UNITED STATES OF AMERICA

BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Standards of Conduct for Transmission Providers

)))

Docket No. RM07-1-000

INITIAL COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY

INITIAL COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY

TABLE OF CONTENTS

Section Title Page

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I. INTRODUCTION ...........................................................................................................................1

A. Summary of SCE’s Comments ............................................................................................2

II. THE COMMISSION SHOULD RETURN TO A FUNCTIONAL APPROACH IN APPLYING THE STANDARDS OF CONDUCT ....................................................................3

A. The Functional Approach Is Appropriate for “Internal” Marketing Affiliates ..............................................................................................................................4

B. The Definition of “Marketing Affiliate” Should Be Clarified Consistent with the Functional Approach..............................................................................................5

C. Allowing Non-Trader Employees Access to NPTI Would Result in a Better Selection of Generation Resources Through Structured Solicitations and Resource Location.........................................................................................................6

D. The Functional Approach Can Be Implemented Consistent with FERC’s Purpose.................................................................................................................................7

1. “Traders” Can Be Isolated from NPTI.....................................................................7

2. Directors to Whom the Trading Groups Report Can Be Subject to the No Conduit Rule ................................................................................................9

3. Additional Controls Can Be Proposed and Adopted ...............................................9

E. SCE’s Proposed Regulatory Text ......................................................................................10

III. IF FERC DOES NOT RETURN TO THE FUNCTIONAL APPROACH, AT A MINIMUM IT SHOULD REVISE ITS PROPOSED NEW CATEGORIES OF EMPLOYEES................................................................................................................................10

A. Integrated Resource Planning ............................................................................................10

B. The SOC Creates Inefficiencies in IRP to the Potential Detriment of Ratepayers..........................................................................................................................11

C. The NOPR’s Proposed “Planning Employees” Solution Does Not Resolve the Problems.......................................................................................................................12

1. The Proposal Is Too Limited to Be Useful ............................................................13

2. Modification to Commission’s Proposal ...............................................................14

INITIAL COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY

TABLE OF CONTENTS (CONTINUED)

Section Page

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3. Proposed Regulatory Text......................................................................................17

D. The Commission’s Competitive Solicitation Employees Proposal Is Similarly Unhelpful ...........................................................................................................17

1. The Proposal Is Too Limited to Be Useful ............................................................17

2. Modifications to Commission Proposal.................................................................20

3. SCE’s Proposed Regulatory Text ..........................................................................21

IV. THE COMMISSION MUST RETAIN THE RELIABILITY SAFE HARBOR ..........................21

V. THE SOC RESTRICTIONS ON ENERGY AFFILIATES SHOULD BE ELIMINATED...............................................................................................................................22

VI. SCE’S PROPOSED REGULATORY TEXT................................................................................22

A. Implementing the Functional Approach ............................................................................22

B. Section 358.3(j) Should Be Modified ................................................................................23

1. Amend the Definition of Transmission Function Employee .................................23

2. Add a New Definition for Load Responsibilities ..................................................23

3. Add a New Definition for Resource Alternative ...................................................24

C. Integrated Resource Planning ............................................................................................25

1. Section 358.3(l) Should Be Amended ...................................................................25

2. Add a New Definition for Integrated Resource Plan .............................................25

D. Competitive Solicitations...................................................................................................25

1. Section 358.3(m) Should Be Amended .................................................................25

2. Add New Section Describing Authorized Procurement ........................................26

E. Competitive Solicitation Employees..................................................................................26

F. Planning Employees...........................................................................................................27

G. Independent Functioning ...................................................................................................28

H. Text Proposed in the NOPR That Should be Deleted or Retained ....................................28

INITIAL COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY

TABLE OF CONTENTS (CONTINUED)

Section Page

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VII. THE COMMISSION SHOULD CONDUCT WORKSHOPS......................................................29

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UNITED STATES OF AMERICA

BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Standards of Conduct for Transmission Providers

)))

Docket No. RM07-1-000

INITIAL COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY

Southern California Edison Company (“SCE”) hereby submits its initial comments on the

Federal Energy Regulatory Commission’s (“FERC” or “Commission”) Notice of Proposed

Rulemaking (“NOPR”) in the above-captioned docket.

I. INTRODUCTION

SCE appreciates the opportunity to comment on the Commission’s NOPR proposing

revisions to the Standards of Conduct for Electric Transmission Providers (“SOC”) to, among

other things, facilitate integrated resource planning and address other concerns raised by market

participants.

SCE is an Investor Owned Utility (“IOU”) in Southern California, and is a Participating

Transmission Owner in the California Independent System Operator (“CAISO”) control area.

As a wholly-owned subsidiary of Edison International, SCE has external Energy Affiliates as

well as an internal department, Energy Supply and Management (“ES&M”), that is classified as

an Energy Affiliate and a Marketing Affiliate under the FERC SOC, by virtue of containing

groups that perform the traditional utility distribution company function of procuring power for

SCE’s retail ratepayers. That function requires sales at wholesale incidental to the procurement

function. SCE is subject to the Commission’s jurisdiction and is also a member of the Western

Electricity Coordinating Council (“WECC”).

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SCE is also a member of an informal group of utilities in the Western United States and

Southwest Canada called the “Western Utilities Compliance Group.” SCE is a signatory to the

Joint Comments of the Western Utilities, which represents the common views of a subset of the

Western Utilities Compliance Group companies, and thus fully supports and endorses those

comments. SCE urges the Commission to recognize that the issues and positions outlined

therein are common to a widely diverse group of utilities, all of whom are struggling to comply

with the SOC while ensuring that resource management is done as efficiently and effectively as

possible.

A. Summary of SCE’s Comments

In these comments, SCE recommends that the Commission return to a Functional

Approach for treatment of Non-Public Transmission Information (“NPTI”) in applying its SOC,

up to and including eliminating the restrictions on Energy Affiliates. SCE demonstrates that the

Functional Approach would be beneficial to ratepayers and consistent with FERC’s non-

discrimination objectives. The Commission’s current approach of restricting access to such

information on the basis of organization charts and reporting relationships is overly restrictive,

and has resulted in a sub-optimal process for generation resource selection and grid planning, as

the Commission itself has implicitly recognized in issuing the present NOPR.

SCE further suggests that the Commission consider a broad range of factors, including

intent, ability to gain an unfair advantage by access to restricted information, and the potential

customer benefit or harm that might result from any potential transgression of the SOC, when it

deliberates on how to revise the current SOC, as well as how to design and implement its

enforcement program.

SCE commends the Commission for its willingness to explore the possibility that

Integrated Resource Planning (“IRP”) employees, which it has categorized as Planning

Employees (“PEs”) and Competitive Solicitation Employees (“CSE”), may be allowed access to

NPTI. As discussed below, the lack of access to non-public transmission grid information by

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CSE and IRP employees can very well result in a failure to select the least-cost and best-fit

resources for the electrical system, and could potentially impact grid reliability.

