P.O. Box 800 2244 Walnut Grove Ave. Rosemead, California 91770 (626) 302-3630 Fax (626) 302-4829

Akbar Jazayeri Director of Revenue and Tariffs

June 3, 2004

ADVICE 1801-E (U 338-E)

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION

SUBJECT: First Annual Filing Requesting Recovery of the Costs Recorded in the Bark Beetle Catastrophic Event Memorandum Account for the Period April 3, 2003 through December 31, 2003

In accordance with Ordering Paragraph 3 of Resolution E-3824, Southern California Edison Company (SCE) hereby submits its first annual advice filing requesting recovery of the costs of tree removal and incremental support costs recorded in its Catastrophic Event Memorandum Account (CEMA) associated with the bark beetle infestation (Bark Beetle CEMA) for the period April 3, 2003 through December 31, 2003.

PURPOSE

Resolution E-3824 issued on April 3, 2003, authorized SCE, Bear Valley Electric, and San Diego Gas & Electric to invoke the CEMA mechanism to record costs for tree removal and incremental support costs related to the bark beetle infestation in San Bernardino, Riverside, and San Diego counties. In addition, the utilities were “authorized to make annual advice letter filings requesting recovery of the costs of removal and incremental support costs recorded during a specified period in their CEMAs to allow rate recovery of the amounts determined to have been reasonably incurred.”1 This advice filing is SCE’s first annual filing pursuant to Resolution E-3824.

The purpose of this advice filing is to obtain the California Public Utilities Commission’s (Commission): (1) finding that the $18.080 million of Operation and Maintenance (O&M) expenses recorded in SCE’s Bark Beetle CEMA for the period April 3, 2003 through December 31, 2003, are reasonable; 1 Ordering Paragraph 3.

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(2) authorization to transfer the December 31, 2003 balance in the Bark Beetle CEMA of $18.102 million, including interest, to the Electric Distribution Revenue Adjustment Balancing Account (EDRABA) or the distribution sub-account of the Base Revenue Requirement Balancing Account (BRRBA) for recovery in rates; and (3) authorization to allow SCE to implement future Bark Beetle CEMA-related rate changes coincident with the effective date of Commission approval of subsequent annual advice letter filings.

BACKGROUND

Over 12 millions trees, weakened by years of drought in mountainous regions of San Bernardino, Riverside, and San Diego counties are dead or dying due to a widespread bark beetle infestation.2 This situation poses a potential hazard to the people and property in these communities, many of which are served by SCE. In addition, this situation poses a significant hazard to our electrical facilities that serve these communities.

On March 7, 2003 Governor Davis issued a State of Emergency Proclamation (Emergency Proclamation) for the counties of Riverside, San Bernardino, and San Diego. Among other things, the Emergency Proclamation requested that the Commission “direct utility companies with transmission lines in Riverside, San Bernardino, and San Diego counties to ensure that all dead, dying and diseased trees and vegetation are completely cleared from their utility right-of-ways to mitigate the potential of fire danger.” In response to the Emergency Proclamation the Commission issued Resolution E-3824 on April 3, 2003, which ordered SCE, Bear Valley Electric, and San Diego Gas & Electric to work with the California Department of Forestry and Fire Protection (CDF) and other appropriate agencies to “take all reasonable and necessary actions to implement the applicable provisions of the Governor’s State of Emergency Proclamation to mitigate the increased fire hazard by removing dead, dying or diseased trees that may fall or contact distribution and transmission lines within their rights of way…” In addition, the Commission directed the utilities to invoke their CEMA “for fund accounting.” On April 4, 2003, SCE notified the Commission that it had activated its Bark Beetle CEMA effective April 3, 2003.

On August 8, 2003 SCE filed Advice 1730-E requesting approval to reimburse property owners for their costs of removing dead, dying or diseased trees that could impact our electrical lines or facilities in the bark beetle infestation zone. On August 29, 2003 the Energy Division approved Advice 1730-E and

2 A gallery of pictures showing the impacts of the infestation can be viewed at SCE’s website

www.sce.com/barkbeetle and clicking on the Photo Gallery link.

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authorized SCE to “reimburse eligible property owners in accordance with SCE’s proposed criteria for trees necessarily removed after April 3, 2003.”3

Along with federal, state, and local agencies, SCE is part of a large-scale effort to remove the more than 12 million dead or dying trees in the infested areas. This estimate is expected to grow as the bark beetle infestation continues to spread. SCE estimates that it will take five years or more to remove the dead and dying trees that could impact our electrical lines and facilities.

OVERVIEW OF SCE’S ACTIVITIES RELATED TO THE BARK BEETLE

SCE’s activities associated with the bark beetle infestation started prior to the issuance of the Emergency Proclamation. SCE’s tree and forest experts have been monitoring the drought conditions and bark beetle impacts for several years. The magnitude of the problem and the impacts on SCE’s system did not reach their full potential until late 2002. SCE started working with state and local agencies to identify the impacted areas and start developing joint action plans on how to deal with the growing problem. Initially, SCE developed plans to use our existing procedure of topping dead or dying trees so that they could no longer fall into our lines. Under this procedure, the property owner would be responsible for the removal of the portion of the tree that could no longer impact our lines. However, Resolution E-3824 (Resolution) required SCE to remove the trees instead of topping them. In response to the Resolution and the growing magnitude of the problem, SCE formalized the management of its efforts in April 2003 by establishing a Bark Beetle Project Team.

SCE’s Bark Beetle Project Team (Project Team) manages the company’s removal of dead or dying trees in the bark beetle infested areas that could impact our electrical lines and facilities. It is currently estimated that there are at least 350,000 trees that could impact our electrical lines and facilities.4 The Project Team comprises approximately 60 employees5 from departments throughout the company whose purpose is to develop a comprehensive program to remove dead or dying trees in the affected areas within the company’s service territory with the commitment to perform the work as safely and quickly as possible. The Project Team is also committed to keeping customers and major stakeholders in the affected areas informed of project activities and progress.

