Governor.1 In addition, the California Legislature is considering adopting a special rate for schools.2

Accordingly, the Commission will alter the Settlement Agreement in this proceeding to grant the request of the SPI, inclusive of all public school facilities.3 SCE will file an advice letter 10 days from the date of this decision to conform with the changes made by the Commission in this decision adopting the all-party settlement with the modification to create a school rate for all public school facilities.

1 "Governor Davis Unveils May Budget Revision Protecting Education, Public Safety 5/14/2003," Press Release, May 14, 2003, http://www.governor.ca.gov/state/govsite/gov_homepage.jsp 2 Senate Bill (SB) 888, as amended June 4, 2003, pp. 24-25.

3 ``Public school facilities'' shall be defined as all real property and portable classrooms owned or leased by a school district, county office of education, charter school, community college district, the California State University and the system of institutions of higher education which comprises the California State University as authorized in Section 89001 of the Education Code, and the Trustees of the California State University.

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