XV. Conclusion

As discussed above, nothing in the Final EIR precludes the SGRP from going forward. In addition, since we have imposed a cap on SGRP costs, any increases in SGRP costs incurred to comply with the requirements of the Final EIR fall within the cap. Therefore, nothing in the Final EIR alters the cost-effectiveness of the SGRP. In addition, nothing in the Final EIR precludes the ratemaking treatment specified herein because the ratemaking treatment of SGRP costs is beyond the scope of the Final EIR.

Approval of the SGRP, given its marginally cost-effective status, would put the ratepayers at risk for increases in SGRP costs, O&M costs, and capital additions. Therefore, in order to put reasonable bounds on ratepayer risk and provide a reasonable assurance that the SGRP will remain cost-effective, we will place a cap on the SGRP costs at the amount estimated by SCE. We will also limit future recovery of O&M costs and capital additions to the amounts included in our base case, as shown in Attachment A. As discussed below, these limitations should, based on SCE's representations in this proceeding, impose little risk on SCE's shareholders, while providing a reasonable balance of the risk between ratepayers and shareholders.

In this proceeding, SCE presented its base case estimates of O&M costs, capital additions, and SGRP costs. It stated that these base case estimates are reasonable for use in determining the cost-effectiveness of the SGRP. In essence, it said that these estimates form a reasonable basis for assigning the risk of future cost increases above the forecast levels to ratepayers, subject to a reasonableness review of only the SGRP costs. This would place virtually all of the risk on ratepayers. This is not reasonable given the marginal cost-effectiveness of the SGRP, and provides little incentive for SCE to operate efficiently. Alternately, one could limit SCE's future recovery of these costs to its forecast amounts. However, this would put all of the risk on SCE.

The O&M cost estimate used in our base case is equal to the amount that SCE represents reasonably bounds the uncertainty inherent in its forecasts. The capital additions estimate used in our base case is slightly greater (3%) than the amount SCE states reasonably bounds the uncertainty inherent in its forecasts. These amounts for O&M and capital additions are 10% and 25% higher, respectively, than the SCE's base case estimates, which are based on its 2006 GRC. SCE's base case estimates are, in turn, higher than the base case amounts originally used in its application. Therefore, based on SCE's representations in this proceeding, there should be little chance of costs exceeding the O&M costs and capital additions included in our base case. SCE also represents that its SGRP cost estimate, which includes 26% for contingencies, is reasonable. Since the O&M and capital additions limitations we impose herein are significantly higher than SCE's base case estimates that it claims are reasonable, and the cap on SGRP costs is equal to the amount SCE argues is reasonable, these limitations should impose little risk on SCE, and fairly balance the risk of future cost increases between ratepayers and shareholders.

We intend that, in future SCE ratemaking proceedings that determine the revenue requirement associated with SONGS O&M costs and capital additions, the amounts authorized shall not exceed the amounts shown in Attachment A. However, we recognize that such costs will vary from year to year. Therefore, to the extent that the authorized revenue requirements associated with SONGS O&M costs and/or capital additions are set based on lower amounts (than specified in Attachment A) in certain years, the unused portions may be used to increase the limits on the authorized amounts in subsequent years.⁵⁰ However, amounts may not be borrowed from later years to increase the limit in earlier years. In addition, amounts may not be switched between O&M costs and capital additions. For example, O&M amounts for 2016 may not be used for capital additions for 2016, and unused O&M amounts from previous years may not be used to increase capital additions for 2016.

The O&M costs and capital additions shown in Attachment A are expressed in 2004 dollars. They will have to be converted to future year dollars in proceedings such as GRCs where revenue requirements and rates are set. An inflation adjustment will be necessary to accomplish this.⁵¹ We intend that the inflation adjustment be made based on reliable publications such as the Consumer Price Index published by the U.S. Bureau of Labor Statistics. Since this issue was not addressed in the record, the selection of the appropriate inflation adjustment applicable to the costs shown in Attachment A will be considered in proceedings such as GRCs where revenue requirements and rates are set.

For the reasons discussed herein, we will approve the SGRP.⁵² Our approval is subject to the conditions imposed herein, including SCE's performance of the SGRP utilizing the environmentally superior alternative, and in compliance with the mitigation measures identified in the Final EIR. SCE's compliance will be overseen by the Commission's Executive Director.

SCE has incurred costs related to the SGRP, and continues to do so. It is possible that the SGRP could be cancelled in the future. The reasonableness of costs incurred to date has not been addressed in this proceeding. If SCE cancels the SGRP for any reason at any time, and requests recovery of any of the incurred costs from ratepayers, the Commission retains the discretion to conduct a reasonableness review of the costs incurred, including cancellation costs, and to determine the appropriate ratemaking treatment, if any, of incurred SGRP costs.

⁵⁰ For example, if the O&M amount on which the revenue requirement is set for a particular year is $1 million (2004 dollars) less than the amount specified in Attachment A, that $1 million (2004 dollars) may be added to the O&M amount specified in Attachment A for a subsequent year.

⁵¹ The inflation adjustment for O&M costs may be different from the inflation adjustment for capital additions.

⁵² Our approval means that we find it reasonable at this time based on the information in the record at this time. This does not mean that subsequent developments could not make it unreasonable to continue with the SGRP.