3 Approval of Advice 1730-E was granted via letter from Paul Clanon on August 29, 2003. 4 This includes dead, dying and healthy trees. SCE only removes trees that certified forest technicians identify

as dead or dying. 5 As of December 31, 2003, four SCE employees were dedicated full time to the Project Team, while the others

perform Project Team responsibilities along with their normal company responsibilities. Therefore, the majority of the labor costs associated with members of the Project Team are not incremental and are not included in the Bark Beetle CEMA.

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SCE is a key member of both the San Bernardino County and Riverside County Mountain Area Safety Taskforce (MAST) organizations, which are coalitions of federal, state, and local public safety and forestry agencies working to combat the effects of the bark beetle and remove the millions of dead or dying trees in the affected areas in an organized manner. The MASTs are responsible for the development of the priorities which are used in developing SCE’s tree removal schedule. The MAST priorities are to assure public safety by developing evacuation plans, clearing potential hazard trees from routes into and out of the mountains, and reducing fuel and creating fuel breaks. SCE’s tree removal schedule is designed to give maximum flexibility to field personnel while minimizing inconvenience to residents and businesses in the affected areas.

Commencing in May of 2003, SCE started creating a detailed inventory of the dead and dying trees that could impact our facilities (this includes guy wires, poles, and trees with attached facilities). Our electrical lines could be impacted if any tree or any part of a tree could fall into our lines. For example, a 100-foot-tall tree rooted 70 feet from one of our electrical lines could fall into the wires in a wind storm. As of December 31, 2003, SCE had inventoried approximately 53,300, dead or dying trees that could impact our lines.

Starting in April, 2003, SCE hired contractors to start removing trees on a time and material basis while it developed a Request for Proposal for the removal of trees on a fixed price basis. Between April and December 2003, SCE removed approximately 9,000 trees under time and material contracts. In October 2003, SCE awarded a contract to Phillips and Jordan to remove trees on a fixed price basis. Since early November 2003, Phillips and Jordan has been removing -- on average -- approximately 300 trees per day.6 As of December 31, 2003, Phillips and Jordan had removed approximately 16,900 trees.7 Overall, during 2003, SCE had removed approximately 25,900 trees that could have impacted our electrical lines.

In order to ensure that the impacted communities are kept informed of SCE’s tree removal and related activities, SCE has used various communication methods including: direct mailings to customers and property owners, participation in town hall meetings, interviews with the media, press releases, establishment of a special bark beetle web page on SCE.com, direct contact with representatives of public agencies and local fire safe councils, direct contact with customers, and as mentioned earlier SCE is a key member of both the San Bernardino County and Riverside County MAST organizations. SCE 6 During 2004, Phillips and Jordan has ramped up its operations and is currently removing approximately 700

trees per day. 7 The removal costs for approximately 5,800 of these trees were not invoiced by December 31, 2003, thus their

removal costs will be reflected in 2004.

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and its contractors typically work six days a week on tree removal related activities and will continue to work with government agencies to prioritize tree removals.

Besides the tree removal related activities, SCE has implemented two special operating procedures in the bark beetle infested areas. The first is a special orders amendment of System Operating Bulletin (SOB) No. 322. This special order SOB No. 322-1 is to reduce the potential for fire hazard in the bark beetle infested areas and deals with the inspection of high voltage lines prior to their re-energization. The second is a Protective Outage Plan (POP) under which SCE monitors the wind conditions in specific bark beetle infested areas and will proactively shut down electric service during certain hazardous situations. Both of these procedures are discussed below.

Due to the high fire potential in the bark beetle infested areas, SCE has implemented SOB No. 322-1 for those circuits in the bark beetle infested areas. Under this special operating procedure, all electric lines with reclosing capability or that have been identified to be within the proximity of dead or dying trees that may fall into that line, will be made non-automatic. Manual testing of lines or line sections will not be performed until the line or line section has been patrolled. This means that, once a circuit or portion of a circuit has tripped, an inspector will physically inspect the entire circuit before it is re-energized to ensure that a potentially hazardous condition does not exist. In the case of circuits that traverse sparsely populated forest areas, the inspector may have to hike several miles in steep terrain to inspect the lines. Depending upon the location of the specific circuit, weather conditions and time of day, this special operating procedure could add anywhere from several hours to more than 24 hours to an outage. This operation will be in place while high fire hazard exists in these areas.

In the fall of 2003 SCE developed an unprecedented Protective Outage Plan (POP) for the bark beetle infested communities in the San Bernardino National Forest. The POP was established as a precautionary measure to reduce the risk to lives and property in these communities from wildfires. When high winds strike the bark beetle infested forest, weakened tree limbs and other material are more likely to fall or get blown into our electric lines and facilities. Therefore, given certain conditions (e.g., high winds, low humidity, other system conditions), SCE will implement the POP and shut down power to the bark beetle infested communities. In order to minimize the potential impact to residents and businesses, SCE has identified 11 specific regions in the mountain communities and when potential high wind conditions exist, SCE either utilizes real time on-line weather resources, or stations employees in each of these regions to monitor conditions. Using hand held wind and

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humidity gauges, these employees monitor the conditions in these regions and only if the conditions in the specific region becomes hazardous, do we actually shut off power. Only after the hazardous conditions no longer exist will SCE start to restore service. Before restoring service, SCE will patrol and inspect each circuit as an extra safety precautionary measure. The outage could last for several hours to several days depending upon weather conditions.

We have notified local, state, and federal officials -- including the appropriate public safety and forestry departments -- of the POP. We have also informed customers about this policy and have personally contacted customers identified as critical care on medical baseline. Even though it is not always possible, we will attempt to give advanced notice to customers and public agencies about the potential for a protective outage. In addition, once an outage is initiated, we will use our outbound calling capabilities to contact customers in the impacted areas to let them know the reason for the outage.

