II. Background

Section 368 required the electric utilities to propose cost recovery plans and, if the plans met certain criteria, the Commission was to authorize the plans. Section 368 also required that PG&E's plan provide for an increase in base revenues in 1997 and 1998 equal to the consumer price index plus 2%. The statute restricts PG&E's use of the additional revenues to " . . . enhancing its transmission and distribution system safety and reliability, including, but not limited to, vegetation management and emergency response." Section 368 also directed the Commission on the ratemaking treatment of revenues not expended for system safety and reliability:


To the extent the revenues are not expended for system safety and reliability, they shall be credited against subsequent safety and reliability base revenue requirements. Any excess revenues carried over shall not be used to pay any monetary sanctions imposed by the commission. (§ 368(e)(2).)

Taken together, the § 368 requirements were intended to effectuate a rate freeze or reduction without compromising PG&E's ability to enhance transmission and distribution system safety and reliability.

The Commission authorized PG&E's cost recovery plan in December 1996. (See D.96-12-077 [70 CPUC2d 207], rehearing denied in D.98-12-094.) Specifically, the Commission authorized incremental base revenue increases for PG&E of $164.231 million for 1997, and $241.614 million for 1998, for system safety and reliability enhancements. PG&E states that in 1997 it overspent the authorized amount by $19.012 million, and that in 1998 it underspent the authorized amount by $2.875 million.

For context, it is helpful to remember that the § 368(e) authorized revenues are an increase above the amounts authorized by the Commission in PG&E's 1996 General Rate Case (GRC) for transmission and distribution system safety and reliability. The table below summarizes the authorized revenues and expenditures.

Transmission and Distribution System Safety and
Reliability Revenues2

The Commission also directed PG&E to establish a one-way balancing account, the System Safety and Reliability Enhancement Funds Balancing Account (SSREFBA), to track PG&E's expenditures, and ensure that any funds collected and not used are appropriately credited as required by § 368(e)(2). In D.96-12-077, the Commission took the rather unusual step of specifying the subaccounts. The Commission stated that the high degree of specificity was required for the Commission to perform its future ratemaking duties and confirm that the funds expended in the balancing account were in fact incremental to the funds authorized for safety and reliability in the 1996 GRC decision, D.95-12-055, (63 CPUC2d 570).

In addressing an application for rehearing of D.96-12-077, the Commission stated that D.96-12-077 properly applied § 368(e) to PG&E. Further, the Commission stated that § 368(e) may be used for on-going activities - rather than just new activities - which enhance the safety and reliability of PG&E's transmission and distribution system. The Commission stated that § 368(e) specifically allows PG&E to devote the funds to vegetation management activities, such as tree-trimming, for the purpose of improving the safety and reliability of PG&E's transmission and distribution system. (See D.98-12-094.)

Opening Briefs were filed on November 19, 1999, and Reply Briefs on December 6, 1999. On March 10, 2000, PG&E, ORA, and TURN, filed a joint brief concerning issues addressed in or deferred from D.00-02-046, PG&E's 1999 GRC.

2 The accounts that were totaled to arrive at these figures are the same accounts identified by the Commission in Attachment A to D.96-12-077. 3 See D.95-12-055 (63 CPUC2d 570), PG&E's 1996 GRC Decision. 4 See D.96-12-077 and Advice Letters 1612-E-B and 1703-E, and Resolution E-3251. 5 The amounts noted here reflect adjustments PG&E recorded that were described in this application. (See Application, pp. 3-4, filed March 19, 1999.)

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