VII. Settlement Provisions
A. Edison and SDG&E
Pursuant to the proposed Settlement Agreement, Appendix B and Appendix C, Edison and SDG&E filed on July 14, 2006 an update to the settlement contributions and the overall revenue requirements, using May 31, 2006, Decommissioning Trust Fund liquidation values (rather than March 31, 2006), because the May 31, 2006 values were not yet available when the parties entered into the Settlement. The settling parties had an opportunity to review this update and have made no objection. We will therefore rely on this and later updates in evaluating the proposed settlement. In the July 14, 2006 update, Edison and SDG&E provided new contributions and revenue requirements.5 Edison subsequently discovered certain errors in its July 14, 2006 calculations of the settlement amounts. First, the settling parties agreed to a 21% contingency factor, in lieu of the requested 35% contingency factor, which was not used in the calculation of the settlement amounts. Second, the settlement amounts needed to correctly reflect the pro-ration of the 2006 contribution for Palo Verde Nuclear Generating Station Unit 3 at May 31, 2006, rather than March 31, 2006, as a result of updating the Decommissioning Trust Fund liquidation values. Third, the settlement amounts need to correctly reflect the correct SONGS escalation factors, which were not updated to the escalation factor update agreed to in the settlement. We commend the settling parties for diligently reviewing the settlements and for recognizing the need for corrections. On August 31, 2006, Edison and SDG&E filed a motion requesting the Commission accept further corrections and clarifications to the settlements. We grant the motion and receive the corrections. The other settling parties have agreed with the following corrections to the settlement:
Edison's Qualified Nuclear Decommissioning Trust Funds Allocation of Contributions and Revenue Requirement Updated Appendix B ($000) | ||||||
SONGS 2 |
SONGS 3 |
Palo Verde 1 |
Palo Verde 2 |
Palo Verde 3 |
Total | |
Contribution |
$16,984 |
$10,797 |
$5,067 |
$5,663 |
$3,728 |
$42,239 |
Revenue Requirement |
$17,185 |
$10,925 |
$5,127 |
$5,773 |
$3,773 |
$42,739 |
SDG&E's Qualified Nuclear Decommissioning Trust Funds Allocation of Contributions and Revenue Requirement Updated Appendix C ($000) | |||
SONGS 26 |
SONGS 3 |
Total | |
Contribution |
$5,290 |
$4,060 |
$9,350 |
Revenue Requirement |
$5,364 |
$4,117 |
$9,481 |
The key terms of the Settlement Agreement were summarized in the June 23, 2006 Joint Statement for Edison and SDG&E7 as follows:
(A) the March 2006 25-year Global Insight forecast for projected pre-tax rate of returns for the years 2007 through 2029 to be assumed for the equity and bond portions of the decommissioning trust assets,
(B) the March 2006 25-year Global Insight forecast to be assumed for escalation rates,
(C) May 31, 2006, Decommissioning Trust Fund liquidation values,
(D) a 60% holding in equities in the Qualified Trusts as of the presumed date of January 1, 2007, provided that the Commission approves a maximum allocation of 60% equities, and [Edison] SCE's/SDG&E's Nuclear Decommissioning Trust Investment Committee approves an allocation of 60% equities, for the Qualified Trusts, and
(E) for SCE, a 21% contingency factor on all components of the Palo Verde decommissioning cost estimate, except estimated low-level radioactive waste ("LLRW") burial costs, to which no contingency factor is applied.
Appendix B and C of the Settlement Agreement contain an exemplar table identifying the allocation of the Revenue Requirement and trust contribution for SCE and SDG&E for SONGS 2&3, and, for SCE, Palo Verde with the modifications described in subsections (A), (B), (D) and (E) above, ... SCE and SDG&E agreed in the Settlement Agreement to file an update of Appendix B and C with their reply brief on July 14, 2006 in this docket that reflects the May 31, 2006 Decommissioning Trust Fund liquidation values (and a reduced percentage of equities for the Qualified Trusts if the 60% allocation is not approved by the Nuclear Decommissioning Trust Committee). The Settlement Agreement requests that the Commission find the allocations exemplified in Appendices B and C and the corresponding update to be submitted on July 14, 2006 to reflect May 31, 2006 Decommissioning Trust Fund liquidation values (and a reduced percentage of equities for the Qualified Trusts if the 60% allocation is not approved by the Nuclear Decommissioning Trust Committee), to be reasonable.
· SCE and SDG&E should be authorized to:
o Raise the Qualified Trust's maximum equity percentage to 60%,
o Raise the cap on investment management fees to 30 basis points, and
o Raise the annual compensation retainer for non-company members of the Nuclear Decommissioning Trust Committee to $12,000.