Due to hazardous conditions in the fall of 2003, SCE monitored wind conditions on 4 separate occasions and actually implemented protective outages in 3 communities during the October wildfires. In that instance, we identified six locations in the Idyllwild area where trees had fallen into our lines while the lines were de-energized as a result of the POP. In general, the response from residents and local agencies has been extremely positive to the protective outage plan.

Table 1 below provides an overview of the key milestones during 2003 related to SCE’s activities associated with the bark beetle project.

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Table 1 Bark Beetle Project – Key Milestones

Date Activity

1st Quarter 2003 SCE started working with state and local agencies to identify the bark

beetle impacted areas and develop an action plan March 7, 2003 Governor’s State of Emergency Proclamation April 3, 2003 Commission issues Resolution E-3824 April 4, 2003 SCE letter to the Commission notifying of the activation of the CEMA on

April 3, 2003 pursuant to Resolution E-3824 April 5, 2003 SCE initiates tree removals in the impacted areas using time and

material contractors April 30, 2003 SCE establishes Bark Beetle Project Team May 23, 2003 SCE starts using contract electrical crews on a time and material basis

to de-energize and remove, if necessary, power lines to support tree removals by SCE and third parties

May 27, 2003 SCE starts Bark Beetle Mitigation Inspection May 28, 2003 SCE starts tree inventorying process June 9, 2003 Letter to customers regarding tree removal process update and

information to prepare for potential temporary outages July 17, 2003 Letter notifying customers of SCE compiling inventory of trees that

could impact our electrical lines August 8, 2003 Advice Filing 1730-E - Request for Authorization to Record in CEMA

Reimbursements to Property Owners for Removal of Trees that Could Have Impacted SCE’s Electric Lines

August 15, 2003 SCE issues Request for Proposal for fixed price tree removal contractors August 28, 2003 SCE establishes fixed unit price contract for contract electrical crews to

replace time and material contracts August 29, 2003 Commission approves Advice 1730-E September 19, 2003 SCE selects Phillips & Jordan as tree removal contractor

September 22, 2003 SCE VP Dick Rosenblum provided testimony before the U. S. House of Representatives Resources Committee on forest health issues

October 10, 2003 Reimbursement guidelines sent to approximately 33,000 customers and property owners

October 20, 2003 Received first Reimbursement Request October 22, 2003 SCE expands firms hired to inventory trees October 2003 Wildfires in San Bernardino National Forest October 24, 2003 SCE establishes Protective Outage Plan October 31, 2003 Phillips & Jordan starts felling trees December 15, 2003 Mailed first Reimbursement Request Checks to Property Owners

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Incremental Cost Definition

Resolution E-3824 authorized SCE to record its costs of tree removal and incremental support costs related to the bark beetle infestation in its CEMA. The term “incremental costs” applies to both capital and operating costs incurred by SCE as a result of (and only due to) the bark beetle infestation. Costs (capital and expense) that would not have been incurred “but for” the bark beetle infestation are considered incremental. In other words, incremental costs are not part of SCE’s normal business and are therefore not funded through existing rates. Only those costs incurred on or after April 3, 2003, determined to be incremental, and appropriately documented are recorded in the Bark Beetle CEMA.

Examples of incremental operating expenses recorded in the Bark Beetle CEMA include, but are not limited to: contractor costs to identify and remove trees, mailing costs to inform property owners of SCE’s tree removal activities, employee overtime specifically performing bark beetle related activities, salaries of new full time positions created to manage the bark beetle related activities, reimbursements to property owners for their removal costs of trees that could have impacted electrical lines, and miscellaneous employees expenses (e.g., mileage, meals, lodging, etc.) of employees performing bark beetle related activities.

In most instances, the labor costs (normal time) of SCE employees working on the bark beetle project are not considered incremental. Thus, when these employees work on the bark beetle project, their normal time hours would not be charged to the Bark Beetle CEMA. However, in several instances, SCE determined that it was necessary to have SCE employees dedicated to the bark beetle project and new positions were created. The employees who filled these positions were either existing SCE employees whose previous position was backfilled or new hires to the company. For these employees the incremental labor costs include salary, bonuses, payroll taxes, benefits, and paid absence costs. The incremental labor costs do not include departmental and corporate overheads. In addition, overtime pay for non-exempt employees who perform bark beetle related tasks during the overtime hours is considered incremental.

The incremental capital costs associated with the bark beetle project relate to the installation of new poles and associated hardware resulting from the removal of a tree that had electrical equipment (e.g., service drops, conductors, guy wires, etc.) attached to it. SCE has identified approximately 3,000 trees that will need to be replaced with a new pole. Since these are new poles, the incremental capital costs include all costs normally associated with the installation of a pole, including labor costs, material costs and associated

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overheads. In some instances, these new poles will be joint poles under the Joint Pole Agreement and all applicable credits will be applied as an offset to the incremental capital costs. The revenue requirement associated with the recorded incremental capital costs is recorded in the capital cost subaccount of the Bark Beetle CEMA on a monthly basis. Although SCE has incurred capital expenditures of $0.363 million during the period April 3, 2003 through December 31, 2003 the work orders where these expenditures are recorded were not closed to plant-in-service as of December 31, 2003. Therefore, no capital-related revenue requirement was recorded in the CEMA as of December 31, 2003. Once the work orders are closed to plant-in-service, SCE will calculate a monthly revenue requirement comprised of depreciation, return, and taxes to be recorded in the CEMA.

