4. Proposed Modification for Pensions and other Benefits

4.1. Background

SDG&E and SoCalGas entered into ratemaking settlements which included specific provisions for the allowable recovery of pension expenses and other benefits. SDG&E and SoCalGas were authorized to record in balancing accounts any differences between the forecast allowances for minimum pension fund contributions and actual contributions and the differences between the forecast allowances for other benefits and the actual costs for other benefits. The differences would be recovered in the companies' next general rate cases. The companies argue that the actual contributions for pensions and other benefits are far in excess of the allowances included in rates and that the Commission should allow the recovery of the contributions in an annual adjustment rather than in the next general rate case.

4.2. New Expenses Not in the Settlements

Under the Pension Protection Act regulations, pension benefit restrictions occur when the funded ratio falls below 80%. Due to current negative market conditions, SDG&E asserts that the funded ratio of its pension plan was projected to drop below 80% in 2009, which would have forced it to suspend payment of the full amount of lump-sum pension benefits to retirees and other vested terminated participants (benefit restrictions).

As a temporary measure to avoid benefit restrictions, SDG&E states that it purchased two corporate surety bonds with an aggregate face value of
$110 million. (Petition at 12.) SDG&E further asserts that the current annual expense of the surety bonds is $742,500. In addition to the surety bonds, SDG&E states that it also procured letters of credit in amounts equal to the face amount of the surety bonds ($110 million), as back-up security to the bonds. The annual interest expense of the letters of credit is approximately $1.5 million. Thus the annual expense is $2,242,500. (Petition at 13.)

4.3. Discussion

Primarily, the settlements only allowed for the specific funding of minimum required pension contributions and actual other benefits' expenses. Thus any new expense, not foreseen in the settlement, which would increase the revenue requirement, may only be approved by the Commission following consideration in an application where the applicant demonstrates that such expenses are reasonable and therefore should be recoverable. A petition to modify the decision that adopted the settlements cannot substitute for a new application where, as here, an evidentiary showing is necessary for the relief requested. Additionally, the risk that actual expenses are more than were forecast is the risk borne by SDG&E or SoCalGas, and the risk that actual expenses are less than were forecast is the risk borne by ratepayers. These forecasting risks are the risks settling parties inherently accept.

SDG&E has no allowance for surety bond or letters of credit expenses in its revenue requirement settlement and thus SDG&E cannot currently recover these expenses without a Commission order to increase rates.

SDG&E cannot seek recovery of expenses already incurred for the surety bonds or the letters of credit because such recovery violates the prohibition on retroactive ratemaking. No expense can be recovered from ratepayers if it is incurred before the Commission approves recovery in subsequent rates.

Therefore, we conclude that SDG&E cannot record any expenses associated with either the surety bond or the letters of credit in the Pension Balancing Account. Although SDG&E may file an application for prospective authority to recover any future expenses of the surety bond or the letters of credit, it cannot seek the retroactive recovery of any expense already incurred.