Moreover, SCE strongly recommends that the Commission retain section 358.5(b)(8) of

the SOC, allowing sharing of NPTI with Energy Affiliate employees during system emergencies.

Finally, SCE suggests that the Commission consider holding a series of workshops in

order to learn more about the IRP processes utilized in various regions of the country, including

the regions where RTOs/ISOs operate the transmission system and where a majority of long- and

short-term procurement is conducted from competitive wholesale markets. It is timely that

FERC obtain more in-depth details about the role and the value of transmission information in

Integrated Resource Planning and Competitive Solicitation evaluation processes. Such

workshops would provide a clear pathway to the Commission to diversify acceptable approaches

to achieving the Commission’s policy objectives.

II. THE COMMISSION SHOULD RETURN TO A FUNCTIONAL APPROACH IN

APPLYING THE STANDARDS OF CONDUCT

The stated goal of the Commission’s Standards of Conduct is to “ensure that

Transmission Providers cannot extend their market power over transmission to wholesale energy

markets by giving their Energy Affiliates unduly preferential treatment.”1 SCE requests that the

Commission focus on the specific marketing functions that could actually bring about the

outcome the Commission intends to prevent, and then apply SOC restrictions only to employees

performing those functions (i.e. the “Functional Approach”).

It is only the energy traders, who buy and sell energy in the wholesale markets through

short-term bilateral transactions and energy brokerages and exchanges, that could potentially use

Non-Public Transmission Information (“NPTI”), if such NPTI were made available to them, to

1 Order No. 2004, 105 FERC ¶ 61,248 (2003) at P. 1.

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unfairly benefit from its use, especially in utilities that make only non-speculative incidental

sales to maintain system balance.

A. The Functional Approach Is Appropriate for “Internal” Marketing Affiliates

In Order No. 2004, the Commission rejected the functional approach regarding Energy

Affiliates, stating that the

“…responsibility for ensuring compliance would be shared by the transmission function of the Transmission Provider and the non-jurisdictional transmission functions of the unregulated Energy Affiliates. The Commission does not believe that such shared responsibility is workable.”2

The Commission in Order No. 2004 concluded that it was “concerned that it does not have the

jurisdiction to direct unregulated Energy Affiliates on how to structure their functions, operations

and communications”3 and therefore adopted the “Energy Affiliate approach.”4 While the issue

related to non-jurisdictional entities is well taken, FERC should also be aware of unintended

negative consequences to jurisdictional entities and potential conflicts with state commission

mandates in the areas of Resource Adequacy (“RA”) and IRP.

In the current NOPR, the Commission is considering eliminating the SOC restrictions on

(external) Energy Affiliates.5 Thus, this jurisdictional concern may no longer be an issue for

Energy Affiliates. Even assuming, arguendo, that the Commission retains the Energy Affiliate

restrictions under the SOC, the same reasoning does not apply to internal units classified as

Energy or Marketing Affiliates, because the Commission already has jurisdiction over any

internal Energy or Marketing Affiliate units via its jurisdiction over the utility as a whole.

Therefore, the fact that the compliance responsibility would be shared is a non-issue, because the

Commission is able to directly regulate how functions, operations and communications are

2 Order No. 2004 at P. 92 (emphasis added). However, it should be noted that the Commission implicitly adopted the functional approach in determining when a holding, parent or service company is (is not) an Energy Affiliate. See 18 C.F.R. §358.3(d)(5)(iii).

3 Order No. 2004 at P. 93. 4 Order No. 2004 at P. 94. It is noteworthy that there was no similar discussion regarding Marketing Affiliates, and

thus the functional approach was not explicitly rejected. 5 As discussed in Section V, infra, SCE supports eliminating this restriction.

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structured in an internal unit. As a result, it is not necessary for the Commission to reject the

functional approach as to internal Marketing Affiliates, and SCE requests that the Commission

explicitly adopt it.

B. The Definition of “Marketing Affiliate” Should Be Clarified Consistent with the

Functional Approach

The Commission, in Order No. 2004, has defined “Marketing Affiliate” employees to

include a “public utility Transmission Provider’s energy sales unit, unless such unit engages

solely in bundled retail sales.”6 On its face, this definition appears to limit “Marketing Affiliate

employees” to the specific group of employees engaged in wholesale energy functions, rather

than the larger functional department in which the group is located. For example, SCE’s Energy

Supply and Management (“ES&M”)7 department includes a demand forecasting group, which

would likely be considered by FERC to be outside of the SOC restrictions absent its inclusion in

the ES&M department that also houses the energy traders.

However, statements by the Commission Staff at several of the SOC technical

conferences, as well as by the FERC auditors who conducted SCE’s SOC Audit (Docket No.

PA05-10), have indicated that, if those employees who conduct “Marketing Affiliate” activities

are part of a larger group, then the entire group becomes the Marketing Affiliate by virtue of

containing the group engaged in energy sales. These groups, such as the above-mentioned

demand forecasting group, are considered to be part of the Marketing Affiliate. This is

unnecessary, and potentially harmful to ratepayers, as explained below.

The Commission should clarify that the “Marketing Affiliate” is comprised solely of

those individuals engaged in energy trading.8 As discussed below, it is only these employees

who can potentially benefit – to the detriment of other, non-affiliated market participants – from

6 Order 2004 at P79. 7 Under Order 2004, ES&M is both an Energy Affiliate and a Marketing Affiliate. 8 SCE would also support including the direct managers of those energy traders in the Marketing Affiliate.

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NPTI. Other employees outside of the trading group who – due to related work functions

(described in Attachment B to SCE’s Comments) – must report to the same managers and

directors (depicted in Attachment A to SCE’s comments are unable to improperly benefit the

utility or an Energy Affiliate. Conversely, their inability to obtain NPTI potentially harms not

only the utility but also ratepayers and other market participants, as discussed more fully below,

by hindering the performance of their functions.

C. Allowing Non-Trader Employees Access to NPTI Would Result in a Better Selection

of Generation Resources Through Structured Solicitations and Resource Location

Due to California Public Utilities Commission (“CPUC”) restrictions on bilateral

transactions, SCE almost exclusively uses a competitive solicitation in the form of request for

offers (“RFO”), to contract for long-term power. An RFO is structured according to CPUC

guidelines,9 is conducted with the review and advice of a CPUC-authorized, non-market

participant Procurement Review Group, and, if an SCE affiliate is bidding in the process, under

the observation of a Commission-mandated Independent Evaluator. The contracts resulting from

the RFO are either submitted to the Commission for pre-approval or are subject to Commission

review in a compliance filing.