The monthly capital-related revenue requirement will continue to be recorded in the CEMA until such costs are reflected in SCE’s distribution revenue requirement and associated rates. SCE anticipates that it will tender its 2006 General Rate Case (GRC) Notice of Intent (NOI) with the Commission during the third quarter of 2004 and, consistent with the Commission’s Rate Case Plan (D.89-01-040), the 2006 GRC Application will be filed no later than the fourth quarter of 2004. SCE will include reasonableness testimony with its 2006 GRC NOI and Application that supports the costs of replacing the approximately 3,000 trees with new poles. SCE expects to incur these capital costs during 2004, 2005, and 2006. Rate recovery for these capital costs will be included in SCE’s requested GRC revenue requirement for the test year (2006) and for each attrition year (2007 and 2008). Therefore, once SCE’s GRC revenue requirement is approved by the Commission and implemented in rate levels, no additional amounts will need to be recorded in the Capital Cost Subaccount of the Bark Beetle CEMA and the recorded balance will be transferred to the Base Revenue Requirement Balancing Account (BRRBA) for recovery in rates. For informational purposes, until such time that the capital costs are fully reflected in SCE’s GRC revenue requirement and associated rate levels, SCE will set forth the activity in the Capital Cost Subaccount of the Bark Beetle CEMA each year in its annual advice letter filing.

Table 2 provides a summary of the incremental capital and operating costs recorded for the period April 3, 2003 through December 31, 2003. These costs are described in further detail in the following sections. These costs are all incremental and have not been recovered through existing rates.

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Table 2 Recorded Tree Removal and Incremental Support Costs

(April 3, 2003 – December 31, 2003)

Item Capital Expense Project Management $ 0 $ 514,130 Stakeholder Communications $ 0 $ 174,732 Mitigation Inspection $ 0 $ 293,318 Tree Removal $ 0 $15,515,025 Other Operational $ 0 $ 297,880 Reimbursement to Property Owners $ 0 $ 1,285,159 New Pole Installation $ 08 $ 0 Total Costs9 $ 0 $18,080,246

Recorded Incremental Expenses

The following sections provide detailed discussions of each of the incremental costs categories identified in Table 2.

Project Management O&M Expenses

During 2003, SCE recorded $0.514 million of incremental costs in the Bark Beetle CEMA related to Project Management Expenses. A broad overview of these expenses would include the project management team that is comprised of both SCE and contract labor, travel, project office and other related costs. A more detailed explanation of these expenses include the following types of costs:

• SCE Employee Labor Costs (Employees Dedicated to Project) – During 2003, SCE had 4 full time SCE employees dedicated to the bark beetle project. These employees have responsibility for overseeing the contractors inventorying and removing trees and inspecting the work, interfacing with customers and local agencies, providing accounting and project management support, and processing property owner reimbursement requests. These employees’ labor costs (normal time and overtime) are incremental since these are all new positions with the company established solely to oversee aspects of the bark beetle project.

8 SCE incurred over $0.363 million in costs in 2003 for 57 new poles that were installed. The revenue

requirement associated with these poles will start to be reflected in the CEMA when the expenditures with the appropriate corporate overheads are closed to plant-in-service.

9 Employee Safety Expenses of approximately $10,000 are included in the overall costs.

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All of the employees that fill these bark beetle positions were either new hires or whose prior positions were back-filled.

• SCE Employee Labor Costs (Overtime) – These costs are associated with non-exempt SCE employees who normally receive overtime compensation. In order to be recorded in the Bark Beetle CEMA, the work performed during the overtime hours must have been bark beetle project related. These labor costs are associated with employees who provide primarily accounting and other project management support.

As a result of the “Old Fire” in late October 2003 many of the grids SCE had inventoried became inaccessible. In order to maintain productivity of contract tree removal crews, SCE employees were utilized on an overtime basis to expedite completion of tree inventorying in accessible grids.

• Contract Labor Costs – To handle a project of this scope and size, SCE determined that it was necessary to have an experienced project manager oversee the company’s overall efforts related to the bark beetle project. SCE did not have an available, experienced project manager with the capabilities and experiences required for such a project. Therefore, the Company brought in a contractor to oversee the project. This individual is not an SCE employee. The Bark Beetle Project Manager provides overall project management, represents SCE on the MAST, and interfaces with property owners and representatives from the local, state, and federal agencies. In addition, SCE has hired contract supplemental support in the areas of project controls and administration. As of December 31, 2003, the Project Team included 4 full time contract personnel including the Project Manager.

• Employee Expenses – These expenses include mileage, lodging, meal, per diem, vehicles, gas and other miscellaneous expenses for SCE employees who work on the bark beetle project.

• Supplies – These expenses include office supplies and other miscellaneous supplies as well as, computers, printers, copiers, and other miscellaneous equipment needed to support the project.

• Facility Expenses - In order to manage the bark beetle project, SCE needed to establish an office for the full time members of the Bark Beetle Project Team to work. During 2003, the Project Team worked out of a temporarily available SCE office/warehouse building in Redlands. The costs associated with this facility are considered incremental.

• Bark Beetle Data Base - To manage the Bark Beetle Project, the Project Team created a computer data base that captures the inventory of all the bark beetle infested trees and pertinent information related to the Property Owner Reimbursement Program.

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Stakeholder Communications Expenses

During 2003, SCE recorded $0.175 million in the Bark Beetle CEMA related to stakeholder communication expenses. These expenses are directly related to providing customers, property owners, and independent tree removal contractors as well as local, state, and federal agencies information about SCE’s bark beetle related activities. SCE has utilized various methods to communicate with stakeholders including door hangers, direct mailings, press releases, interviews with newspapers, participation at town hall meetings, direct contact with customers and representatives from agencies, and establishment of a bark beetle related website at sce.com. Due to the significant impact of SCE’s tree removal activities, it is important to keep all of the key stakeholders informed of useful safety information, project updates, procedures for seeking reimbursement for tree removal costs, outage information, etc. During 2003, costs associated with the following communications activities were recorded in the Bark Beetle CEMA:

• Development of the special bark beetle project related website at sce.com/barkbeetle.

• Printing of SCE’s Bark Beetle Project Frequently Asked Questions brochure to hand out at town hall meetings.

• Printing and mailing costs for approximately 33,000 letters for each of the following direct mailing:

o Tree Inventory Notification (mailed July 17, 2003)

o Tree Removal Reimbursement Guidelines (mailed October 10, 2003)

o Wildfire Aftermath (mailed December 15, 2003)

• Printing of approximately 20,000 door hangers informing customers that their trees have been inventoried by SCE.

