November 22, 2002 PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION. Implementation of the Energy Resource Recovery Account

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2 Akbar Jazayeri Director of Revenue and Tariffs November 22, 2002 ADVICE 1665-E (U 338-E) PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION SUBJECT: Implementation of the Energy Resource Recovery Account In compliance with Decision (D.) , Southern California Edison Company (SCE) hereby submits for filing the following changes to its tariff schedules. The revised tariff sheets are listed on Attachment A and are attached hereto. PURPOSE In accordance with D , this advice filing establishes Preliminary Statement, Part ZZ, Energy Resource Recovery Account (ERRA) to record SCE s Utility Retained Generation (URG) fuel costs and purchased power expenses 1/ commencing January 1, In addition, this advice filing withdraws two existing balancing accounts: (1) Preliminary Statement, Part UU, Independent System Operator Balancing Account (ISOBA); and (2) Preliminary Statement, Part VV, Purchased Power Balancing Account (PPBA). Finally, this advice filing modifies two other balancing accounts: (1) Preliminary Statement, Part WW, Native Load Balancing Account (NLBA); and (2) Preliminary Statement, Part Z, Settlement Rates Balancing Account (SRBA), as a result of establishing the ERRA. BACKGROUND On October 29, 2001, the California Public Utilities Commission (Commission) issued Order Instituting Rulemaking (R.) Among other things, the 1/ Purchased power expenses include costs associated with Qualifying Facilities (QFs) contracts, Interutility contracts, Bilateral contracts, ancillary services, uplift charges, and residual net short procurement activities. The ERRA excludes California Department of Water Resources (DWR) power contract expenses. P.O. Box Walnut Grove Ave. Rosemead, California (626) Fax (626)

3 ADVICE 1665-E (U 338-E) November 22, 2002 rulemaking sought to establish ratemaking mechanisms to enable SCE, Pacific Gas and Electric Company (PG&E), and San Diego Gas & Electric Company (SDG&E) to resume full procurement responsibilities commencing January 1, In D the Commission adopted requirements for updating procurement plans, expedited review procedures, and cost recovery mechanisms. TARIFF REVISIONS Newly Established Balancing Account In compliance with Ordering Paragraph 14 of D , this advice filing establishes the ERRA to record SCE s URG fuel costs and purchased power expenses, commencing January 1, The ERRA tariffs set forth in Attachment A also establishes a trigger mechanism contemplated in Assembly Bill (AB) 57, signed into law on September 24, Conclusion of Law 15 of D authorizes SCE to file an expedited application with the Commission if the cumulative balance in the ERRA exceeds four (4) percent of SCE s prior calendar year s generation revenues. The expedited trigger mechanism application will require Commision approval within 60 days of filing. Per Conclusion of Law 18 of D , the trigger mechanism may not be used to refund ERRA overcollections until it has been in operation for a full 12 month period. Balancing Accounts to be Withdrawn Since all of SCE s purchased power-related expenses will be recorded in the ERRA, the following Preliminary Statements are withdrawn from SCE s tariffs: 1. Part UU, Independent System Operator Balancing Account; 2/ and 2. Part VV, Purchased Power Balancing Account. 3/ Revisions to Existing Balancing Accounts In accordance with Section XII.B (page 63) of D , the following Preliminary Statements existing balancing accounts are being modified as a result of establishing the ERRA. 1. Part WW, Native Load Balancing Account to exclude URG fuel costs, since all of SCE s URG fuel costs will be recorded in the ERRA. 2. Part Z, Settlement Rates Balancing Account, to: 2/ The ISOBA records SCE s ISO-related expenses. 3/ The PPBA records SCE s purchased power expenses for QF contracts, Interutility contracts and Bilateral contracts.

4 ADVICE 1665-E (U 338-E) November 22, 2002 o o Remove language regarding the ISOBA, PPBA, and Net Short Procurement Costs (since associated amounts will be recorded in the ERRA); and Add language to transfer the net monthly activity in the ERRA to the SRBA. EFFECTIVE DATE Consistent with the intent of R and pursuant to D , SCE requests that this advice filing become effective on January 1, NOTICE Anyone wishing to protest this advice filing may do so by letter via U.S. Mail, facsimile, or electronically, any of which must be received by the Energy Division and SCE no later than 20 days after the date of this advice filing. Protests should be mailed to: IMC Program Manager Energy Division c/o Jerry Royer California Public Utilities Commission 505 Van Ness Avenue, Room 4002 San Francisco, California Facsimile: (415) jjr@cpuc.ca.gov Copies should also be mailed to the attention of the Director, Energy Division, Room 4004 (same address above). In addition, protests and all other correspondence regarding this advice letter should also be sent by letter and transmitted via facsimile or electronically to the attention of: Akbar Jazayeri Director of Revenue and Tariffs c/o Emelyn Lawler Southern California Edison Company 2244 Walnut Grove Avenue, Rm. 303 Rosemead, California Facsimile: (626) Emelyn.Lawler@sce.com

5 ADVICE 1665-E (U 338-E) November 22, 2002 Bruce Foster Vice President of Regulatory Operations c/o Karyn Gansecki Southern California Edison Company 601 Van Ness Avenue, Suite 2040 San Francisco, California Facsimile: (415) Karyn.Gansecki@sce.com There are no restrictions on who may file a protest, but the protest shall set forth specifically the grounds upon which it is based and shall be submitted expeditiously. In accordance with Section III, Paragraph G, of General Order No. 96-A, SCE is mailing copies of this advice filing to the interested parties shown on the attached service list, all interested parties in A , and R Address change requests to the attached GO 96-A Service List should be directed to Emelyn Lawler at (626) or Emelyn.Lawler@sce.com. For changes to all other service lists, please contact the Commission s Process Office at (415) or by electronic mail at ven@cpuc.ca.gov. Further, in accordance with Public Utilities Code Section 491, notice to the public is hereby given by filing and keeping the advice filing open for public inspection at SCE s corporate headquarters. To view other SCE advice letters filed with the Commission, log on to SCE s web site at and choose Regulatory Info Center/Advice Letters. For questions, please contact Phil Durgin at (626) or Phillip.Durgin@sce.com. Southern California Edison Company AJ:pd Enclosures Akbar Jazayeri

