4. Discussion
The Joint Applicants have the burden to demonstrate that circumstances warrant an exemption from the ATRs. D.97-12-088 and D.98-08-035 originally adopted the ATRs governing the relationship between Commission-jurisdictional energy utilities and their affiliates, as noted by DRA, the Commission has previously provided few and cautious exemptions to the ATRs that govern the relationship between California's regulated utilities and their non-regulated affiliates. DRA stated that the ATRs set transparencies and processes important to the well-being of California ratepayers.
Based on the Joint Utilities' showing, we conclude that they have met their burden of proof. In view of the potential ratepayer benefits derived through the activities of the STARS Alliance, we conclude the Joint Utilities' request for limited exemptions from the ATRs is reasonable and should be granted, subject to the adopted conditions outlined below. As the basis for our conclusion, we summarize the purpose of each rule for which Joint Utilities seek limited exemptions, noting the claimed problems or inefficiencies each rule would entail in connection with the STARS Alliance. We also consider how the requested exemptions will provide a suitable remedy. Based on this analysis, we thus grant the Applicants' request for a limited exemption from specified ATR rules, as identified and discussed below.
4.1. Affiliate Transaction Rules Subject to Limited Exemption
4.1.1. No Preferential Treatment Regarding Provision of Services (Rule III.A.)
Rules III.A.1. and 2., in pertinent part, provide that "a utility shall not represent that, as a result of the affiliation with the utility, its affiliates or customers of its affiliates will receive any different treatment by the utility than the treatment the utility provides to other, unaffiliated companies" nor "provide its affiliates any preference (including but not limited to terms and conditions, pricing, or timing) over non-affiliated suppliers or their customers in the provision of services provided by the utility."
An exemption from these rules is needed because the Joint Utilities will treat the STARS Alliance members differently from other unaffiliated companies that do not have the same interest or purpose. Given the shared characteristics of the STARS Alliance members, the Joint Utilities do not expect that they could receive from unaffiliated companies the reciprocal benefits they expect to receive from other STARS Alliance members. Without this exemption from the Rules, the Joint Utilities will not be able to engage in transactions contemplated under the STARS Alliance relating to the sharing of employees, best practices and other information and equipment under mutually beneficial terms for the STARS Alliance members.
We conclude this exemption will not disadvantage other market participants nor result in customer harm. The preferential treatment will benefit the Joint Utilities' customers to the extent that the preferential treatment is intended to reduce operating costs and improve safety at the Joint Utilities' nuclear units. The reciprocal sharing of employees and information will be limited to the members of the STARS Alliance who have a common interest and who will mutually benefit from this exchange.
4.1.2. Contemporary Provision of Supply, Capacity, Services, or Information (Rule III.B.2.)
Rule III.B.2., in pertinent part, provides that "[i]f a utility provides supply, capacity, services, or information to its affiliate(s), it shall contemporaneously make the offering available to all similarly situated market participants, which include all competitors serving the same market as the utility's affiliates."
The Joint Utilities envision the potential sharing of personnel, parts, equipment, tools, information and expertise which would be reciprocal among the STARS Alliance's members. Given the composition of the STARS Alliance's members and the fact that the STARS Alliance does not intend to be a for-profit enterprise, the Joint Utilities expect that the reciprocal sharing of supply, capacity, services, or information likely would not be beneficial if undertaken with entities outside of the Alliance.
We agree that the requested exemption is reasonable. STARS Alliance members' receipt of information or services would only be in the context of the Alliance and not for the purpose of providing a competitive advantage by means of such information or services. As such, there is no need to provide such information to other "market participants," given that any cost saving achieved as a result of STARS Alliance activities will flow back to the Joint Utilities' respective customers.
4.1.3. Processing Requests for Services Provided by the Utility (Rule III.B.6.)
Rule II.B.6. requires a utility to "process requests for similar services provided by the utility in the same manner and within the same time for its affiliates and for all other market participants and their respective customers."