• Printing of approximately 20,000 door hangers informing customers that their trees will be removed by SCE within the next two weeks.

Employee Safety Expenses

During 2003, SCE recorded approximately $10,000 in the Bark Beetle CEMA related to employee safety. Due to the extreme fire hazards in the bark beetle infested areas it was important to inform our employees of special safety procedures required by local and state agencies. In June 2003 packets were distributed to employees who work or live in the mountain communities containing maps of escape routes as well as other safety information. SCE has

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also identified and equipped several of its facilities near the bark beetle infested areas as evacuation centers for our employees and their families.

In addition, we are required to provide special safety equipment such as fire blankets, shovels, and backpack water sprayers for each of our crews that may work in the affected areas. This special safety equipment is in addition to the normal safety equipment contained on all of the company’s vehicles.

Mitigation Inspection Expenses

In 2003, SCE recorded $0.293 million in the Bark Beetle CEMA related to a special mitigation inspection that was performed of all circuits in the bark beetle infested areas. This inspection was performed between June 2003 and September 2003. The purpose of this inspection was to: (1) ensure all poles located in the high fire risk areas that had non-exempt equipment on them were cleared 10 feet around their base as required by the CDF10; (2) ensure that all conductor clearances meet CDF and General Order (GO) 9511 requirements; (3) identify any conditions that do not comply with the requirements of GO 95 and log them into SCE’s priority maintenance system for repair; (4) identify any equipment (e.g., service drops, guy wires, conductors) attached to trees; and (5) identify any equipment (e.g., lightning arresters, crossarms, fuses) that need to be changed out. This mitigation inspection is comparable to the detailed inspection that is required to be performed every five years pursuant to General Order 16512. However, this mitigation inspection is incremental since it is in addition to the regularly scheduled detailed inspections required by GO 165. Thus, within the five year period required by GO 165, the circuits in the bark beetle infested areas will have two detailed inspections instead of the required one.

In order to complete this mitigation inspection in a timely manner, SCE utilized a combination of SCE labor and contractors. Only the overtime labor costs of the SCE employees performing the inspection was considered incremental and recorded in the Bark Beetle CEMA. All of the contractor costs were considered incremental.

10 CDF weed abatement requirements are contained in Power Line Fire Prevention Field Guide Public Resource

Code 4292. (Vegetation Management) 11 General Order 95, for the State of California formulates rules for – among other things --overhead electrical

line construction to insure adequate service and safety to workers and public in general. 12 General Order 165, for the State of California establishes requirements for inspection , condition rating,

scheduling and performance of corrective action, record-keeping and reporting.

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Tree Removal Expenses

In 2003, SCE recorded $15.515 million in the Bark Beetle CEMA related to the removal of approximately 20,100 dead, dying or diseased trees.13 Table 3 provides a summary of these costs.

Table 3 Summary of Tree Removal Costs and Related Costs

(April 3, 2003 – December 31, 2003)

Item Amount Environmental Compliance $ 113,505

Tree Inventory $ 1,320,817

Permissioning $ 23,852

Tree Side Trims $ 456,524

Tree Removal Costs $ 11,686,982

Tree Disposal Costs $ 1,913,345

Total Tree Removal Costs $ 15,515,025

Environmental Compliance

As of December 31, 2003, SCE recorded $0.114 million in the Bark Beetle CEMA related to environmental compliance for SCE’s bark beetle tree removal activities.

It is SCE’s policy to be in compliance with applicable environmental laws and regulations at all times. Thus, SCE retained several consulting firms to assist in assessing possible impacts to sensitive biological resources and cultural resources along SCE electrical lines that traverse both private and public lands in the bark beetle infested areas. The costs of these studies are incremental because they are in addition to the studies that SCE performs for each specific project on a regular basis throughout our service territory.

Prior to undertaking the field assessments, the consultants perform data base searches, such as of the California Natural Diversity Data Base for biological 13 While SCE removed approximately 25,900 trees during 2003, approximately 5,800 of the trees were not

invoiced by December 31, 2003, thus their removal costs will be reflected in 2004.

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resources and the California Historical Resources Inventory System for cultural resources. If the line is on public land or if potential impacts to sensitive resources are detected on private land, resource agencies specialists are also consulted.

Field surveys of each line are then conducted. The survey area is sufficient to ensure that any tree that could affect SCE facilities are covered (generally about 150 feet on each side of the line). Written technical reports of findings are prepared (according to Forest Service guidelines for those lands). The reports include recommended sensitive resource protection measures, if needed. These typically are avoidance methods or monitoring, but could include other measures, such as data collection or permitting. Any new or updated site records for biological or cultural resources are submitted to the appropriate agencies.

As appropriate, special training for tree removal crews to avoid/protect sensitive resources is developed. For example, a fact sheet and training on protection and avoidance of southern rubber boas (state-listed as threatened) has been provided to crews.

As of December 31, 2003, 10 circuits have been evaluated from an environmental perspective and approximately 20 circuits are in the process of being assessed. There are currently about 70 circuits in total that will need to be evaluated.

Tree Inventory

In 2003 SCE recorded $1.321 million in the Bark Beetle CEMA to inventory the dead and dying trees that could impact our facilities which included inventorying guy wires, poles, and trees with attached facilities. Any tree or any part of a tree that could fall into our electrical lines is a tree that could impact our electrical lines. As part of the inventorying process, a trained forest technician under the supervision of a Registered Professional Forester walks a specific grid14 and documents the locations, estimated heights, diameter at breast heights, species and condition of trees that could impact our electric lines. In addition, the trees are marked with a number, mapped by grid, tract and lot. SCE currently has 35 technicians performing inventory related activities. These activities typically are performed 6 days a week. As of December 31, 2003, SCE has inventoried approximately 53,300 dead or dying trees that could impact our lines. 14 A grid is an area approximately 1,000 feet by 1,000 feet. There are approximately 453 grids in the bark beetle

infested areas.