6 Public Utilities Commission 1665-E Attachment A Cal. P.U.C. Sheet No. Title of Sheet Cancelling Cal. P.U.C. Sheet No. Revised E Preliminary Statement Part Z Original E Revised E Preliminary Statement Part Z Revised E* Revised E* Preliminary Statement Part Z Revised E* Revised E Preliminary Statement Part Z Revised E* Revised E Preliminary Statement Part Z Revised E* WITHDRAWN Original E* WITHDRAWN Original E WITHDRAWN Original E WITHDRAWN Original E WITHDRAWN Original E* WITHDRAWN Original E Preliminary Statement Part UU Preliminary Statement Part UU Preliminary Statement Part VV Preliminary Statement Part VV Preliminary Statement Part VV Preliminary Statement Part VV Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Revised E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E Revised E Preliminary Statement Part WW Original E thru Original E* Original E Original E Original E Original E Original E Original E Original E Preliminary Statement Part ZZ Preliminary Statement Part ZZ Preliminary Statement Part ZZ Preliminary Statement Part ZZ Preliminary Statement Part ZZ Preliminary Statement Part ZZ Preliminary Statement Part ZZ Revised E Table of Contents Revised E Revised E Table of Contents Revised E 1

7 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 1 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 1. Purpose The Energy Resource Recovery Account (ERRA) is established pursuant to D The purpose of the ERRA is to record SCE s: (1) Utility Retained Generation (URG) fuel costs, and (2) purchased power-related expenses i /. 2. Effective Date The Effective Date of the ERRA is January 1, Definitions a. Franchise Fees and Uncollectibles Account Expense Franchise Fees and Uncollectibles Account Expense (FF&U) expense shall be calculated using the most current Commission-adopted FF&U factors. FF&U expenses shall not be included in recorded fuel and purchased power expenses. b. Independent System Operator Expenses Independent System Operator (ISO) Expenses include amounts actually incurred and paid by SCE including ancillary services, grid management charges (uplift), wheeling charges, demand relief, summer reliability, voltage support, spinning reserve, non-spinning reserve, replacement reserve, neutrality adjustments, black start energy and capacity, long-term voltage support, and supplemental reactive energy. c. Residual Net Short Requirement Residual Net Short Requirement is the difference between: (1) SCE s bundled service customers total load, and (2) energy procured under contract (including DWR contracts), and energy provided by SCE s own resources (including the impact of allocated excess energy GWhs). d. Residual Net Short Requirement Expenses Residual Net Short Requirement Expenses include procurement contract expenses, system development expenses (Operation and Maintenance O&M and capital-related expenses), credit and collateral expenses, and other expenses as necessary to comply with the Commission s order that SCE be responsible for its Residual Net Short Requirement commencing January 1, i Excluding California Department of Water Resources DWR power contracts expenses. 1H10

8 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 2 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 3. Definitions e. Utility Retained Generation Utility Retained Generation (URG) includes all of SCE s generating facilities. They include SCE s ownership share of the: Four Corners Generating Station, Mohave Generating Station, Pebbly Beach Generating Station (Catalina Island), Palo Verde Nuclear Generating Station (Palo Verde), San Onofre Nuclear Generating Station Units 2 and 3 (SONGS 2&3), and hydroelectric facilities. f. URG Fuel and Fuel-related Expenses 4. Operation of the ERRA SCE s URG Fuel and Fuel-related Expenses include: 1) variable fuel expenses (commodity and fuel transportation), 2) fixed (unavoidable) fuel expenses, 3) fuel inventory carrying charges, 4) fuel contract settlement, buyout, and renegotiation costs, and 5) other costs as approved by the Commission. Entries to the ERRA shall be made on a monthly basis as follows: a. A debit entry equal to recorded URG Fuel and Fuel-related expenses; b. A debit entry equal to the fuel portion of the SONGS 2&3 ICIP i/ revenue requirement; c. A debit entry equal to Palo Verde Nuclear Unit Incentive Procedure (NUIP) rewards subsequent to Commission approval; d. A debit entry equal to recorded Qualifying Facilities (QF) contracts expenses (including contract restructuring expenses), net of recorded revenues, refunds, or other credits; e. A debit entry equal to recorded Interutility contracts expenses, net of recorded revenues, refunds or other credits; f. A debit entry equal to recorded Bilateral contracts expenses; g. A debit entry equal to recorded Residual Net Short Requirement expenses; h. A debit entry equal to other expenses associated with SCE s purchased power activities to the extent not recovered elsewhere (such as the costs associated with purchasing Firm Transmission Rights); i. A debit entry equal to recorded ISO expenses; j. A credit entry equal to Excess Energy Sales Revenues allocated to SCE; k. A credit entry equal to recorded Reliability Must Run (RMR) contracts and ancillary services revenue ii/ ; l. The sum of the amounts above shall be transferred monthly to the SRBA during the PROACT Rate Repayment Period. No interest expense shall be recorded in the ERRA during the PROACT Rate Repayment Period, since the monthly activity in the ERRA is transferred to the SRBA. i/ ii/ The SONGS 2&3 ICIP tariff is included in the Native Load Balancing Account. Generation-related Other Operating Revenue (OOR) is recorded in the Native Load Balancing Account. 2H11

