6. Parties' Final Positions on Contested Issues

6.1. DRA

With the exception of PG&E's burial escalation rate, DRA generally supports the cost estimates provided by the utilities and has not disputed any of the claimed expenditures. However, DRA opposes the Settlement provisions setting PG&E's contribution for the DC units, the extension of the modified reasonableness review to Phases 2 and 3 of SONGS Unit 1, and some aspects of the proposed independent panel. DRA contends the Settlement, as a whole, has no public benefit for consumers, violates the law, and violates the Commission's purpose in creating the NDCTP.

Calling it the "most contentious and inappropriate" term of Settlement, DRA argues there is no support in the record for the negotiated $9 million per year annual contribution for the DC trust funds. Using the trust fund balances as of December 31, 2009 and SCE's proposed Low Level Radioactive Waste (LLRW) burial escalation rate, DRA calculates that a $1.8 million annual contribution is enough to fully fund the trusts. Even if PG&E's higher burial escalation rate is used, the record only supports a $5 million annual contribution. Because there is no testimony in the record in support of a $9 million annual contribution, DRA also concludes the Settlement improperly proposed a new issue.

As for modification of the reasonableness review process, DRA draws a distinction between remaining phases for SONGS Unit 1 and the complete decommissioning of HB3. DRA supports the creation of a reasonableness presumption for all phases of HB3 where PG&E says it will finish decommissioning by the end of the decade. In contrast, DRA characterizes the previously approved SONGS Unit 1 process as a "one-time exemption for an imminent decommissioning"⁷ phase. DRA opposes extension of the modified procedure to Phases 2 and 3 of the SONGS Unit 1 decommissioning because it views these activities as far in the future and the estimated costs as too speculative. DRA contends the proposal would undermine Commission authority to review such expenditures on behalf of ratepayers and would violate past decisions and policies. Phases 2 and 3 are not projected to be completed until 2053. Over the years, DRA emphasizes, the Commission has repeatedly acknowledged that forecasts of nuclear decommissioning costs into the future are very speculative and subject to substantial error. Because Pub. Util. Code § 8322(3) states ratepayers should only be charged for costs reasonably and prudently incurred, DRA concludes the Commission cannot legally make such a determination based solely on advance estimates.

Furthermore, DRA argues the utilities have not offered adequate justification for the proposed change and it is unreasonable to shift the burden to consumer advocates who are at a time and expense disadvantage in trying to examine decommissioning costs and actions after-the-fact. According to DRA, this shift conflicts with the Legislature's intent that the Commission provide for "periodic review procedures that create maximum incentives for accurate cost estimations, and provide for decommissioning cost controls."⁸ In support, DRA cites TURN v. Public Utilities Commission,⁹ in which TURN challenged the reasonableness of an approved rate increase granted to PG&E for decommissioning. According to DRA, the Supreme Court rejected the challenge because the Commission would ultimately conduct an after-the-fact review to determine reasonableness and whether to refund any over-collections.¹⁰

DRA agrees that the goals of the proposed independent panel would be helpful to the Commission. However, DRA is concerned about the lack of details and procedural guidance in the Settlement Agreement as well as composition of the panel. DRA thinks using the same consultants employed by the utilities and TURN in current and prior NDCTPs may not provide "independence" because they will rely on their former and future employers for information and data. Instead, DRA suggests the Commission, rather than the utilities, should establish any such panel and include representation by the Commission and/or DRA.

6.2. Fielder

Fielder opposes the Settlement on the grounds that 1) the proposed independent panel will lack independence and transparency, 2) the 25% contingency factor is too low, and 3) the proposed rebuttable presumption of reasonableness for decommissioning expenditures lacks justification and violates the law.

He argues the proposed independent panel, formed to study similarities and differences in decommissioning cost studies, would not be "independent" because it only includes the cost experts from these proceedings and does not include either him or DRA. He describes the panel's prospective work as "secret" and subversive of the NDCTP. He also objects to the exclusion of HB3 costs from those the panel would examine.

