Procedural Summary

Concurrently with Edison, Pacific Gas and Electric Company (PG&E) and San Diego Gas & Electric Company (SDG&E) also filed their 1999 ATCP applications on September 1, 1999, Application (A.) 99-09-006 and A.99-09-011, respectively. The Office of Ratepayer Advocates (ORA) was the only party protesting Edison's application. PG&E's, SDG&E's, and Edison's applications were subsequently consolidated for hearing. Separate decisions will be issued in each application.

On November 3, 1999, May 5, 2000, and June 7, 2000, the Assigned Commissioner and the presiding Administrative Law Judge (ALJ) convened prehearing conferences (PHCs) to determine the parties, positions of the parties, issues, and other procedural matters. PG&E and Edison each filed PHC Statements on November 2, 1999.

On November 23, 1999, following the first PHC, the Assigned Commissioner issued a Scoping Memo categorizing the proceeding, designating the presiding ALJ, defining the scope of the proceeding, and establishing the proceeding schedule. Pursuant to the adopted procedural schedule, ORA submitted direct testimony on February 23, 2000. PG&E, SDG&E, and Edison served rebuttal testimony on March 29, 2000. Finally, on April 3, 2000, PG&E and Edison served update testimony addressing modifications and additions necessitated by the Commission's decision in the 1998 ATCP.

Evidentiary hearings were held on June 8, 9, and 16, 2000. Opening briefs were filed on July 14 and the proceeding was submitted when reply briefs were filed on August 14, 2000.

Motion To Strike

In its report, ORA recommends that authorization for recovery of Post Retirement Benefits Other than Pensions transition obligations and Long Term Disability regulatory assets be postponed until compliance with previous Commission decisions is demonstrated. On March 16, 2000, PG&E, SDG&E, and Edison jointly moved to strike that recommendation and Chapter 8 of ORA's Report, which supported the recommendation. On April 27, 2000, the presiding ALJ granted the utilities' motion to strike.

Settlement Agreement

Edison met with ORA several times prior to hearings to discuss a potential resolution of the issues in the proceeding. These meetings led to the parties' resolution of all of the issues associated with Edison in this proceeding and was memorialized in the "Settlement Agreement Between Southern California Edison Company and the Office of Ratepayer Advocates in the 1999 Annual Transition Cost Proceeding (Application No. 99-09-006, et al)," (Exhibit 30). A Settlement Conference was held on June 7, 2000, and the Settlement was executed on June 15, 2000. At the evidentiary hearings on June 16, 2000, the presiding ALJ adopted Edison's motion for the waiver of the requirements of Rule 51.3 to file a motion for adoption of the Settlement, and permitted the parties to address in their briefs whether the Settlement is reasonable in light of the record, consistent with the law, and in the public interest. The Settlement was received in the record for this proceeding as Exhibit 30.

In its report, ORA addresses six different areas of Edison's filing: (1) the TCBA; (2) TCBA revenues; (3) fossil generation-related costs; (4) interutility contract costs; (5) QF costs; and (6) employee-related costs. These were the only contested issues associated with Edison's application in this proceeding. No party contests any other aspect of the revenues and costs Edison recorded in the TCBA during the 1999 Record Period. The Settlement resolved the issues ORA raised and also addresses most of the uncontested issues in the proceeding.

1. TCBA

In its report, ORA recommends that Edison be ordered to include interest in its Post-Record Period Adjustments, arguing that the interest associated with those adjustments was not recorded during the 1999 Record Period. As discussed in Edison's rebuttal testimony, Edison did include interest, in the amount of $0.489 million, in the post-record period adjustments it made to the TCBA. In the Settlement, ORA and Edison agree that this matter is no longer at issue.

2. TCBA Revenues

ORA recommends that Edison be ordered to remove the Franchise Fees and Uncollectibles (FF&U) adjustment it made to the emission trading credit amounts recorded in the TCBA. Edison concurs with ORA that the emission trading credits should not have been adjusted for FF&U and, in November 1999, Edison credited the TCBA in the amount of $13,129.36 ($12,624.54 plus accrued interest of $504.82) to reverse the adjustment. In the Settlement, ORA and Edison agree that this matter was no longer at issue.

