3. Issues Before the Commission

The issues before the Commission and addressed in the briefs include:

We will present the position of parties on each of these issues and resolve each issue in turn.

3.1. Should this Decision Include Language Permitting the Parties to Petition to Modify the Decision in the Event of New Facts?

As noted above, Point 3 of the Stipulation preserves the right of each party "to seek to modify the decision ..." in the event that "facts are developed that indicate that PG&E has previously collected some or all of the $46.9 million in rates prior to this application ..."26

DRA specifically "requests that the Commission adopt this provision in its decision."27 DRA argues that:

The Commission should protect ratepayer [sic] if later facts come to light which demonstrate that PG&E has indeed collected or [sic] all of the $34.8 million for hydro valuation expenses. If PG&E is wrong and has collected such funds in rates, no finality doctrine should preclude the Commission from modifying its decision accordingly and directing a refund to ratepayers.28

PG&E, in response, states that it "agrees with DRA's conclusions, including DRA's recommendation that the Commission's decision adopt the `newly discovered facts' portion of the parties' August 14, 2008, stipulation of facts and other matters."29

We note that the Commission's Rules of Practice and Procedure (Rules) permit the filing of a petition to modify a decision when new facts come to light.30 Our rules, however, state:

(d) Except as provided in this subsection, a petition for modification must be filed and served within one year of the effective date of the decision proposed to be modified. If more than one year has elapsed, the petition must also explain why the petition could not have been presented within one year of the effective date of the decision. If the Commission determines that the late submission has not been justified, it may on that ground issue a summary denial of the petition.31

This section of the Rules indicates that the Commission's longstanding process permits the reopening of a proceeding when new facts come to light - even after the passage of a year - as long as the petitioner explains why the petition "could not have been presented within one year..."32 Thus, we see the request for inclusion of the language contained in Point 3 of the Stipulation in this decision as broadly consistent with Commission rules and practices.

We do not, however, waive the requirement that a petition explain "why the petition could not have been presented within one year of the effective date of the decision."33 We believe that this requirement will ensure timely action by concerned parties whenever a new fact does come to light while still enabling the Commission to protect the interests of ratepayers.

Finally, we note that the stipulation makes it clear that no evidence has been uncovered that leads us to question D.03-02-028's determination that the costs preparing for sale, appraisal or divestiture of the hydroelectric facilities are reasonable. Moreover, there is no evidence indicating that PG&E has already collected any portion of these funds.

3.2. What is the appropriate ratemaking treatment for the recovery of the costs deemed reasonable in D.03-02-028?

Since the costs incurred by PG&E in preparing for the sale, appraisal or divestiture of the hydroelectric generation facilities were deemed reasonable in D.03-02-028, then the Commission must determine whether the ratemaking treatment proposed for the recovery of these costs is also reasonable and consistent with the law. Specifically:

PG&E requests that it be authorized to transfer the balance from the Costs Deemed Reasonable subaccount of the Generation Divestiture Transaction Cost Memorandum Account (GDTCMA) (including interest at the 90-day commercial paper rate calculated from the date of this Application to the date of transfer plus franchise fees and uncollectibles) to the Modified Transition Cost Balancing Account (MTCBA) for recovery in rates as part of PG&E's 2009 Annual Electric True-up advice letter.34

This action would enable PG&E to recover the costs incurred by PG&E through a non-bypassable surcharge imposed on all electricity customers.

