Utilities Response

On February 8, 1993, the utilities filed separate responses to DRA's applications. The utilities represent that their advice letter filings fully complied with the PBOP Decision and were accepted as such by the CACD and the Commission. The utilities provided copies of December 10, 1992 CACD Division Director letters sent to each of the utilities⁶ confirming their advice letters complied with the PBOP Decision. Although CACD requested the utilities provide additional information to assist CACD in its PBOP monitoring efforts, the letters stated in part that:

"We have received and reviewed your December 8, 1992 filing in compliance with Ordering Paragraph 7 of Decision 92-12-015 and find it to be in compliance with the ordering paragraph and the intent of the decision."

Among other matters, Ordering Paragraph 7 required each utility to make a compliance filing setting forth their revenue requirement established by the PBOP Decision and the incremental surcharge adjustment necessary to recover their PBOP revenue requirements in their 1993 price cap index. These compliance filings were timely submitted.

The utilities also addressed other issues identified by DRA to demonstrate that the Commission correctly found the utilities in compliance with the PBOP Decision.

Employee's Total Active Service Life

GTEC confirmed that it did not use the employee's total active service life approach identified in the PBOP Decision. GTEC used a benefits/years of service approach. GTEC explained that the PBOP Decision provided for the alternative use of a benefits/years-of-service approach if one condition could be met. That condition was a demonstration to CACD that the alternative approach would not increase the utility's PBOP cost by more than 10%.

On December 15, 1992, GTEC demonstrated to CACD that its alternative approach would result in only a 4.03% increase in PBOP costs. Subsequently, by a February 3, 1993 CACD letter, all parties that participated in the PBOP proceeding, including DRA, were notified that GTEC and ten other utilities were authorized to use the alternative approach.⁷ Hence, GTEC's use of the benefits/years-of-service approach was in compliance with the PBOP Decision.

20-Year Amortization Period

Contrary to DRA's assertion that Pacific Bell had not used a 20-year amortization period of prior PBOP accruals, Pacific Bell cited testimony provided by its independent actuary in the PBOP proceeding to demonstrate its compliance with this issue.⁸ By its letter of February 4, 1993, CACD confirmed that Pacific Bell correctly used a 20-year amortization period. Hence, Pacific Bell complied with the 20-year amortization period.

PBOP Trust and Funding Issues

The utilities also disputed DRA's contention that they failed to provide DRA with any evidence regarding the conditions of existence, approval, use and segregation of PBOP trusts and funds, as set forth in Ordering Paragraph 2 of the PBOP Decision. The utilities acknowledged that these requirements pertained to future ongoing advice letter filings. However, they contend that Ordering Paragraph 2 was not applicable to the initial advice letter filings.

Ordering Paragraph 7 of the PBOP Decision confirmed that the requirements set forth in Ordering Paragraph 2 were not applicable to the utilities' initial advice letter filing. That ordering paragraph required the recovery of future years', not current years', PBOP costs to satisfy the requirements set forth in Ordering Paragraphs 2 and 8 of the PBOP Decision.⁹ Further, the PBOP Decision did not require the utilities to provide ORA with evidence regarding the conditions of existence, approval, use and segregation of the utilities' PBOP trusts and funds.

Irrespective, of the lack of any utility requirement to provide DRA with such evidence, the utilities agreed to provide DRA with such information by responding to data requests. However, the utilities asserted that information on the conditions of existence, approval, use and segregation of their PBOP trust and funds already existed in the PBOP proceeding and were either already available or provided to DRA for review.

For example, during the discovery process of the PBOP proceeding, GTEC provided DRA with a copy of the Voluntary Employees Beneficial Association agreement between GTEC and its employees union that addressed many of DRA's issues. Because GTEC and its employees union have not voiced any intention to terminate that agreement, the agreement remains in effect. GTEC provided CACD with a copy of its trust agreement on March 6, 1992 and again on December 15, 1992.

Pacific Bell also provided ORA with copies of its trusts established subsequent to the issuance of the PBOP Decision and prior to approval of the resolution authorizing recovery of PBOP costs.

Surplus Pension Assets

Pacific Bell and GTEC confirmed DRA's assertion that the PBOP Decision required the utilities to use surplus pension assets to pre-fund their PBOP. However, the utilities did not apply any surplus pension assets that may have existed because they do not have the approval of the IRS or employee unions to do so. A review of the PBOP Decision confirms the utilities' position on not reducing their PBOP costs by any surplus pension assets that may exist. The PBOP Decision specifically stated that:

"The use of surplus pension assets is not a viable alternative source of funding PBOP cost at this time. However, we do not want to preclude utilities from using surplus pension assets to fund PBOP expenses. Therefore, to the extent that the IRS lifts its restrictions and the employee unions agree to the use of surplus pension assets to fund PBOP expense we fully expect the utilities to do so."¹⁰

Actuarial Valuation and Revenue Requirement Calculations

The utilities also disputed DRA's contention that they failed to provide evidence on the reasonableness of their PBOP actuarial valuations and revenue requirement calculations. Pacific Bell explained that support for its actuarial valuations and revenue requirement calculations were included in the PBOP proceeding. Its independent actuary also opined that its PBOP valuations and calculations were in conformance with generally accepted actuarial principles, appropriate for use in implementing PBOP cost recovery, and appropriate for determining Pacific Bell's proper funding level for PBOP contributions.¹¹

GTEC also based its PBOP actuarial valuations and revenue requirement calculations on the actuarial assumptions testified to by its actuary in the PBOP proceeding. Subsequently, on December 31, 1992, GTEC submitted a letter to CACD from that same actuary certifying that GTEC's methods and assumptions used in determining its PBOP costs were reasonable and in conformance to the requirements of the PBOP Decision.