Discussion

There is no opposition to the Joint Recommendation. The Department of the Navy, the only other entity with party status, does not oppose it.

ORA's witness Logan testified that he has been involved with ENVEST beginning in the early 1990s. Once the program was adopted, he participated in a regulatory monitoring group which met regularly with the SCE chief of ENVEST operation. Logan reviewed the elements of setting up and running the program, issuing Request for Proposals, and listing contractors under the various work categories.

In his reasonableness review of ENVEST, Logan reviewed SCE's workpapers, initiated data requests, and had access to volumes of ENVEST program documents. He also visited the project sites, and reviewed the charges SCE recorded to them. Logan found no instances of mischarging to the projects, and no instances of unreasonable expenditures associated with ENVEST.

Based on the above, ORA concludes that it has adequately reviewed the reasonableness of ENVEST and sees no need for further reasonableness reviews since all ENVEST programs are in place. Essentially all that remains is for the payments from the ENVEST customers to be completed and recorded. ORA is satisfied that ENVEST has been handled adequately by SCE.

ORA contends that the Joint Recommendation is beneficial to ratepayers, who will receive a refund of more than $2 million from the credit-loss reserve. ORA believes that this is more beneficial and equitable to ratepayers than waiting until 2010 for the refund, because many of those customers who paid to establish the credit-loss reserve will now receive the benefit of the refund. With accrued interest, the refund will be even greater.

ORA and SCE also recommend that the ENVEST Pilot Program Adjustment Account (EPPAA) be terminated now instead of waiting until 2010. The risk to ratepayers in early termination is that if SCE were to earn above its allowable rate of return, ratepayers would not be refunded that excess amount. On the other hand, we agree it is preferable for today's ratepayers to realize the benefit rather than wait ten years, at which time many of the ratepayers who funded the account may no longer be SCE customers and thus would not benefit from the refund. There is no accurate means of estimating the likelihood of SCE earning above or below its authorized rate of return for ENVEST. SCE states that it believes the likelihood of earning above is the same as the likelihood of earning below that level.

There appears little risk of default due to the type customers on the ENVEST programs, i.e., school districts and other governmental entities. SCE expects to recover at least a portion if not all of the $2.5 million it expended in addition to the ratepayer funded $8 million for program administration. This would result from cost savings due to the premium SCE incorporated in the pricing for credit issues. No credit issues have arisen to date and if none arise in the future, SCE will realize some savings, and indicates some potential for savings in other areas as well, such as for warranty expenses. SCE also recommends that no further reasonableness review be done despite the fact that the ENVEST program will not be finalized until 2010. We are somewhat troubled by this recommendation, since there remains approximately eight years of ENVEST activity. However, we are satisfied that the ratepayers are not at risk, since SCE will assume the risk of credit problems and possible defaults. Thus, we agree that a reasonableness review in 2010 would not be a particularly useful effort by our staff.

We conclude that it is reasonable to refund the credit-loss reserve amount now and close the EPPAA. However, we observe that the refund is not a windfall to ratepayers; rather it is merely a return to ratepayers of the money they advanced to establish the account. This refund is available because the need to use the account never arose since there have been no credit losses to date. It is in the public interest to ensure that these funds are available to ratepayers now. We conclude that the Joint Recommendation is consistent with the criteria for settlements stated in Rule 51.1(e). It is consistent with the law, in the public interest, and reasonable in light of the whole record.