Fielder has opposed the application of a 25% contingency factor to HB3 throughout the proceedings and argues again that it fails to address financial risks, regulatory risks, or changes in scope.¹¹ However, in his comments on the Proposed Decision, Fielder claims he agrees with a 25% contingency factor for HB3.

Lastly, Fielder contends the change to the reasonableness review is without policy justification or legal authority. He argues that the proposed change violates the California Constitution and Pub. Util. Code §§ 8325(c) and 8328 of the California Nuclear Facilities Decommissioning Act of 1985 (NFDA) which require the Commission to limit recovery of decommissioning costs to those reasonable in amount and prudently incurred. Instead, Fielder argues, the proposal merges the cost estimate phase with the after-the-fact review, resulting in no actual burden of proof on the utility so long as the last cost estimate was not exceeded. Minimizing cost would become the only barometer of whether costs were reasonable in amount or prudently incurred. Moreover, Fielder states that both PG&E and SCE have decided to act as their own general contractor for decommissioning which poses a potential conflict-of-interest that calls for a higher, not lower, level of review.

According to Fielder, the proposed change to the reasonableness review violates long-settled Commission policy that utilities have the burden of proving the reasonableness of rate increases. In addition to failing to demonstrate any justification for the change, Fielder charges the proposal ignores strong public policy in favor of keeping the burden of proof on the utilities. Not only has this been the law and the policy of the Commission, it is significant to ratepayers because DRA has limited staff to fully investigate utility decommissioning expenses and decision-making. Thus, Fielder concludes, altering the review process at this time would expose ratepayers to less than full review of the utilities' future decommissioning activities and expenditures.

6.3. The Settling Parties

SCE, SDG&E, PG&E, and TURN, the Settling Parties, assert the following:

A fair reading of the evidentiary record from these proceedings demonstrates the contentiousness of the issues raised and settled by the Settling Parties. Notwithstanding substantial disagreement, the parties were able to find enough common ground to craft a comprehensive settlement which meets the standards for review and approval of settlements. Therefore, sufficient give-and-take is established and the Settlement should be adopted by the Commission.

The Settlement represents compromise of a significant dispute between SCE/SDG&E and TURN over estimation methodologies and results, both of which represented considerable litigation risk to both sides. It also resolved a major dispute between PG&E and TURN over the funding of the DC trust funds which included a number of issues (e.g., rates of return, contingency factors, labor termination costs, etc.) that posed mutual litigation risks. According to the Settling Parties, DRA's charges that no give-and-take occurred and no evidentiary basis exists for compromising the DC contribution are wrong.

Settling Parties believe the $9 million annual contribution for DC trust funds is a reasonable outcome given PG&E's omitted labor termination costs and potential to claim a higher contingency factor applicable to the DC cost estimate. PG&E's witness Loren Sharp testified that PG&E's cost estimate did not include, but should have included, labor termination costs, and explained how he developed the $135 million estimate.¹² He also stated the 25% contingency factor did not cover non-engineering risks and that PG&E was "at risk" for additional costs.¹³ According to the Settling Parties, if the DC trusts are updated and the cost estimate reflects 35% contingency and the labor termination costs, it would result in a $29 million annual contribution.¹⁴

The Settling Parties state that there is evidence in the record to show TURN also considered the likelihood of success of its proposals to assume higher rates of return on trust fund investments that would have lowered PG&E's funding requirements. When PG&E's persuasive arguments to raise its DC cost estimates are balanced with TURN's counter arguments, the Settling Parties believe the provision for the $9 million annual funding is a reasonable outcome, supported by the record, and is in the public interest.

Additionally, the Settling Parties state none of the issues raised in connection with this matter are new. They were raised during the proceedings and the evidence supports PG&E's arguments for a higher contingency factor and labor costs for DC. The Settling Parties believe DRA errs when it asserts that past Commission decisions prevent a utility from adjusting projections and assumptions after hearing because the Commission must balance its obligation to keep rates low with the objectives of assuring adequate funding and that the customers who use the generated nuclear power are the ones who pay the decommissioning expenses.

