V. Restoration Time Standard

A. Need for a Standard

1. Initial Positions of Parties

a) PG&E

PG&E believes an emergency restoration time standard for major outages is neither useful nor necessary for the following reasons:

PG&E represents that major outages are unique due to the following variables:

PG&E believes that for a standard to be fair, it would have to allow for the above variables. PG&E believes that it would be impossible to develop such a standard.

PG&E also points out that recovery from an outage may be dependent upon the actions of others. For example, the California Independent System Operator (CAISO) is responsible for transmission system recovery. Additionally, power plant owners are responsible for recovery of their facilities.

PG&E believes that the proper standard is preparedness. It asserts that the Commission has already addressed preparedness through the following standards:

PG&E also asserts that its proposed performance-based ratemaking (PBR) performance measures Application (A.) 98-11-023 provide a gauge of overall system performance. The three measures are:

PG&E acknowledges that the indices do not measure major outage restoration time. However, PG&E claims that they do provide an incentive to construct, maintain and operate the electric distribution system in a reasonable manner. The resulting maintenance or improvement of system performance reduces the likelihood of a major outage.

b) SCE

SCE's position mirrored that of PG&E. In addition, it made the following points.

SCE believes that additional standards are not required but, if adopted, they should reflect the following principles:

SCE believes that the purpose of a prescriptive standard such as that proposed in D.98-03-036 should be to describe, for a given set of circumstances, a minimum acceptable end result, all other things being equal. Since major outages are by nature, unpredictable, such a standard cannot be developed.

SCE argues that Pub. Util. Code § 364(d) requires an after-the-fact review and the exercise of discretion. Self-executing penalties relieve the Commission of the obligation to review and determine fault. This would be contrary to the spirit and language of the statute.

SCE also believes that the Commission must provide for recovery of any resulting costs.

SCE estimates that it currently spends $1.8 million per year on emergency preparedness efforts.

To provide an example of the cost of the proposed restoration standard, SCE chose to use the January 4-7, 1997 windstorm as an example. This storm was not large enough to qualify as a major outage. SCE estimates that it would have cost $51 million per year to have the additional 48 repair crews necessary to meet the proposed standard, less $0.45 million per year for contract and mutual assistance costs that would be avoided. This does not include avoided penalties which SCE could not estimate. SCE believes that for a major outage, the costs would be much higher.

SCE points out that it has received a number of awards and commendations for its emergency preparedness and response.

c) SDG&E

SDG&E is not in favor of a restoration standard. It believes that due to the uniqueness of each major outage and the lack of information on actual outages, a comprehensive standard can not be developed. It believes that if a standard is to be imposed, it should satisfy the following criteria:

SDG&E believes that there is not a great deal of additional value to be gained from a restoration standard. It did, however, propose a standard for consideration. It believes that resulting costs should be recovered in rates.

SDG&E is not recommending that its proposed standard be imposed on other utilities. However, it also believes that imposing a standard only on one utility would be unfair.

d) Sierra Pacific Power Company (Sierra)

Sierra believes that restoration standards are unnecessary and would impose significant costs on customers.

Sierra states that it has not implemented any cost reduction that would diminish its ability to respond to an emergency. It further states that all of its management employees in operations have the opportunity to receive incentive compensation tied directly to system reliability indicators.

Sierra opposes restoration standards for three reasons. First, restoration of service should consider employee and customer safety first rather than restoring service as fast as possible to avoid a penalty. Secondly, Sierra is concerned with passing on resulting costs to its customers, especially since over 95% of its customers are in Nevada. Third, the biggest factor affecting Sierra's reliability is weather. There are conditions, such as high snowfall where it is physically impossible to get to some locations, during major storms, for many hours.

The Public Service Commission of Nevada has not addressed this issue. However, when it does, Sierra believes that a single set of standards for the whole company would be best.