9 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 3 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 5. Tracking Mechanism In accordance with Section XII.B.2 (page 65) of D , SCE shall track the difference between: a. Recorded fuel and purchased power expenses in the ERRA; and b. Annual fuel and purchased power expenses as adopted in D (URG decision). In E-3765 the Commission adopted SCE s PROACT and associated ratemaking mechanisms effective September 1, SCE s actual fuel and purchased power expenses are among the recorded expenses (termed Recoverable Costs ) that SCE compares each month to gross electric revenues in order to calculate Surplus. Surplus is used each month to reduce SCE s outstanding PROACT balance. Thus, no true-up between authorized and recorded fuel and purchased power expenses is required, since recorded fuel and purchased power expenses (not adopted expenses) are used in SCE s monthly Surplus calculation. 6. ERRA Adopted Fuel and Purchased Power Revenue Requirement In D (URG decision) the Commission adopted an annual URG revenue requirement for SCE that included the following fuel and purchased power expenses (excluding FF&U expenses): 7. Semi-annual Filings ($ 000 s) Fuel-related Expenses: Catalina 3,276 Four Corners 59,700 Mohave 87,268 Palo Verde 25,825 SONGS 2&3 ICIP (fuel) 90,000 Purchased Power-Related Expenses: QF contracts 2,130,162 Interutility contracts 161,255 Bilateral contracts 106,364 Independent System Operator 82,698 Total 2,746,548 In accordance with Finding of Fact 25 of D , SCE shall file Semi-annual filings as follows: a. April 1st filings to establish annual fuel and purchased power forecasts (the 2003 filing shall also include a true-up of actual 2002 fuel and purchased power expenses), and b. October 1st filings to review entries to applicable balancing accounts, contract administration, and least-cost dispatch. 3H10

10 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 6 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 8. ERRA Trigger Applications In accordance with Conclusion of Law 15 of D , SCE shall file an expedited ERRA trigger application with the Commission (for approval within 60 days) if the ERRA balance reaches 4 percent of the prior calendar year s recorded annual generation revenues (excluding DWR-related revenues). Customer notice shall be sent as soon as the application is filed for a rate increase or decrease. Expedited ERRA trigger applications shall include: a. A forecast of the ERRA balance for a period 60 days or more from the date of filing the expedited application. The ERRA balance estimate shall depend on when SCE forecasts the ERRA balance will reach the five percent threshold established in Assembly Bill (AB) 57; b. A proposed ERRA over/undercollection amortization period of not less than 90 days; and c. A proposal for allocation of the ERRA over/undercollection using the adopted rate design methodology. In accordance with Conclusion of Law 18 of D and AB 57, the ERRA trigger mechanism shall not be used for ERRA overcollections until it has been in operation for 12 full months. 9. Palo Verde Nuclear Unit Incentive Procedure a. Purpose: The purpose of the Palo Verde Nuclear Unit Incentive Procedure (NUIP) is to provide a reward for superior performance applicable to SCE s share of ownership of Palo Verde Units 1, 2, and 3. The NUIP is applied by use of a formula that converts an Incentive Period Unit Gross Capacity Factor to dollars. There is no penalty associated with the Palo Verde NUIP. The reward amount is based upon: (1) the difference in cost between producing energy from Palo Verde generation, and the Replacement Power Cost; and (2) any Palo Verde units performance above 80% Capacity Factor. b. Applicability: The NUIP applies to the operation of SCE s 15.8 percent ownership share of Palo Verde Units 1, 2, and 3 through the effective date of a final Commission decision in the revenue requirement phase of SCE s next General Rate Case (A ), or further order of the Commission (pursuant to D ). 6H11

11 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 7 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 9. Palo Verde Nuclear Unit Incentive Procedure c. Definitions: (1) Nuclear Fuel Expense: The Nuclear Fuel Expense for each Palo Verde nuclear unit shall be the nuclear energy cost associated with the change in production between an 80% Capacity Factor and the Unit Gross Capacity Factor for each unit specified herein. The Nuclear Fuel Expense for each unit shall be expressed in cents per kilowatt-hour. (2) Unit Gross Capacity Factor: The Unit Gross Capacity Factor for SCE s share of ownership of each Palo Verde unit specified herein shall be based on SCE s share of each Unit s maximum gross capacity shown below. Maximum Gross SCE s Unit Capacity Share mw mw mw mw mw mw The Unit Gross Capacity Factor shall be adjusted to provide for Economic Modifiers. (3) Incentive Period: The Incentive Period for each unit shall be based on a single Fuel Cycle beginning with Fuel Cycle 7 for Palo Verde Units 1 and 2 and Fuel Cycle 6 for Palo Verde Unit 3 and continue through the effective date of a decision in SCE s next General Rate Case or further order of the Commission (pursuant to D ). (4) Fuel Cycle: A fuel cycle shall be defined as the period of time that begins immediately after the refueling of the reactor when circuit breakers are closed and the unit is synchronized to the grid, and ends simultaneously with the beginning of the subsequent fuel cycle. 7H11

