10. Assignment of Proceeding
Timothy Alan Simon is the assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding.
1. SDG&E's Z-factor mechanism was adopted by the Commission as part of a settlement agreement in SDG&E's last general rate case.
2. The Commission previously has adopted the following criteria for Z-factor recovery for SDG&E:
a. Caused by an event exogenous to SDG&E;
b. Caused by an event that occurred after the implementation of rates;
c. Costs that SDG&E cannot control;
d. Costs that are not a normal cost of doing business;
e. Caused by an event that affects SDG&E disproportionately;
f. Costs that have a major impact on SDG&E;
g. Costs that have a measureable impact on SDG&E; and
h. Costs that SDG&E has reasonably incurred.
3. SDG&E sought and obtained liability insurance offerings from domestic and international insurance markets, negotiated premiums and deductibles, and ultimately selected a two-tower liability insurance program comprised of seven layers of general liability insurance with 27 providers, and a separate wildfire tower with eight layers and 28 providers.
4. SDG&E is subject to general rate case regulation and the incentive structure of which Z-factor is a component does not apply to SDG&E's current rate regulation.
5. SDG&E could and did negotiate levels of liability insurance coverage and deductibles for its 2009 liability insurance premium.
6. A finding of some degree of control does not preclude a finding of exogeniety.
7. Specific information regarding the unexpected changes in liability insurance was unknown to SDG&E until early 2009 when the effort to procure insurance for the next 12-month period began.
8. SDG&E has a heightened risk profile due to its excessive wildfire risk exposure, its legal liability under inverse condemnation, and the imposition on California investor-owned utilities of strict liability for wild fires.
9. In 2009, SDG&E's annual premium for third-party liability insurance was $47 million and the revenue requirement adopted in its last general rate case included $4.5 million for third-party liability insurance.
10. The documented 1,000 percent increase in cost of insurance over the amount forecasted will consume close to the entire attrition increase SDG&E received for normal inflation and operations in the 2008 GRC.
11. SDG&E used brokerage firm Marsh USA, Inc., and agent Joseph Phillips, to canvass the global insurance market to reach qualified insurers, including utility industry mutual companies in the United States, London, European, and Bermuda insurance markets.
12. The increase in 2009 liability insurance premium and deductible expense meets the Z-factor criteria for inclusion in regulated revenue requirement and recovery from ratepayers.
13. The present case involves a stand-alone event and does not qualify as a multi-year Z-factor mechanism with a single, one-time deductible.
14. No evidence was presented that SDG&E and DRA failed to comply with Rule 8 in their respective ex parte meetings with Commissioner Simon on August 23, 2010, and September 2, 2010, respectively.
1. SDG&E bears the burden of proving by a preponderance of the evidence that its 2009 increase in liability insurance costs meets all eight of the Z-factor criteria.
2. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs was caused by an event exogenous to SDG&E.
3. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs was caused by an event beyond the control of SDG&E.
4. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs was caused by an event that occurred after the implementation of rates.
5. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs was not a normal cost of doing business.
6. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs was caused by an event that affects SDG&E disproportionately.
7. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs had a major impact on SDG&E.
8. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs had a measurable impact on SDG&E.
9. SDG&E has met its burden of proving that the 2009 increase in liability insurance costs was reasonably incurred.
10. SDG&E's application for Z-factor recovery of 2009 increased liability insurance costs should be granted, and limited to recovery for just the policy period of 2009-2010.
11. SDG&E's Z-factor recovery of 2009-2010 is subject to a $5 million deductible.
12. SDG&E should be authorized to file a Tier 3 Advice Letter, as described herein, to utilize a memorandum account in which to record subsequent unforeseen (at the time of its last general rate case decision) increases in insurance liability premiums and deductibles for the years 2010-2011 and 2011-2012.
13. Rule 13.13 does not prohibit ex parte meetings otherwise in compliance with the Commission's Rules of Practice and Procedure after oral argument.
14. The Commission's ex parte rules are consistent with due process requirements.
15. Henricks' motion to disqualify Commissioner Simon should be denied.
16. This application should be closed.
IT IS ORDERED that:
15. San Diego Gas & Electric Company is authorized to recover unforeseen liability insurance premium expenses as a one-time Z-factor event for year 2009-2010 that is subject to a single $5 million Z-factor deductible.
16. The incremental revenue requirement of $28,884,000 associated with actual 2009 liability insurance premium expense increases is approved.
17. San Diego Gas & Electric Company is authorized to recover this incremental revenue requirement by transferring a total of $28,884,000 into San Diego Gas & Electric Company's Electric Distribution Fixed Cost Account (for electric) and San Diego Gas & Electric Company's Core and Noncore Fixed Cost accounts (for gas) and amortizing over a period of not less than 12 months beginning on January 1, 2011.
18. San Diego Gas & Electric Company's proposal to recover through the advice letter and amortization process any future unforeseen (at the time of its last general rate case decision) liability insurance premium and deductible expense increases until the next general rate case decision based on the notion that this is a multi-year Z-factor event subject to only one $5 million Z-factor deductible is denied. The Z-factor deductible expense will apply each year as a separate expense.
19. San Diego Gas & Electric Company is authorized to file for Z-factor treatment and recovery of unforeseen liability insurance premiums and deductible expense increases in subsequent years prior to its next general rate case decision through a Tier 3 Advice Letter that shall contain the same information as required in an application, including comprehensive discussion of each of the eight Z-factor criteria approved herein, detail of the cost of the premiums and the efforts by SDG&E to seek competitive rates.
20. Protestant, Ruth Henricks' motion to disqualify Commissioner Simon is denied.
21. Application 09-08-019 is closed.
This order is effective today.
Dated December 16, 2010, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
NANCY E. RYAN
Commissioners
We dissent.
/s/ DIAN M. GRUENEICH
Commissioner
/s/ JOHN A. BOHN
Commissioner
APPENDIX A: LIST OF APPEARANCES
Michael J. Aguirre
|
Michael Shames
Keith W. Melville |
(END OF APPENDIX A)
