Discussion

The Commission's settlement and stipulation rules are found in Rules 51 to 51.10 of the Commission's Rules of Practice and Procedure. A review of the settlement and stipulation rules suggest that the rules were designed for the purpose of reviewing a settlement or stipulation filed after a proceeding is initiated at the Commission. For example, Rule 51.2 states: "Parties to a Commission proceeding may propose a stipulation or settlement for adoption by the Commission (1) any time after the first prehearing conference and (2) within 30 days after the last day of hearing."

The proposed settlement in this application did not arise as a result of an ongoing proceeding. Instead, SCE's application was filed to seek approval of the proposed settlement between itself and the County. Thus, the preliminary issue to address is whether the Commission should review the proposed settlement using the settlement and stipulation rules.

Since the application itself centers around the proposed settlement, SCE and the County did not convene a settlement conference with notice and opportunity to be heard. Rule 51.1 would require a settlement conference to be held if the settlement was proposed for adoption after the filing of an application. We note, however, that persons interested in this proposed settlement have been provided with notice of SCE's application by virtue of the notice of the filing of SCE's application in the September 27, 2001 Daily Calendar. No one filed any protest or response to SCE's application to approve the proposed settlement.

The issues being resolved in the settlement center around the QF contract that was entered into between SCE and the County. SCE seeks Commission approval of the proposed settlement because the settlement involves events which triggered various contract provisions, and resolves the issues in the context of the contract provisions. In addition, since ratepayers will be affected by any amount that SCE pays under the settlement, SCE requests that the Commission authorize the recovery of all payments made pursuant to the settlement agreement.

A strict reading of the settlement and stipulation rules persuade us that several of these rules do not apply to the proposed settlement at issue in this proceeding. However, the settlement rules set a standard that provides guidance as to how we should review the settlement of this QF contract. Specifically, Rule 51.1(e) provides in pertinent part that the Commission will not approve a settlement unless the "settlement is reasonable in light of the whole record, consistent with law, and in the public interest." We review the proposed settlement between SCE and the County with that criteria in mind.

SCE states in its application that it seeks Commission approval of the resolution of disputes between SCE and the County regarding the County's performance under the contract. The proposed settlement agreement would resolve the disputes between the two, and end over two years of controversy between SCE and the County. SCE also asserts that the settlement is just and reasonable from the perspective of the ratepayers since the settlement falls well within the range of possible outcomes. SCE's application states that the County had given every indication that it would proceed with litigation against SCE if no settlement was reached.

We have reviewed the QF contract and the two contract amendments, the circumstances giving rise to the settlement, as well as the terms of the proposed settlement. Without disclosing the terms of the settlement, since the terms of the settlement have been sealed, the terms of the settlement are reasonable given the range of outcomes that could result if the County decided to pursue its claims against SCE in court. For example, the settlement resolves the uncontrollable force issue, which the County claims it is entitled to approximately $788,500 from SCE. The settlement also resolves the issues regarding the probationary period and derating of the project, for which SCE claims that the County owes approximately $7 million. In addition, the settlement avoids the costs that would have resulted from litigating the disputes.

If these disputes were litigated, it is unclear at this point, based on the description of the disputes and the parties' positions, whether a trier of fact would agree with SCE's position or with the County's position. The settlement has also provided SCE and the County with the opportunity to carefully assess the strengths and weaknesses of their positions. Given the amount of the potential claims, the litigation risks that SCE and the County could be exposed to if these disputes were litigated, and the terms agreed upon in the settlement agreement, we conclude that the proposed settlement of the issues between SCE and the County is fair, adequate, reasonable, and prudent in light of the whole record, and that the settlement is consistent with the law and in the public interest. Accordingly, the settlement agreement entered into between SCE and the County should be approved. Consistent with Rule 51.8, this settlement is not precedential and does not constitute approval of any principle or issue in future proceedings.

We turn next to the issue of cost recovery. SCE requests that it should be authorized to recover in rates all payments that it made or will make to the County pursuant to the settlement agreement through SCE's Annual Transition Cost Proceeding (ATCP), or any other successor mechanism, subject only to SCE's prudent administration of the settlement agreement and the contract between SCE and the County.

