The Vegetation Management Balancing Account

PG&E, ORA, and Aglet agree that for the two-year period 1999-2000, PG&E spent approximately $22.8 million less on vegetation management expenses than the Commission included in PG&E's distribution revenue requirement in the 1999 GRC decision. They dispute how best to handle the VMBA overcollection. PG&E recommends that we credit the VMBA overcollection to the TRA. ORA and Aglet recommend that the VMBA overcollection be refunded directly to ratepayers.

In D.00-02-046, we described our regulatory objective for creating the VMBA:

"Beginning with 1999, the VMBA will collect authorized revenues and actual vegetation management expense, and will true-up these amounts annually to the extent the authorized revenues exceed expense. In this way, ratepayers will not be harmed if the estimates we adopt as reasonable for 1999 prove to be imprecise. (Emphasis added.) (D.00-02-046 at p. 148.)

The distribution revenue requirement adopted in the 1999 GRC includes the approved vegetation management expenses. In both 1999 and 2000, PG&E recorded that revenue requirement in the TRA. In 1999 and 2000, PG&E also recorded the authorized revenue requirement and the actual expenditures for vegetation management in the VMBA.

PG&E proposes to true-up both the VMBA and the TRA by crediting the underexpenditures from the VMBA to the TRA. PG&E argues that the effect of its proposal to reduce the TRA is to true-up the GRC revenue requirement, so the distribution revenue requirement recovers only actual vegetation management expenditures. The revenue requirement component of the distribution rate ends up being exactly the same as recorded expenditures. Thus, ratepayers are not harmed by the estimates adopted in the GRC. PG&E says this approach is fair to both ratepayers and shareholders. Under the rate freeze, which was in effect in both 1999 and 2000, ratepayers did not see an overall increase to their rates and bills when the Commission adopted the 1999 GRC revenue requirement, which included the vegetation management expenses. Therefore, they should not receive a one-time refund or credit on their bills due to a reduction to the GRC increase.

ORA takes no exception to the costs recorded in the account. However, ORA takes issue with PG&E's recommendation to transfer the balance into the TRA, which currently has an undercollection associated with energy purchases of $6.5 billion. ORA notes that there are several proceedings before this Commission that are litigating energy cost issues. Those proceedings will decide whether or not the utilities' ratepayers will have to absorb any or all of those energy costs. PG&E's proposed method of disposition of the underspent vegetation management expenditure dollars therefore amounts to PG&E's requesting recovery of $22.8 million of its approximately $6.5 billion in energy costs.

Rather than using underspent tree-trimming dollars to offset energy costs, ORA recommends that these savings be refunded to customers thereby holding them harmless in the manner intended by the Commission. ORA argues that this unusual one-way balancing account was adopted only after a pattern of years of underspending the authorized amounts for electric distribution maintenance, of which tree trimming is a major component, and a finding by the Commission that PG&E's maintenance practices during this period were deficient. (D.00-02-047, pp. 132, 133.) In ORA's view, this balancing account was adopted, at least in part, to avoid a recurrence of the practice whereby funds earmarked for one purpose, are used for some other purpose. A refund protects ratepayers from having monies earmarked for the purpose of tree-trimming being funneled off to reduce energy costs.

Aglet also supports refunding the balance to ratepayers. Aglet recommends accomplishing this by adding a provision to the Electric Deferred Refund Account, or through one-time bill credits. ORA supports this recommendation.

ORA and Aglet argue that because PG&E spent $22.8 million less than authorized ratepayers are harmed if that $22.8 million is not refunded to them. This is not persuasive. Throughout the period when the vegetation management account was in issue, rates have been frozen. While emphasizing vegetation management in the GRC, the Commission neither increased rates nor changed rates. Even if the Commission had done nothing in the GRC regarding vegetation management, rates would have been exactly the same. PG&E also spent less than authorized in other accounts, but no party suggests a refund in those accounts. Merely because we put special emphasis on vegetation management does not make the account subject to refund. Ratepayers did not pay one dollar more when vegetation management costs were forecast in rates; there is nothing to be refunded. PG&E's accounting method is correct. We clarify that the balance in the vegetation management account should apply to the TRA on a prospective basis and should not apply to past TRA undercollections.