Approval of the Settlement
The proposed settlement is attached to this decision as Appendix A. The key elements of the settlement have been summarized above. In order to adopt a settlement, we must find that it is: (1) reasonable in light of the whole record, (2) consistent with the law, and (3) in the public interest. (D.96-05-033 at 176, citing D.92-12-019 at 13.) Where, as is presently the case, the settlement is entered into by some but not all parties to the proceeding the proponent's showing in the above areas must be all the more compelling.
The settlement is reasonable. As noted above, following the submission of testimony the parties engaged in settlement negotiations via the Commission's ADR procedures. Over the course of a week of hearings the issues were fully vetted and agreement was reached on some issues.7 After briefs were filed, DRA and BVES engaged in further settlement negotiations. Thus, the parties fully vetted and debated the various complex issues presented. The parties are knowledgeable and experienced regarding these issues and have used their collective experience to produce appropriate, well-founded recommendations. Taken as a whole, the settlement provides a fair and reasonable resolution of the issues in this proceeding and is supported by the evidence produced during hearings as well as the written testimony and rebuttal testimony of both BVES and DRA. In addition, the Settling Parties considered the affordability of the rates, the financial health of BVES, and consumer input from the public participation hearings.
The settlement is also consistent with the law and the issues it resolves are clearly within the scope of the proceeding. Moreover, contrary to Snow Summit's Opposition to Settlement, if adopted the settlement would result in just and reasonable rates to BVES' customers.8 The settlement uses the System Average Percent (SAP) to allocate the costs across the different customer classes. Snow Summit claims that the SAP methodology violates Commission policy by cross-subsidizing residential customers and reducing productive efficiency and overall welfare. (Opposition to Settlement at 8.) Specifically, Snow Summit argues that Commission precedent requires that the Equal Percentage Marginal Cost (EPMC) methodology be used, and proposes to set rates based on an EPMC analysis, subject to a 4% cap on rate increases. (Id. at 1.) In addition, Snow Summit asserts that the record does not provide an adequate analysis of the need to use the SAP methodology. Snow Summit therefore asserts that it is unreasonable to use the SAP methodology instead of the EPMC approach. (Id.
at 7.)
We are not persuaded by Snow Summit's arguments. While this Commission has made use of EPMC a primary goal, we have acknowledged that it is not always feasible to reach that goal in a single proceeding.9 The Commission may determine that circumstances render it impractical or against the public interest to immediately transition to EPMC analysis, in which case EMPC should be implemented only as early as the circumstances permit.
This Commission has identified rate impacts as an important concern when contemplating use of EPMC and determined that revenue allocations under the EPMC that result in increases above 20% for certain customers "[do] not represent a reasonable balancing of our ratemaking goals." (D.90-12-066; 1990 Cal. PUC LEXIS 1285, *32.) Thus, use of EPMC in ratemaking is a goal that must be balanced against other considerations. In contrast to the rate increases now at issue, two of the cases cited by Snow Summit as precedent for use of the EPMC approach actually involved allocating an overall rate decrease.10 Where rates are generally declining, the issue of rate shock to residential consumers presents a much less substantial obstacle to approving a settlement. Snow Summit's proposal would result in a 21% rate increase for residential customers.11 The proposed increase represents an unreasonable failure to balance other considerations against the goal of EPMC.12 Here, where rate shock is a significant issue, use of the SAP model provides an important cushion to the transition to EPMC.13
Finally, the settlement serves the public interest. As we have explained in prior Commission decisions, a settlement serves the public interest when the settlement "commands broad support among participants fairly reflective of the affected interest" and "does not contain terms which contravene statutory provisions or prior Commission decisions."14 While the settlement does not contain terms which can fairly be said to contravene statutory provisions or prior Commission decisions, that the settlement commands broad support among participants fairly reflective of the affected interest is not immediately obvious since neither Snow Summit nor the City joined in the settlement.
Snow Summit's Opposition to Settlement does not show that the Settlement Agreement is unreasonable in light of the whole record, inconsistent with the law, or against the public interest. Instead, Snow Summit's opposition appears to show that the settlement's use of the SAP is the more reasonable approach and confirms that its modified EPMC method would result in an unreasonable 21% increase for some residential customers while the SAP method prevents this unacceptable outcome.
For its part, the City appears to concede that DRA has represented the interest of its members. The City acknowledges that it "is generally supportive of DRA's positions" and explains that:
[I]t became apparent to the City that the Division of Ratepayer Advocates was taking this GRC seriously and investing extensive resources to review and assess Golden State's application. The extent of the DRA's commitment is reflected in its reports, oral testimony, and opening brief. Because of the DRA's efforts, the City has been able to scale back its participation in these proceedings. (Closing Brief of the City of Bear Lake, at 2.)
The principal public interest affected in this proceeding is the delivery of safe, reliable electricity at reasonable rates. BVES provides electric service to customers in its rate jurisdiction, and, in contrast to Snow Summit's representation of a particular interest, DRA is statutorily charged with representing all public utility customers in California, including those served by BVES. Thus, we conclude that the Settling Parties fairly represent the affected interests and that the settlement commands broad support among participants that are fairly reflective of the affected interests.
7 See footnote 4 infra.
8 Snow Summit limited its comments on the settlement to the issue of how the revenue requirement should be allocated between customer classes.
9 See D.92-06-020; 1992 Cal. PUC LEXIS 472, *58.
10 See D.96-04-050 and D.86-08-083.
11 Opposition to Settlement at 10, Table 1.
12 This increase occurs even if we follow Snow Summit's proposal to deviate from the EPMC approach by placing a cap on the amount of the rate increase.
13 The settlement schedules the transition to EPMC to occur at the next GRC.
14 See Re San Diego Gas & Electric Company, D.92-12-019 at 13, 46 CPUC2d at 552.