Sierra believes that if a standard is to be applied, the Customer Average Interruption Duration Index (CAIDI) should be used. It should be limited to weather-related outages because Sierra has no experience with outages caused by earthquakes, for example. Geography and weather should be considered in setting the standard.

e) Southern California Water Company (SoCal Water)

SoCal Water operates its Bear Valley Electric Service (BVES) around Big Bear Lake in Southern California. It serves approximately 20,600 customers of whom about one-third are full-time residents.

SoCal Water believes that due to its size and the seasonal nature of two-thirds of its customers, standards applicable to the larger utilities would not make sense for it, and would be too costly. Additionally, since it has no generation, major outages are primarily outages outside its system.

f) PacifiCorp

PacifiCorp believes that imposition of numerical restoration standards would impose a hardship on PacifiCorp. PacifiCorp's service territory is rural, mountainous and somewhat hard to reach. As a result, it would be expensive to maintain a workforce sufficient to guarantee restoration of power in a short period of time. PacifiCorp, therefore, supports the TURN and ORA recommendation that small utilities be exempt from numerical standards.

g) TURN and ORA

TURN and ORA believe that the Commission should adopt reasonable restoration emergency standards because such standards are both necessary and useful. TURN and ORA point out that the Commission expressed interest in such standards in D.98-07-097. TURN and ORA cite the following language from D.98-03-036, p. 4.

    "The need for standards governing the utilities' responses to emergencies and major outages has become increasingly more obvious in recent years. Our review of PG&E's response to storm damage in 1995 and 1996 underscored the problems associated with a lack of benchmarks by which to judge utility performance and the reliability of electric service."

TURN and ORA conclude from this quotation that the Commission has characterized such standards as both necessary and useful. TURN and ORA believe that the lack of standards constitutes an unfair risk to ratepayers and may provide utilities with a financial incentive to allow restoration service to deteriorate.

TURN and ORA recognize that restoration standards should not jeopardize worker or public safety, produce perverse incentives or hold utilities responsible for events beyond their control. TURN and ORA also do not dispute that the utilities have no control over the underlying causes of emergency events such as storms, floods, etc.

B. Design of a Standard

1. Initial Positions of Parties

a) TURN and ORA

TURN and ORA jointly recommend as follows:

TURN and ORA believe that their proposed standard should not be applied to small utilities because they have fewer resources, and are often impacted by unique geographical and climatic conditions. It would not be cost-effective to apply the proposed standard to the small utilities. However, TURN and ORA propose the following:

TURN and ORA believe that restoration standards are necessary and useful because they would provide an incentive to the utilities to not reduce their emergency response capabilities. Such standards would also provide the Commission with a benchmark for judging reasonableness.

TURN and ORA believe that their proposed standard is reasonable because it is based on historical performance during events that would be covered by the standard. Of the 12 historical events for which the utility response was studied by ORA and TURN, 11 would have been presumed reasonable and none would have been presumed unreasonable.

TURN and ORA believe that since their proposed standard is based on historical data, historical restoration priorities would not be changed. Additionally, since such historical data reflects existing levels of emergency preparedness, no significant additional costs would result. Given the adoption of G.O. 165 and G.O. 166, the tree trimming standards adopted in D.97-01-044, and funding for enhancing transmission and distribution system safety and reliability for 1997 and 1998, for PG&E, future performance should be better.

TURN and ORA believe that transmission outages should be included because the transmission system is essential to distribution service, it is within utility control and the Commission has authority over transmission facilities. They point out that the PBRs for SCE and SDG&E include service interruptions regardless of service (transmission and distribution). Additionally, TURN's and ORA's proposed standard was calculated based on both transmission and distribution outages.

TURN and ORA object to the Chebyshev Theorem used by SDG&E in its proposal because it is loose, inaccurate, and so conservative that it has no value in setting a standard.

