V. SONGS 1 Decommissioning

A. $91 Million Incurred Costs for Decommissioning

In D.99-06-007, the Commission approved a settlement establishing a presumption that the utilities' conduct is reasonable in performing SONGS 1 decommissioning work if the scope of the work completed, and costs incurred, are bounded by the most recently approved SONGS 1 decommissioning cost estimate. This presumption means that any entity claiming the utilities acted unreasonably would bear the burden of proving their claim.

The utilities say the $91 million of SONGS 1 decommissioning work completed as of December 31, 2001, is reasonable because it is less than the estimated $96 million cost for the work that was approved in D.99-06-007. ORA does not oppose the reasonableness of the expenditures. Pursuant to D.99-06-007, we find that the SONGS 1 $91 million decommissioning work completed as of December 31, 2001 is reasonable.

B. SONGS 1 Decommissioning Work Remaining as of December 31, 2001

The utilities represent that the SONGS 1 remaining decommissioning work cost estimate ($531 million) is based on site-specific detailed planning studies. More than 60% of the remaining SONGS 1 decommissioning work scope is subject to fixed price contracts. As a result, the utilities reduced the contingency for remaining SONGS 1 decommissioning work to 15%, in recognition of the reduced cost uncertainty associated with remaining decommissioning work scope. Therefore, the utilities request that the Commission find their estimate for remaining work at SONGS 1 reasonable, and authorize them to access up to 90% of this estimate from the trusts to pay for the work.

ORA does not oppose the utilities' estimate of the work remaining, or their proposal to use trust funds to pay for it.

The utilities developed their estimate through detailed planning studies, executed contracts that have either fixed the cost or minimized the cost uncertainties for approximately 60% of the remaining work, and reduced the contingency factor to 15%. In addition, ORA does not oppose it. Therefore, we will adopt it.

In D.99-06-007, we authorized the utilities to access trust funds to pay for decommissioning work up to 90% of the approved estimate. The utilities' request to do so is unopposed. Since granting the request will avoid finance charges due to delays in trust fund withdrawals to pay for decommissioning work, we see no reason not to grant it.

C. Use of The Tax Benefit Created When Non-Qualified Trust Funds are Expended

There are two types of trusts. Qualified trusts hold decommissioning funds that result from contributions that qualify for an income tax deduction under U.S. Internal Revenue Code Section 468A. Nonqualified trusts hold decommissioning funds that result from other contributions. The utilities request authority to use tax benefits retained in the SONGS 1 non-qualified trust fund to continue decommissioning work, if necessary.

The utilities forecast that the $482 million (2001 dollars) available in the SCE SONGS 1 decommissioning trust and the $166 million (2001 dollars) available in the SDG&E SONGS 1 decommissioning trust will be sufficient to meet the estimated future cost requirement. However, the available funds include non-qualified trust fund tax benefit values of $132 million (SCE) and $42 million (SDG&E) as of December 31, 2001. Pursuant to the settlement approved in D.99-06-007, the utilities retained the tax benefits associated with deducting decommissioning costs that were reimbursed from the non-qualified decommissioning trust, rather than immediately returning these tax benefits to ratepayers when these decommissioning costs were incurred. The utilities believe they may need to utilize these tax benefits in order to assure sufficient funding for the remaining SONGS 1 decommissioning work. Therefore, they request authorization to use these tax benefits to pay for the remaining decommissioning work, and avoid any need to seek further ratepayer funding. ORA does not oppose the request.

By granting the request, we ensure that there will be sufficient funds to pay for decommissioning without imposing an additional revenue requirement on ratepayers to pay for decommissioning. If we were to require the tax benefits to be immediately returned to ratepayers, we would have to impose a revenue requirement on them to provide additional funds to the trusts to pay for decommissioning. There would also be additional costs to implement the return of the benefits to the ratepayers. In addition, since SONGS 1 is not operational, imposing a revenue requirement on future ratepayers would violate one of the purposes of the trusts, which is to have the ratepayers who receive power from the plant pay for its decommissioning. Therefore, we see no reason to discontinue the practice we previously adopted.