XVI. Comments on Proposed Decision

The proposed decision (PD) of the ALJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Rules of Practice and Procedure. Comments and/or reply comments were filed by PG&E, ORA, TURN, MFP, Aglet, SCE and MID, on February 14 and 22, 2005, respectively. All comments were considered and changes have been made where appropriate.

In its comments, PG&E requested that the decision allow adjustment of the $706 million reasonable cost and the $815 million cap to reflect any additional costs of environmental mitigation that were not included in its estimate, including costs to implement measures that may be contained in the Commission's Environmental Impact Report (EIR). PG&E's estimates included contingencies, and it has represented that $706 million is a reasonable estimate of SGRP costs. Therefore, we have no reason to believe that such costs were not adequately covered by its estimate. The cap was set based on the possibility that the SGRP could cost more than PG&E estimated, and additional environmental mitigation costs beyond what PG&E forecasted are one such possibility. For these reasons, we see no reason to adjust the $706 million reasonable cost and the $815 million cap to reflect any additional costs of environmental mitigation that were not included in its estimate.

PG&E asked that the cap not be an absolute bar to requesting recovery of additional costs due to a force majeure or other events beyond its control. The cap is intended to provide PG&E with an incentive to control costs and to limit ratepayers' exposure to cost overruns. As such, it imposes some risk on PG&E as well as ratepayers. We see no reason to absolve PG&E from all such risks as its request would effectively do. Therefore, we will not grant the request.

PG&E also argued that the Commission does not have the authority to deny it a fair opportunity to recover prudently incurred costs related to plant that is used and useful. This may be an appropriate argument to make in a reasonableness review. However, in this proceeding, PG&E has requested that we find the project reasonable prior to its being constructed. Our preliminary conclusion, as stated herein, is that the project will be cost-effective. However, we put PG&E on notice that it will not be allowed to recover costs in excess of the cap. The cap is, therefore, a condition of our approval. If PG&E chooses to proceed with the SGRP, it will do so in the knowledge that there is a cap. As such, by proceeding with the SGRP, it will be accepting the cap. We also note that, nothing prevents PG&E from filing a petition to modify the final decision in this proceeding if a force majeure or other events beyond its control were to occur. Such a petition would be judged on its merits at that time.

In its comments, Aglet pointed out that the PD did not specify how the $706 million reasonable cost and the $815 million cap would be adjusted for inflation. Our intention is that the inflation adjustment be made based on reliable publications such as the Consumer Price Index published by the U.S. Bureau of Labor Statistics. We did not intend that the costs be adjusted merely because actual costs are different than forecasted. Since no party addressed this issue in the record, the selection of the appropriate inflation adjustment will be considered in PG&E's application to include SGRP costs permanently in rates.

In its comments, TURN requested that the customers currently on bundled service that subsequently leave for direct access be required to pay any stranded costs associated with the SGRP for no less than the first ten years after the SGRP is completed. The stranded cost issue is not unique to the SGRP, and is beyond the scope of this proceeding. It is more appropriately addressed in connection with any consideration of reopening direct access.