12 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 8 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 9. Palo Verde Nuclear Unit Incentive Procedure c. Definitions: (5) Replacement Power Cost: The Replacement Power Cost shall be the energy expense associated with the change in production between the recorded Unit Gross Capacity Factor and the 80 percent Gross Capacity Factor and expressed in cents per kilowatt-hour, not to exceed 5.0 /kwh (pursuant to D ). (6) Economic Modifiers: Economic Modifiers shall be adjustments made to the Incentive Period Gross Capacity Factor to compensate for the effect of certain conditions that affect the performance of the unit; such conditions cause reductions in unit performance for the purpose of minimizing the overall cost to the customer, consistent with maintaining the integrity of the electrical system. The application of Economic Modifiers may cause or increase a Nuclear Unit Incentive Procedure reward, and shall be subject to Commission review on a case by case basis. (7) Economic Modifier In accordance with Commission Decision Nos , , , and the following three Economic Modifiers are authorized for Palo Verde: (a) (b) (c) An Economic Modifier which permits SCE to reduce output from any Palo Verde unit or combination of units during those intervals when to do so produces an energy supply to meet system demands which is less costly to customers. This Economic Modifier shall accommodate additional economic power purchases. An Economic Modifier permits a change to a refueling outage scheduled for any Palo Verde unit or combination of Palo Verde units when it is in the best interest of customers. An Economic Modifier which permits SCE to reduce output from any Palo Verde unit when the Nuclear Regulatory Commission (NRC) requires such a reduction or outage for any Palo Verde unit or combination of Palo Verde units. 8W9

13 Southern California Edison Original Cal. PUC Sheet No E Rosemead, California Cancelling Cal. PUC Sheet No. PRELIMINARY STATEMENT Sheet 9 ZZ. ENERGY RESOURCE RECOVERY ACCOUNT 9. Palo Verde Nuclear Unit Incentive Procedure c. Definitions: (7) Economic Modifier (d) Report on the Nuclear Unit Incentive Procedure: d. Palo Verde NUIP Calculation SCE shall file a report each year whenever an Incentive Period ends during the preceding calendar year. Such report shall set forth the Unit Gross Capacity Factor for SCE s share of ownership of the unit for the Incentive Period. Should the Unit Gross Capacity Factor be above the 80 percent Capacity Factor, SCE shall calculate the amount of reward according to the formula set forth herein. Such adjustment shall be made to this account pursuant to Commission order. The Palo Verde NUIP for each unit of the Palo Verde Generating Station shall be calculated separately as follows: Reward=(0.5) (GCF U -0.80) (RPC-NE) PH x GMC x SHR x CO Where: RPC = Replacement Power Cost (5.0 /kwh cap pursuant to D ) NE = Nuclear Fuel Expense GCF U = Unit Gross Capacity Factor of SCE s ownership share of the unit for the Incentive Period GMC = Gross Maximum Capacity = 1,315 MW for Palo Verde 1 (Total) = 1,315 MW for Palo Verde 2 (Total) = 1,318 MW for Palo Verde 3 (Total) SHR = SCE s share of ownership (15.80 percent) PH = Hours in the unit s Incentive Period CO = Conversion factor of 10 to convert megawatts to kilowatts and cents to dollars When the Unit Gross Capacity Factor falls below 80 percent, the NUIP shall be zero. The Palo Verde NUIP reward shall be debited to the ERRA upon approval by the Commission. 9W9

14 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 2 Z. SETTLEMENT RATES BALANCING ACCOUNT 3. Definitions d. Rate Repayment Period: (D) The Rate Repayment Period is the period commencing September 1, 2001 and ending on the earlier of the date that SCE recovers all Procurement Related Obligations recorded in the PROACT or December 31, e. Recoverable Costs: Recoverable Costs are those amounts that SCE is authorized by the CPUC to recover in retail rates. f. Settlement Agreement The Settlement Agreement is the agreement (dated October 2, 2001) entered into by the CPUC and SCE to resolve issues associated with the Case No RSWL (Mcx) in U.S. District Court for the Central District of California. 2W8

15 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Revised Cal. PUC Sheet No E* PRELIMINARY STATEMENT Sheet 3 Z. SETTLEMENT RATES BALANCING ACCOUNT 3. Definitions g. Settlement Rates: Settlement Rates (per Section 1.1.w. of the Settlement Agreement) are CPUC-authorized gross electric retail rates (System Average Rates) effective October 2, 2001, and changed (increased or decreased) thereafter to reflect: (1) The combined effect of Surplus, if any, of both SCE s Net Short Procurement Costs and CDWR Charges, as the same may exist from time to time during the Rate Repayment Period, when compared to the impact on Surplus of Stabilized CDWR Charges; (2) Recoverable Costs directed to be incurred by the CPUC that are in excess of the Recoverable Costs referred to in Section 2.1.d. of the Settlement Agreement; and (3) Uninsured costs, if any, of recognized force majeure events, such as earthquake, calamity, war, and the like. h. Surplus: Surplus is the difference, positive or negative, between SCE s revenues from gross retail electric rates (including surcharges) and SCE s Recoverable Costs during the Recovery Period. i. Unbilled Revenues: Unbilled Revenues are accrued ( earned revenue for financial statement purposes) gross retail electric revenues associated with electric customer kwh usage that has not yet been billed by SCE. j. SCE Retail Electric Revenues (see Section 4.a): The amount of billed and unbilled revenues associated with the kwhs provided to SCE s retail customers by SCE after being reduced by franchise fees and uncollectibles, for use in the determination of Surplus. k. DWR Power Sale Revenues shall be equal to the sum of the following: (1) The amount of revenues billed each month associated with the kwhs provided to SCE s retail customers by DWR consistent with the Commission approved servicing agreement between SCE and DWR; and (2) The change (plus or minus) in the amount of DWR Unbilled Revenues (i.e., the reversal of prior month s estimate, plus the current months estimate). 3W8