· SCE and SDG&E should be authorized to amend their respective Decommissioning Trust Agreements to clarify that transfers of assets to the Qualified Trusts (including transfers from the Nonqualified Trusts), pursuant to Internal Revenue Code Section 468A(f), as amended by the Energy Policy Act of 2005, are permissible under the Trust Agreements, and to submit such amendments as may be required for Commission approval via advice letter filing.
· The Commission should approve the transfer of funds to the corresponding SONGS and Palo Verde Qualified Trusts (including transfers from the Nonqualified Trusts), as may be permitted pursuant to Internal Revenue Code Section 468A(f), as amended by the Energy Policy Act of 2005, as authorized by the Internal Revenue Service.
· SCE and SDG&E should be authorized to continue to use the tax benefits associated with deducting SONGS 1 Nonqualified Trust amounts consistent with Ordering Paragraph No. 9 of D.03-10-015, including the tax benefits that may arise in connection with any transfer of funds from SCE's/SDG&E's SONGS 1 Nonqualified Trusts to SCE's/SDG&E's SONGS 1 Qualified Trusts as provided for in Internal Revenue Code Section 468A(f), to continue SONGS 1 decommissioning work.
· SDG&E should be authorized to apply $2.79 million of the overcollection in its Nuclear Decommissioning Adjustment Mechanism as a 12-month amortization to the nuclear decommissioning rate effective January 1, 2007, to offset the impact of the increase in the Nuclear Decommissioning revenue requirement in 2007.
· As part of the next NDCTP, SCE and SDG&E will evaluate and address in their application and opening testimony: (1) whether any SONGS 1 decommissioning trust funds are not anticipated to be needed at that time for remaining SONGS 1 Decommissioning Work; and (2) whether any such funds can and should be transferred to SONGS 2&3 Decommissioning Trusts for use to fund SONGS 2&3 decommissioning, contingent upon a favorable ruling from the IRS allowing the transfer, if necessary, and any necessary approvals by the Nuclear Regulatory Commission or other agencies.
· SCE and SDG&E agree that if SCE and SDG&E, respectively, receive money from the DOE in settlement of their DOE spent fuel litigation within three years of the effective date of this Agreement, SCE and SDG&E will seek a favorable ruling from the IRS to deposit certain monies received from the DOE into their respective decommissioning trust accounts. After receiving a favorable ruling from the IRS, SCE and SDG&E will deposit the money received from the DOE (less external litigation costs) that is associated with funds required for work included in the decommissioning cost estimates (but not money associated with current SONGS 2&3 operations or off-site storage of SONGS 1 used fuel at Morris, Illinois) into their respective appropriate decommissioning trust accounts. SCE and SDG&E will each file an Advice Letter within 120 days of the date of deposit of the funds into the decommissioning trusts to update their respective annual contributions accordingly.
· The Commission should adopt as reasonable: (i) the $298 million (100% share, 2004$) cost of SONGS 1 Decommissioning Work completed between January 1, 2002 and June 30, 2005, and (ii) the updated $309 million (100% share, 2004$) SONGS 1 decommissioning cost estimate for Remaining Work.
· The Commission should adopt as reasonable the updated decommissioning cost estimates for SONGS 2&3 and Palo Verde set forth by SCE and SDG&E in the Joint Application (other than the revision to the Palo Verde decommissioning cost estimate, reflecting a reduction in the contingency factor for non-LLRW burial components of the cost estimate from 35% to 21%).
· SCE will provide, as part of its tax testimony in the next NDCTP, a memorandum account that would track the time value of money associated with any net overpayment of estimated income tax payments of its Nuclear Decommissioning Trusts. This memorandum account will compare the estimated tax payments actually made with the amounts required to be paid in each quarterly period based upon the tax returns as filed. An interest rate equal to the assumed after-tax rate-of-return underlying the annual contribution authorized for each trust account will be applied to this difference for the period outstanding. These interest amounts will be cumulated and constitute the balance in this memorandum account. It will be subject to review and reduce the revenue requirement to be authorized in the next proceeding. (June 23, 2006 Joint Statement, pp. 4-8, footnotes omitted.)
The parties assert that in reaching this settlement, they "compromised strongly held views"; and that in all other respects, the settlement comports with the Commission's requirements for adoption of a settlement.