We agree that exemption from this rule is appropriate in order to achieve the benefits of the STARS Alliance. The Joint Utilities will be providing specialized services only to other STARS Alliance members, and thus will not be offering these services to other potential market participants (if any). Because the other market participants are typically large fleet operators of nuclear plants, they are not disadvantaged by the Joint Utilities providing certain nuclear related services and support to STARS Alliance on a preferential basis. The Joint Utilities' customers receive any benefits generated from this preferential access to utility services provided to the STARS Alliance members.
4.1.4. Restrictions on Information Provided to Utility Affiliates (Rules III.E., IV.B., and IV.D.)
We agree that the restrictions imposed by Rules III.E., IV.B., and IV.D. would significantly reduce, if not fully eliminate, the Joint Utilities' customers benefits received from the STARS Alliance. Rule III.E. lists various restrictions on a utility's ability to share information with its affiliates. Several of these prohibitions pose impediments for transactions between STARS Alliance and the Joint Utilities, including the prohibition against: (1) providing leads to an affiliate; (2) acquiring information for affiliates; and (3) sharing market analyses and other proprietary reports with an affiliate.
The Joint Utilities also seek an exemption from Rule IV.B. to the extent it would apply to transactions between the STARS Alliance and the Joint Utilities. Rule IV.B. permits a utility to "make non-customer specific non-public information including, but not limited to information about a utility's natural gas or electricity purchases, sales, or operations or about the utility's gas-related goods or services and electricity related goods or services, available to the utility's affiliates only if the utility makes that information contemporaneously available to all other service providers on the same terms and conditions, and keeps the information open to public inspection." The Rule provides a limited exemption and allows the non-public information to be shared with an affiliate on a preferential basis if the affiliate's use of such information is "in conjunction with the permitted corporate support services, and is not permitted for any other use."
To the extent that Rule IV.B. would require the Joint Utilities to keep non-public information provided to the STARS Alliance "open to public inspection," this is contrary to idea that non-public information should be protected and that customers may be harmed by the release of such information.
Rule IV.D. requires written authorization from any unaffiliated supplier prior to providing any non-public information about the supplier to the STARS Alliance. As discussed above, one of the STARS Alliance's primary objectives is to discover or develop opportunities for joint procurement of nuclear related products and services. The Joint Utilities may, in the ordinary course of their business, acquire information regarding nuclear products or services that the Joint Utilities would want to provide to the STARS Alliance for the purposes of a joint procurement. To maximize the benefits and expertise that the STARS Alliance may provide to the Joint Utilities, the Joint Utilities should be able to provide such "leads" and other information, including proprietary information, about the nuclear goods and services, as well as related markets, to STARS Alliance without restriction. Accordingly, we grant the Joint Utilities' request for this limited exemption from Rule III.E.
With respect to Rule IV.D., the terms and conditions of the Joint Utilities' release of suppliers' non-public information to the STARS Alliance will vary and may or may not require an exemption. Rather than adhering to an inflexible rule, the Joint Utilities should be permitted to release such information to the STARS Alliance pursuant to the terms and conditions they have negotiated with suppliers.
One of the significant benefits of the STARS Alliance is the free flow of information about best practices, supplies and other aspects of nuclear plant operations. The Joint Utilities envision that, in some instances, this may involve the need for STARS Alliance members to share non-public information with another STARS Alliance member. Absent this sharing of information, the Joint Utilities may not benefit from being members of the STARS Alliance.
Non-public nuclear operations information is currently only shared under very limited circumstances. Thus, withholding such information from other potential market participants should not negatively impact the market. Absent the Joint Utilities' ownership in the STARS Alliance, the Joint Utilities could provide nonpublic information to any member of the STARS Alliance, protected through a nondisclosure agreement. Given that the STARS Alliance is to be a support entity for the Joint Utilities and not a for-profit affiliate at the holding company level, exemption from specific ATRs is appropriate.