3. Fossil Generation-Related Costs

ORA recommends that determination of the reasonableness of Edison's natural gas procurement and management activities related to pipeline capacity held on El Paso be delayed until a settlement between Edison and El Paso is implemented. During settlement negotiations, Edison provided additional information to ORA concerning its activities during the 1999 Record Period and the Federal Energy Regulatory Commission's review of Edison's settlement with El Paso. As a result, ORA and Edison agree that no delay in reviewing the reasonableness of Edison's natural gas procurement and management activities related to pipeline capacity held on El Paso was necessary.

ORA also recommends that Edison be ordered to remove return on rate base and income taxes associated with Edison's authorized capital additions for oil/gas-fired generating stations subsequent to their dates of divestiture that were erroneously recorded in Edison's Non-Nuclear Generating Capital Additions Memorandum Account (NGCAMA) and transferred to the TCBA. Edison concurs with ORA's recommendation. In February 2000, Edison made a credit adjustment to the TCBA to remove $5.567 million of return and income taxes associated with authorized 1996 oil/gas-fired generation capital additions that were inadvertently recorded in the NGCAMA (plus a credit adjustment of $0.389 million for associated accrued interest). Supporting documentation for this adjustment will be included in Edison's 2000 ATCP application. Subject to its confirmation in the 2000 ATCP that the adjustment was actually made, the Parties agree that this matter was no longer at issue and the remaining amounts recorded in the NGCAMA that were transferred to the TCBA are reasonable.

Finally, with regard to fossil generation-related costs, ORA recommends that Edison be ordered to re-estimate the market value of its coal fired generating stations in accordance with the decision in the 1998 ATCP, Decision (D.) 00-02-048. D.00-02-048, however, specifically provides that assets jointly owned with other utilities shall be excluded from this approach. As a result, ORA no longer recommends that the Commission order Edison to re-estimate the market value of its coal fired generating stations in accordance with D.00-02-048.

ORA does not contest any natural gas procurement and management activities during the 1999 Record Period. Therefore, Edison requests that these activities should be found reasonable by the Commission.

4. Interutility Contract Costs

ORA recommends that the Commission find Edison's settlement of a contractual dispute with the Sacramento Municipal Utilities District (SMUD) associated with two Edison/SMUD Power Sales Agreements unreasonable. After Edison provided additional information to ORA, ORA no longer contests the reasonableness of the settlement and no longer recommends a disallowance associated with this matter. ORA does not contest any other purchase power interutility contract costs or contract administration matter during the 1999 Record Period.

5. Qualifying Facilities Costs

ORA recommends that the Commission order Edison to remove from the TCBA amounts paid to Wheelabrator associated with the portion of Edison's Settlement with Wheelabrator resolving a tariff dispute in Wheelabrator's capacity as a customer of Edison. Edison concurs with ORA that $82,754.45 was inappropriately debited to the QF Subaccount of the TCBA. Edison credited the TCBA for this amount, plus interest in December 1999. Supporting documentation will be provided in the 2000 ATCP filing by Edison. ORA and Edison agree that this matter was no longer at issue.

ORA also recommends that the Commission order Edison to remove the interest component of capacity payments it withheld from two QFs, San Gorgonio Farms and Section 7 Trust. Edison concurs with ORA that $53,749.27 was inappropriately debited to the TCBA. In March 2000, Edison credited the TCBA for this amount, plus interest. Supporting documentation will be provided in the 2000 ATCP filing by Edison. ORA and Edison agree that this matter was no longer at issue.

ORA does not contest any QF contract execution or any other QF contract administration costs recorded in the TCBA during the 1999 Record Period. Therefore, Edison requests that these QF contract costs and contract administration should be found reasonable by the Commission.

6. Employee-Related Costs

In its application, Edison requests recovery of $3,013,544 plus interest as employee-related transition costs. Edison also provides detailed testimony on its Worker Protection Benefits Programs (WPB) and its Involuntary Separation Plan (ISP). Edison seeks a finding from the Commission that these employee benefit programs and plans are reasonable and the costs associated with these programs comply with Pub. Util. Code § 375(a)¹ and are recoverable through the TCBA.