TURN and ORA recommend that major events should be those events that cause at least 10% of the customers to be out over the course of the event rather than simultaneously. They recommend this for several reasons:

TURN and ORA point out that there is little data available on outages. Therefore, they recommend that the following data be gathered by the utilities for outages where at least 10% of customers are out.

b) SDG&E

SDG&E's proposed standard is summarized as follows:

SDG&E based its standard on CAIDI because it measures the average length of an outage from the point of view of the customers actually experiencing the outage. The standard is based on a statistical analysis of data supplied by PG&E, SCE, SDG&E and the Sacramento Municipal Utilities District.

c) PG&E

PG&E opposes the standard proposed by TURN and ORA. TURN and ORA claim that, since their proposed standard is based on historical data, it represents levels of emergency preparedness that ratepayers have already paid for. Therefore, no additional costs are necessary to meet the standard. From this TURN and ORA conclude that their proposed standard is cost-effective. PG&E points out that in its 1999 GRC A.97-12-022, ORA is recommending a substantially lower level of expenditures for distribution operations and maintenance, and distribution capital. PG&E alleges that its GRC proposal is necessary to maintain the current level of service. PG&E concludes that the TURN and ORA proposal has not been shown to be cost effective and is inconsistent with ORA's recommendations in PG&E's 1999 GRC proceeding.

PG&E opposes inclusion of transmission outages or portions of transmission outages in the standard. PG&E states that the CAISO has operational jurisdiction over the transmission system. Therefore, CAISO actions during an outage could delay restoration to distribution customers. Inclusion of all or part of transmission outages in the standard could create a conflict between the utilities' need to meet the standard, and CAISO's requirements and instructions during an outage.

G.O. 166, adopted by D.98-07-097, defines major events as those events where at least 10% of the customers are out simultaneously. TURN and ORA propose that the definition of a major event be where at least 10% of the customers are out over the course of the event, rather than simultaneously. PG&E opposes this proposed definition because TURN and ORA have presented no evidence that a change is needed, and the proposal is beyond the scope of this proceeding at this time.

PG&E also objects to the TURN and ORA proposal because it would apply uniformly to all utilities. PG&E points out that PBR reliability measures for each utility were created using utility specific data. Such data reflects the utilities' different systems, operating characteristics, geography and weather. PG&E claims that TURN and ORA have not justified their one-size-fits-all proposal.

C. Joint Proposal of TURN, ORA, SDG&E, and SCE

TURN, ORA, SDG&E and SCE sponsored a joint proposal for an emergency response standard. It is included in Attachment 1.

The joint proposal can be summarized as follows:

1. Positions of Parties

a) TURN and ORA

TURN and ORA believe the standard is needed. TURN and ORA maintain that utility mergers, competitive and regulatory cost-cutting pressures and a trend toward labor outsourcing could adversely affect the restoration performance of utilities during major outages. They believe that, since it is based on historical preparedness and response data, the joint proposal will mitigate against a decline in future restoration times. TURN and ORA point out that while G.O. 166 may impact preparedness, there is nothing in it that addresses actual restoration time performance.

TURN and ORA believe that the joint proposal is reasonable because of the following factors.

TURN and ORA represent that no formal cost-benefit analysis was done. They state that none is needed because SDG&E and SCE have stated that they see no immediate significant cost impact. TURN and ORA believe that the implementation of many improvements to utility systems as a result of actions of the Commission and the Legislature should make these utilities more able to meet the standard than before 1995.

TURN and ORA note that PG&E represents that it could not meet the standard unless it gets everything it asked for in its 1999 Test Year GRC. TURN and ORA point out that since PG&E's 1999 GRC request was so much higher than prior GRC levels, a rejection of PG&E's 1999 GRC request is unlikely to affect its restoration performance.

TURN and ORA oppose PG&E's recommendation that no standard be adopted, or that if one is adopted, it should exclude transmission outages. They point out that it is PG&E's poor response to major storms in 1995 that led to this proceeding. They believe that since PG&E has experienced the worst weather and has the worst historical performance, it needs the standard the most.

TURN and ORA state that PG&E's arguments that the Commission does not have jurisdiction over transmission related matters were addressed in D.99-09-028. They believe that the Commission does have the necessary jurisdiction.

