VII. Westinghouse Suit

TURN and ORA allege that PG&E should have filed suit against Westinghouse regarding the original steam generators. Aglet states that PG&E has not demonstrated that its failure to file a suit was reasonable. TURN and ORA also state that an award from such a suit should be imputed in setting the allowable costs to be recovered for the SGRP. Specifically, TURN recommends a disallowance of $56-70 million, and ORA recommends a disallowance of at least $18 million.²²

TURN's witness Schlissel stated that, by the late 1970s and early 1980s there was substantial publicly available evidence that the steam generators of the type provided by Westinghouse to Diablo would experience significant degradation and incur substantial costs for maintenance, repairs and possibly replacement before the end of their projected service lives. He stated that a number of utilities with similar Westinghouse steam generators filed suit against Westinghouse concerning such problems in the late 1970s through the early 1990s. He also represented that Westinghouse prevailed in the two suits that went to hearing, and the rest were settled. The settlements, however, were confidential. For these reasons, TURN alleges that PG&E should have filed suit against Westinghouse.

Let us assume that TURN's contention that PG&E could and should have known that it had a basis for filing suit in the late 1970s at the earliest, and the early 1990s at the latest is correct. Given that the statute of limitations for filing such a suit is four years, and that PG&E does not have a tolling agreement with Westinghouse extending the statute of limitations, PG&E is barred at this time from filing such a suit. Therefore, the question of whether PG&E should be ordered to file such a suit is moot.

The issue of whether PG&E should have filed a suit against Westinghouse is related to the design of the original steam generators which, in turn, is related to the reasonableness of the cost of the original steam generators. Therefore, if PG&E had filed and won a suit against Westinghouse, a possible result would have been a reduction in the rate base attributable to the original steam generators. In that case, if we were to find that PG&E should have sued Westinghouse, and would have won or received a settlement, an appropriate result would be a reduction in the rate base attributable to the original steam generators.

In D.03-12-035, the Commission approved a modified settlement agreement with PG&E that provided, among other things, that the URG rate base established by D.02-04-016 shall be deemed just and reasonable and not subject to modification, adjustment or reduction other than through normal depreciation.²³ The URG rate base adopted in D.02-04-016 included the rate base amount for Diablo as of December 31, 2000, a portion of which is attributable to the original steam generators.²⁴ Therefore, the Commission would be precluded from making an adjustment to the rate base for the original steam generators, if it was to find that PG&E should have filed suit against Westinghouse, and would have won or received a settlement from Westinghouse.

There is no basis in the record for assuming, and no party has represented, that if PG&E had filed and won a suit against Westinghouse, the original stream generators would have previously been replaced. As a result, SGRP would not have been avoided. Therefore, such a suit would not affect the need for, or the cost of, the SGRP. For these reasons, we will not adopt TURN and ORA's recommended adjustments to ratebase.

If PG&E had filed and won a suit against Westinghouse, another possible result would have been a payment or discount on services that would have resulted in lower O&M expenses. In that case, if we were to find that PG&E should have filed and would have won such a suit, it could be argued that a reduction in future O&M expenses should be imposed. However, this proceeding is not intended to set rates based on future O&M expenses. Therefore, future O&M expenses are beyond the scope of this proceeding except as they relate to the cost-effectiveness of the SGRP. A reduction of future O&M expenses would have no effect on the cost-effectiveness of the SGRP if it is applied whether the SGRP is performed or not, because it would not impact the net benefits of the SGRP. If it was applied only to the scenario where the SGRP is performed, it would lower the total amount of costs resulting from the SGRP thus improving its cost-effectiveness. We note that such a payment or discount would not have resulted in any savings to ratepayers if it had occurred during the time Diablo was not subject to cost-of-service regulation. Therefore, it could also be argued that no adjustment should be imposed because the ratepayers would have been indifferent to whether a suit was filed. For the above reasons, and since the SGRP is cost-effective, there is no need to determine whether an O&M reduction is warranted or what the amount might be, and we will not do so in this proceeding.