VII. WRRM Account

PG&E requests that the Commission close the electric component of the WRRM account and allow it to recover an under-collection of approximately $2 million through the TCBA.

A. Background

In 1993, after the Commission issued its decision in PG&E's 1993 GRC, PG&E announced its Workforce Management Program. The anticipated effect of that Program was to reduce PG&E's workforce levels, beginning in 1993. PG&E used various human resource programs, such as severance and voluntary early retirement incentives, to achieve the reduction in a manner as fair as possible to the affected employees.

The 1993 GRC decision, D.92-12-057, did not reflect the anticipated effects of the Program on PG&E's workforce. Although generally shareholders absorb either increases or decreases in recorded costs compared to the amounts adopted in a GRC, PG&E believed this change was significant enough that it warranted different treatment. Therefore, PG&E filed an application shortly after announcing the Program, proposing to return to ratepayers the difference between (1) the amount that was included in the base revenue requirement for 1993, 1994, and 1995, but would not have been included had the 1993 GRC decision reflected the effect of the Program, and (2) the incremental cost of the Program.

In response, the Commission issued D.93-03-025. The Commission denied PG&E's request for a balancing account and a Workforce Reduction Rate. However, the Commission authorized a memorandum account¹⁷ to track: (1) the reduction in salaries and related overheads due to the program, and (2) the costs of the program. The Commission stated that the balance in the memorandum account may be reflected in rates after the Commission review and audit of the recorded balance. Also, the Commission stated:

"5. On or before May 1 of each year, PG&E will file with the Commission a report of the amounts recorded in the memorandum account for Commission review and audit. This report shall include PG&E's proposal for the recovery or refund of the amounts recorded in the account ..." (48 CPUC2d, 417; D.93-03-025, Ordering Paragraph 5, emphasis added.)

After 1995, PG&E did not make entries to the memorandum account as any savings and costs associated with the WRRM were reflected in the 1996 GRC. Accordingly, since December 31, 1995, only interest has accrued to the WRRM account. PG&E now seeks recovery of the electric department's portion of $2,032,414 through the current ATCP.

B. Position of PG&E

PG&E proposes to keep customers whole by returning to customers the amount which was included in rates in the 1993 through 1995 time period but which would not have been included had the 1993 GRC decision reflected the reduction in PG&E's workforce due to the Program. This amount is to be offset by the costs of implementing the Program. In other words, PG&E's proposal is to calculate an adjustment to the 1993 through 1995 revenue requirement based on perfect knowledge of both the costs of, and reductions in salaries due to this Program, and to return this amount, including interest, to customers.

Exhibit 27 summarizes PG&E's proposal: The reduction in revenue requirement from 1993 through 1995 due to the reduction in salaries and related overheads was $293 million, the cost of the Program was $180 million; interest during 1993 through 1995 was $8 million. Thus, the amount to be returned to customers is $105 million ($293 million minus $180 million minus $8 million).

During 1994 and 1995, PG&E returned $107 million to customers. Thus, PG&E returned $2 million more than necessary to keep customers whole ($107 million minus $105 million).

PG&E states that none of the costs of the Program were recovered through any other rate making mechanism or proceeding. According to PG&E, the $180 million cost of the program, shown in Exhibit 27, which generally included severance payments to individuals who left PG&E's employment and payments to benefit plans to recognize a larger number of retirees than had previously been assumed, was not included in any other proceeding.

Also, PG&E states that none of the costs to implement the program were included in the 1993 GRC. According to PG&E, the cost estimates adopted in the 1993 GRC did not anticipate the severance and other benefits costs for the Program.

Further, PG&E states that none of the costs to implement the Program were included in rates prior to the 1993 GRC. According to PG&E, prior to 1993, benefit costs associated with the workforce positions which were eliminated through the program were for the benefits earned by employees while they were employed by PG&E. The costs of the program were incremental to the costs of benefits earned by the employees prior to the program.

C. Position of ORA

ORA contends that PG&E's accounting methodology is contrary to the Commission directive set forth in D.93-03-025. ORA argues that D.93-03-025 denied PG&E's request to establish a balancing account, but instead ordered PG&E to establish a memorandum account wherein all costs and savings, which would otherwise have been recorded in PG&E's expense and capital accounts "would be reflected at 100%." According to ORA, in March of 1993, PG&E commenced booking expenses and savings for its gas and electric departments per the balancing account methodology, which was contrary to the direction of D.93-03-025.