4.1.5. Sharing of Plant, Facilities, Equipment or Costs, Personnel, and Joint Purchases (Rules V.C. through V.E.)
Rule V.C. precludes a utility from sharing office space and equipment, and information systems with an affiliate. Rule V.D. prohibits the joint purchase of goods and services associated with the traditional utility merchant function. Rule V.E. permits a utility to share personnel with its affiliates as long as the "shared support [is] priced, reported and conducted in accordance with the Separation and Information standards as well as other applicable Commission pricing and reporting requirements."
We agree that without exemption from these Rules, the STARS Alliance could not function as envisioned or achieve its objectives. As indicated previously, the STARS Alliance envisions the sharing of personnel, parts, equipment, tools, and expertise among its members.
An employee of a STARS Alliance member may be "loaned" to one of the Joint Utilities. To the extent that such an employee is considered to be a staff of the STARS Alliance, the Joint Utilities will likely need to provide this employee office space, equipment, etc. Also, the pricing of the loaned employee (hourly rate, overtime rate, and per diem rate) will be determined based upon a mutual agreement between the affected STARS Alliance members. In addition, many of the services that the STARS Alliance members will be sharing go beyond the types of shared support allowed in Rule V.E. and may include engineering and system operations as they relate to nuclear power plant operations.
The STARS Alliance envisions the joint procurement of goods and services to replicate the same economies of scale enjoyed by large fleet nuclear utilities with operating reactors at multiple sites. Unless exempted, the envisioned joint procurements associated with the utility merchant function would be prohibited by Rule V.D. Such joint procurement of goods and services should result in lower costs to customers to the extent the Joint Utilities will be able to replicate the economies of scale enjoyed by larger fleet nuclear utilities. Since 100% of the net cost savings generated by the STARS Alliance for the Joint Utilities will flow to their respective customers, any monetary savings achieved as a result of the Joint Utilities' participation in the STARS Alliance will benefit retail customers.
Rule V.F. sets forth various requirements to eliminate customer confusion regarding the utility and its affiliates. While the STARS Alliance will not be marketing its services to retail customers or companies beyond its members, exemption from Rule V.F. will help minimize STARS Alliances compliance costs. For example, Rule V.F.1. requires that a disclaimer be used if an affiliate uses the utility's name or logo in materials that it distributes within California. There may be circumstances where STARS Alliance identifies its member companies in materials that are distributed within California. Without an exemption from Rule V.F., the STARS Alliance will need to make sure that it complies with the disclaimer requirements. Because the STARS Alliance will not be selling or offering its services beyond its members, there is no need to worry about customers being potentially confused on the relationship between STARS Alliance and the Joint Utilities.
4.1.7. Proscription against Joint Employees and Officers (Rule V.G.)
Rule V.G. provides that "a utility and its affiliates shall not jointly employ the same employees." This Rule prohibiting joint employees also applies to corporate officers except in certain limited circumstances. For the reasons discussed above, the Joint Utilities requests an exemption from this Rule to enable the Joint Utilities' employees to work temporarily or on an on-going basis for the STARS Alliance. One of the primary objectives of the STARS Alliance is the sharing of employees on a temporary basis. Without an exemption from Rule V.G., the Joint Utilities will not be able to reciprocate in kind when other members lend them employees.
Without an exemption to this rule, the Joint Utilities would likely not be able to participate in the STARS Alliance as equity owners. Rule V.G. does not restrict the Joint Utilities from benefiting from the expertise of employees from other STARS Alliance members who are loaned to the Joint Utilities. However, if the Joint Utilities cannot reciprocate and share their employees and their expertise with other STARS Alliance members, the fundamental purpose of an "alliance" will not be met.
Employees or officers of the Joint Utilities may be asked to be officers of STARS Alliance to provide governance of the LLC. Without an exemption from Rule V.G., officers of the Joint Utilities would be prohibited from being officers of STARS Alliance. In addition, limiting employees' time working for STARS Alliance to no more than 30% of their chargeable time in a calendar year as set forth in Rule V.G.2.e, may also diminish the benefits of the STARS Alliance. Given the reciprocal sharing of employees and the pricing for such sharing, the Joint Utilities' customers would benefit from the mutual sharing of employees between STARS Alliance members.