16 Southern California Edison Revised Cal. PUC Sheet No E* Rosemead, California Cancelling Revised Cal. PUC Sheet No E* PRELIMINARY STATEMENT Sheet 4 Z. SETTLEMENT RATES BALANCING ACCOUNT 3. Definitions l. DWR Bond Charge Revenues DWR Bond Charge Revenues are the monthly amount of billed revenues associated with those non-exempt customers responsible for repaying the DWR for its bond-related costs through the DWR Bond Charge. m. Total Retail Electric Revenues shall be equal to the sum of the following: 4. Operation of the SRBA (1) The total amount of revenues billed each month (including CPUC-authorized surcharges, and all CPUC-authorized discounts reflected on customers bills (e.g., the 10% rate reduction, and the 20/20 program) associated with the kwh provided by SCE and DWR; and (2) The change (plus or minus) in total Unbilled Revenues (i.e., the reversal of prior month s estimate, plus the current month s estimate). Total Electric Revenues will include amounts recorded from the nonbypassable Historical Procurement Charge (charged to Direct Access customers pursuant to D ) until such time as SCE is directed by the Commission to credit the balance in the Historical Procurement Charge Balancing Account. In order to determine amounts to be transferred to the PROACT, entries to the SRBA shall be made monthly based upon the following calculations: a. Credit entry equal to SCE Retail Electric Revenues determined as follows: (1) Credit entry equal to the Total Retail Electric Revenue; (2) A debit entry equal to the provision for Franchise Fee Requirements associated with item (1); (3) Sum of items (1) and (2) is equal to the total amount of retail revenue available to be allocated between SCE and DWR. (4) A debit entry equal to the DWR Power Sale Revenues; (5) A debit entry equal to DWR Bond Charge Revenues; (6) A debit entry equal to the provision for Uncollectibles associated with Total Retail Electric Revenues reduced by the amount of DWR Power Sale Revenue and DWR Bond Charge Revenue (items (1), (4) and (5) above; (7) A debit entry to remove the surcharge revenues equal to the amount recorded in the Catch-Up Surcharge Revenue (CUSR) Memorandum Account (see Preliminary Statement, Part N). (8) A debit or credit entry to remove the baseline allocation-related over-or undercollection equal to the amount recorded in the Baseline Balancing Account (BBA) See Preliminary Statement, Part I; (9) A debit or credit entry to remove the CARE subsidy-related over- or under-collection equal to the amount recorded in the CARE Balancing Account (CBA) (see Preliminary Statement, Part AA). (10) The sum of items (3), (4), (5), (6), (7), (8), and (9) is equal to SCE Retail Electric Revenues. 4H12

17 Southern California Edison Revised Cal. PUC Sheet No E* Rosemead, California Cancelling Revised Cal. PUC Sheet No E* PRELIMINARY STATEMENT Sheet 5 Z. SETTLEMENT RATES BALANCING ACCOUNT 4. Operation of the SRBA b. Credit entry equal to Rate Reduction Bond Credits (equal to the 10% bill credit and Trust Transfer Amount revenues until the balance in the RRB Memorandum Account is zero); c. Debit entry equal to Recoverable Costs, as itemized below; d. A debit or credit entry equal to other amounts as authorized by the CPUC; e. A credit entry equal to the balance in the Historical Procurement Charge Balancing Account (HPCBA), once the Commission issues a Final Decision relating to the HPC, or upon future Commission direction. The balance in the HPCBA equates to the portion of the Procurement Related Obligation Account (PROACT) balance that Direct Access customers are responsible for paying and have not yet paid. f. The algebraic sum of the items above is equal to Surplus, and shall be transferred (whether such amount is positive or negative) on a monthly basis to the PROACT. 5. Recoverable Costs Each month the sum of amounts recorded in the categories listed below (excluding a provision for FF&U) shall be identified as Recoverable Costs, and be reflected in item 4.c above. All recorded amounts are subject to CPUC review and approval. a. Debit entry equal to amounts recorded in the Electric Distribution Revenue Adjustment Balancing Account (EDRABA); b. Debit entry equal to: (1) Transmission revenues (based upon rates approved by the FERC); and (2) revenues associated with FERC balancing account mechanisms such as: (a) the Transmission Revenue Balancing Account Adjustment (TRBAA): and (b) the Reliability Services Balancing Account Adjustment; c. Debit entry equal to Trust Transfer Amount (TTA) revenues; d. Debit entry equal to amounts recorded in the Energy Resource Recovery Account; e. A debit entry equal to amounts recorded in the Native Load Balancing Account; 5H9

18 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Revised Cal. PUC Sheet No E* PRELIMINARY STATEMENT Sheet 6 Z. SETTLEMENT RATES BALANCING ACCOUNT 5. Recoverable Costs f. Debit entry equal to amounts recorded in the Public Purpose Programs Adjustment Mechanism (PPPAM) Balancing Account; g. Debit entry equal to amounts recorded in the PBR Exclusions Distribution Adjustment Mechanism (EDAM) Balancing Account; h. Debit entry equal to amounts recorded in the Nuclear Decommissioning Adjustment Mechanism (NDAM) Balancing Account; i. Debit entry equal to amounts recorded in the Employee-Related Balancing Account (ERBA); j. Debit entry equal to amounts recorded in the Risk Management Memorandum Account ( Hedging costs), after approval by the CPUC; k. A debit entry equal to amounts recorded in the Commission Directed Costs Tracking Account; l. A debit entry equal to the revenue requirement associated with capital expenditures above the level contained in current rates as tracked in the Capital Additions Tracking Account. m. Debit or credit entry equal to Rate Reduction Bond (RRB) Memorandum Account activity; n. A credit entry equal to the amortization of amounts recorded in the Demand Reduction and Self-Generation Program Incremental Costs Balancing Account; o. Other amounts as expressly authorized by the CPUC. Interest expense shall not be recorded in the SRBA since the net monthly activity (whether positive or negative) is transferred to the PROACT. 6H8

