1. Background and Procedural History

PacifiCorp, dba Pacific Power (PacifiCorp), serves approximately 45,000 customers in Del Norte, Modoc, Shasta, and Siskiyou counties in northern California. A series of storms beginning on January 19, 2010 (2010 Storms) piled up heavy snow and brought down power lines, resulting in power outages for about 9,000 customers. The magnitude of the storm prompted Acting Governor Edmund G. Brown, Jr. to proclaim a state of emergency on January 21, 2010 for several California counties and cities, including Siskiyou County. Service was restored to all customers by January 26, 2010. On February 17, 2010, PacifiCorp notified the Commission's Executive Director that it had begun recording its costs of responding to the 2010 Storms in its Catastrophic Event Memorandum Account (CEMA).¹

PacifiCorp filed Application (A.) 10-05-009 on May 7, 2010 (Application) under its CEMA to recover incremental expenses and capital-related costs incurred in responding to the winter snow storms that occurred in PacifiCorp's northern California service territory in January 2010. Specifically, the claimed CEMA costs were to repair and replace facilities, restore service, and respond to customer inquiries. In the Application, PacifiCorp stated that during the 2010 Storms, more than 200 people worked around the clock in hazardous conditions to restore power, including 175 field personnel and 34 incident management and support service personnel. In addition, centralized company dispatch and customer service personnel provided ongoing support to crews and customers.

Some crews had to use snowshoes or hike through waist-deep snow to reach remote areas, PacifiCorp asserted in its Application. Pictures were provided to demonstrate snow damage and that huge trees had fallen onto major power lines.² PacifiCorp mobilized crews and equipment from Oregon, Washington, and California to expedite restoration of power. After power was fully restored, PacifiCorp continued to replace and repair damaged utility facilities, although some work remained unaccomplished due to access problems through the time of the Application.³

PacifiCorp originally sought to recover $1.36 million in revenue requirement associated with $3.63 million of CEMA-eligible costs, and only those costs not recovered from insurance and properly allocated to California customers. About $2 million is expected in insurance recovery.⁴ PacifiCorp proposed to amortize the CEMA costs in rates for one year beginning January 1, 2011. The average net increase to ratepayers was estimated to be about 1.6%, apportioned by class based on a pro rata share of distribution revenues.

Resolution ALJ 176-3254 (May 20, 2010) categorized the proceeding as ratesetting and reached a preliminary determination that hearings would prove necessary to the resolution of this matter.

On June 11, 2010, the Division of Ratepayer Advocates (DRA) filed a protest in which it stated its intent to review the underlying facts of the application, including the sufficiency of the disaster declarations, whether the recorded costs are related to CEMA-eligible events, whether the costs are properly allocated to California ratepayers, and whether the recorded costs are reasonable. PacifiCorp replied to the protest with notice that DRA had commenced its on-site audit on June 24, 2010.

On August 5, 2010, a pre-hearing conference was held in San Francisco to address the issues concerning the management of this proceeding, including the active settlement discussions. DRA stated it had no further discovery and the parties agreed they were preparing to notice and convene a settlement conference.

On August 11, 2010, the assigned Commissioner issued a Scoping Memo and Ruling (Scoping Memo) which identified the issues in the proceeding, as follows:

1. Are the $3.63 million in costs incurred in responding to the January 2010 winter storms, which are recorded in PacifiCorp's CEMA, properly recoverable under Section 454.9 of the Public Utilities Code and Resolution E-3238;

2. Should PacifiCorp be authorized to recover $1.36 million in electric revenue requirements for the time span of January 19, 2010 through March 31, 2010 for costs incurred in connection with the January 2010 winter storms; and

3. Should such amounts be recovered, effective January 1, 2011, by amortizing the CEMA costs in rates for one year, apportioned by class based on pro rata share of distribution revenues.

Based on a representation by the parties that a settlement was likely, the Scoping Memo set a deadline of September 10, 2010 by which the parties had to file a Joint Motion to Adopt Settlement Agreement. No dates were initially set for evidentiary hearings.

On August 17, 2010, PacifiCorp and DRA (Joint Parties) met and conferred in a settlement conference which was properly noticed in accord with Rule 12.1(b) of the Commission's Rules of Practice and Procedure (Rules). The Joint Parties filed an "All-Party Joint Motion for Commission Approval and Adoption of Settlement Agreement" (Joint Motion) on August 19, 2010. No Comments have been filed by any party in response to the Joint Motion.

On September 22, 2010, the ALJ notified all the parties that if no objections were filed by September 27, the testimony and exhibits served by PacifiCorp concurrently with its Application would be admitted into the record. No objections were made or filed. The matter is deemed submitted as of September 28, 2010.

2. PacifiCorp's Testimony and Exhibits

PacifiCorp submitted testimony and exhibits from Todd Dinehart and R. Bryce Dalley along with its initial Application. No rebuttal testimony was served. Below is a summary of PacifiCorp's undisputed submissions.

