3. Request
PG&E seeks authority to change the method by which it funds and recovers its pension contributions to an annual Tier II Advice Letter filing based
on a rolling seven-year forecast approach from the three-year GRC process.4 It seeks this change because of the year-to-year volatility in the financial market impacts the market value of its Retirement Plan Trust and the GRC-based funding method does not allow for responses to that volatility without large swings in Retirement Plan contributions from one GRC cycle to the next.5 Specifically, the decline in the 2008 financial markets from 2007 has substantially reduced the value of PG&E's Retirement Plan Trust assets. PG&E forecasts that the 2008 financial market decline will preclude it from reaching the 100% funding goal. As of December 31, 2008, PG&E forecasts that the funding status of its pension Retirement Plan Trust will be only 95.5% as of January 1, 2010 and 87.9% as of January 1, 2011.
By testimony, PG&E explained that its proposal is a direct result of changes in the computation of pension contributions under the Pension Protection Act of 1996 (PPA). PPA established new rules concerning the calculation of minimum required contribution levels for tax-qualified retirement plans. Under PPA, unfunded target liabilities must be amortized over seven years. PPA also limited the period for smoothing deviations from expected asset returns to determine the actual value of assets. Under PPA, asset changes in the period not more than
24 months before the beginning of the plan year are included in the smoothing process.6
PG&E's Retirement Plan funding mechanism would maintain its 100% funding goal. Rather than setting the full funding goal three years out, equal to the three-year GRC cycle, the 100% full funding goal would be targeted
seven years into the future, consistent with the amortization period established in the Pension Protection Act of 2006.
Beginning with October 2010, PG&E would file an Advice Letter that shows the funding status of its Retirement Plan as of January 1, 2010 with the goal to achieve full funding by January 1, 2017, seven years into the future. PG&E forecasted that its required annual retirement Plan contribution would decrease to $448 million from $634 million under its seven-year amortization proposal.
Thereafter, PG&E would file an annual Advice Letter beginning in
October 2010 showing the funding status as of January 1 of that year and the annual retirement Plan contribution required to meet a 100% funding status goal seven years into the future. The Advice Letter would also provide the computation of the revenue requirement based on the required contribution. Any required revenue change would be incorporated into the Annual Electric true up and Annual Gas true up filings.
4 A Tier II Advice Letter filing concern matters generally not expected to require a commission resolution and is deemed approved if, after a 30-day initial review period has ended, there is no timely protest, and it has not been suspended by Commission staff.
5 Application, p. 4.
6 Exhibit 1, p. 3-5.