19 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 1 WW. NATIVE LOAD BALANCING ACCOUNT 1. Purpose and Overview: The Native Load Balancing Account (NLBA) records actual Capital-related Expenses and Operating Expenses (excluding fuel costs) associated with SCE s ownership share of generating facilities in accordance with Commission Decision No (D ). Commencing January 1, 2003, SCE s URG fuel costs are recorded in the Energy Resources Recovery Account in accordance with D (N) (N) The NLBA also tracks the difference between: (1) recorded Capital-related Expenses and Operating Expenses; and (2) Interim Capital-related Expenses and Operating Expenses Revenue Requirement as adopted in D (URG decision). The NLBA contains the following sub accounts to record Capital-related Expenses, Operating Expenses (excluding fuel costs), and other items for SCE s generating facilities: a. Hydro; b. Four Corners; c. Mohave; d. Pebbly Beach; e. Palo Verde; and f. SONGS 2&3. g. Miscellaneous Generation On a monthly basis, the activity in the NLBA shall be transferred to the Settlement Rates Balancing Account (SRBA) for cost recovery purposes. 2. Definitions a. Capital-related Expenses For purposes of making monthly entries to the NLBA, generation-related Capital-related Expenses include: (1) book depreciation (using applicable remaining life of each generating facility); (2) 1/12 of the annual return on rate base (7.35 percent for SONGS 2&3, and 9.49 percent for all other generating facilities); and (3) taxes based on income, including all appropriate income tax-related adjustments, and deferred income tax expense. Capital-related Expenses are calculated using recorded plant associated with SCE s generating facilities (SCE s ownership share of fossil, hydro, and nuclear generating facilities). 1H8

20 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Revised Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 2 WW. NATIVE LOAD BALANCING ACCOUNT 2. Definitions b. Franchise Fees and Uncollectibles Expense Franchise Fees and Uncollectibles Expense (FF&U) expense shall be calculated based on the most recently adopted FF&U Factor. c. Interim Capital-related Expenses and Operating Expenses Revenue Requirement In accordance with D (at Table 2, page 60), SCE s authorized generation-related Interim Capital-related Expenses and Operating Expenses Revenue Requirement (excluding FF&U) is: ($ Thousands) Capital-related Expenses $ 236,331 Operating Expenses $ 990,238 (including fuel costs) Total $ 1,226,569 d. Operating Expenses For purposes of making monthly entries to the NLBA, generation-related Operating Expenses include: (1) Operation and Maintenance (O&M) expenses (excluding fuel costs); (2) Administrative and General (A&G) expenses; (3) taxes other than on income; (4) Customer Service and Information (CS&I) expenses; (5) Scheduling and Dispatch (S&D) expenses; (6) contract administration; (7) congestion expenses; (8) allocated Industry Restructuring costs in accordance with D ; and (9) other expenses expressly authorized by the Commission. Operating Expenses are calculated for SCE s ownership share of generating facilities (fossil, hydro, and nuclear). e. Rate of Return on Rate Base In accordance with D , the rate of return on SCE s fossil, hydro, and Palo Verde rate base is 9.49 percent. The rate of return on SONGS 2&3 rate base is 7.35 percent. 2H8

21 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 4 WW. NATIVE LOAD BALANCING ACCOUNT 6. Mohave Sub-account The purpose of the Mohave Sub-account of the NLBA is to record actual Capital-related Expenses and Operating Expenses associated with SCE s ownership share of the Mohave generating station, to the extent that such costs are not recovered elsewhere. Monthly entries in the Mohave Sub-account shall be made on a monthly basis as follows: a. Debit entry equal to recorded Capital-related Expenses; b. Plus, a debit entry equal to recorded Operating Expenses; c. Equals: total recorded Mohave expenses. 7. Pebbly Beach Sub-account The purpose of the Pebbly Beach Sub-account of the NLBA is to record actual Capital-related Expenses and Operating Expenses of the Pebbly Beach generating station on Santa Catalina Island, to the extent that such costs are not recovered elsewhere. Monthly entries in the Pebbly Beach Sub-account shall be made on a monthly basis as follows: a. Debit entry equal to recorded Capital-related Expenses; b. Plus, debit entry equal to recorded Operating Expenses; c. Equals: total recorded Pebbly Beach expenses. 8. SONGS 2&3 Sub-account The purpose of the SONGS 2&3 Sub-account of the NLBA is to record actual Capital-related Expenses, and the SONGS 2&3 ICIP revenue requirement (non-fuel component) associated with SCE s ownership share of the SONGS 2&3 generating station, to the extent that such costs are not recovered elsewhere. Monthly entries in the SONGS 2&3 Sub-account shall be made on a monthly basis as follows: a. Debit entry equal to recorded Capital-related Expenses; b. Plus, a debit entry equal to the recorded SONGS 2&3 ICIP Revenue Requirement (non-fuel component); c. Equals: total recorded SONGS 2&3 expenses. 4H8

22 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 5 WW. NATIVE LOAD BALANCING ACCOUNT 9. Palo Verde Sub-account The purpose of the Palo Verde Sub-account of the NLBA is to record actual Capital-related Expenses, and Operating Expenses associated with SCE s ownership share of the Palo Verde generating station, to the extent that such costs are not recovered elsewhere. Monthly entries in the Palo Verde Sub-account shall be made on a monthly basis as follows: a. Debit entry equal to recorded Capital-related Expenses; b. Plus, debit entry equal to recorded Operating Expenses; c. Equals: total recorded Palo Verde expenses. (D) 10. Miscellaneous Generation Sub-account The purpose of the Miscellaneous Generation Sub-account of the NLBA is to record the non site specific general plant revenue requirement, Materials and Supply expense revenue requirement, and generation-related Other Operating Revenue (OOR) associated with generating facilities. Monthly entries in the Miscellaneous Generation Sub-account shall be made a monthly basis as follows: a. Debit entry equal to the non site specific general plant revenue requirement associated with generating facilities; b. Plus, debit entry equal to the Materials and Supply expense revenue requirement associated with generating facilities; c. Plus, credit entry equal to the OOR associated with generating facilities; d. Equals: total recorded Miscellaneous Generation. 5H8

