TURN accounting

In its March 27 decisions, the CPUC granted a petition previously filed by The
Utility Reform Network (TURN), a ratepayer advocacy group, that was opposed by
SCE and Pacific Gas and Electric Company. The CPUC directed that the balance in
SCE's TRA, whether positive or negative, be transferred on a monthly basis to
SCE's transition cost balancing account (TCBA), effective retroactively to
January 1, 1998. The TRA is a regulatory asset account in which SCE records the
difference between revenues received from customers through currently frozen
rates and the costs of providing service to customers, including power
procurement costs. The TCBA is a regulatory balancing account that tracks the
recovery of generation-related transition costs, including stranded investments.
The CPUC also ordered SCE to retroactively restate and record balances in its
generation memorandum accounts to the TRA on a monthly basis before any transfer
of generation revenues to the TCBA. SCE believes that this decision by the CPUC
is a fundamental departure from established regulatory accounting and ratemaking
procedures and is unlawful and unconstitutional. SCE believes the CPUC's intent
was to deny SCE lawful recovery of its costs and to artificially extend the end
of the current rate freeze. The CPUC characterized the changes as merely
reducing the prior revenues recorded in the TCBA, thereby affecting only the
amount of transition cost recovery achieved to date. Based upon the transfer of
balances into the TCBA, the CPUC stated that the current rate freeze has not
ended and will not end until the earlier of recovery of all specified transition
costs or March 31, 2002. The CPUC said that any undercollection in the TRA
cannot be recovered after the rate freeze ends. But the CPUC also said that it
will monitor the balances remaining in the TCBA and consider how to address
remaining balances in the ongoing proceedings. If the CPUC does not modify this
decision in a manner consistent with the MOU, SCE intends to challenge this CPUC
decision through all appropriate avenues.