ORA reviewed these programs for reasonableness. Under its WPB, Edison provides benefits to its employees who are covered by collective bargaining agreements. Edison's ISP provides benefits to employees who are not covered by collective bargaining agreements (nonrepresented employees). ORA's objective is to determine if: (1) Edison's employees that received employee-related transition benefits were eligible to do so; and (2) if Edison's employee programs and the amounts incurred for utility employees working in, or in direct support of, divested gas-fired generation facilities were fair and reasonable and qualify under Pub. Util. Code § 375(a) and related decisions for transition costs recovery. In its Report, ORA makes the following recommendations:

· That the Commission approve $ 573,000 in costs incurred for Cash Severance Benefits for 11 represented employees;

· That the Commission approve $1,020,000 in costs incurred for Enhanced Pension and Retiree Health Care benefits for 11 represented employees;

· That the Commission disallow $105,000 in costs incurred for Vacancy Premium Benefits for 13 represented employees who worked at divested plants and were placed in other positions at Edison;

· That the Commission approve $7,751 in costs incurred for Educational and Retraining Benefits for six affected employees working in divested plants;

· That the Commission disallow $7,455 in costs incurred for Educational and Retraining benefits for one employee who worked at a divested plant and took aviation related courses until Edison provides more supporting documentation; and

· That the Commission disallow $78,328 in costs incurred for Educational and Retraining Benefits for 35 represented employees because these employees did not work at divested plants and are therefore not eligible for ratepayer-funded employee benefits.

ORA also finds the following Edison WPB programs to be fair and reasonable: Cash Severance Benefits; Enhanced Pension and Retiree Health Care Benefits; Special Early Retirement provisions; Pay Protection and Relocation Benefits; and Outplacement Benefits. The only provision of the WPB programs that ORA contests is the reasonableness of the bumping process. ORA also contests the WPB Vacancy Premiums for 12 employees, and Educational and Retraining expenses for employees working at non-divested plants.

ORA finds the following ISP programs and the associated costs are fair and reasonable: the Cash Severance Benefits ($291,630), Special Early Retirement Program, Enhanced Pension and Retiree Health Care Benefits ($593,000), Relocation ($2,000), Outplacement ($7,000), and Education, Retraining and Redeployment Benefits ($243,000).

Finally, ORA finds that $24,000 of the $85,000 in retention bonuses requested by Edison qualify for recovery under Section 375(a).

In the Settlement, ORA and Edison (Parties) agree that the provisions of the IBEW 47 and UWUA 246 WPB Agreements and the ISP were reviewed for reasonableness by ORA in this proceeding. The Parties agree that the programs and benefits in each of these WPB Agreements and the ISP are reasonable, provide employee benefits that comply with Section 375(a), and the costs incurred qualify for recovery as transition costs through the TCBA. The Parties further agree that the programs and benefits contained therein will not be reviewed again for reasonableness and eligibility under Section 375(a) in future ATCPs or other successor proceedings. However, any amendments to any of the WPB Agreements and ISP may be reviewed for reasonableness and eligibility in future ATCP applications.

Finally, the Parties agree that Edison may recover all future recorded costs associated with these WPB Agreements and the ISP through the TCBA, subject to the terms of the settlement specified herein. Review of future costs incurred under the WPB Agreements and ISP shall consist of reviewing: (1) whether the employees whose employee benefit costs are being reviewed was an eligible employee pursuant to Section 375; (2) that the costs were accurately recorded; (3) whether the costs were associated with the WPB Agreements and ISP; and (4) whether the costs were consistent with the terms of the Settlement.

ORA now agrees that the Alternative Reduction In Forces Process (RIF) contained in the WPB Agreements is reasonable, including the bumping process. In future ATCP proceedings where Edison seeks transition cost recovery of employee-related costs for employees at non-divested plants and work units who were part of the RIF bumping cycle, Edison agrees that it will demonstrate how an employee at a non-divested plant or work unit is related to the employee at a divested plant who was first declared excess.

The Parties agree that 100% of the Educational and Retraining Benefit costs for represented employees working at divested plants are eligible employee-related costs. The Parties further agree that Educational and Retraining Benefit costs incurred by a represented employee working at a non-divested plant or work unit are not recoverable as employee-related transition costs unless and until said employee takes a WPB severance package. For that employee, the Parties agree that Edison may recover as employee-related transition costs, 50% of the Educational and Retraining costs incurred by that employee, since January 1, 1998. If a represented employee from a divested plant bumps into a non-divested plant or work unit, the Parties agree that Edison may recover Educational and Retraining Benefit costs incurred while that employee worked at the divested plant.