23 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 6 WW. NATIVE LOAD BALANCING ACCOUNT 11. SONGS 2&3 ICIP Mechanism The SONGS 2&3 ICIP mechanism, as adopted by the Commission in D , and D , allows for the cost recovery of certain generation-related costs based upon actual SONGS 2&3 generation and a pre-established cents/kwh. In accordance with D , the fuel portion of the SONGS 2&3 ICIP mechanism is recorded in the Energy Resources Recovery Account commencing January 1, The non-fuel portion is recorded in the NLBA. The monthly SONGS 2&3 ICIP (nonfuel portion), shall be recorded in the monthly operation of the SONGS 2&3 Subaccount. a. SONGS 2&3 ICIP costs: SCE shall calculate monthly SONGS 2&3 ICIP costs as follows: (1) Monthly recorded SONGS 2&3 ICIP Revenue Requirement (non-fuel portion); (2) Plus: monthly SONGS 2&3 Corporate A&G Expenses derived by multiplying 0.21 cents per kwh by SONGS 2&3 monthly net transmitted kwh; (3) Plus: The SONGS 2&3 Allocated Industry Restructuring Costs; (4) Equals the total SONGS 2&3 ICIP (non-fuel portion) costs to be recorded in the SONGS 2&3 Sub-account. b. SONGS 2&3 ICIP Definitions: (1) Ownership Share: The Ownership Share is 75.05% for SONGS 2 and SONGS 3. (2) Positive Net Transmitted Generation: For purposes of calculating Monthly Recorded ICIP Revenue Requirement for SONGS 2 or SONGS 3, the term positive Net Transmitted Generation is defined as the net transmitted power delivered to the grid from SONGS 2 or SONGS 3. (3) Negative Net Transmitted Generation: For purposes of calculating Monthly Recorded ICIP Revenue Requirement for SONGS 2 or SONGS 3, the term negative Net Transmitted Generation is defined as the SONGS 2 or SONGS 3 loads consumed in support of the generating units during that period of time commencing at the moment the SONGS 2 or SONGS 3 generation breakers are opened and the unit generator is no longer synchronized to the grid, and continuing until the breakers are closed and the unit generator is synchronized to the grid. 6H8

24 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 7 WW. NATIVE LOAD BALANCING ACCOUNT 11. SONGS 2&3 ICIP Mechanism b. SONGS 2&3 ICIP Definitions: (4) SONGS Site Load: For purposes of determining monthly recorded SONGS 2 or SONGS 3 Net Transmitted Generation, SONGS Site Load is the total amount of energy used at facilities and buildings located on the SONGS nuclear generation site, but not physically a part of the generation plant. Eight percent (8%) of SONGS Site Loads is allocated to SONGS 1. The remaining ninety-two percent (92%) is allocated equally between SONGS 2 and SONGS 3, respectively. (5) Annual ICIP Factor: Continuing through December 31, 2003, SCE will apply the Annual ICIP Factors to monthly recorded SONGS 2&3 Net Transmitted Generation pursuant to the Table below. SONGS 2&3 Annual ICIP Factors do not include FF&U. Fuel Non-Fuel Year (cents/kwh) Portion Portion (6) ICIP Time-Differentiation Factors: (N) (N) (N) The Annual ICIP Factor will be time-differentiated to reflect the benefit of increased SONGS 2&3 Net Transmitted Generation during the Company s summer peak load periods. The Annual ICIP Factor will be multiplied by the following ICIP Time-Differentiation Factors: (a) The ICIP Time-Differentiation Factor is equal to 1.20 for the first 856,000,000 kwh of SONGS 2 Net Transmitted Generation (1,070 MW times 800 hours) and the first 864,000,000 kwh of SONGS 3 Net Transmitted Generation (1,080 MW times 800 hours) during the period of 10:00 a.m. through 10:00 p.m. for each day, Monday through Friday, during the period June 1 through September 30; 7H8

25 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 8 WW. NATIVE LOAD BALANCING ACCOUNT 11. SONGS 2&3 ICIP Mechanism b. SONGS 2&3 ICIP Definitions: (6) ICIP Time-Differentiation Factors: (b) (c) The ICIP Time-Differentiation Factor is equal to 0.80 for the first 856,000,000 kwh of SONGS 2 Net Transmitted Generation (1,070 MW times 800 hours) and the first 864,000,000 kwh of SONGS 3 Net Transmitted Generation (1,080 MW times 800 hours) during periods not covered by (a) above; The ICIP Time-Differentiation Factor is equal to 1.00 for SONGS 2 Net Transmitted Generation and SONGS 3 Net Transmitted Generation not covered by (a) and (b) above. (7) Net Transmitted Generation: For purposes of determining recorded SONGS 2&3 kwh production, SONGS 2 Net Transmitted Generation and SONGS 3 Net Transmitted Generation will be determined separately pursuant to the following calculations: (a) (b) Net Generation (positive or zero) as measured from the main transformers; Less: Reserve auxiliary transformer loads; (c) Less: Energy imported through the main transformers (only during periods of unit(s) shutdown); (d) (e) (f) Less: One-half of the portion of the energy for SONGS Site Loads allocated to SONGS 2&3. SONGS 1 site loads and the portion of the energy for SONGS Site Loads allocated to SONGS 1 shall be excluded; Equals: Positive Net Transmitted Generation or Negative Net Transmitted Generation, as applicable; The result of (e) multiplied by the Ownership Share. 8H8