The Settling Parties maintain the proposed reasonableness review procedures fully comport with the Commission's responsibility to set just and reasonable rates. According to the Settling Parties, Fielder's opposition is predicated on the fallacious argument that extending the existing procedure violates Article XII § 2¹⁵ of the California Constitution. Despite Fielder's mischaracterization of the in-place SONGS Unit 1 reasonableness review standard as a "departure from the traditional standard of review," the process is not novel. The SONGS Unit 1 process was adopted by the Commission in D.99-06-007 and has been reapproved in each triennial since then without objection.

The Settling Parties point out that DRA joined in the original settlement that established the SONGS Unit 1 review procedure and at the time found it a suitable alternative. Further, there are sound public policy reasons to adopt it. Foremost, the utilities will retain the burden of proof to show their rates are just and reasonable, and only reasonable and prudent costs are recovered. Opposing parties have ignored the details of the process in place for SONGS Unit 1 to arrive at their criticisms. Instead, the demonstration of reasonableness is made in two parts: 1) utilities must prove that the cost estimates provided in NDCTPs are reasonable, and 2) the utilities must submit an accounting of the recorded expenditures in the next NDCTP supported by testimony that compares expenditures to cost estimates. Where the expenditures materially vary, the utilities have the burden to demonstrate through additional evidence the expenditures are reasonable.

The Settling Parties believe that if the settlement is adopted, the Commission would continue to make the determination as to whether the decommissioning expenditures were prudently incurred and the utilities would not in any way evade their duty to justify, through competent evidence, that their cost estimates are reasonable and their expenditures are reasonable and prudently incurred. If any party made a credible case that a utility's expenditures were unreasonable or imprudently incurred, the utilities could not rely on the rebuttable presumption to overcome that party's showing.

Furthermore, according to the Settling Parties, the NFDA does not specify a particular process or standard for the Commission to apply in reviewing decommissioning expenditures for reasonableness. In fact, the NFDA only provides for reviewing actual costs for reasonableness if the trust funds are insufficient for payment.¹⁶ Thus, the Legislature considered the initial review of the cost estimates the best opportunity for cost controls and required it to occur "periodically."¹⁷ Contrary to the claims of Fielder and DRA, the Settling Parties state that the Settlement Agreement would not change the triennial filings of the utilities.

In addition, according to the Settling Parties, the proposed independent panel, which is intended to perform a one-time analysis of the cost estimates, procedures, and assumptions used in the NDCTPs, will enable the parties and the Commission to better evaluate the cost estimates. The composition of the panel is appropriate because these are decommissioning cost experts who will not be an advocate for any party in their roles on the panel.

The Settling Parties also state that to the extent that DRA was concerned about a lack of procedural detail about how the panel would function, the Settlement Agreement provides a reasonable framework for the parties to understand the purpose, responsibilities, and goals of the panel.

Additionally, the Opening Post-hearing Brief filed by the Settling Parties provides more information about the parties' agreed upon process and funding for the panel. Specifically, in the course of performing its review and preparing a report, the panel would provide opportunities for all parties and Commission staff to be apprised of progress, have access to documents used, and to comment on the direction and scope of work. The panel would produce a report on the specific issues by November 1, 2010.

⁷ Comments of the Division of Ratepayer Advocates Opposing the Settlement (DRA Comments) at 17-18.

⁸ Pub. Util. Code § 8323.

⁹ 44 Cal. 3d 870 (1988).

¹⁰ 44 Cal. 3d at 878.

¹¹ See, e.g., Fielder's Notice of Intent to Claim Compensation at 5; Fielder Exh. 1 at 7-9; Fielder Exh. 2 at 4.

¹² Reporter's Transcript at 867.

¹³ Reporter's Transcript at 868-69.

¹⁴ Exhibit PG&E-20.

¹⁵ Article XII § 2 provides that the Commission, subject to statute and due process, may establish its own procedures.

¹⁶ § 8328.

¹⁷ § 8327.