These highly structured and closely watched purchase and sales processes administered

by SCE’s Power Contracts group provide no venue or opportunity for employees to engage in

independent power marketing activities. Furthermore, the Power Contracts Group’s contract

administration activities do not include scheduling the energy from the contract, which is

primarily done in SCE’s Day-Ahead group.

Access to NPTI will substantially improve the evaluation of power purchase contracts in

a competitive solicitation, and SCE’s ratepayers will benefit from the more efficient and

effective siting of new generation projects. Currently, utilities’ procurement organizations, who

9 CPUC Decision 02-10-062 (October 24, 2002).

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are labeled Marketing Affiliates, are forced to use only transmission information that is publicly

available and obtained from individual developers to determine the most cost effective projects.

In order to fully evaluate the range of expected costs (in particular the cumulative impact of

multiple projects on the same sections of the grid), however, it is necessary to use NPTI in the

cost analysis of competing projects. If the Commission were to utilize the Functional Approach

to determining which employees are actually “Marketing Affiliate” employees, rather than

deeming all employees in the entire business unit encompassing the trading groups to be

Marketing Affiliate employees, those groups engaged in IRP-related activities (such as RFOs)

that are unrelated to trading would be able to receive NPTI and thus perform their functions

much more efficiently, resulting in lower costs to ratepayers without sacrificing the important

protections against undue preference.

D. The Functional Approach Can Be Implemented Consistent with FERC’s Purpose

1. “Traders” Can Be Isolated from NPTI

Under the current SOC, the employees who are a part of the department designated as

“Marketing Affiliate” could generally be classified into two broad categories: traders and non-

traders. SCE agrees that the SOC should be designed to prevent energy traders from obtaining

preferential access to NPTI in order to prevent undue preference relative to non-affiliates.

However, the non-trader employees, who neither engage in market transactions nor are directly

able to influence any market transactions, should be treated as any other shared employees of the

electric utility transmission provider.

By segregating the trading group from the rest of the functional business unit, the

Commission can assure itself that the entities that participate in the wholesale market do not

obtain undue preference or unduly discriminatory treatment from the transmission providers,”10

all the while allowing the rest of the organization to comply with any state IRP requirements.

10 See Order No. 2004 at P. 54.

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The same “no conduit” rule that currently protects against these individuals gaining access to

prohibited NPTI through contact with other utility employees (i.e. non-Transmission Function

Employees), will still be in place to ensure that they do not receive undue preference.

Under the current broader definition, the non-trader groups in a Marketing Affiliate are

designated as Marketing Affiliate employees simply because they share a reporting structure

with the trader groups. For example, the trader group and the non-trader groups report to the

Vice President. SCE’s Energy Supply & Management (“ES&M”) department is divided into

several functional groups, only three of which (the power traders, the gas traders, and the real-

time traders) (collectively the “traders”) are comprised of traders who actively transact in the

wholesale markets, as well as several planning and support functions that do not have any direct

involvement in trading activities, but who perform functions designed to supply SCE’s

ratepayers with power.11 These activities are largely related to procuring capacity and energy to

serve the electricity supply needs of SCE’s ratepayers through structured long-term arrangement,

as well as financial hedging to protect customers from potentially large rate increases. It is

necessary for these trading and non-trading functions to co-exist under one organizational

structure in order to perform the state-mandated procurement functions such that they result in

the most efficient and appropriate outcome for ratepayers. Due to information flow, and in order

to maximize organizational synergies, these two functions are both part of ES&M. The SOC

should only apply to those employees involved directly in trading activities, permitting the

support functions to obtain NPTI.

The Commission’s no conduit rules can be applied to ensure that non-traders who have

access to NPTI do not disclose such information to the traders.12 The traders can be isolated

11 An organizational chart showing the structure and reporting relationships of SCE’s ES&M, as well as a description of the individual groups, is attached as Attachment A.

12 It is worth noting that, even should SCE’s traders inadvertently obtain NPTI (although this is unlikely because SCE has procedures in place to prevent such an occurrence), traders are compensated in the same way as any other SCE employee and have no incentive to market energy to accrue a bonus or other form of compensation, and their compensation is in no way related to profit or loss on trading transactions. Moreover, any profits obtained through advantageous trades are entirely passed through to ratepayers, rather than being retained by

Continued on the next page

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from NPTI without forgoing functionality, while the non-traders currently designated

“Marketing Affiliate” employees can be allowed access to NPTI.

In short, the current rules cast the net too broadly. In SCE’s case, under the current rules

the entire ES&M department of approximately 110 individuals is considered to be Marketing

Affiliate, when, in fact, far fewer are engaged in trading activities. By limiting the definition of

Marketing Affiliate to the electricity trading group of an electricity transmission provider, the

number of impacted individuals would be reduced to approximately 15. The other ES&M

employees (approximately 95) would benefit in the performance of their duties on behalf of the

retail electric customers served if they had access to NPTI, without sacrificing the protections

FERC intends.

2. Directors to Whom the Trading Groups Report Can Be Subject to the No

Conduit Rule

If the Commission were to limit the application of the SOC only to traders and their

immediate managers on a functional basis, some trader and non-trader groups within many

utilities’ Energy groups might report up through the same directors. However, these directors

can be restricted, through the use of a no conduit rule between the non-trading groups and the

trading groups, from disclosing any NPTI to the energy traders. The no conduit rules could be

implemented and audited via processes similar to those currently used for SCE officers

responsible for SCE’s Marketing Affiliate, and non-Marketing Affiliate organizations.

3. Additional Controls Can Be Proposed and Adopted

SCE currently has in place numerous controls and procedures for its Marketing Affiliate

employees in order to ensure compliance with the SOC. SCE will be able to utilize these

controls and procedures for SCE’s marketing affiliate employees to ensure compliance with the

Continued from the previous page

the utility. Additionally, any inadvertent disclosure would immediately be posted pursuant to SCE’s internal processes.

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SOC. SCE employees are trained on the FERC SOC,13 and the utility takes compliance with the

FERC SOC very seriously. As noted in the Commission’s Audit Report on the “Audit of

Standards of Conduct at Southern California Edison” issued June 5, 2006, SCE has demonstrated

a “culture of compliance” through the implementation of its processes and procedures.14 SCE’s

training on the FERC SOC instructs employees that Marketing Affiliate employees are restricted

from accessing NPTI and may not disclose or act as a conduit for disclosure of NPTI to the

Marketing Affiliate employees. SCE has specially designed green employee identification

badges Marketing Affiliate employees are required to wear to easily identify them as employees

who are restricted from receiving NPTI (SCE’s non-Marketing Affiliate employees have white

ID badges). SCE currently has IT system controls that prevent Marketing Affiliate employees

from accessing any transmission information on its intranet and other IT systems. Marketing

Affiliate employees are also restricted from accessing the facilities of SCE's transmission

business unit.