TURN and ORA reject PG&E's contention that the Federal Energy Regulatory Commission (FERC) has preempted the Commission from imposing restoration standards on transmission. They contend that PG&E has not shown that FERC has issued any order expressly preempting state regulation of transmission reliability. Additionally, if PG&E were to bring such a preemption claim to federal court, it would be unable to demonstrate that the standard proposed in the joint recommendation will have any effect on its transmission operations and maintenance expenses because it is based on existing performance levels. The court would likely defer to the state in this case.

TURN and ORA believe that the filed rate doctrine does not bar the imposition of a restoration standard by the Commission as PG&E contends. They agree that while the filed rate doctrine focuses primarily on rates, it has been extended to include terms and conditions of service. However, TURN and ORA say that it has not been extended to govern emergency restoration standards for transmission facilities subject to FERC jurisdiction. The doctrine has been applied to rate discrimination and violations of terms of service by a regulated carrier, not to something as broad-sweeping as emergency restoration standards for transmission systems. TURN and ORA believe that the doctrine does not apply to this case because PG&E has not established a connection between the Commission's promulgation of an emergency response standard and FERC-approved rates, agreements or terms of service.

TURN and ORA believe that PG&E's proposal could result in inappropriate classification of outages as distribution when the root cause is clearly transmission. For example, if a customer loses service during a weather-related major event because of problems with the distribution line serving that customer, the resulting outage starts as a distribution outage. However, if the distribution system is fully repaired and ready to return to service, but a transmission problem arises that prevents electricity from reaching the distribution system, the outage would continue to be treated as a distribution outage under PG&E's proposal.

TURN and ORA state that in a major outage, transmission and distribution problems will be occurring simultaneously, and the utility will be responding to them simultaneously. PG&E's proposal would draw false distinctions that would, in application, potentially cause inappropriate results, even as applied to its own system.

TURN and ORA state that PG&E's proposal is based only on PG&E events and should not be used here, especially for other utilities. TURN and ORA represent that SCE and SDG&E are not sure that they can distinguish between transmission and distribution in their measurements. They do not know what it would cost to enable them to do so. SCE and SDG&E are also not sure what effect such a distinction would have on past CAIDI measurements. There is no basis for assuming that such distinctions would be meaningful or cost-effective for SDG&E and SCE.

TURN and ORA believe that transmission outages should be included for the following reasons:

TURN and ORA believe that there is no problem with potential duplication of CAISO efforts for the following reasons:

b) SDG&E

SDG&E's position as a sponsor of the joint proposal is substantially similar to TURN's and ORA's position. SDG&E believes that the joint proposal is reasonable because of the following:

SDG&E believes that there are no cost issues that need to be addressed in this proceeding. If in the future there are found to be any associated costs, they can be raised in subsequent proceedings. SDG&E represents that the restoration standard is practical to implement. It would not be administratively burdensome to collect and report the data from SDG&E's current data collection systems.

SDG&E believes that PG&E's proposal should not be adopted as a statewide standard. It has not been shown to be cost effective, it is not broadly supported, it does not represent a compromise, and there is no evidence that it can be readily implemented by other utilities.

SDG&E points out that PG&E's proposal requires the Commission to draw distinctions between transmission and distribution outages. This may be possible, but would be very difficult in practice. The joint proposal does not require such distinctions. SDG&E further points out that the CAIDI benchmark of 570 was derived from a common database that included transmission. No party, including PG&E, has done the necessary analysis to determine if it would be appropriate for distribution only.

SDG&E believes that jurisdiction over transmission is not an issue in this proceeding for the following reasons:

c) SCE

SCE is a sponsor of the joint proposal. SCE emphasizes that the standard is a compromise among the parties. It supports the standard for the following reasons:

SCE believes that PG&E's jurisdictional objections are premature. SCE believes that the restoration standard in the joint proposal is consistent with Pub. Util. Code Sections 364 and 349. Furthermore, it does not require the Commission to take any action in excess of its subject matter jurisdiction. PG&E will be free to raise its objections should the Commission actually attempt to exercise any regulatory control over assets in excess of its jurisdiction. SCE believes that since adoption of the joint proposal does not, in itself, constitute an exercise of regulatory authority over transmission assets, PG&E's jurisdictional objection is premature.

d) Sierra

Sierra does not object to the joint proposal or to PG&E's proposal because utilities with fewer than 150,000 electric customers would be exempted.

e) SoCal Water

SoCal Water believes it should be exempted from the standard for the reason set out in its initial recommendation.

f) PG&E

PG&E believes that standards are not necessary for the reasons set out in its initial recommendation. However, it takes the position that it would support the joint proposal with two caveats.