26 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 9 WW. NATIVE LOAD BALANCING ACCOUNT 11. SONGS 2&3 ICIP Mechanism b. SONGS 2&3 ICIP Definitions: (8) Monthly Recorded SONGS 2&3 ICIP Revenue Requirement (non-fuel portion): Monthly Recorded ICIP Revenue Requirement (non-fuel portion) for SONGS 2 or SONGS 3 is the sum of the SONGS 2 and SONGS 3 Monthly Recorded ICIP Revenue Requirement, adjusted by the applicable 0.80, 1.00, and 1.20 Time Differentiated ICIP Factors. For calendar year 2003, the Monthly Recorded SONGS 2&3 Revenue Requirement shall be separated into a fuel component and a non-fuel component for SONGS Unit No. 2 and for SONGS Unit No. 3. The fuel component shall be recorded in the Energy Resources Recovery Account. The non-fuel component shall be recorded in the SONGS 2&3 Sub-account of the NLBA. The following calculations are applied to both SONGS 2 and SONGS 3: (9) Monthly Recorded ICIP Revenue Requirement (non-fuel portion) for Positive Net Transmitted Generation: When the SONGS 2 or SONGS 3 generation breakers are closed and the unit generator is synchronized to the grid ( positive SONGS 2 or SONGS 3 Net Transmitted Generation): (a) Recorded SONGS 2 or SONGS 3 Net Transmitted Generation multiplied by Ownership Share; (b) (c) (d) Multiplied by: the SONGS 2&3 Annual ICIP Factor (non-fuel portion); Multiplied by: the SONGS 2&3 ICIP Time Differentiation Factor(s) as defined herein for the applicable kwh, and time period during the calendar year; Equals the SONGS 2 or SONGS 3 Monthly Recorded ICIP Revenue Requirement (non-fuel portion) for positive generation. (10) Monthly Recorded ICIP Revenue Requirement (non-fuel portion) for Negative Net Transmitted Generation: During a period when SONGS 2 or SONGS 3 generator is not synchronized to the grid, (i.e., SONGS 2 or SONGS 3 Net Transmitted Generation is negative): (a) (b) (c) Recorded SONGS 2 or SONGS 3 Net Transmitted Generation multiplied by Ownership Share; Multiplied by: the SONGS 2&3 Annual ICIP Factor (non-fuel portion); Equals the SONGS 2 or SONGS 3 Monthly Recorded ICIP Revenue Requirement (non-fuel portion) for negative generation. (N) (N) 9H9

27 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 9 9H9

28 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 10 WW. NATIVE LOAD BALANCING ACCOUNT 11. SONGS 2&3 ICIP Mechanism b. SONGS 2&3 ICIP Definitions: (11) SONGS 2&3 Corporate A&G Expenses: SONGS 2&3 Corporate Administrative and General (A&G) Expenses are certain expenses allocable to SONGS 2&3 pursuant to D (Ratesetting). SONGS 2&3 Corporate A&G Expenses shall be 0.21 cents per net transmitted kwh for SONGS 2 and SONGS 3 pursuant to D (12) SONGS 2&3 Allocated Industry Restructuring Costs: The SONGS 2&3 Allocated Industry Restructuring Costs shall be those generation related costs associated with industry restructuring allocated to nuclear generation at SONGS 2&3 in accordance with D Palo Verde Incremental Costs (PVIC) Mechanism The PVIC, as adopted by the Commission in D , and D , permits the cost recovery of Palo Verde generation-related operating expenses. a. PVIC Operating Expenses Revenue Requirement The PVIC Operating Expenses Revenue Requirement (excluding FF&U) shall be determined from the following calculations: (1) Recorded Palo Verde Incremental Costs (excluding fuel-related costs), as determined below; (2) Plus: Recorded Palo Verde-related Industry Restructuring Costs in accordance with D ; (3) Plus: Recorded Firm Transmission Right acquisition costs; (4) Plus: Recorded Customer Service Information (CSI) expenses; (5) Plus: Recorded Scheduling and Dispatch expenses; (6) Plus: Recorded Congestion fees; 10H8

29 Southern California Edison Revised Cal. PUC Sheet No E Rosemead, California Cancelling Original Cal. PUC Sheet No E PRELIMINARY STATEMENT Sheet 11 WW. NATIVE LOAD BALANCING ACCOUNT 12. Palo Verde Incremental Costs (PVIC) Mechanism a. PVIC Operating Expenses Revenue Requirement (7) Less: Recorded congestion revenue received as the result of SCE holding Firm Transmission Rights, and revenues received from the resale of Firm Transmission Rights; (8) Equals: Total Palo Verde Operating Expenses Revenue Requirement to recorded in the Palo Verde Sub-account. (D) b. Palo Verde Incremental Costs: Palo Verde Incremental Costs shall include SCE s Ownership Share of Palo Verde O&M expenses (excluding fuel-related costs), A&G expenses (including allocated Corporate A&G), Incremental Capital, Property Taxes, and Income Taxes (associated with Incremental Capital and Nuclear Fuel). Commencing January 1, 2003, Palo Verde nuclear fuel amortization, the current portion of nuclear fuel disposal costs, and nuclear fuel carrying costs are recorded in the Energy Resources Recovery Account in accordance with D PVIC categories are defined as follows: (1) Property Taxes actually paid. (2) Incremental Capital as billed by APS, plus SCE overheads of 17%. (3) O&M expenses billed by APS to SCE (including APS overhead loads), plus SCE s oversight expenses. (4) A&G expenses related to SCE s nuclear insurance, SCE s oversight function and SCE s A&G (including SCE s recorded allocated Corporate A&G) associated with Palo Verde. (N) (N) (D) 11H8