E. SCE’s Proposed Regulatory Text

In section VI, infra, SCE has proposed regulatory text to address the issues discussed

above.

III. IF FERC DOES NOT RETURN TO THE FUNCTIONAL APPROACH, AT A

MINIMUM IT SHOULD REVISE ITS PROPOSED NEW CATEGORIES OF

EMPLOYEES

A. Integrated Resource Planning

“Integrated Resource Planning” (“IRP”) can be defined differently in different regions of

the country based on state requirements, utility structure, ISO/RTO membership and

13 Those working with Marketing or Energy Affiliate employees, as well as Marketing and Energy Affiliates employees themselves, are trained annually.

14 Audit of Standards of Conduct at Southern California Edison, issued June 5, 2006, at p. 1.

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involvement, and the maturity of the energy markets in that region. However, there are basic

components of IRP that are generally shared among all entities that conduct this function. IRP is

a long-term, forward-looking process, wherein utilities forecast the load that is expected to be

served, and determine an optimum portfolio of generation and transmission evaluate resources,

including new resource additions (generation and/or transmission), in contrast to “trading” which

is generally a shorter-term process designed to optimize the utilization of assets in a utility’s

portfolio considering current market conditions.

The CPUC’s Long Term Procurement Plan (“LTPP”) is the California version of IRP.

The personnel who perform IRP at SCE – including providing significant input, testimony and

support for the LTPP – are housed within the larger department (ES&M) currently defined as the

“Marketing Affiliate” because they provide various support functions (non-trading) for the

traders, but are not the same as the individuals involved in trading activities at SCE. However, it

is important for ES&M’s CSEs to be involved in IRP, because power contracts are one basic

element in implementing the IRP. They also provide significant input and testimony to the LTPP

which documents the IRP. To be most effective in this role, the non-traders within the

Marketing Affiliate should have access to the same NPTI that is used to develop the IRP.

B. The SOC Creates Inefficiencies in IRP to the Potential Detriment of Ratepayers

The “integrated” in IRP refers to many types of solutions for resource procurement,

including contracting with or buying generation, or incorporating transmission solutions to

provide or increase access to generation more remote from utility load. Under the current SOC,

those IRP personnel who are considered a part of the broadly defined Marketing Affiliate are

unable to receive NPTI such as studies on transmission cost uncertainties due to variations in

ordering of generation on-line dates. This creates potential inefficiencies in the resource

planning and selection process, which in turn increases the costs for customers.

Under the current paradigm, procurement organizations who are broadly categorized as

Marketing Affiliate have been forced to create a duplicate transmission planning group within

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the Marketing Affiliate in order to provide at least some transmission-related input in the

planning and procurement process, based on publicly available information. This obviously is an

inefficient and sub-optimal process, because publicly available transmission information is

usually not sufficient to fully evaluate all proposed alternatives and to conduct comparative

resource selection. Furthermore, this process adds unnecessary cost to the ratepayers.

C. The NOPR’s Proposed “Planning Employees” Solution Does Not Resolve the

Problems

In the NOPR, the Commission proposes to create a category of employees called

“Planning Employees” (“PEs”). Such employees “would be permitted to direct, organize, and

carry out all aspects of integrated resource planning including aspects related to transmission and

generation planning,” but would also be permitted to receive NPTI (but not non-public customer

information) from other business units within an electric utility. 15 They would also be exempt

from the independent functioning requirement of the SOC,16 but subject to the “no conduit”

rule.17 Furthermore, these PEs would be limited to “integrated resource planning” that is state

mandated to serve bundled retail load18 (“BRL”).

Within SCE, many of these PEs would be internal Marketing or Energy Affiliate

employees who may assist in IRP. Under the Functional Approach, the employees in SCE’s

Planning Group within ES&M and their direct managers would be classified as Marketing

Affiliate employees only if they provide analysis and information to traders. The Planning

Group employees construct longer-term competitive solicitations based on the approved LTPP to

ensure sufficient resources in the future, would be classified as PEs, and would have access to

NPTI.

15 NOPR, 118 FERC ¶ 61,031 (2007), at P. 42. 16 Id. 17 Id. at P. 46. 18 Id. at P. 43.

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1. The Proposal Is Too Limited to Be Useful

As noted above, the Commission’s proposal is limited to state-mandated integrated

resource planning to serve BRL. However, California utilities have been, and may in the future

be, called upon by state regulators to procure new generation on behalf of all customers in the

service territory,19 not merely bundled customers. Therefore, SCE would be unable to take

advantage of the new category of PEs to allow these Marketing Affiliate employees to obtain

NPTI.

Utilities that perform IRP outside of a state mandate – whether because the state does not

mandate such IRP or because only some of the IRP conducted is required – cannot gain the

added efficiencies intended by the Commission’s proposal. These utilities must still bifurcate

their personnel into two groups: those who do IRP only pursuant to a state mandate to serve

BRL, and those who do the same function for all load not pursuant to a mandate. Such a

bifurcation would create duplicate employees if SCE is to meet state requirements, and would be

costly to ratepayers in the long run. In the CPUC’s current IRP proceeding (known as the Long-

Term Procurement Plan proceeding), the utility’s planning for BRL is reviewed side-by-side

with the utility’s plans for all load.

In addition, the Commission notes its concern that PEs could use NPTI to evaluate only

self-build options.20 There have been several occasions when a utility has been required to build

resources, such as when SCE was required by the CPUC to build peakers to ensure reliability in

summer 2007. However, by and large among the CPUC-jurisdictional utilities, competitive

solicitations open to all generation projects have been used to determine which new projects

receive utility contracts. These new generation contracts, under current CPUC regulations, must

be pre-approved by the CPUC.

19 “The IOUs shall procure new generation on behalf of all benefiting customers in their service territories, as provided in this decision.” (CPUC Decision 06-07-029 (July 20, 2006), at Ordering Paragraph 7).

20 NOPR at PP. 49-50.

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Moreover, the proposed language for § 358.4 bars a PE who interacts with a

Transmission Function Employee (“TFE”) from preparing a benchmark. This is problematic for

two reasons. First, the Commission does not define what it means by “benchmark.” For

example, PEs may create a revenue requirement analysis of resource alternatives, which will

incorporate a variety of assumptions regarding system operations, market impacts, and future

revenue from a resource. None of these modeling assumptions involve actual sales of energy –

they are simply assumptions that are crucial to evaluate resource alternatives. Similarly, a PE

may prepare a benchmark of, for example, what a generic combined cycle unit might cost to

construct, in order to compare other potential resource alternatives. Second, some of SCE’s PEs

are not within the Marketing Affiliate. Thus, these employees would not be able to prepare bids

or benchmarks, despite the fact that they otherwise have no prohibition on interactions with

TFEs.