In support of this request, PG&E argues that the Commission has already decided this matter in D.03-02-028. PG&E states:

This issue has been decided previously by the Commission, in D.03-02-028 and other Annual Transition Cost Proceedings authorizing recovery of AB 1890-related restructuring and market valuation costs incurred under the mandates of AB 1890 in general and Public Utilities Code section 367 specifically. The Commission stated in D.03-02- 028, "PG&E requests authority to recover $34.8 million costs associated with the planned divestiture/market valuation of PG&E's hydroelectric generation facilities. Pub. Util. Code Section 367(b) requires the Commission to market value the utilities' generation assets not later than December 31, 2001, and directs that the Commission determine the market value `based on appraisal, sale, or other divestiture.'" (D.03-02-028, pp. 8-9.) The Commission went on to conclude that "We find that PG&E's transition cost expense of $34.8 million is reasonable. It represents the cost of preparing for sale, appraisal or divestiture properties which include 110 generating units, 99 reservoirs, 174 dams, 184 miles of canals, 44 miles of flumes, 19 miles of pipe, 5 miles of natural waterways, and 136,000 acres of land owned in fee." (Id., p. 19.)35

Therefore, PG&E argues that these costs are "competitive (sic) transition costs." PG&E then asserts that:

Public Utilities Code section 367 expressly requires and authorizes CTCs to be recovered from "all customers...on a non-bypassable basis," (emphasis added), and PG&E's proposed allocation is fully consistent with that statutory requirement. Said another way, to do otherwise as the Districts recommend would violate the statutory requirements of the Public Utilities Code that all customers share responsibility for CTCs.36

DRA views these costs as transition costs and supports the recovery of these costs as proposed by PG&E. DRA argues:

... parties for whom transition costs were used must pay these costs, regardless of their current status as utility customers. DRA suggests that it is both fundamentally fair and meets with the intent of California law.37

The Districts, however, argue that the costs incurred by PG&E do not qualify as transition costs and should not be collected as proposed by PG&E. The Districts argue:

Transaction costs incurred in preparation for the sale, appraisal, or divestiture of generating facilities are not among the costs listed in section 367(a) [of the Cal. Pub. Util. Code] and PG&E's Preliminary Statement Part CQ. [Emphasis in original.]

The Districts argue further that these costs are not eligible for recovery through the non-bypassable surcharges used to recover CTC. In support of this argument, the Districts further argue that D.03-02-028 did not determine that the costs "incurred in preparation for the sale, appraisal, or divestiture of generating facilities are eligible for recovery as CTC."38 In particular, the Districts state:

If the Commission had previously authorized the recovery of the costs at issue here as CTC, there would be no need for the Application.39

Furthermore, the Districts argue that § 367(a) "specifies only six categories of transition costs that can be collected after December 31, 2001."40 The Districts review the statute and argue that these costs "are not among the costs listed in section 367 (a) ..."41 In addition, the Districts also argue that these costs "may not be recovered as pre- ... December 31, 2001 CTC." Finally, the Districts argue that PG&E's use of the cost allocation methodology adopted as part of settlement approved in D.07-05-026 "is not a precedent."42

PG&E replies that the costs in this proceeding are clearly transition costs, arguing that "[a]s the Commission's earlier decision in this proceeding recognized, the transaction costs associated with the sale, appraisal or divestiture of PG&E's generation assets have always been recognized as `transition costs' to be recovered from any proceeds of the sale or divestiture and the net gain or loss credited or debited to the Transition Cost Balancing Account."43 PG&E argues that "[t]he only reason that D.03-02-028 deferred authorizing rate recover for the costs was because of the Commission's concern about the effects of future divestiture of the hydroelectric plants after ABX1 6 expired in 2006."44

We find that the costs deemed reasonable in D.03-02-028 are indeed transition costs. First, we note that although D.03-02-028 did not include a finding of fact on this issue, the dicta demonstrate that the Commission viewed these costs to be transition costs. Specifically, D.03-02-028 states "[w]e find that PG&E's transition cost expense of $34.8 million is reasonable."45

Second, even if there were no dicta indicating that D.03-02-028 determined that these costs were transition costs, they clearly are. Specifically, these costs were incurred pursuant to § 367(a), which orders the Commission to calculate and determine the uneconomic costs associated with generation facilities "that may become uneconomic as a result of a competitive generation market."46 This determination by the Commission required that PG&E take the steps to prepare for a sale of its hydroelectric facilities, and these actions were deemed reasonable in D.03-02-028.