First, since the standards are based on historical performance, the Commission should maintain the utility's current level of resources in the area of maintenance, tree trimming and the call center function within customer services. PG&E states that it has been spending considerably more in these areas that it was authorized in its last GRC. PG&E takes the position that it should be granted its requested amounts in these areas in its 1999 GRC if the Commission adopts the joint proposal.

Second, PG&E believes that transmission restoration activities should not be included in the standards. PG&E states that the Commission does not have the authority to establish restoration standards applicable to transmission because of preemption by the FERC, and in particular by the filed rate doctrine.

The filed rate doctrine as applied here by PG&E means that the Commission cannot issue orders regarding matters covered by FERC-approved tariffs. PG&E contends that while the doctrine was initially applied by the courts to rates, it has since been expanded to cover any activity within the agency's (in this case the FERC's) regulatory authority, including agreements and conditions of service.

PG&E contends that the Commission is forbidden from issuing orders with respect to the subject matter of the ISO's FERC-approved tariffs. PG&E says this includes emergency response standards directed at the ISO-controlled portions of the utilities' transmission systems. PG&E says that the CPUC does not have authority over a utility's operating practices, procedures, facilities, maintenance and safety standards on ISO-controlled transmission facilities. PG&E contends that adoption of the emergency response standard would implicitly involve the Commission in evaluating the utility's performance in restoring outages. PG&E argues that the Commission is prohibited from doing such an evaluation because the ISO has that responsibility under its FERC-approved tariffs.

PG&E also recommends that even if the Commission had jurisdiction, it should not exercise it for the following reasons:

If the Commission chooses to adopt a standard, PG&E recommends that its proposal be adopted. Its proposal is identical to the joint proposal except that transmission restoration activities are excluded.

PG&E states that the CAIDI benchmark of 570 is appropriate under its proposal. Eliminating customer minutes of transmission interruption would have only a minor effect on the CAIDI measurements used to develop the 570-minute benchmark. In its exhibit, PG&E-6, it showed that transmission interruptions contributed five minutes to the average restoration time.

2. Discussion

We have frequently expressed our desire to have a benchmark against which utility response to emergencies can be judged.

In D.98-03-036, at page 4, we stated:

"The need for standards governing the utilities' responses to emergencies and major outages has become increasingly more obvious in recent years. Our review of PG&E's response to storm damage in 1995 and 1996 underscored the problems associated with a lack of benchmarks by which to judge utility performance and the reliability of electric service."

In D.98-07-097, at page 8, we stated:

"Restoration time standards may provide a reasonable incentive for the utility to maintain its distribution system in a way that preserves the system's integrity during emergency conditions."

We continue to believe that a standard is needed to facilitate our investigations of utility performance during major outages. We require it to be reasonable, cost-effective, and likely to have its intended effect.

a) Reasonableness

The sponsors of the joint proposal state that it is reasonable, feasible, achievable and practical to implement. PG&E states that its proposal, which is identical except for its exclusion of transmission, is reasonable. No party has stated that the joint proposal, except for the inclusion of transmission is unreasonable.

The sponsors of the joint proposal say that PG&E has not established that the 570 CAIDI benchmark is reasonable when transmission is excluded. PG&E says, based on a study of data related only to PG&E, that excluding transmission makes no significant difference. No party has said that the 570 CAIDI standard in the joint proposal is unreasonable when transmission is included.

Having considered the above, we conclude that the joint proposal is reasonable. Since PG&E's proposal was analyzed based only on PG&E data, it is not reasonable for use on other utilities. Additionally, no party has explained why we should treat PG&E differently from the other utilities.

b) Cost-Effectiveness

The sponsors of the joint proposal state that it is cost-effective because it has benefits but little or no significant cost. They oppose PG&E's proposal because PG&E has not shown that it can be implemented by the other utilities at little or no cost. PG&E's primary financial concern appears to be that it get all of the funding it requested in its 1999 GRC.