2. Modification to Commission’s Proposal

First and foremost, as discussed initially, utilizing the functional approach for

determining which employees constitute the “Marketing Affiliate” – i.e. limiting the SOC

restrictions to traders and applying the no conduit rule for others – would resolve the problems

associated with IRP, and eliminate the necessity of creating additional categories of employees,

while still adhering to the Commission’s goal of preventing transmission providers from

wielding their market power over transmission to give undue preference or unduly

discriminatory treatment in favor of their marketing affiliates over non-affiliates.

Should the Commission decide not to return to a Functional Approach, it must at a very

minimum recognize that state regulators often take a strong oversight role in resource

procurement, and take into account the role of state jurisdiction over resource adequacy and

other aspects of IRP, taking care to avoid any jurisdictional conflicts. SCE requests that the

Commission eliminate the “state mandated” and “serving bundled retail load” limitations

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embodied in the descriptions of both the PE and CS (discussed below) categories of employees,

as these make the categories useless in many jurisdictions.

For example, California IOUs are required to participate in a two-year energy resource

planning process conducted by the California Energy Commission (“CEC”) and the state Public

Utilities Commission (“CPUC”). Every other year, the CEC prepares an Integrated Energy

Planning Report (“IEPR”) to the Legislature. State law mandates the CEC to [C]onduct assessments and forecasts of all aspects of energy industry supply, production, transportation, delivery and distribution, demand and price. The Energy Commission shall use these assessments and forecasts to develop energy policies that conserve resources, protect the environment, ensure energy reliability, enhance the state’s economy, and protect public health and safety.21

All energy service providers (“ESPs”) submit data to the CEC on standardized forms

regarding demand forecasts, generation resource data by technology, transmission and retail

price data. The Commission reviews the data, holds hearings, and adjusts the data to issue

official forecasts for each of the ESPs.

In the ensuing year, California’s IOUs are required to submit Long-Term Procurement

Plans (“LTPPs”) to the CPUC. At a minimum, one of the resource scenarios examined in the

LTPP must be based on the official CEC forecasts. Following intervener testimony, rebuttal,

hearings, and briefing the Commission issues a decision establishing the IOU’s demand forecast,

capacity requirements, resource acquisition plan by generation technology, transmission

additions, energy conservation and demand management programs. The LTPP decision provides

the overall policy framework for SCE’s resource acquisitions for the ensuing two year period.

The California Public Utilities Commission issued a decision (Decision 06-07-029)

requiring California Investor Owned Utilities (“IOUs”) to procure new generation on behalf of

all customers, not just bundled load, in their service territories. “The IOUs shall procure new

generation on behalf of all benefiting customers in their service territories, as provided in this

decision.” (Decision 06-07-029 at Ordering Paragraph 7.) The CPUC took this action pursuant

21 Pub. Res. Code section 25301(a).

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to a state law (AB380). Moreover, because the CPUC’s currently pending IRP requires utilities

to take into account all IOU load, not only BRL load, California utilities will be unable to take

advantage of the PE or CS categories of employees. It is not clear that this is an outcome the

Commission intended.

In place of BRL, the Commission should adopt “Planning Requirements Load” as the

limitation on such employees. Planning Requirements Load would include such things as

Provider of Last Resort (“POLR”) load, grandfathered wholesale requirements contracts, and

wholesale full requirements load.

Furthermore, some jurisdictions do not specifically mandate IRP (e.g. Arizona).

However, many of these jurisdictions have after-the-fact prudency reviews that ensure correct

decision making according to their least-cost planning requirement.22 Despite this prudency

review, utilities in these jurisdictions will likewise not be able to take advantage of the PE or CS

categories of employees.

A fundamental purpose of IRP is to ensure the best selections are made among various

potential resource options, and Commission should not impose any barriers or roadblocks that

might result in harm to ratepayers. What the state ultimately determines is the best set of

resource decisions can involve the interaction of many complex factors (such as, cost,

technology, resource characteristics, air emissions, water use, transmission requirements,

brownfield versus greenfield development, local concerns, resource need by year,

renewable/non-renewable, fuel type and fuel efficiency, portfolio diversity, financial risk, etc.).

In order for the best decisions to be made, the best information, including relevant transmission

information, should be available to all employees involved in the IRP and CS processes.

22 E.g. Arizona Revised Statute, § 40-250.

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3. Proposed Regulatory Text

In section VI, infra, SCE has proposed regulatory text to address the issues discussed

above.

D. The Commission’s Competitive Solicitation Employees Proposal Is Similarly

Unhelpful

The Commission proposes to establish a “Competitive Solicitation Employees” (“CSEs”)

category of employees who “would be permitted to direct, organize and execute certain

‘competitive solicitations.’”23 These employees, like PEs, could have access to NPTI, but not

non-public customer information, and could freely interact with TFEs. The Commission

proposes to define Competitive Solicitations (“CSs”) as “a solicitation by a public utility to

obtain energy, capacity or ancillary services to serve bundled retail load pursuant to an integrated

resource plan.”24 Again, CSs would be limited to those for purposes of meeting BRL, and made

pursuant to a state-mandated IRP.25

1. The Proposal Is Too Limited to Be Useful

There are several flaws in the Commission’s proposal that make it unhelpful to utilities

struggling to deal with IRP and procurement via competitive solicitations.

It appears that the Commission has an overly narrow vision of what the proposed CSE

employees do – that they would be responsible for nothing outside of conducting Competitive

Solicitations, or Requests for Offers (“RFOs”), to procure long-term resources. While this may

be true for some utilities, SCE believes that in a vast majority of electric utilities, the CSEs

perform not only long-term procurement, but also short- and medium- term procurement

functions. Furthermore, the same CSEs may also be involved in sales activity, which is different

23 NOPR at P. 54. 24 Id. at P. 55. 25 Id.

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than trading functions. For example, recently, the State of California has asked the IOUs to

acquire new generation capacity on behalf of the entire system, and then auction the energy

rights of these new resources to market participants. In this example, the same group of

employees who would conduct a competitive solicitation to acquire new resources would also

later conduct the energy auction to sell the energy rights of these newly acquired facilities. This

activity should not be confused with electricity trading, and consequently, should not disqualify

the CSEs from receiving NPTI.

As another example, all CPUC-jurisdictional Load-Serving Entities (“LSEs”) are

required to obtain enough qualifying, deliverable capacity to meet the peak load plus a 15-17%

planning reserve margin for each month. The CAISO has parallel Resource Adequacy

provisions in its tariff that apply to Load-Serving Entities supplying load in its control area.