ORA argues that WRRM issues were the central topic of D.93-03-025. At the urging of various parties, D.93-03-025 explicitly rejected PG&E's proposal to use the balancing account methodology. According to ORA, rather than file a petition to modify, or take some other procedurally appropriate action, PG&E determined to ignore a Commission order. ORA contends that PG&E now attempts to shift the burden to ORA to raise the various issues and alternate methodological approaches that other parties to D.93-03-025 may have contemplated. ORA argues that thus, in addition to having utilized the balancing accounting methodology in contravention of D.93-03-025, PG&E failed to take steps to ensure that parties to D.93-03-025 would be provided an opportunity to participate in this proceeding, and thereby deprived parties of their due process rights.

ORA contends that in light of these facts, to address the issue of whether it is appropriate to use PG&E's methodology for the WRRM issues in this proceeding would run the risk of depriving parties to D.93-03-025 of due process and their right to be heard on the issue. ORA is concerned that such action would preempt the Commission's consideration of the full spectrum of viable methodological approaches. Accordingly, ORA recommends that the WRRM issues should be deferred to another proceeding, outside the ATCP, where adequate notice is given and all parties are afforded the opportunity to develop and criticize a variety of methodological approaches.

D. Response of PG&E

PG&E takes exception to ORA's proposal as described in Exhibit 29 and on page 59 of the transcript. PG&E argues that rather than allowing PG&E to recover the total cost of the Program, $180 million, ORA's proposal would allow PG&E to recover only $120 million of the cost. According to PG&E, the result is that ORA would deny PG&E recovery of $60 million of costs associated with the Program.

PG&E states that in D.93-03-025, the Commission established a memorandum account on a "total dollar basis," and deferred ruling on the ultimate disposition of these dollars until all costs and savings had been recorded. The decision instructed PG&E to debit the WRRM memorandum account with the costs of the Program and credit the account with all savings resulting from the Program which would otherwise have been recorded in PG&E's expense or capital accounts. The accounting practice adopted by D.93-03-025 required PG&E to record the savings in total without differentiating between amounts that would have been capitalized and amounts that would have been expensed.

Further, PG&E states that as required by D.93-03-025, PG&E set up the required memorandum account to track the affected dollars. However, to facilitate the ultimate disposition of these dollars, PG&E also maintained an account using the revenue requirement methodology, in the expectation that this would ultimately be needed by the Commission to determine the final disposition of these dollars. PG&E asserts that as established by D.93-03-025, the WRRM memorandum account was indeed a true memorandum account-recording total dollar amounts pending a determination of any appropriate ratemaking adjustments.

PG&E disagrees with ORA's opinion that the direction and intent of D.93-03-025 was to capture the sum of all savings which would otherwise have been recorded in PG&E's expense and capital accounts. PG&E contends that while the memorandum account called for in D.93-03-025 did not differentiate between the amounts that would have been recorded as expense or capital, the decision included other provisions which relate to the ratemaking effects of the Program. According to PG&E, ORA has overlooked these other provisions. PG&E points out that in adopting the memorandum account, the decision states: "While the appropriate regulatory response will require further consideration, we do want to allow PG&E to begin recording its costs and savings as soon as possible, so as to preserve for all the opportunity for future recovery or refund."¹⁸

PG&E points out that in Ordering Paragraph 5, the Commission requires PG&E to file annual reports which "shall include PG&E's proposal for the recovery or refund of the amounts recorded in the account," further indicating that the decision did not assume that the amounts recorded in the memorandum account would be transformed dollar-for-dollar into rate changes, as ORA is advocating.

Further, PG&E points that, more explicitly, Ordering Paragraph 4 requires PG&E to file an initial report including "the impact of the (workforce management) plan on revenue requirements for the test year and succeeding years" (emphasis added).