We also find it reasonable to recover these costs through a non-bypassable surcharge as proposed by PG&E. D.07-05-026 adopted an identical method for recovering the revenue requirement that resulted from a settlement agreement. We note that the Commission, in approving the settlement, found that the recovery of the settlement amounts through a CTC surcharge was "consistent with law."47 If there were merits to the Districts' argument that there is no statutory basis to permit recovery of this transition cost through a non-bypassable surcharge, then this previous Commission action would not be "consistent with the law."

The Districts are right to point out that a settlement agreement is non-precedential. Our decision today does not use the settlement terms as a precedent to guide our action. We do, however, note that the approval of the settlement by the Commission necessitates that the Commission find the terms of the settlement, including the collection of the costs through a CTC surcharge, "consistent with the law." Our decision today repeats that finding - the surcharge mechanism proposed by PG&E is consistent with the law.

As a result, we find it is reasonable and consistent with the law for PG&E to transfer the balance from the Costs Deemed Reasonable subaccount of the GDTCMA (including interest at the 90-day commercial paper rate calculated from the date of this Application to the date of transfer plus franchise fees and uncollectibles) to the MTCBA for recovery in rates as part of PG&E's next Annual Electric True-up advice letter.

3.3. Will PG&E's Recovery of these Costs at this Time Pose an Unacceptable Risk of Future Double Recovery?

The Districts argue that "PG&E's proposed disposition of the remaining hydroelectric costs creates a substantial risk of inappropriate double recovery."48 The Districts note that its argument "relates to the potential for future double recovery and not to the type of past recovery issues addressed in Paragraphs 2 and 3 of the Stipulation."49

In response, DRA argues that:

Nothing in the record shows that such a sale is likely to occur soon. If and when that occurs the Commission can take into account any double recovery in allocation of gains on sale between shareholders and ratepayers.50

PG&E notes that the "CPUC `gain on sale' ratemaking and accounting criteria would preclude double recovery."51

We do not see an unacceptable risk of the double recovery of these costs in the event that PG&E, at some future date, disposes of its hydroelectric generation assets through a sale. Like DRA, we believe that such a future sale is unlikely. Moreover, given current research technologies, a participant in such a future Commission proceeding promoting the interests of ratepayers would surely bring to the attention of the Commission this decision and the fact that PG&E has already recovered from ratepayers some of the costs that preparing for such a sale would require.

21 DRA Opening Brief at 3.

22 DRA Opening Brief at 4. PG&E Opening Brief at 3.

23 Districts Opening Brief at 4.

24 Districts Opening Brief at 2; PG&E Opening Brief at 2.

25 Districts Opening Brief at 6.

26 Stipulation of Facts and Other Matters (August 14, 2008).

27 DRA Opening Brief at 3.

28 Id.

29 PG&E Reply Brief at 1.

30 Rules of Practice and Procedure, Section 16.4.

31 Id. at Section 16.4(d).

32 Id.

33 Id.

34 Application at 2.

35 PG&E Opening Brief at 2.

36 PG&E Opening Brief at 4.

37 DRA Opening Brief at 4.

38 Districts Opening Brief at 4.

39 Id.

40 Id. at 3.

41 Id. In footnote 15, the Districts state that they "are concerned that CTC, as conceived by PG&E, will continue well past the period the Legislature authorized to recover stranded costs that might result from the transition to a competitive generation market." The Districts note that they have raised this issue in PG&E's A.08-06-011, commonly known as the 2009 ERRA proceeding.

42 Id. at 5.

43 PG&E Reply Brief at 2.

44 Id.

45 D.03-02-028 at 19, emphasis added.

46 Pub. Util. Code § 367(a).

47 D.07-05-026, Conclusion of Law 1, at 10.

48 Districts Opening Brief at 6.

49 Id. at 7, footnote 26.

50 DRA Reply Brief at 2-3.

51 PG&E Reply Brief at 1, footnote 1.

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