Separate RA requirements apply for system and various designated local areas (the CAISO has

proposed 10 local areas and is considering 2 zonal areas for 2008). California is a Direct Access

state, and customers can change LSEs, and this has the effect of altering the RA requirements

individual LSEs must meet. In order for LSEs to meet these CPUC and CAISO RA

requirements in the face of uncertain load forecasts and load migration,26 LSEs must be allowed

to trade CAISO-certified, deliverable capacity among one another.27 Yet, no CSE could sell

such a product (even through a competitive solicitation), and retain his/her status as a CSE, as it

is a capacity product. It makes little sense to have one set of employees, who could be CSEs,

procure these products and another set of employees, who could not be CSEs, sell the same

product. Indeed, because of the nature of the RA product (essentially a capacity tag that carries

the locational capacity attributes of the generator backing the tag) and the various monthly

CAISO/CPUC RA capacity requirements (for system, for 10 local areas, and potentially for 2

zones), LSE employees will typically need to buy and sell RA capacity products in the same

competitive solicitation. This is because an LSE can find itself “short” in one capacity attribute

26 Also, the local and system RA requirements are subject to change from year to year. 27 SCE’s Marketing Affiliate performs this function using publicly available transmission information.

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(perhaps capacity to meet a local capacity requirement) and “long,” or in surplus position,

relative to another capacity attribute (perhaps capacity to meet a system capacity requirement).

Purchase of RA capacity tag backed by a generator with the desired locational attributes would

eliminate the short position, while a simultaneous sale of another RA tag backed by a resource

having locational attributes that are not needed would eliminate the long position. If surplus RA

capacity cannot be efficiently sold because of FERC restrictions on employees who make

capacity sales, it will be difficult for all LSEs to collectively to meet their various RA

requirements. Failure of LSEs to efficiently meet their various RA capacity requirements has

significant cost and reliability implications. Accordingly, CSEs should be allowed to conduct

incidental capacity sales under these circumstances to meet CPUC- or FERC-approved capacity

requirements.

Second, the NOPR has the same unworkable limitations as the PE proposal: to serve BRL

pursuant to a state mandate. These limitations are inappropriate for the reasons discussed supra

relating to PEs.

Third, the NOPR states that the “Commission intends the [state-mandated IRP] limitation

to ensure that the public utility does not use CSEs for any attempt to obtain energy, capacity or

ancillary services.”28 The entire purpose of a competitive solicitation is to procure energy,

capacity or ancillary services. The Commission’s further explanation is similarly vague: “this

limitation ensures that [CSEs] are used only for relatively major procurements by virtue of their

having been conducted as part of integrated resource planning.”29 The NOPR provides no

guidance as to what the Commission considers “relatively major procurements,” or why the size

of the procurement is relevant. Many competitive solicitations will yield very “small” contracts

(in terms of MW) from renewable resources or small generators. It is unclear whether those CSs

would be considered an invalid use of the CSE category of employee. Thus, SCE urges the

Commission to delete these two statements from the Rule.

28 NOPR at P. 55. 29 Id.

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Third, CSs of necessity result in bilateral transactions after a competitive process

identifies the successful bidder. The NOPR is ambiguous about whether CSEs could participate

in negotiating the terms of the bilateral transactions (based on a pro forma agreement) that result

from the CSs which they are permitted to participate in. Would this constitute a prohibited

participation in “purchases of energy, capacity, ancillary services or transmission services other

than in competitive solicitations”?30 These employees are not traders, and therefore would not

have the opportunity to use this information (because they would be subject to the no conduit

rule) “to benefit the public utility or its affiliates in transactions with other market participants.”31

Such a restriction would result in the need for duplicative personnel, who would perform

identical functions in different situations (i.e. IRP contracts and non-IRP contracts). Maintaining

these two groups would be difficult and inefficient for large utilities such as SCE, and may be

impossible for smaller utilities who may be unable to recover costs from State Commissions for

these duplicative employees.

Paragraph 58 would restrict CSEs from receiving NPTI “until after responses to a

competitive solicitation are received.” For example, in developing a short-list among several

candidate offers, it would be important to consider relevant NPTI to assess the transmission

impact of accepting each of the offers. Yet the NOPR seems to preclude this possibility insofar

as final “responses” from short-listed bidders are not received prior to short-listing. As

explained above, this may result in a sub-optimal outcome for SCE’s ratepayers.

2. Modifications to Commission Proposal

Once again, SCE contends that the Functional Approach, i.e. applying the independent

functioning and information access prohibitions only to the traders, would resolve many of the

problems noted above, as the employees the Commission proposes to categorize as PEs and

CSEs would be outside of the “Marketing Affiliate.” Alternatively, eliminating the state-

30 See, NOPR at P. 57. 31 Id.

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mandated IRP and BRL requirements, as discussed supra, would ensure that more utilities could

make use of the CS category, which, as currently proposed, could not be utilized by SCE.

Utilities must be able to implement their company’s state-approved procurement plan or a least-

cost planning requirement, and to make all purchases and sales required thereby through

“structured” Competitive Solicitation processes (i.e. Requests for Offers (“RFOs”), auctions,

etc.), including the bilateral transactions resulting from these CSs. The separate trading group

would make the bilateral purchases and sales of traded products through traded markets.

3. SCE’s Proposed Regulatory Text

In section VI, infra, SCE has proposed regulatory text to address the issues discussed

above.

IV. THE COMMISSION MUST RETAIN THE RELIABILITY SAFE HARBOR

The Commission has proposed to eliminated section 358.5(b)(8) from the Standards of

Conduct, noting that for “electric transmission providers, a provision allowing communications

relating to generation dispatch exists at 18 CFR 358.5(b)(6)….”32 The NOPR appears to

conclude that section 358.5(b)(8) relates only to gas pipelines. This is incorrect. The provision

allows Energy Affiliates of a Transmission Provider (such as SCE’s internal Energy and

Marketing Affiliate, ES&M, which manages the dispatch of energy) access to transmission

information during a system emergency, and must be retained to ensure grid reliability during

such emergencies. The entire infrastructure for dispatch of resources is within the sole control of

the real-time dispatch group in ES&M. This group has access to the necessary contracts,

communication equipment, generation management system, gas procurement mechanisms, etc.

that must be utilized during an emergency. The transmission side of the utility has no access to

these mechanisms, and in an emergency would have no way of determining which resources

should be dispatched and in what manner. In order for the real-time dispatch group within

32 NOPR at P. 31, n.56.

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ES&M to make this determination, they must have access to NPTI during emergencies that

threaten the grid. For example, it could take up to ½ hour for real-time dispatchers to

communicate to the transmission side the current status of the large number of generating units

dispatched by SCE. During an emergency, this delay could jeopardize system reliability.

Section 358.5(b)(6), the provision the NOPR contends can be used during emergencies,

merely allows the sharing of “generation information,” which would not be sufficient to ensure

reliability in certain circumstances.

Therefore, the Commission must retain section 358.5(b)(8) as part of the Standards of

Conduct. Alternatively, the Commission should clarify that section 358.5(b)(6) allows the

sharing of transmission information during system emergencies.

