October 21, 2005 RE: APPLICATION /INVESTIGATION

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1 James M. Lehrer Senior Attorney October 21, 2005 Docket Clerk California Public Utilities Commission 505 Van Ness Avenue San Francisco, California RE: APPLICATION /INVESTIGATION Dear Docket Clerk: Enclosed for filing with the Commission are the original and five copies of the SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E BRIEF ON POSTAGE AND MOHAVE UPDATE ISSUES in the above-referenced proceeding. We request that a copy of this document be file-stamped and returned for our records. A self-addressed, stamped envelope is enclosed for your convenience. Your courtesy in this matter is appreciated. Very truly yours, James M. Lehrer JML:aa:LAW# Enclosures cc: All Parties of Record (U 338-E P.O. Box Walnut Grove Ave. Rosemead, California ( Fax (

2 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Edison Company (U 338-E for Authority to, Among Other Things, Increase its Authorized Revenues for Electric Service in 2006, and to Reflect that Increase in Rates. Investigation on the Commission s Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Edison Company. Application (Filed December 21, 2004 Investigation (Filed May 26, 2005 SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E BRIEF ON POSTAGE AND MOHAVE UPDATE ISSUES MEGAN SCOTT-KAKURES JAMES M. LEHRER FRANK A. MCNULTY SUMNER J. KOCH Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone:( Facsimile: ( scegrc@sce.com Dated: October 21, 2005

3 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Edison Company (U 338-E for Authority to, Among Other Things, Increase its Authorized Revenues for Electric Service in 2006, and to Reflect that Increase in Rates. Investigation on the Commission s Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Edison Company. Application (Filed December 21, 2004 Investigation (Filed May 26, 2005 SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E BRIEF ON POSTAGE AND MOHAVE UPDATE ISSUES I. SCE S POSTAGE EXPENSE UPDATE FORECAST IS REASONABLE AND SHOULD BE ADOPTED In witness Thomas Walker s December 2004 direct testimony, SCE pointed out that the U.S. Postal Service had announced its intention in November of 2004 to file a request to increase postal rates beginning in We also stated in our direct testimony that as more information became available, SCE would revise the forecast of postage expense in the update portion of the GRC. 2 Then, as we had anticipated, in April 2005 the US Postal Service filed a request with the 1 Exhibit 50, p Exhibit 50, p

4 U.S. Postal Rate Commission for a postage rate increase of 5.4 percent to be effective as early as January SCE must regularly communicate with its approximately 4.6 million customers. For example, each month we must render bills and provide our customers with various communications mandated by statute or Commission regulation. To do so, we use the most economical means available, the United States mail. The proposed 5.4 percent increase in postage rates will increase SCE s postage expense by $1.018 million annually above the test year forecast of $ million. 4 None of the other parties in this GRC have challenged or even addressed SCE s calculation of the anticipated postage expense increase. ORA and TURN oppose the postage rate increase update because it is not known. However, several recent developments in the U.S. Postal Service s postage rate case provide a high degree of confidence that the increase is known, with a January 2006 effective date and an amount certain of 5.4 percent. First, 36 of 46 parties to the Postal Service s rate case have signed a settlement agreement with the U.S. Postal Service approving the 5.4 percent increase with an effective date of January Second, the settlement agreement provides that it is dependent upon the Postal Rate Commission issuing its decision by October 31, Third, the U.S. Postal Service Board of Governors has already approved a new five-year plan for the Postal Service which is in part predicated on a postal rate increase of 5.4 percent beginning in January The U.S. Postal Service Board of Governors is the same regulatory body that will approve or disapprove the Postal Rate Commission s recommended decision. 8 3 United States Postal Service News Release, April 8, 2005, describing a requested 5.4 percent increase across most rate categories. 4 Exhibit 170, pp and Exhibit 50, pp Notice of United States Postal Service of Filing Signatures for Stipulation and Agreement, Docket No. R2005-1, September 23, Initial Brief of the United States Postal Service, Docket No. R2005-1, September 26, 2005, p. vii and p. II September 27, 2005 News Release by the United States Postal Service, Attachment C to SCE s Response to ORA s Motion to Strike Portions of the Update Testimony CFR 3.4(e; 39 USC

5 At the update hearings TURN made reference to SCE s request in its 1995 GRC to update its postage expense estimate and the fact that its update testimony was stricken. However, the ALJ has already denied ORA s motion to strike the postage testimony because the factual circumstances in this case are different. Unlike the situation in 1994, 9 we can and have calculated the amount of the increase. We also anticipate a decision by the Postal Rate Commission very soon. As directed by ALJ Fukutome, SCE will serve a late-filed exhibit by November 4, 2005 regarding the Postal Rate Commission s recommended decision on the postage increase. The late-filed exhibit will include any available supporting documents. As described in SCE s September 26, 2005 Update Testimony and by witness Russ Worden at the update hearing, as part of the advice letter process implementing the Commission s Phase I decision, SCE proposes to adjust its Authorized Base Revenue Requirement (ABRR to reflect the effective date of the postal expense increase. II. ESTABLISHING SCE S REVENUE REQUIREMENT BASED ON THE MOHAVE CONTINUED OPERATION SCENARIO IS REASONABLE AND APPROPRIATE UNDER CURRENT CIRCUMSTANCES Throughout this proceeding, SCE has been faced with a lack of clarity as to whether it will be possible to continue or resume the operation of Mohave after To address this uncertainty, SCE has taken an approach toward Mohave designed to preserve, to the extent possible, the option of post-2005 Mohave operations while also protecting SCE customers from the risk of overspending on Mohave. In opening testimony, SCE provided capital and O&M spending levels for each of the three different possible post-2005 Mohave scenarios (Continued Operation, Temporary Shutdown, and Permanent Shutdown; SCE selected Continued Operation as the appropriate scenario to use, at least as of that time, for the purpose of determining SCE s 9 See Application , Reporter s Transcript, September 19, 1994, p