No party has demonstrated that the joint proposal is not cost-effective. Indeed, SDG&E and SCE, who would have to implement it, are convinced that it is. We find this persuasive.

We do not expect that the joint proposal will result in significant future costs to the utilities. However, in the future if the utilities find that there are significant costs, they will not be precluded from filing for recovery prospectively. Likewise, other parties will be free to oppose such requests.

PG&E's concerns about funding requests in the 1999 GRC will properly be addressed in that proceeding. Since PG&E has not shown that its proposal is cost-effective for SDG&E and SCE, we cannot conclude that it is cost-effective for application to them.

c) Likelihood of Having the Intended Effect

The sponsors of the joint proposal represent that it is likely to have the intended effect. They say that its intended effect is that it will focus management's attention on achieving reasonable restoration times without providing perverse incentives. It will also provide an objective benchmark against which utility performance can be judged. Neither PG&E, except as noted above, nor any other party has stated that it will not have the intended effect. We conclude that the joint proposal is likely to have its intended effect.

PG&E's proposal is, except as noted above, identical to the joint recommendation. Therefore, excluding considerations of reasonableness and cost effectiveness, it would also likely have a similar effect.

d) Jurisdiction

The restoration standard proposed in the joint proposal sets up a rebuttable presumption of reasonableness to be used in the Commission's investigation of an outage. It provides a benchmark for the Commission to use in determining the need for and extent of an investigation of a covered outage. It also indicates which parties will have the burden of overcoming the presumption if they disagree with it.

The proposed standard does not require the utility to take any action regarding the construction, operation or maintenance of any of its facilities. Simply put, it tells the utilities that if their future performance is significantly worse than their past performance, they will be presumed to have acted unreasonably and will be required to justify their actions, and vice versa. Any action the Commission may take will be based on its investigation of the covered outage after full due process. No action, such as sanctions or requirements involving facilities, operations or maintenance, result from the proposed standard itself.

PG&E states that transmission should be excluded from the standards because the Commission lacks jurisdiction.

PG&E has not demonstrated that FERC intended to preempt the Commissions' authority over transmission reliability. In addition, it has not shown any FERC-approved tariff, rate, term or condition of service that the joint proposal contradicts.

In D.99-09-028, in Investigation (I.) 98-12-013, we addressed PG&E's arguments that we did not have the authority to investigate the transmission aspects of the power outage that occurred on December 8, 1998 on PG&E's system. We determined that we had the necessary jurisdiction and that there are sound legal and policy reasons to exercise that jurisdiction to fulfill our responsibility to the public. (D.99-09-028, mimeo., at pp. 14-16.)

The above discussion addresses PG&E's claim of federal preemption. For the reasons discussed above and addressed in D.99-09-028, we conclude that we have the necessary jurisdiction to adopt the standards included in the joint proposal, and that the joint proposal does not conflict with any statute or Commission decision.

PG&E also states that, if we do have jurisdiction, we should choose not to exercise it. This is because protocols have not been developed, the CAISO's efforts should not be duplicated, and the Commission can not assure rate recovery of transmission related expenditures.

PG&E's three concerns do not arise until an actual investigation is undertaken. Such an investigation would take place after the standard is applied, utilizing the rebuttable presumption. We have initiated a process for developing protocols for investigating outages. The CAISO's efforts will be addressed pursuant to the protocols in an effort to avoid unnecessary duplication. Rate recovery may be addressed on a case-by-case basis if transmission related expenditures are needed.

3. Conclusion

Based on the above, we conclude that the joint proposal is reasonable, cost-effective, and likely to have its intended effect. We do not conclude that PG&E's proposal is reasonable or cost-effective. We also conclude that we have the necessary jurisdiction to include both distribution and transmission in the standards. Therefore, we will adopt the response standard included in the joint proposal.

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