2. Background
This proceeding has its roots in the legislative and regulatory effort to deregulate electricity generation in California that was known as Assembly Bill (AB) 1890, which became law in 1996. This legislation added § 367(b) to the Public Utilities Code, which required that the Commission "identify and determine those costs ... of generation facilities..." and that the valuation of those facilities "shall be determined no later than December 31, 2001 and shall be based on appraisal, sale, or other divestiture."
PG&E incurred expenses of $34.8 million in preparing for this sale, appraisal, or divestiture of its hydroelectric generation facilities in 1999 and 2000.
Following the collapse of California electricity markets in 2000, ABX1 6, which became effective on January 18, 2001, amended § 377 to require that "no facility for the generation of electricity owned by a public utility may be disposed of prior to January 1, 2006."3 Thus, the passage of ABX1 6 ended the efforts to dispose of PG&E's hydroelectric generation facilities.
In September of 2001, PG&E filed A.01-09-003 seeking recovery of the costs it incurred in preparing for the sale, appraisal, or divestiture of its hydroelectric facilities. In 2003, Decision (D.) 03-02-028 found the $34.8 million in costs that PG&E incurred to be reasonable. D.03-02-028 states:
17. Given the size and physical location of PG&E's hydroelectric system, the level of professional expertise necessary to complete the necessary activities associated with preparing PG&E's hydroelectric generating facilities for market valuation, PG&E's $34.8 million costs were reasonable, and should be held in a memorandum account to be allocated at the disposition of the hydro facilities. Such disposition cannot occur earlier than January 1, 2006 and must be authorized by the Commission.4
In 2006, PG&E filed for recovery of the costs by advice letter. The Energy Division rejected the advice letter without prejudice in 2007, ruling that the recovery of the costs should be sought by either petition or application.5
On April 14, 2008, PG&E filed A.08-04-022 seeking recovery of "$34.8 million in principal transaction costs already deemed reasonable by the CPUC plus ongoing interest and franchise fees and uncollectibles totaling $46.9 million ..."6
Resolution ALJ 176-3212 (April 24, 2008) categorized this proceeding as ratesetting and reached a preliminary determination that no hearings would prove necessary to the resolution of this matter.
On May 19, 2008, the DRA and Merced Irrigation District and Modesto Irrigation District, filing jointly (the Districts), protested the application of PG&E.
DRA argued that PG&E has "failed to meet its burden of proof that, even if the costs were reasonable to charge to ratepayers, it has not already collected some or all of these costs ...."7 DRA concluded that "[h]earings will be necessary to determine whether PG&E should recover any of its claim, and if so, the correct amount. Hearings will also be necessary for the appropriate rate allocation."8
The Districts argued that "PG&E's hydroelectric transaction costs do not qualify as CTC [Competition Transition Charges]."9 In addition, the Districts argue that "PG&E's proposed disposition of the remaining hydroelectric costs creates a substantial risk of inappropriate double recovery."10
On June 6, 2008, PG&E served a prehearing conference statement in response to the protests. PG&E responds that "[c]ontrary to DRA and the Districts, the Commission already has determined that the costs sought to be recovered in this application were mandated by law and thus were incurred on behalf of customers, not PG&E shareholders."11 PG&E also states "[c]ontrary to DRA and the Districts, the costs sought to be recovered in this application have not been previously recovered and are not precluded from recovery by PG&E's prior advice filing."12 In addition, PG&E responds that "[c]ontrary to the Districts, PG&E's proposed allocation of costs to be recovered among customer classes as ongoing Competitive [sic] Transition Costs (CTCs) is appropriate and consistent with Commission decisions allocating similar categories of costs for recovery as ongoing CTC."13 Concerning the issue of whether there may be "double recovery" of these costs, PG&E stated that it "appreciates that DRA has raised a factual issue that can and should be subject to discovery and review in this proceeding."14 Still, PG&E contended that "DRA and the Districts have raised no issues requiring evidentiary hearings."15
On June 11, 2008, a prehearing conference was held in San Francisco to address issues concerning the management of this proceeding. In addition, Hercules Municipal Utility District (Hercules) put in an appearance as an interested party.
On June 20, 2008, an Assigned Commissioner's Ruling and Scoping Memo set a schedule for resolving this proceeding.
On August 14, 2008, DRA, PG&E and the Districts (Signing Parties) filed a "Stipulation of Facts and other Matters" (Stipulation). The Stipulation, which does not include Hercules,16 states that:
1. The [Signing Parties] agree that evidentiary hearings are not necessary in this proceeding.
2. The [Signing Parties] agree that PG&E has supported its application request with appropriate and reasonable evidence, and that no reason appears in the record to question the accuracy of PG&E's statement that it has not collected in rates any of the $46.0 million in costs that are the subject of this application.
3. Notwithstanding paragraphs 1 and 2, the [Signing Parties] agree that, if subsequent to a Commission decision approving PG&E's application, facts developed that indicate that PG&E has previously collected some or all of the $46.9 million in rates prior to this application, any of the [Signing Parties] may seek to modify the Commission's decision approving the application, and each of the [Signing Parties] is free to support such request for modification.17
The Signing Parties noted that they continue to dispute whether PG&E's proposed allocation of costs is reasonable.18 The Stipulation also adopted a revised schedule for briefs.19
On August 29, 2008, an Administrative Law Judge's (ALJ) Ruling determined that no hearings were necessary to resolve the issues in dispute and adopted the revisions to the briefing schedule proposed in the Stipulation.20
Consistent with the revised schedule, on September 10, 2008, the Districts, DRA and PG&E filed Opening Briefs. On September 24, 2008, the Districts, DRA and PG&E filed Reply Briefs.
3 Assembly Bill 6 from the 2001-2002 First Extraordinary Session repealed Pub. Util. Code § 216(h) and modified § 377.
4 D.03-02-028 (February 13, 2003), Finding of Fact 17 at 34.
5 PG&E Advice Letter 2883-E (August 15, 2006), Advice Letter 2883-E-A (September 8, 2006), Energy Division Letter, "Rejection without prejudice of Advice Letters 2883-E and 2883-E-A," February 28, 2007. Due to a calculation error, PG&E's advice filing incorrectly requested recovery of $11.45 million instead of the actual $34.8 million. The error was due to an incorrect assumption that $23.5 million in principal ($27.9 million including interest) was recovered in PG&E's 2004 crediting of headroom revenues under its Chapter 11 bankruptcy settlement. In fact, the $27.9 million was not recovered in the headroom filing because it was offset by a countervailing change to the amounts in PG&E's Transition Cost Balancing Account used to calculate headroom. See PG&E Advice Filing 2521-E, June 14, 2004.
6 A.08-04-022 at 1, footnotes omitted.
7 Id. at 2.
8 Id. at 4.
9 Protest of Merced Irrigation District and Modesto Irrigation District to Application of Pacific Gas and Electric Company for Recovery of Costs Deemed Reasonable in Generation Divestiture Transaction Costs Memorandum Account Pursuant to D.03-02-028 (Districts' Protest), May 19, 2008, at 2.
10 Id. at 4.
11 Prehearing Conference State of Pacific Gas and Electric (Prehearing Statement), June 6, 2008, at 1.
12 Id. at 4.
13 Id. at 5.
14 Id. at 4.
15 Id. at 6-7.
16 Hercules, a party to the proceeding, did not sign the stipulation and has not been active in the proceeding.
17 Stipulation of Facts and Other Matters (August 14, 2008).
18 Id.
19 Id.
20 ALJ Ruling Modifying the Procedural Schedule, August 29, 2008.