6 revenue requirement for customer notice purposes; and SCE proposed two-way balancing account treatment of the Mohave spending with reasonableness review to protect customers from risk of unreasonable spending on Mohave. 10 SCE also said that it would update the record on Mohave as circumstances allow. In SCE s September 26, 2005 update showing, witness Harold Ray testified that Continued Operation remains the most appropriate scenario to use for the purpose of setting SCE s revenue requirement, even though uncertainty remains right now as to whether continued operation of Mohave will be achievable. 11 Issues affecting Mohave s post-2005 coal supply (including slurry water supply remain unresolved at present, and so the full range of Mohave outcomes still remain possible, from Continued Operation to Permanent Shutdown. Nevertheless, as Mr. Ray testified, and as no other party apparently contests, the Mohave coowners and the other parties directly involved in Mohave s coal supply continue to pursue intensive negotiations, water studies, an environmental impact study and other related efforts to resolve the coal supply issues, and in SCE s view a successful resolution of all those issues remains possible. 12 As Mr. Ray further testified, and no one apparently contests, achieving Mohave continued operations would mean important and valuable benefit to SCE s customers, in terms of both fuel diversity and reliability, especially in light of recent natural gas price increases. 13 In these circumstances, as Mr. Ray summarized, SCE should have maximum flexibility to continue pursuing the possibility of continued Mohave operation. Setting the revenue requirement based on the Continued Operation scenario would provide SCE that flexibility, while in no way compromising the interests of the SCE customer The terms of such a balancing account were described in footnote 13 of Exhibit 170 and testimony of SCE witness Russell Worden (SCE, Worden, Tr. 31/ Exhibit 170, pp Id., p Id., p Id., p

7 TURN, and perhaps ORA, apparently continue to oppose use of the Continued Operation scenario for setting the revenue requirement, evidently based only on their estimation that achieving continued Mohave operation is very unlikely. 15 Yet, TURN or other parties offer no explanation of why the scenario to be used for setting revenue requirement should be based solely on their judgment call about the probabilities, to the exclusion of all other factors and without consideration of Mr. Ray s testimony that the prospects for achieving continued operations are likely improved in the current context of increased natural gas prices. 16 SCE urges that the Commission, in setting the appropriate revenue requirement for Mohave, take into account the following important considerations: (a setting the revenue requirement based on the Continued Operation scenario represents a no-regret path, in which SCE has full latitude to pursue the possibility of continued Mohave operations, while SCE s customers remain protected from risk of unreasonable spending, and (b setting the revenue requirements at any level other than the Continued Operation scenario could hamper the ongoing efforts by SCE and other relevant parties to resolve the issues necessary to allow continued operations at Mohave for the benefit of SCE s customers. 15 ORA moved unsuccessfully to strike SCE s Update testimony regarding Mohave, on September 28, 2005, and TURN supported the ORA motion, on October 4, At the October 11, 2005 hearing regarding the Update, TURN, but not ORA, cross-examined Mr. Ray. 16 Exhibit 170, p

8 Respectfully submitted, MEGAN SCOTT-KAKURES JAMES M. LEHRER FRANK A. MCNULTY SUMNER J. KOCH By: James M. Lehrer Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone:( Facsimile: ( October 21,

9 CERTIFICATE OF SERVICE I hereby certify that, pursuant to the Commission s Rules of Practice and Procedure, I have this day served a true copy of SOUTHERN CALIFORNIA EDISON COMPANY S (U 338-E BRIEF ON POSTAGE AND MOHAVE UPDATE ISSUES on all parties identified on the attached service list(s. Service was effected by one or more means indicated below: Transmitting the copies via to all parties who have provided an address. First class mail will be used if electronic service cannot be effectuated. Placing the copies in sealed envelopes and causing such envelopes to be delivered by hand or by overnight courier to the offices of the Commission or other addressee(s. Placing copies in properly addressed sealed envelopes and depositing such copies in the United States mail with first-class postage prepaid to all parties. Directing Prographics to place the copies in properly addressed sealed envelopes and to deposit such envelopes in the United States mail with first-class postage prepaid to all parties. Executed this 21st day of October, 2005, at Rosemead, California. Myrna Martinez Project Analyst SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770