In its application, Edison sought recovery of $93,534 for educational and retraining costs paid to 42 represented employees. In its Report, ORA recommended that $7,751 of the $93,534 be recoverable. In its rebuttal testimony, Edison withdrew its request for recovery of costs for 33 employees, seeking recovery however of education and retraining costs paid to three employees totaling $12,212 in addition to the $7,751 in costs which ORA found reasonable. Pursuant to the Settlement, the Parties now agree and recommend to the Commission that Edison recover $17,661.50 ($9,910.50 plus $7,751) of the original $93,534 requested as employee-related transition costs that qualify for recovery under Section 375(a).

In its application, Edison sought recovery of $95,000 in Vacancy Premium Benefits incurred for 12 employees. ORA claimed it was not able to make a reasonableness determination without more documentation to fully explain the program and substantiate these costs. Edison provided the additional information for ORA and withdrew its request for recovery of $85,000 of the $95,000 in Vacancy Premium Benefits paid. After reviewing Edison's rebuttal testimony, ORA agrees that the modified Vacancy Premium Program is reasonable. The Parties agree and recommend that the Commission allow Edison to recover the $10,000 vacancy premium paid to Employee No. 17 as employee-related costs pursuant to Section 375(a).

In its application, Edison sought recovery of $85,000 in retention bonuses paid to six employees. ORA recommended that $24,000 for one retention bonus qualifies for recovery. The Parties now recommend that the Commission allow Edison to recover $54,000 of the $85,000 for four retention bonuses as employee-related costs.

The Parties agree that the following uncontested WPB or ISP program costs are fair and reasonable and qualify for recovery. Therefore, the Parties recommend that the Commission allow Edison to recover the following Record Period employee-related costs through the TCBA:

1) $573,000 in costs incurred for Cash Severance Benefits for 11 represented employees;

2) $1,020,000 in costs incurred for Enhanced Pension and Retiree Health Care benefits for 11 represented employees;

3) ISP program costs (a) Cash Severance Benefits ($291,630); (b) Enhanced Pension and Retiree Health Care Benefits ($593,000); (c) Relocation Costs ($2,000); (d) Outplacement Costs ($7,000); and (e) Education, Retraining and Redeployment Benefits ($243,000) were fair and reasonable and qualify for recovery under Section 375(a).

7. Uncontested Issues

The following issues were not contested by ORA or any other Party in this proceeding but were incorporated into the Settlement:

a. The reasonableness of Edison's scheduling and dispatching costs associated with QFs and Interutility Contracts.

b. The reasonableness of Edison's Eastwood Plant Pumped Storage Energy Costs for the 1998 and 1999 ATCP Record Periods. ORA recommends that the $13.232 million credit shown for the Hydro Subaccount for the 1999 Record Period be accepted as filed.

c. Edison's calculation of its NUIP reward of $3,434,530 for Palo Verde Unit 2 Fuel Cycle 8, and $3,179,322 for Unit 3 Fuel Cycle 7. ORA agreed that Edison should be authorized to book those NUIP amounts into the TCBA.

d. Recovery of the revenue requirement associated with Edison's off-site generation-related retained assets through the TCBA during the 1999 Record Period, since this equipment is: (a) used to service Edison's remaining generation facilities; (b) stranded; or (c) used to support activities required under AB 1890.

e. Transfer of the balance in the Increased Return on Equity Memo Account as of June 30, 1999, plus interest, to the TCBA.

f. Transfer of the balance in the Reduced Return on Memorandum Account as of June 30, 1999, plus interest, to the TCBA.

g. Transfer of the balance in the Transition Cost Memorandum Account as of June 30, 1999, plus interest, to the TCBA.

h. Transfer of the adjustments recorded in the ISO/PX Implementation Delay Memorandum Account after March 31, 1998 to the TCBA.

i. The reasonableness of amounts recorded in the SONGS 2 & 3 Sunk Costs Subaccount, the SONGS 2 & 3 ICIP Subaccount, Palo Verde Sunk Costs Subaccount and the Palo Verde Incremental Costs Subaccount for the 1999 Record Period.

Therefore, Edison requests that the above costs and the NUIP rewards be found reasonable and their transfer to the TCBA should be authorized by the Commission.