V. THE SOC RESTRICTIONS ON ENERGY AFFILIATES SHOULD BE

ELIMINATED

The Western Utilities urge the Commission to eliminate the restrictions on Energy

Affiliates. As demonstrated in Attachment B to the Comments of Edison Electric Institute, a

review of the Commission’s audit and investigation reports demonstrates that no Energy

Affiliates that are not also Marketing Affiliates have been found to have violated the SOC.

Therefore, all references to “Energy Affiliates” should be deleted from the regulatory text.

VI. SCE’S PROPOSED REGULATORY TEXT33

A. Implementing the Functional Approach

To facilitate the Functional Approach, the Commission should modify the definition of

“Marketing Affiliate” in section 358.3(k) to include only those employees who actually perform

trader functions.

33 Text in bold italics is the suggested change.

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Marketing Affiliate means an Affiliate as that term is defined in § 358.3(b) or [] the functional unit that engages in marketing, sales or brokering activities as those terms are defined at § 358.3(e).

Furthermore, all references to “Energy Affiliates” throughout the regulatory text should be

deleted.

B. Section 358.3(j) Should Be Modified

1. Amend the Definition of Transmission Function Employee

Transmission Function employee means an employee, contractor, consultant or agent of a Transmission Provider, other than a Planning Employee as defined in § 358.3(o) or a Competitive Solicitation Employee, as defined in § 358.3(n), who conducts transmission system operations or reliability functions, including, but not limited to, those who are engaged in day-to-day duties and responsibilities for planning, directing, organizing or carrying out transmission-related operations.

To avoid confusion, the PEs and CSEs should be excluded from the categories of Transmission

Function employees and the Marketing or Energy Affiliate.

2. Add a New Definition for Load Responsibilities

Load Responsibilities means (i) the load that the Transmission Provider is obligated or authorized to include in its long-term procurement plans by state law, state regulation or other state mandate or (ii) the load the utility procures or builds long-term resources to serve, subject to recovery through state-jurisdictional rates.

The term “bundled retail load” (“BRL”) proposed in the NOPR fails to include all of load that an

utility may have an obligation to plan for and/or serve. SCE therefore suggests the term “Load

Responsibilities,” which is intended to capture these broader obligations.

The definition of “Load Responsibilities” is two-fold. First, a utility may have a

planning/procurement obligation imposed on it, or have a retail service obligation. Thus, the

load for which the utility plans and procures may be different from the load it serves at retail.

Furthermore, in some jurisdictions, planning is not required per se, but the utility must procure to

meet its service obligation. For example, in California, in order to prevent capacity shortages,

- 24 -

utilities are required to develop and implement long term procurement plans for “generation on

behalf of all benefiting customers in their service territories,”34 which includes generation for

loads the utilities does not serve. (In contrast, Arizona does not impose a planning obligation,

but utilities must build to meet their load. Because Arizona unbundled retail load before

terminating its retail access program, Arizona utilities serve both bundled and unbundled retail

load.)

3. Add a New Definition for Resource Alternative

Resource Alternative means a supply or demand side resource that the Transmission Provider procures for the purpose of meeting its Load Responsibilities. Examples of a Resource Alternative include a contract entitling the Transmission Provider to purchase and receive energy, capacity or ancillary services; a power plant; a demand response program (including conservation or load-shaping programs); a facility, equipment or system for the storage and release of energy; a contract for the installation or use of distributed generation; or any similar resource that can be used to balance supply and demand for electricity. A resource that is procured for the purpose of meeting the Transmission Provider’s Load Responsibilities is a Resource Alternative, notwithstanding that products available to the Transmission Provider from the Resource Alternative may be disposed of in wholesale markets when excess to the Transmission Provider’s needs.

This term, used in SCE’s proposed language below, is necessary to ensure that CSEs are able to

evaluate and procure a wide-range of potential supply and demand resources best suited to meet

the Transmission Provider’s Load Responsibilities. The definition must allow for the

“lumpiness” of resources, as well as the economic necessity of disposing of the “excess” in

wholesale markets when such energy is not required by the load that it was procured to serve (i.e.

shaping to load). A utility must be able to evaluate the overall cost of each potential resource,

including any necessary transmission costs, to determine the least-cost, best-fit measures to meet

its Load Responsibilities. Although Resource Alternatives may be resold in a wholesale market,

34 CPUC Decision 06-07-029.

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neither PEs nor CSEs would be involved in making such sales. See definitions below

incorporating a specific prohibition on engaging in sales.

C. Integrated Resource Planning

1. Section 358.3(l) Should Be Amended

Integrated Resource Planning means a process to establish a long-term plan, required by, authorized by or necessary for compliance with, state law, state regulation or other state mandate, for [ ] the Transmission Provider to meet its [ ] Load Responsibilities that evaluates a range of alternatives that includes consideration of third party resources.

The addition of “authorized by, or necessary for compliance with” will ensure that utilities can

qualify for this exception, even when a long-term plan is not directly required by state law, but

rather where the utilities must meet state mandates (such as a least-cost supply obligation that is

enforced through the potential for prudence reviews). “Public utility” is replaced with

“Transmission Provider” in recognition that the utilities subject to the Standards of Conduct are

not exclusively “public utilities” as defined in Section 201 of the Federal Power Act, but rather

include federal agencies and other transmission owning utilities. “Bundled retail load

obligations” is replaced with “Load Responsibilities” for the reason discussed above. The word

“long-term” is added to better describe the type of planning obligations under discussion. In this

context, consistent with use of the term under the OATT and OASIS, “long-term” means one

year or more.

2. Add a New Definition for Integrated Resource Plan

Integrate Resource Plan is the long-term plan established through Integrated Resource Planning.

This term is currently used in the NOPR but undefined.

D. Competitive Solicitations

1. Section 358.3(m) Should Be Amended

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Competitive Solicitation means a solicitation by a Transmission Provider to obtain Resource Alternatives for the purposes of meeting its Load Responsibilities pursuant to an Integrated Resource Plan.

“Bundled retail load obligations” is replaced with “Load Responsibilities” for the reasons

discussed above. “Energy, capacity, or ancillary services” is replaced with “Resource

Alternatives” consistent with the facilitating consideration of all potential means for meeting

customer needs. “Public utility” is replaced with “Transmission Provider” for the reason

discussed above. As explained above Integrated Resource Planning may not be an “obligation”

per se. Use of a new defined term addresses the issue.

2. Add New Section Describing Authorized Procurement

Authorized Procurement means procurement by the Transmission Provider to obtain Resource Alternatives for the purpose of meeting the public utility’s Load Responsibilities pursuant to an Integrated Resource Plan which, if not conducted through a Competitive Solicitation, is (i)(A) subject to state commission review, approval and/or prudence review, or (B) subject to oversight by an independent evaluator and (ii) for a resource that will remain in place for a duration of more than one year.

