4. Discussion

4.1. Standard of Review

The Commission's Rules of Practice and Procedure set a standard for review of any settlement:

12.1(d) The Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with the law, and in the public interest.

We find the settlement agreement meets the criteria for a settlement pursuant to Rule 12.1(d), and discuss each of these three criteria in detail below.

Initially, we note that the circumstances of the settlement, particularly its endorsement by all parties, generally support its adoption. Concurrent with filing its Application, PacifiCorp served testimony and exhibits which described in detail its 2010 Storm-related costs, the California allocation methodology, the expected insurance recovery, calculation of the revenue requirement, and its rationale and details for allocation of the necessary rate increase over the various customer classes. DRA, which represents ratepayers, initially protested the application, then conducted an on-site audit, and, based on the audit results, reached a settlement with PacifiCorp which reduced the proposed rate increases to support a slightly lower revenue requirement.

The Settlement Agreement is also consistent with Commission decisions on settlements, which express the strong public policy favoring settlement of disputes if they are fair and reasonable in light of the whole record.¹⁶ As long as a settlement taken as a whole is reasonable in light of the record, consistent with law, and in the public interest, it may be adopted. We next analyze these criteria with specific reference to the Settlement Agreement.

4.2. Settlement Agreement is Reasonable
in Light of the Whole Record

Ordinarily, a question about utility rates is measured by whether the price is "just and reasonable." (See California Pub. Util. Code § 451.¹⁷) We first examine whether the proposed rate increases are justified in the proceeding record. We find that they are. The documents filed in this proceeding, including but not limited to, the Application, DRA's Protest, PacifiCorp's Response, and the Joint Motion combined with the Direct Testimony and Exhibits submitted by PacifiCorp and admitted to the record by this Decision, contain the information necessary for us to find that the revenue requirement is justified because PacifiCorp had to restore electric service to its customers and to repair, replace and restore damaged electric facilities. These costs would not have been incurred by PacifiCorp absent the 2010 Storms, and will not be recovered as part of current base rates.¹⁸

The Settlement Agreement is also reasonable. Prior to the settlement, DRA conducted discovery, including an on-site audit of the claimed expenses, and PacifiCorp served detailed testimony on the issues related to CEMA-recorded costs, the revenue requirement, and proposed rate increases. The proceeding record contains sufficient information for us to conclude the Settlement Agreement represents a reasonable compromise of the parties' positions based on an error discovered as to certain salary expenses already in rate base, and an agreement to apply the most recently adopted depreciation rate for PacifiCorp in its latest GRC. DRA found that all other ratemaking elements of the Application were reasonable and justified.

We concur that the net result is a lower, more accurate, revenue requirement which is reasonable in light of the whole record.

4.3. Settlement Agreement is Consistent with Law

The parties believe that the terms of the Settlement Agreement comply with all applicable statutes. These include § 451, which requires that utility rates must be just and reasonable, and § 454, which prevents an increase in public utility rates unless the Commission finds such an increase justified. We agree that the required showings under §§ 451 and 454 have been made and nothing in the Settlement Agreement contravenes statute or prior Commission decisions.

The Commission is authorized by § 454.9 to allow utilities to recover costs incurred in responding to a catastrophic event. Commission Resolution (Res.) E-3238 authorizes utilities to establish CEMA accounts and to record in those accounts costs of the following: (1) restoring utility service to customers; (2) repairing, replacing, or restoring damaged utility facilities; and (3) complying with government agency orders resulting from declared disasters. In addition to these direct expenses, the resolution also permits utilities to recover capital-related costs such as depreciation and return on capitalized plant additions resulting from restoration activities. Recovery is limited by insurance coverage, the level of loss already built into existing rates, and other factors relevant to the particular event. These are the types of costs which PacifiCorp has recorded in its CEMA and for which it seeks recovery in this Application.

PacifiCorp's Preliminary Statement Part C of its approved California tariff book describes the procedures for recording and seeking recovery for CEMA costs.¹⁹ In compliance with the Preliminary Statement Part C, PacifiCorp notified the Commission's Executive Director by letter within 30 days of the catastrophic event with a description of the 2010 Storms, a preliminary cost estimate, and a copy of the Proclamation of State of Emergency declared by Acting Governor Edmund G. Brown.

Therefore, PacifiCorp has met the criteria for recording costs in the CEMA as set forth in Res. E-3238, Pub. Util. Code §454.9, and PacifiCorp's CEMA Preliminary Statement and the proposed Settlement Agreement is consistent with applicable law.

4.4. Settlement Agreement is in the Public Interest

The Settlement Agreement is in the public interest and in the interest of PacifiCorp's customers. PacifiCorp's customers expect the company to respond quickly and effectively to restore and maintain continuous electrical service and distribution in the face of a natural disaster like the 2010 Storms. The Commission also has a duty to assure that any rate increases, including those related to such storm damage, are reasonable and justified.

The record establishes that the CEMA eligible costs were proximately caused by a catastrophic event, the proclaimed state of emergency, in PacifiCorp's California service territory. The agreed-upon revenue requirement is less than PacifiCorp's request because a duplicate expense was discovered and deleted, and a lower depreciation rate applied.

Our approval of the Settlement Agreement avoids the cost of further litigation, and reduces the use of valuable resources of the Commission and the parties. Finally, we note that the settling parties comprise all of the active parties in this proceeding, and who fairly represent the interests affected by the Settlement Agreement. We find that the evidentiary record contains sufficient information for us to determine the reasonableness of the Settlement Agreement and for us to discharge any future regulatory obligations with respect to this matter. Therefore, the Settlement Agreement is in the public interest.

For all these reasons, we approve the Settlement Agreement as proposed.

5. Change in Determination on Need for Hearings

The August 11, 2010 Scoping Memo confirmed the categorization of this proceeding as ratesetting and that evidentiary hearings might be necessary. However, the proposed settlement is governed by Rules 12.1 et seq. which provide that no hearing is necessary if there are no material contested issues of fact, or if the contested issue is one of law. After review of the Joint Motion, including Appendices A-C, the Application, the direct testimony and exhibits, and other filed documents in the record, ALJ Darling determined that no material contested issue of fact remained and concluded no hearing was required pursuant to Rule 12.3. We therefore determine that no hearings are necessary.

6. Admission of Testimony and Other Exhibits

The parties reached settlement before the start of evidentiary hearings in this proceeding and, as a consequence, the testimony and exhibits served by PacifiCorp have not yet been made a part of the record. On September 22, 2010, the ALJ notified all the parties that if no objections were filed by September 27, 2010, the testimony and exhibits served by PacifiCorp concurrently with its Application would be admitted into the record. No objections were filed. Therefore, the following exhibits are admitted into the record:

Exhibit Number	Description	Sponsor	Date Admitted
PC-1	Direct testimony of Todd Dinehart	PacifiCorp	9/28/2010
PC-2	Photographs taken during 2010 Storms	T. Dinehart	9/28/2010
PC-3	Detail of costs associated with 2010 Storms	T. Dinehart	9/28/2010
PC-4	Direct testimony of R. Bryce Dalley	PacifiCorp	9/28/2010
PC-5	Revenue Requirement calculation	R. Bryce Dalley	9/28/2010

This matter is submitted as of September 28, 2010.

¹⁶ See e.g., D.05-03-022 at 9.

¹⁷ All references are to the Public Utilities Code unless otherwise noted.

¹⁸ Application at 5.

¹⁹ Appendix B, Application.