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Permissioning

As of December 31, 2003, SCE has recorded $0.024 million in its Bark Beetle CEMA related to permissioning related activities including notifying customers, verifying inventory of dead trees and documenting existing debris in work areas. Approximately 2 weeks prior to removal, experienced utility line clearance patrolmen enter a planned grid placing door hangers that provide customers with information regarding tree removals and a contact phone number. The inventory of trees is verified including the addition of newly dead or dying trees and correction of any errors found. Existing debris including logs, slash15, and hazardous waste are documented. The trees to be removed are tagged with a 2-inch square PVC card upon which the grid, track, lot and tree number are indicated. A copy of a grid modified map and inventory is provided to the removal contractor and the original is filed in the Bark Beetle Project office. Upon completion of the tree removal by the contractor, the patrolmen reenters the grid and determines that no additional debris that was not already on the site exists, and that all the trees indicated for removal were removed in accordance with all applicable specifications. They also respond to any customer concerns within that grid.

Tree Removal Costs

As of December 31, 2003, SCE recorded $11.687 million in the Bark Beetle CEMA related to contractor costs for the removal of trees, and $0.457 million in tree side trims16. From April 5, 2003 through October 31, 2003 SCE used time & material contractors while preparing and processing the competitive unit price contract. The contractors SCE used in 2003 were Asplundh Tree Expert, Evergreen Resource Management, and Smith Crane Service.

In August 2003 SCE opened a competitive bidding process and issued a Request for Proposal for a fixed price tree removal contactor. Bids were solicited from thirty-seven (37) contractors. All approved suppliers for tree removal on the SCE system were invited to participate as well as contractors who performed specialized tree removal processes (i.e., logging operations). Due to the uniqueness of this work, the Request for Proposal was issued on a conditional basis pending successful contractor technical and commercial

15 Slash is the portion of the tree (e.g., branches, pine needles, etc.) that is removed from the trunk of the tree.

Slash is not usable for lumber. 16 SCE implemented the side trim procedure to remove the immediate threat a tree might pose to the electrical

service in an area. The dead or dying tree is trimmed at the level of a high-voltage conductor and up on the side where limbs overhang our power lines. Later, the dead or dying trees will be fully removed in accordance with the MAST priorities.

ADVICE 1801-E (U 338-E) - 17 - June 3, 2004

qualification. Prior to the job walk, SCE determined the weighting factors for the commercial and technical evaluations of the proposals.

A job walk was conducted on August 15, 2003. Contractors who were invited, but did not attend, were eliminated from the review process. An addendum to the Request for Proposal, as a result of the job walk, was issued on August 18, 2003. Bids were due and received on August 27, 2003. Fifteen contractors replied to the Request for Proposal.

The technical review of the proposals included detailed evaluation of the contractors capabilities in the following seven areas: planning/methodology, staffing levels, equipment, safety, subcontractors, schedule, and licenses.

Concurrently with the technical evaluation, a commercial evaluation was performed. Tree quantities were broken out into three tree categories: less than or equal to 20” Diameter at Breast Height (DBH), 20” to 34” DBH, and greater than 34” DBH. Those quantities were then broken down into percentages of work according to the type of tree removal performed: freefall 50%, crane 30%, climb no access 17%, and high hazard 3%. These “felling types” are described, below.

The evaluated low bidder, Phillips and Jordan, was determined as a result of the joint evaluation process.

Phillips and Jordan provides the necessary supervision, labor, material, tools and equipment to fell and remove dead and dying trees, including associated debris, in the Riverside and San Bernardino counties in support of SCE’s Bark Beetle Project. The contract duration is from October 27, 2003 through November 30, 2004.

The unit price agreement with Phillips and Jordan is grouped into 3 size classes and 4 felling types as well as a unit price for debris in each of the three size classes. The size classes are; less than 20’’ DBH, 20’’ to 34’’ DBH, and greater than 34’’ DBH. Again, the felling types are: freefall, crane, climb no access, and high hazard. A freefall may be safely dropped to the ground for processing with limited preparation often base cuts wedges and a top control line are all that is required. Cranes are used to lift sections or whole trees away as they are cut in order to avoid property and safety risks that may exist. Climb no access involves crewmen entering the tree and removing in small manageable pieces where it is not practical to bring in large equipment. High hazard trees are generally unsafe to climb or rig with a crane and are processed from multiple points of control outside the tree itself.

ADVICE 1801-E (U 338-E) - 18 - June 3, 2004

Tree Disposal Costs

As of December 31, 2003, SCE has recorded $1.913 million in the Bark Beetle CEMA related to the disposal of removed trees. In order to dispose of the slash and logs, SCE has looked into all potential disposal methods including landfills, incineration, mill-able lumber, and co-generation/biomass.

In cooperation with the MAST, SCE has encouraged the development of alternate disposal and supply chains. MAST members have set aside or caused to make available lands and expedited permitting for log and chip processing. Many small-to medium-size mills are now producing pallet wood, molding strips, dimension lumber and custom logs for the log home industry. The paper pulp industry has shown interest and has processed sample loads to test acceptability for their purposes. Although no contracts have been executed, to date.

SCE has currently determined that the many variables in markets, manufacturing of the products, equipment and space required for the management of the waste stream are best managed by Phillips and Jordan. To date, the waste stream has generated no profit in excess of the costs associated with managing that stream. Therefore, we have contracted the disposal to Phillips and Jordan on a per-tree basis and they are responsible for disposing of the wood waste. Should a significant sustained profitable market for the waste emerge we will again consider taking advantage of such market in order to credit the profits to the CEMA account. Total debris flow for this period exceeds 25 tons per work day. This requires that 10 semi-truck and tractor-loads of logs or chips be removed from the mountain daily.