Key Comparisons of Settlement with Applications | |||
Application |
Settlement |
Difference | |
Edison's Trust Contributions |
$57.8 million |
$42.2 million |
$15.6 million -27% |
SDG&E's Trust Contribution |
$12.05 million |
$9.35 million |
$2.7 million -22.4% |
SONGS 1 Costs |
$298 million (100%) |
$298 million (100%) |
0 |
SONGS 1 Forecast |
$309 million (100%) |
$309 million (100%) |
0 |
Palo Verde Forecast |
$738.852 million |
$696,003 million |
$42.849 million -5.8% |
Qualified Trust Equity Percentage |
60% max. |
60% max. |
0 |
Investment management Fee |
30 Basis points max. |
30 Basis points max. |
0 |
Committee Retainer |
$12,000 p.a. |
$12,000 p.a. |
0 |
The Commission does not unravel a settlement unless there is significant problem with the outcome as a whole-in which case the settlement would fail the public interest test discussed elsewhere. This settled outcome is within the range of plausible litigation outcomes. Except for SONGS Unit 1, these plants are not in active decommissioning: in fact, they are operational and are even subject to proceedings which may extend the service life by replacing the steam generators. (See D.05-12-040.) We are therefore less concerned now about under-funding than we will be as these plants approach retirement. Our overriding concern with decommissioning is to ensure that the trust funds are sufficient to retire the plants pursuant to a reasonable plan and that the funds are recovered equitably from customers throughout the plants' service lives. We find the settlement applicable to Edison and SDG&E to be reasonable.
B. PG&E
The key terms of PG&E's Settlement Agreement were summarized as follows:
a. $13.234 million in 2007 for Humboldt Unit 3 SAFSTOR, an additional amount for attrition of $155,000 beginning January 1, 2008 and, an additional $16,000 beginning January 1, 2009.
b. Beginning in 2007, for a 3-year period, $1.827 million for Diablo Unit 1 trust fund and $0 for the Diablo Unit 2, annually.
c. Beginning in 2007, for a 3-year period, $11.915 million for Humboldt Unit 3 trust fund.
d. Requests that the CPUC approve a transfer of funds from the Diablo Unit 2 Trust to the Diablo Unit 1 Trust. The transfer will be calculated based on and/or subject to a) the authorized trust contribution revenue for Diablo Unit 1; b) PG&E's 2007 Ruling Amount Update; c) the amount of excess funds in the Diablo Unit 2 Trust; and d) the approval of the CPUC, Nuclear Regulatory Commission and the Internal Revenue Service.
e. Additional safeguards for the decommissioning trusts (Settlement, para. 12).
f. Additionally, the following modeling assumptions were used in the settlement:
1. Low level radioactive waste Class A Burial Rate: $248 per cubic foot (In 2004 dollars)
2. Diablo Unit 2 Decommissioning Start Date: 2024
3. Humboldt Unit 3 Decommissioning Start Date: 2009
4. Diablo Contingency Factor: 35%
5. Humboldt Unit 3 Contingency Factor: 25%
6. Burial Escalation: 7.5%
7. Non-Burial Escalation: As presented in PG&E's A.05-11-009 Prepared Testimony filed November 10, 2005, including calculation methodology
8. Trust fund balance: Update as of December 31, 2005
9. Equity Turnover Rate (Qualified): 23.65%
10. Equity Turnover Rate (Non-Qualified): 24.49%
11. Pre-Tax, Before Fees Return on Equity: 8.5%
12. Pre-Tax, Before Fees Return on Fixed Assets: 5.8%
13. DCPP Equity/Bond Allocation: 57%/43% (Subject to Commission approval)
14. DCPP Equity Ramp Down: 1-Year Delay, Begin in 2020
15. Transfer of Humboldt Non-Qualified trust balance and associated tax benefits to Humboldt Qualified
Key Comparisons of Settlement with Applications | |||
Application |
Settlement |
Difference | |
PG&E's Diablo 1 & 2 Trust Contributions |
$9.491 million |
$1.827 million |
$7.664 million -80.75 % |
Humboldt 3 Trust Contribution |
$14.621 million |
$11.915 million |
$2.706 million -18.5% |
Humboldt 3 forecast SAFSTOR 2007 |
$13.232 million |
$13.234 million |
$0.002 million |
5 The contribution is the amount placed into the trust fund. The revenue acquirement includes other related costs as well as the contribution.
6 This includes qualified and non-qualified trust amounts.
7 Joint Statement of Southern California Edison Company (U 338-E), San Diego Gas & Electric Company (U 902-E), Division of Ratepayer Advocates, Federal Executive Agencies and The Utility Reform Network in support of Settlement (Joint Statement for Edison and SDG&E).