4.1.8. Pricing of Services between Utilities and STARS Alliance (Rule V.R.5. through V.R.6.)
Rule V.H.5. requires that the transfer of services from the utility to the affiliate be priced at "fully loaded cost plus 5% of direct labor costs." Rule V.H.6. requires that transfers of services from the affiliate to a utility be priced at the "lower of fully loaded cost or fair market value." In both of these cases, the Joint Utilities seek an exemption because they believe that any such transfer (either from the utility to STARS Alliance or STARS Alliance to the utility) should be "at cost" and not at "[f]ully loaded cost" (Section Rule V.H.6.) or "[f]ully loaded cost plus 5% of direct labor cost." Also, the pricing of the loaned employee (hourly rate, overtime rate, and per diem rate) will be determined based upon a mutual agreement between the affected STARS Alliance members. Finally, given the reciprocal nature of the sharing of ideas and employees among the STARS Alliance members, their customers should not be harmed by granting an exemption from Rules V.H.5. and V.H.6. The Joint Utilities expect that they will be both providing and receiving resources from the STARS Alliance or its members.
4.2. Conditions on Approval of the Application
We conclude that the conditions adopted in D.05-09-006, as summarized previously, provide an appropriate framework for conditions applied in approving the Joint Utilities' application here. These conditions will provide assurance that any savings in costs of service resulting from the Joint Utilities' participation in the STARS Alliance are accurately tracked and reported in the ERRA proceedings. In addition, the adopted conditions will provide for customers to receive all of these cost savings through reductions in their rates.
In their application, the Joint Utilities included, as Appendix A, a proposed template for reporting cost savings associated with STARS Alliance activities based upon a format approved in D.05-09-006. In its protest to the application, DRA had recommended that the Joint Utilities expand and improve the reporting template as originally submitted. On February 17, 2012, the Joint Utilities submitted a revision to their reporting template. The Joint Utilities represented that DRA agreed that the revised template satisfies DRA's concerns, and is flexible enough to allow for adjustments in the future as the Commission deems necessary.
We agree with parties' consensus that the amended version of the reporting template, as set forth in Appendix A of the amended application, provides a suitable basis for reporting and tracking cost savings in connection with the STARS Alliance.
DRA, in its protest, also initially suggested that the applicants' GRC filings may be the best proceeding to incorporate the reporting requirements associated with nuclear operation and maintenance cost savings impacts of STARS Alliance activities. The Joint Utilities, however, argue that the ERRA proceeding is the more appropriate place to submit reports on STARS Alliance activities for Commission review. The information provided in GRC applications generally relate to costs forecast for a future test year.
We agree with the Joint Utilities. The STARS Alliance cost savings report will provide a retrospective estimate of costs that were avoided as a result of STARS Alliance activities. Such retrospective review is typically performed in annual ERRA filings.
We thus adopt the following requirements that the Joint Utilities must meet as conditions of approval of the limited exemptions from the ATRs, as requested. These adopted conditions are as follows:
· The Joint Utilities shall report in their respective annual ERRA applications the respective activities and operating costs associated with the interaction between them and the STARS Alliance. The reporting form shall follow the format set forth in Appendix A of this decision;
· The Joint Utilities' respective customers shall receive 100% of any net cost savings generated by the STARS Alliance for the Joint Utilities;
· The Joint Utilities' respective customers shall receive the Joint Utilities' share of any net proceeds on the sale or dissolution of the STARS Alliance, except to the extent that the Joint Utilities had infused capital for which they had not sought recovery (if any);
· Upon issuance by the DOJ of its Business Review Letter, the Joint Utilities shall provide the Commission a copy of any anti-trust safe harbor ruling for the STARS Alliance; and
· Using the reporting form in Appendix A of the this decision, the Joint Utilities shall include information on any activities undertaken outside the scope of the STARS Alliance's general purposes so that the Commission can monitor the full impact on customers of the Joint Utilities' participation in the STARS Alliance.
