5. Commission Review

As a matter of public policy, the Commission favors settlement of disputes, if such settlements are fair and reasonable in light of the record. This policy supports many worthwhile goals, including reducing the expense of litigation, conserving scarce Commission resources, and allowing parties to reduce the risk that litigation will produce unacceptable results.13

The general criteria for Commission approval of settlements are stated in Rule 12.1(d) of the Rules of Practice and Procedure14 and are as follows:

The Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest.

In the following sections we discuss the merits of the Settling Parties' proposal as it relates to our approval criteria.

The Agricultural Definition Settlement is reasonable in light of the whole record. The outcome constitutes a compromise between the positions set forth in the prepared testimony by PG&E and the positions of parties that were active on this issue, namely AECA, CFBF, and CRM.

While AECA, CFBF and CRM did not file prepared testimony, their positions with regard to PG&E's proposal are evident from the record in A.04-06-024, prehearing conference statements in this proceeding and statements made at the evidentiary hearing on September 20, 2006.

The compromise accommodates PG&E's desire for more certainty regarding reclassification to agricultural rates, and AECA's, CFBF's, and CRM's objections - on public policy, fairness, legal and other grounds - to PG&E's proposed changes to the agricultural class definition. For instance, it placates CFBF's concerns regarding grandfathering by further extending the transfer of ownership provisions proposed by PG&E. By expanding the activities included within the agricultural class definition proposed by PG&E, the Agricultural Definition Settlement also accommodates AECA's position that there should be a broader interpretation of who should be allowed in the agricultural class. Regarding CRM's concerns, the Agricultural Definition settlement includes milling necessary to produce white rice and packing of brown and white rice as agricultural end uses. Inclusion of rice milling appears reasonable, since the process is analogous to almond hulling, which was previously determined by the Commission to be an agricultural end-use.

In considering reasonableness, we also acknowledge two other points made by the Settling Parties. First, the Agricultural Definition Settlement is essentially a rewrite of the old definition with clearer terms and less ambiguity. It basically keeps the agricultural class as it was before. Second, the agricultural class in general is stagnant and overall may be shrinking. The changed definition will not affect a large number of customers.

Finally, the Agricultural Definition Settlement reasonably resolves the reservations expressed by the Commission in D.05-12-025 in rejecting the prior settlement proposed in A.04-06-024. Specifically, the Agricultural Definition Settlement resolves rather than defers the definition issue and includes refund provisions under Tariff Rule 17.1.

The Agricultural Definition Settlement is consistent with law and prior Commission decisions.

It is consistent with § 744, which requires that the Commission adopt agricultural rates for those customers "whose principle purpose is the agrarian production of food or fiber."

As indicated previously, it addresses and resolves the prior agricultural definition proposal problems that were expressed by the Commission in D.05-12-025.

Finally, it is consistent with Commission decisions under the prior agricultural definition, which included within the agricultural class feed mills that are integral to a cattle-raising operation, milk processing, cotton ginning, and almond hulling and shelling.

The Agricultural Definition Settlement is in the public interest. It fairly and reasonably defines the scope of the agricultural class, and it does so in clear and certain terms. By increasing the clarity of the new agricultural definition, the new definition should significantly reduce the litigation that beset the prior definition.

The increased clarity of the new definition is accomplished by several improvements to the current definition.

First, the phrase "change the form of the agricultural product," which created interpretational problems under the old definition, has been eliminated. In its place, the new definition (in Section A) prohibits activities that "process the agricultural product." Both "process" and "agricultural product" are defined in Section D, which the Settling Parties believe eliminates any slack in the interpretation of these phrases.

Second, the new definition has added the requirement (in Section A) that agricultural end-uses must occur before the "First Sale" of the agricultural product, and it clearly defines "First Sale" in Section D. Many of the disputes under the prior definition arose because it was not clear where in the commercial chain agricultural production ends and processing begins. The "First Sale" provision eliminates this uncertainty by establishing a clear dividing line.

Third, Section C of the new definition catalogues a number of specific agricultural activities, and characterizes them as either agricultural or non-agricultural. By specifically listing activities that are or are not agricultural, the new definition eliminates much of the subjectivity of the prior definition.15

The Agricultural Definition Settlement is also in the public interest because it defines the scope and make-up of the agricultural class reasonably and fairly. Section B ensures that the make-up the agricultural class will remain nearly the same as before, and that migration to or from the agricultural class as a result of the new definition will be minimized. Section B.1. provides agricultural eligibility for activities determined by the Commission or PG&E to be agricultural under the prior definition. Section B.2. provides agricultural eligibility for meters that are currently served on agricultural rates, until there is a change of ownership.

We note that, in an attempt to provide greater statewide consistency, PG&E's proposed agricultural definition was in line with SCE's "on the farm" definition. The Agricultural Definition Settlement moves away from SCE's agricultural class definition by including, as agricultural end-uses, other activities that are not specifically "on the farm." However, according to PG&E's witness, use of the "on the farm" definition does not appear workable given the interests of the intervenors. Also, in his opinion, the agricultural industry in PG&E's service territory is more diverse than that in southern California; and, in general, it is not a reasonable expectation that PG&E could have an "on the farm" definition and meet the needs of the agricultural industry that exists in northern California.16 Given this explanation, and absent any studies or data to support the proposition that statewide consistency in the definition of the agricultural class is desirable or appropriate, it is reasonable at this time for PG&E and SCE to have substantially different agricultural class definitions.

The Agricultural Definition Settlement should be adopted. Consistent with Rule 12.1(d), it is reasonable in light of the whole record, consistent with law, and in the public interest. Also, the Settling Parties have followed and met the settlement proposal requirements of Rules 12.1(a) and 12.1(b).

13 D.92-12-019, 46 CPUC 2d 538, 553.

14 Unless otherwise indicated, subsequent rule references are to the Rules of Practice and Procedure.

15 The activities specifically listed in Section C include those activities that, based on the Settling Parties' collective experience, are most prone to dispute over whether or not they are "processing." By directly and specifically addressing these activities, Section C eliminates any subjectivity or uncertainty as to how these activities will be treated.

16 PG&E/Backens, 1 RT 26-27.

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