Other Operational Costs

As of December 31, 2003, SCE has recorded $0.298 million in its Bark Beetle CEMA related to other operational costs. These other operational costs are associated with de-energizing and re-energizing lines for tree removals the additional inspections required by System Operating Bulletin 322-1, and incremental costs related to the Protective Outage Plan. SCE has 8 four-man contract line crews and 3 two-man contract service crews currently supporting the bark beetle project. In addition, there are 1 SCE crew and 3 troublemen doing bark beetle related work. During 2003, these crews:

• Inspected lines 112 times pursuant to SOB 322-1 requirements;

• De-energized lines 88 times to support tree removal work; and

ADVICE 1801-E (U 338-E) - 19 - June 3, 2004

Reimbursement to Property Owners

As of December 31, 2003, SCE has recorded $1.285 million in its Bark Beetle CEMA related to reimbursements to property owners for their costs of removing trees that could have impacted SCE’s electrical lines.

On August 29, 2003, the Energy Division approved Advice 1730-E authorizing SCE to reimburse eligible property owners who removed trees since April 3, 2003 or plan to remove dead, dying or diseased trees that could impact our lines or facilities and to record these costs in its CEMA. The following requirements must be met for a property owner to qualify for reimbursement:

• The trees were removed on or after April 3, 2003;

• The property on which the trees were removed is in the bark beetle-infested areas of San Bernardino or Riverside counties as designated by CDF and served by SCE; and

• SCE has determined the trees could have impacted SCE’s electrical lines/facilities.

On October 10, 2003, SCE sent a letter to all of its customers and property owners in the bark beetle infested areas informing them of the guidelines and process for requesting reimbursement. Once a reimbursement request is received it is reviewed to ensure that it meets the requirements above and that all required documentation is included. After the initial review, a trained forest technician visits the property to inspect the tree stumps of the subject trees to estimate the height of the tree, verify that the tree could have impacted SCE’s electrical lines/facilities, determine the Diameter at Breast Height, and identify the method SCE would have used to remove the trees. Based upon this information, SCE’s average tree removal unit costs for each eligible tree are compared with the customer’s actual removal costs. The reimbursement amount paid to the customer is the lower of their actual tree removal costs or SCE’s average removal costs. The reimbursement amount will be reduced by any federal, state or local funds, grants or assistance provided to the customer/property owner for the removal of the subject trees. Typically, reimbursement checks are sent out to property owners within 120 days of receipt of the completed reimbursement request form.

Table 4 provides a summary of the reimbursements processed as of December 31, 2003.

ADVICE 1801-E (U 338-E) - 20 - June 3, 2004

Table 4 Summary of Reimbursements Processed

( April 3, 2003- December 31, 2003)

Item AmountReimbursement Requests Received 2,461 Number of trees removed by property owners 20,973 Reimbursement Requests Processed 327 Number of trees deemed eligible 5,856 Number of trees deemed ineligible17 397 Reimbursement Amount Paid Out in 2003 $1,285,159

RATEMAKING

As discussed above, the Commission authorized SCE to activate its Bark Beetle CEMA effective April 3, 2003. The purpose of the Bark Beetle CEMA is to record: 1) the incremental O&M expenditures associated with removing dead, dying or diseased trees that may fall or contact SCE’s electrical lines; 2) the revenue requirement on incremental capital additions (i.e., depreciation, return, and taxes) associated with the installation of new poles and associated hardware resulting from the removal of trees that had electrical equipment attached to it prior to such amounts being reflected in rate levels; and 3) the reimbursements made to property owners for their costs of removing trees that could have impacted SCE’s electrical lines. Because of the differences in ratemaking between O&M and capital expenditures, SCE has separated its Bark Beetle CEMA into two subaccounts: 1) O&M Cost Subaccount (which includes reimbursements); and 2) Capital Cost Subaccount. In this advice letter, SCE seeks to recover a total of $18.10218 million in eligible O&M Bark 17 Trees were deemed ineligible for reimbursement for the following reasons: the trees could not have impacted

SCE’s lines, the property was not in SCE’s service territory, or the trees were removed prior to April 3, 2003. 18 In February 2004 SCE recorded a debit adjustment of $0.128 million related to the period September 2003

through December 2003. In addition, in June 2004, SCE plans on recording a credit adjustment of $0.011

ADVICE 1801-E (U 338-E) - 21 - June 3, 2004

Beetle CEMA costs. This amount includes interest expense through December 31, 2003 calculated on a monthly basis using the three-month commercial paper rate. Table 5 below, summarizes the monthly operation of the Bark Beetle CEMA for the period April 3, 2003 through December 31, 2003.

million related to the period of May 2003 through December 2003. These adjustments are reflected in this advice letter filing as they relate to 2003.

O&M Cost Subaccount May June July August September October November December TotalBeginning Balance - 34,514.47 120,515.29 397,576.99 1,081,700.97 2,701,625.95 4,920,474.05 6,470,014.84 -

O&M Incremental Costs - Project Management 15,038.12 32,617.58 33,278.02 45,092.98 $67,431.20 66,676.65 97,544.81 156,450.95 514,130.31 - Stakeholder Communications - 17,917.96 3,123.78 21,687.45 28,031.60 41,280.49 21,959.13 40,732.01 174,732.42 - Mitigation Inspection - 2,705.76 126,918.09 44,688.03 66,568.98 - 52,437.49 - 293,318.35 - Tree Removal 3,945.71 24,841.53 104,823.87 556,803.58 1,443,818.75 1,924,146.51 1,329,177.42 10,127,467.97 15,515,025.34 - Other Operational 15,513.39 7,841.16 8,700.00 15,229.67 12,435.72 183,442.97 43,440.78 11,276.46 297,880.15 - Reimbursement to Property Owners - - - - - - - 1,285,159.00 1,285,159.00 - New Pole Installation - - - - - - - - - Total O&M Incremental Costs 34,497.22 85,923.99 276,843.76 683,501.71 1,618,286.25 2,215,546.62 1,544,559.63 11,621,086.39 18,080,245.57

Interest 17.25 76.83 217.94 622.27 1,638.73 3,301.48 4,981.16 10,847.83 21,703.49