The ATCP was established in D.97-06-060 (72 CPUC2d 736, pp. 770, 790) as part of the establishment of the transition cost balancing accounts. In D.97-11-074 (76 CPUC2d 627), the Commission authorized the utilities to collect the transition costs resulting from QF contracts above market pricing to be recovered in the ATCP. (76 CPUC2d at p. 712.) The reasonableness of the QF contract administration is to take place in the ATCP as well, to the extent that such reviews have not by eliminated by the standard offers or other approved contracts. (76 CPUC2d at pp. 713, 740.)

Since we have determined that the settlement terms are fair, adequate, reasonable, and prudent, we authorize SCE to recover in rates all payments that it has made or will make to the County pursuant to the settlement agreement through SCE's ATCP, or any other successor mechanism, subject only to SCE's prudent administration of the settlement agreement and the contract between SCE and the County.

Since this matter is uncontested, and this decision grants the relief requested, the comment period is waived as provided for in Rule 77.7(f)(2).

Findings of Fact

1. SCE and the County entered into a Standard Offer No. 2 QF contract on November 5, 1985.

2. The County provides SCE with firm capacity under the contract.

3. Certain disputes about the contract regarding the County's firm capacity performance, uncontrollable force events, the institution of a probationary period, and payment offsets arose in 1999 and 2000.

4. SCE and the County reached a settlement of these issues, which became effective on July 5, 2001.

5. Notice of the filing of SCE's application seeking approval of the settlement agreement was published in the Commission's Daily Calendar on September 27, 2001.

6. No one filed any protest or response to the application, and no evidentiary hearings were held.

7. The terms of the settlement between SCE and the County are memorialized in the settlement agreement that was filed under seal.

8. The proposed settlement is the central focus of SCE's application, and did not arise as a result of an ongoing proceeding.

9. The Commission has reviewed the QF contract and amendments, the circumstances giving rise to the settlement, and the terms of the proposed settlement.

10. The settlement resolves the monetary claims and issues in dispute about uncontrollable force, the probationary period, and derating of the project, and avoids the costs associated with further litigation.

11. The settlement has provided SCE and the County with the opportunity to carefully assess the strengths and weaknesses of their positions.

12. D.97-11-074 authorized the utilities to collect the transition costs resulting from QF contracts above market pricing to be recovered in the ATCP, and that the reasonableness of the QF contract administration take place in the ATCP.

Conclusions of Law

1. Persons interested in the proposed settlement of issues between SCE and the County were provided with notice of SCE's application by virtue of the notice of the application's filing in the September 27, 2001 Daily Calendar.

2. Several of the settlement and stipulation rules do not apply to the proposed settlement at issue in this proceeding.

3. Rule 51.1(e) should be used to review the proposed settlement agreement because that rule sets a standard that provides guidance for evaluating a proposed settlement.

4. The terms of the proposed settlement of the issues between SCE and the County are fair, adequate, reasonable, and prudent in light of the whole record.

5. The proposed settlement agreement is consistent with the law and in the public interest.

6. The settlement agreement entered into between SCE and the County should be approved.

7. Consistent with Rule 51.8, this settlement is not precedential and does not constitute approval of any principle or issue in future proceedings.

8. SCE should be authorized to recover in rates all payments that it has made or will make to the County pursuant to the settlement agreement through SCE's ATCP, or any other successor mechanism, subject only to SCE's prudent administration of the settlement agreement and the contract between SCE and the County.

ORDER

IT IS ORDERED that:

1. The July 5, 2001 settlement agreement between Southern California Edison Company (SCE) and the County of Los Angeles (County) pertaining to the Pitchess Honor Rancho cogeneration facility is approved.

2. SCE is authorized to recover in rates all payments that SCE made or will make to the County pursuant to the settlement agreement through SCE's Annual Transition Cost Proceeding, or any other successor mechanism, subject only to SCE's prudent administration of the settlement agreement and the contract between SCE and the County.

3. This proceeding is closed.

This order is effective today.

Dated June 27, 2002, at San Francisco, California.

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