Todd Dinehart (Dinehart) is Director, Finance/Accounting for PacifiCorp with primary responsibility for managing finance within Transmission and Distribution Operations (T&D). His testimony described PacifiCorp's response to the 2010 Storms, the resulting damage to utility facilities in Siskiyou County, the accounting procedures followed to ensure only incremental costs were recorded in CEMA, details of the recorded costs, and the level of insurance coverage related to these costs.⁵

As a result of the storms, Dinehart stated that PacifiCorp replaced 54 transformers, 82 cutouts, 469 insulators, 31 poles, 123 cross-arms, and 53,283 feet of conductor.⁶ Total incremental storm costs were $3,633,340 comprised of $3,248,101 of expense and $385,239 of capital.⁷ The costs include distribution capital investments and associated depreciation expense, distribution and transmission operation and maintenance expenses, and dispatch and customer service expenses.

Dinehart provided a series of photographs taken of storm-damaged facilities,⁸ and a detailed breakdown of the costs associated with the 2010 Storms.⁹ Based on a formula applicable for insurance claims in excess of annual coverage limits, Dinehart calculated that for the year ending March 21, 2010, PacifiCorp will receive reimbursement equal to 43 percent of capital costs (after a $25,000 deductible) and 56 percent of expense for a total recovery of $1,973,839.¹⁰

R. Bryce Dalley (Dalley) is Manager of Revenue Requirement for PacifiCorp. His primary responsibility is the calculation and reporting of the company's regulated earnings or revenue requirement, application of the inter-jurisdictional cost allocation methodologies, and explanation of the calculations to regulators in the jurisdictions in which PacifiCorp operates. His testimony described the calculation of PacifiCorp's California-allocated revenue requirement associated with damage to the utility's facilities resulting from the 2010 Storms in Siskiyou County, the allocation methodology applied, and the proposed rate spread.¹¹

Dalley calculated the $1.36 million revenue increase requested in the Application.¹² The return on rate base was calculated using the company's current authorized capital structure and costs applied to calendar year 2010 average net plant.¹³ Because costs included for recovery are primarily distribution-related, Dalley stated that PacifiCorp proposed to spread the revenue requirement to customer classes based on each class's share of distribution revenues.¹⁴ Dalley provided an exhibit that sets forth the total revenue requirement associated with the 2010 Storms, including results of operations, total distribution capital expense, summary of expenditures, and insurance recovery calculation.¹⁵

3. The Settlement Agreement

A copy of the All-Party Joint Settlement Agreement between PacifiCorp and DRA is attached to this decision as Attachment A. PacifiCorp agreed to reduce its recovery request from $1.36 million to $1.23 million based on two adjustments. First, in its on-site audit, DRA identified certain non-incremental costs that were charged to the 2010 Storms and included in the Application. These non-incremental costs were California employee salary expenses that would have been incurred by PacifiCorp even if the 2010 Storms had not occurred. Secondly, the Joint Parties agreed to apply the depreciation rate used in the June 23, 2010 settlement agreement filed in PacifiCorp's General Rate Case, A.09-11-015. The Joint Parties agreed that the other elements of the Application were reasonable and justified for purposes of restoring, repairing, or replacing PacifiCorp's electrical facilities and system damaged by the 2010 Storms.

PacifiCorp will amortize the $1.23 million in revenue requirement and recover it in rates set forth in a new tariff rider, effective on January 1, 2011 and ending when the revenue requirement has been fully collected in rates, estimated to occur on or before January 1, 2012. The Settlement Agreement also provides that the revenue requirement, which primarily consists of distribution-related costs, will be allocated among the various customer classes according to each class's share of the distribution revenues.

The Settlement Agreement included:

· Appendix A-a comparison of PacifiCorp's initial revenue recovery request and the impact of the Settlement Agreement on that amount

· Appendix B-a comparison of the rate spread and rate calculation by customer class using both current rates and with the proposed CEMA adjustment

· Appendix C-Schedule S-96, the proposed new tariff rider and schedule of effects of the proposed rate change

The Settlement Agreement resolves all issues related to PacifiCorp's Application.

¹ Appendix C, Application.

² Exhibit PC-2, Photographs taken during 2010 Storms (Photographs).

³ Application at 2. PacifiCorp will not seek recovery of these residual costs.

⁴ Exhibit PC-1, Direct Testimony of Todd Dinehart (Dinehart Testimony) at 9.

⁵ Exhibit PC-1, Dinehart Testimony; Exhibit PC-3, Detail of costs associated with 2010 Storms (Cost detail).

⁶ Exhibit PC-1, Dinehart Testimony at 2.

⁷ Id. at 7.

⁸ Exhibit PC-2, Photographs.

⁹ Exhibit PC-3, Cost detail.

¹⁰ Exhibit PC-1, Dinehart Testimony at 9.

¹¹ Exhibit PC-4, Direct Testimony of R. Bryce Dalley (Dalley Testimony).