Ending Balance - O&M Cost Subaccount 34,514.47 120,515.29 397,576.99 1,081,700.97 2,701,625.95 4,920,474.05 6,470,014.84 18,101,949.06 18,101,949.06

Capital Cost SubacccountBeginning Balance - - - - - - - - -

Capital Costs:-Depreciation - - - - - - - - - -Taxes - - - - - - - - - -Return - - - - - - - - -

Total Capital-Related Costs - - - - - - - - -

Interest - - - - - - - - -

Ending Balance - Capital Cost Subaccount - - - - - - - - -

SOUTHERN CALIFORNIA EDISONCatastrophic Event Memorandum Account (CEMA) - 2003

Bark Beetle

Table 5

BARK BEETLE CEMA – 2003

SCE requests to transfer the balance in the O&M cost subaccount of the Bark Beetle CEMA to either the Electric Distribution Revenue Adjustment Balancing Account (EDRABA) or the distribution sub-account of the Base Revenue Requirement Balancing Account (BRRBA) upon the effective date of a Commission resolution approving this filing. The purpose of the EDRABA is to record the difference between actual base-related distribution revenues and SCE’s authorized base-related distribution revenue requirement until the implementation of SCE’s 2003 GRC Phase 1 revenue requirement and ratemaking. When SCE’s 2003 GRC Phase 1 is implemented, the EDRABA will be eliminated and the difference between actual base distribution revenues and SCE’s authorized distribution revenue requirements will be recorded in the distribution sub-account of the BRRBA.19

The transfer of Commission-approved Bark Beetle CEMA costs to either the EDRABA or distribution sub-account of the BRRBA will ultimately result in an increase to SCE’s distribution rates which are paid for by all customers (i.e., both bundled service and direct access customers). Since all Bark Beetle CEMA costs are distribution and transmission-related costs that fall under the jurisdiction of this Commission, it is reasonable to include them for recovery in distribution rates. As adopted by the Commission in D.04-01-048 (SCE’s April 2003 Energy Resource Recovery Account (ERRA) Forecast proceeding), ERRA applications will be used to consolidate all Commission-authorized revenue requirements and unbundled rate levels to recover those revenue requirements.20 SCE anticipates that the ERRA proceeding annual revenue requirement and rate consolidation will take place on or around January 1 of each year. Therefore, the Commission-approved Bark Beetle CEMA costs will be included in rate levels on or around January 1 of each year when the EDRABA or BRRBA balance is consolidated with other revenue requirement changes in rate levels in order to fully amortize its balance over a twelve-month period. SCE proposes that this rate recovery approach be adopted for the Bark Beetle CEMA costs included in this advice letter.

This rate recovery approach may result in a substantial time lag between the time when costs are actually incurred and when they are recovered in rates. In Resolution E-3824, the Commission authorized this advice letter filing in response to the concerns SCE raised in its comments on draft Resolution E-3824 about time lag and the need to avoid substantial under collections in the CEMA. SCE anticipates incurring substantially greater costs during 2004. Thus, beginning with SCE’s request for cost recovery in 2005, SCE requests

19 On February 13, 2004, SCE received a Proposed Decision in its 2003 GRC Phase 1 proceeding which, if

adopted approve the establishment of the BRRBA as SCE requested. 20 See D.04-01-048, Ordering Paragraph No. 7.

ADVICE 1801-E (U 338-E) - 24 - June 3, 2004

that the Commission allow SCE to implement future Bark Beetle-related rate changes coincident with the effective date of the Commission’s approval of SCE’s annual advice letter filing.

The December 31, 2003 Bark Beetle CEMA balance of $18.102 million will continue to accrue interest expense through the effective date that the Commission approves the transfer of the appropriate recorded balances from SCE’s Bark Beetle CEMA. Thus, the final amount transferred from the CEMA to the EDRABA or BRRBA will reflect recorded interest expense, as appropriate.

EFFECTIVE DATE

Because this advice filing requests authority that will result in rate changes, in accordance with Section 454(a) of the California Public Utilities Code and Section VI of General Order 96-A, the Commission should issue a Resolution approving this filing. The effective date of that resolution should be the date the Commission issues the resolution.

SCE requests that the Commission’s resolution include the following findings and conclusions:

1. The $18.080 million of O&M expenses recorded in SCE’s Bark Beetle CEMA for the period April 3, 2003 through December 31, 2003, are reasonable.

2. SCE is authorized to transfer the December 31, 2003 balance in the Bark Beetle CEMA of $18.102 million, including accrued interest as of the date of transfer, to the Electric Distribution Revenue Adjustment Balancing Account (EDRABA) or the distribution sub-account of the Base Revenue Requirement Balancing Account (BRRBA) for recovery in rates.

3. SCE is authorized to reflect in rates future Bark Beetle CEMA-related costs coincident with the effective date of Commission approval of SCE’s annual advice letter filings beginning in 2005.

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

ADVICE 1801-E (U 338-E) - 25 - June 3, 2004

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 94102 Facsimile: (415) 703-2200 E-mail: 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 Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, California 91770 Facsimile: (626) 302-4829 E-mail: AdviceTariffManager@sce.com

Bruce Foster Vice President of Regulatory Operations c/o Karyn Gansecki Southern California Edison Company 601 Van Ness Avenue, Suite 2040 San Francisco, California 94102 Facsimile: (415) 673-1116 E-mail: 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. Address change requests to the attached GO 96-A Service List should be directed to AdviceTariffManager@sce.com or by electronic mail at

ADVICE 1801-E (U 338-E) - 26 - June 3, 2004

(626) 302-3636. For changes to other Service Lists, please contact the Commission’s Process Office at (415) 703-2021 or by electronic mail at Process_Office@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 http://www.sce.com/adviceletters.

For questions, please contact Randy Lisbin at (626) 302-2088 or by electronic mail at Randy.Lisbin@sce.com.

Southern California Edison Company

Akbar Jazayeri AJ:rl/pf

Enclosures