States sometimes authorize procurements outside of a Competitive Solicitation, including for

example, to meet renewable portfolio standards or in connection with innovative technologies or

demonstration projects. The same employees that conduct Competitive Solicitations are likely to

be engaged in the negotiation of these other long-term third-party purchases because it involves

the same skill set and impacts overall fulfillment of the utility’s long-term plan. Thus, a term is

needed to capture these types of long-term purchases. Such activities would need to be subject

to state oversight, whether directly or pursuant to means the state might require, such as an

independent evaluator.

E. Competitive Solicitation Employees

Amend § 358.3(n): Competitive Solicitation Employee means an employee, contractor, consultant or agent of a Transmission Provider who directs, organizes, or executes [its] Competitive Solicitations and/or Authorized Procurements, provided that such employee does not (i) engage in purchases of energy, capacity or ancillary services other than pursuant to contracts for

- 27 -

resources that will remain in place for a duration of at least one year35 offered pursuant to Competitive Solicitations or Authorized Procurements; (ii) engage in sales of energy, capacity, ancillary services or other resources, (iii) prepare or participate in preparation of a bid or proposal by any Marketing or Energy Affiliate of the Transmission Provider to supply a resource to the Transmission Provider, an Affiliate of the Transmission Provider or any third-party; or (iv) act as a conduit to convey Transmission Information to a Marketing or Energy Affiliate. A person that meets the criteria set forth in this paragraph shall not be deemed to be an employee of a Marketing Affiliate or Energy Affiliate.

The definition has been changed to incorporate restrictions ensuring such employees do not use

this information as an unfair advantage in wholesale electric or gas markets or to discriminate in

favor of affiliates. For example, such employees would not be engaged in sales of energy,

capacity or ancillary services.

Although PEs may develop a plan, it is the CSEs that research the market and determine

whether the resources can be acquired to fulfill it. In order to provide a fair evaluation of all

resources, these employees must have transmission information to accurately compare the total

cost to ratepayers of the various alternatives that might be presented by third-parties against

demand or supply alternatives. These employees must be able to interact freely with PEs and in

some companies the two groups may be integrated. To avoid circularity and confusion in the

regulatory text, PEs and CSEs should not be deemed to be Marketing or Energy Affiliate

employees.

F. Planning Employees

Amend § 358.3(o): Planning Employee means an employee, contractor, consultant or agent of a Transmission Provider who directs, organizes or conducts the Transmission Provider’s Integrated Resource Planning, provided that such employee does not (i) engage in purchases of energy, capacity or ancillary services other than pursuant to contracts for resources that will remain in place for a duration of at least one year36 offered pursuant to Competitive Solicitations or Authorized Procurements; (ii) engage in sales of energy, capacity, ancillary services or other resources, (iii) prepare or participate in preparation of a bid or proposal by any Marketing or Energy

35 Such contracts would include multi-year contracts for seasonal resources. 36 Such contracts would include multi-year contracts for seasonal resources.

- 28 -

Affiliate of the Transmission Provider to supply a resource to the Transmission Provider, an Affiliate of the Transmission Provider or any third-party; or (iv) act as a conduit to convey Transmission Information to a Marketing or Energy Affiliate. A person that meets the criteria set forth in this paragraph shall not be deemed to be an employee of a Marketing Affiliate or Energy Affiliate.

This is a conforming change, maintaining the same general restrictions as above. Although the

restrictions are modeled on those suggested in the NOPR, PEs should not be barred from

developing “benchmarks.” Benchmarks are a necessary element of a system for evaluating

Resource Alternatives. Therefore, a restriction on preparing “benchmarks” creates confusion.

The business model contemplated would require a utility that wants to consider self-build or

Affiliate options to organize itself such that employees other than PEs and CSEs prepare self-

build or Affiliate proposals. The PEs would evaluate these options together with other market

options using benchmarks or other evaluation tools.

G. Independent Functioning

Amend § 358.4(a)(7): A Transmission Function employee may share transmission information covered by §§ 358.5(a) and (b)(1) and interact with Planning Employees and/or Electric Procurement Employees for the purpose of and to the extent needed to permit those employees to direct, organize or execute Integrated Resource Planning, Competitive Solicitations or Authorized Procurements.

The proposed changes integrate the proposed Sections 358.4(a)(7), (a)(8), and 358.5 (b)(8) and

(b)(9) and are otherwise conforming. Removal of the restrictions included in the text proposed

in the NOPR is appropriate because those restrictions are now inherent in the definitions of a PE

and CSE.

H. Text Proposed in the NOPR That Should be Deleted or Retained

Sections 358.4(a)(8) 358.5(b)(8) and 358.5(b)(9) become unnecessary in light of the other

proposed changes. Furthermore, all references to “Energy Affiliates” throughout the regulatory

text should be deleted.

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Moreover, section 358.5(b)(8) should be retained, as it is critical to maintaining grid

reliability.

VII. THE COMMISSION SHOULD CONDUCT WORKSHOPS

SCE expects that the Commission will receive voluminous comments from utilities who

all reside in different states, in different markets and with different corporate structures. The

Commission has certainly made commendable efforts in reaching out to the industry to obtain

information on concerns and needed reforms. However, these communications were generally in

the form of technical conferences and meetings were with large groups of participants from

many dissimilar utilities in multiple jurisdictions, and focused on more generic issues, rather than

inquiring into the roles and functions of various employees currently designated as Marketing

Affiliate employees at different utilities, or the other jurisdictional issues facing utilities.

Therefore, SCE proposes that the Commission request “volunteers” from among the

different utilities to hold workshops for the Commission Staff to provide detailed explanations

and demonstrations on how they conduct IRP (versus trading) within the constraints of their local

jurisdiction and market structures, and to fully illustrate how their structure is or is not conducive

to the Commission’s proposal. This will assist the Commission Staff in gaining a hands-on

understanding of how IRP is handled throughout the industry, and will ensure that they fully

understand the challenges facing the utilities with respect to the SOC. SCE would be willing to

volunteer to host one of the workshops.

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Respectfully submitted, MICHAEL D. MACKNESS ERIN K. MOORE

By: Erin K. Moore

Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626) 302-6848 Facsimile: (626) 302-3540 E-mail: Erin.Moore@SCE.com

Dated: March 30, 2007

CERTIFICATE OF SERVICE

I hereby certify that I have this day served the foregoing INITIAL COMMENTS OF

SOUTHERN CALIFORNIA EDISON COMPANY upon each person designated on the

official service list compiled by the Secretary in this proceeding.

Dated at Rosemead, California, this 30th day of March, 2007.

______________________________________________ Nicole Broadwater, Case Analyst SOUTHERN CALIFORNIA EDISON COMPANY

2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626) 302-3124