PG&E explains the difference between the total dollar basis and the revenue requirements basis as follows:

"The total dollar basis is a running total of the costs of the Program and the savings in labor cost without regard for whether the labor savings represented an expense savings or capital savings. The revenue requirement basis is the result of a computation identical to that performed in rate cases to determine the level of revenue necessary to recover amounts that are expensed and the depreciation, return and taxes on amounts that are capitalized as assets. The revenue requirement basis recognizes that the costs of assets are not collected from customers at the time of installation." (PG&E Rebuttal Testimony Exh. 2, pp. 5-4 and 5-5.)

PG&E argues that it is not appropriate to credit customers with the savings from the Program on a total dollar basis. According to PG&E, using the total dollar basis, customers would get a refund that would be greater than what they would have paid in rates had the labor savings not occurred. The 1993 revenue requirement was set by the Commission based on adopted forecasts of expense and capital investment. The WMP reduced PG&E's labor costs for both expense items and capital items. The savings that should flow back to customers should be the amount by which the adopted revenue requirement would have been reduced had the estimates of expense and capital been lower than originally adopted.

PG&E states that it performed the revenue requirement calculations for the WMP on a monthly basis during 1993, 1994 and 1995, to determine the appropriate credit for customers. Beginning in 1996, the cost savings from the Program were recognized in the revenue requirement adopted in the 1996 GRC decision.

PG&E points out that its revenue requirement was reduced to reflect the savings of the Program through the 1994 Attrition filing (which adjusted the revenue requirement adopted in the 1993 GRC) and in the 1996 GRC (which was based on forecast of expenses and rate base which excluded the savings from the Program). According to PG&E, refunding the capital portion of the Program savings to customers as ORA proposes would result in customers receiving the savings twice.

Thus, PG&E believes it is owed $2 million, and ORA says PG&E should return an additional $58 million, resulting in a difference of $60 million. PG&E argues that the ORA proposal would unfairly deprive PG&E of the ability to recover the costs of the Program. PG&E contends out that ORA provides no justification for its proposal to disallow a portion of the Program costs.

E. Discussion

We are not persuaded by ORA's memorandum account versus balancing account argument. The accounting methodology is the same for both. However, the ratemaking treatment for either account is a separate matter to be determined by the Commission.

Neither D.93-03-025 nor any other Commission decision has adopted a ratemaking treatment to be applied to PG&E's WRRM account. There is no decision ordering PG&E not to file a ratemaking proposal. To the contrary, D.93-03-025 specifically required PG&E to make a ratemaking proposal for the items recorded in the WRRM account.¹⁹ Therefore, we find that PG&E's action in this proceeding, which has been to propose a ratemaking treatment and ask the Commission to adopt it, is consistent with, not in contravention of, a Commission order.

Further, we believe that there is no reason to delay any longer the resolution of this issue, which has been fully litigated in this proceeding.²⁰ PG&E included the WRRM issue in last year's ATCP proceeding, A.98-09-003. In its discussion of balancing and memorandum accounts related to the TCBA, PG&E made its proposal for the WRRM account.²¹ In response, ORA's report for the 1998 ATCP states that "ORA's audit findings regarding PG&E's TCBA and related balancing and memorandum accounts will be presented in the next annual filing of the TCBA." ²² Thus, in essence, ORA requested deferral of the issue from last year's ATCP proceeding to this proceeding.

Further, we are not persuaded by ORA's argument that D.93-03-025 requires PG&E to refund the net amount of the costs and savings on a dollar-for-dollar basis as recorded in the memorandum account without adjustment for a revenue requirement factor. As PG&E points out, under ORA's proposal customers would receive a refund that would be greater than what they paid in rates.

In summary, we conclude that the appropriate credit to customers for the net savings of the WMP should be based on the reduction in revenue requirement arising from the Program, not on the total dollar savings. The revenue requirement method properly computes the savings to customers in 1993 through 1995 arising from the WMP; savings to customers from 1996 on have been and will continue to be reflected in rates through the GRC decisions. PG&E's estimate of the revenue requirement savings over the 1993 through 1995 period was $1.6 million greater than the revenue requirement savings computed on a monthly basis and recorded in the WRRM memorandum account. This $1.6 million difference, plus accumulated interest totaling approximately $2.0 million should be transferred to the TCBA, and the WRRM docket (A.93-02-047) should be closed.